Re: Am I missing something here about planning for retirement???

"Viking" <> wrote
> Pundits say to expect only 7% return from the market these years. OK.
> Inflation runs at, say, 3.5% (a low estimate given what's happening to
> oil). OK, that leaves a return of 7% - 3.5% = 3.5%. Say taxes and fees
> (broker/fund/etc) take part of that, leaving your yield at 3%.
>
> So say that you want to invest for retirement, and can put away $500
> a month, or $6,000 a year. OK. Say you decide you'll need $1,000,000
> in today's dollars to retire. OK, that means you should use the
> inflation-adjusted annual return of 3% to get there.

So crude ballpark, you're figuring about $30k of income each year from the
$1,000,000. This is without even dissolving principal.

> So how long will it take before you can retire?
snip
> That's 42 years, if you can invest $1,000 a month, which most people
> can't. How many people do you know who invest $1,000 a month for
> retirement?

If one is planning on living on $30k a year in retirement, then it seems
reasonable to assume s/he is making at least $42k a year (on average) while
working (stuffing $12k into retirement plans, and using the rest to live
on).

It doesn't take much effort to make $42k a year (on average over one's
lifetime) these days, if one wants to retire after say about 40 years of
employment.

> So tell me: is the market way a bust as far as saving for retirement
> goes for the vast majority of people??? Am I missing something? How
> are people going to be able to retire?

You're not considering what sort of average lifetime income is consistent
with retiring on an income of $30k a year.

Again, just crude ballpark numbers, especially since we're not dipping into
principal.

What's important is to calculate one's budget today. Does one need $30k a
year on which to live right now? Will that change in the future? If it's
likely going to be $30k (inflation adjusted) or more forever , better get a
job that pays at least $42k a year (or will soon).

If one needs less, then get a lower paying job and invest according to what
one expects to need in retirement.

Etc.

Lemme know if you want to see some retirement calculators online that let a
person put in their own inflation and annual return expected numbers, so as
to see what sort of nest egg one needs to retire.

Re: Am I missing something here about planning for retirement???

> "Viking" <> wrote
> > Pundits say to expect only 7% return from the market these years. OK.
> > Inflation runs at, say, 3.5% (a low estimate given what's happening to
> > oil). OK, that leaves a return of 7% - 3.5% = 3.5%. Say taxes and fees
> > (broker/fund/etc) take part of that, leaving your yield at 3%.

Markets return a premium over inflation. That premium measures in at about
6.75% over inflation, averaged over time.

You're correct that pundits expect domestic equities to come in short of
that figure over the next couple of decades. However, part of that is
because they expect international equities (primarily Pac-Asian and Emerging
Markets) to exceed it. So, diversification with an eye to international
investments has the potential of "righting the ship" and bringing a
broad-based equity portfolio back to its normal premium over time.

I can recommend Jeffrey Siegel's The Future for Investors, for a detailed
treatment of this topic. Suffice to say that he's doesn't have as gloomy an
outlook as you portray.

Mike


> >
> > So say that you want to invest for retirement, and can put away $500
> > a month, or $6,000 a year. OK. Say you decide you'll need $1,000,000
> > in today's dollars to retire. OK, that means you should use the
> > inflation-adjusted annual return of 3% to get there.
>
> So crude ballpark, you're figuring about $30k of income each year from the
> $1,000,000. This is without even dissolving principal.
>
> > So how long will it take before you can retire?
> snip
> > That's 42 years, if you can invest $1,000 a month, which most people
> > can't. How many people do you know who invest $1,000 a month for
> > retirement?
>
> If one is planning on living on $30k a year in retirement, then it seems
> reasonable to assume s/he is making at least $42k a year (on average)
while
> working (stuffing $12k into retirement plans, and using the rest to live
> on).
>
> It doesn't take much effort to make $42k a year (on average over one's
> lifetime) these days, if one wants to retire after say about 40 years of
> employment.
>
> > So tell me: is the market way a bust as far as saving for retirement
> > goes for the vast majority of people??? Am I missing something? How
> > are people going to be able to retire?
>
> You're not considering what sort of average lifetime income is consistent
> with retiring on an income of $30k a year.
>
> Again, just crude ballpark numbers, especially since we're not dipping
into
> principal.
>
> What's important is to calculate one's budget today. Does one need $30k a
> year on which to live right now? Will that change in the future? If it's
> likely going to be $30k (inflation adjusted) or more forever , better get
a
> job that pays at least $42k a year (or will soon).
>
> If one needs less, then get a lower paying job and invest according to
what
> one expects to need in retirement.
>
> Etc.
>
> Lemme know if you want to see some retirement calculators online that let
a
> person put in their own inflation and annual return expected numbers, so
as
> to see what sort of nest egg one needs to retire.
>
>