Is saving/investing actually a crappy way to get rich?

[Anonymous]

Anonymous wrote:I was just running some numbers in an investment calculator and, frankly, they’re a little depressing. I’m in my early 30s, single, and have finally gotten my income to the point that I make $210K, am debt-free, and I’m able to save $100K per year.

Even saving at that level, which seems like a huge amount, I have to work for decades and would still have to live a modest lifestyle if I retire semi-early.

In the calculator, I assumed 8% returns, 3% inflation, and a 15% tax rate on my investments. With those assumptions, $100K per year invested for 20 years becomes $2.36M in today’s dollars (it’s almost $5M in nominal terms, but of course, that means nothing).

Using the 3% rule at that time, that means I can pull out about $70K per year to live on, which is not that much more than I currently spend trying to live a frugal lifestyle and stack my investments heavily. And of course, that assumes that I stay in relatively good health so I can afford my own insurance and medical bills before Medicare. Throw kids into the picture, and thoughts of early retirement would be over.

I don’t know – that seems kind of…underwhelming. I guess I always thought that saving $100K would be a fast track to riches. But now, more and more, it seems like you really need exorbitant incomes or significant risk-taking/entrepreneurship to be able to live a really good life at a relatively young age. Am I out of touch here? Missing something? Thoughts?

I think what you're doing feels underwhelming because you're heavily restricting yourself to just save 100K so essentially you're suffering for 20 years for barely any outcome.

But also, your math is wrong. You end up with 3.4M after accounting for inflation. Further, accounting for 15% capital gains means that, you take out 4% of 3.4M (136K), but you'll only see 85% of it (115K).

Not sure what you did for your math. Did you assume that you'd be paying capital gains every year or something? You only pay capital gains when you sell, which I assumed would only happen at the time of you actually withdrawing the funds.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Wait, you’re saving $100k per year, how many years of that did you put into your calculator?

He said 20 years.

Why do you think OP is a he?

Yes, I'm a "he," but that's irrelevant.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I was just running some numbers in an investment calculator and, frankly, they’re a little depressing. I’m in my early 30s, single, and have finally gotten my income to the point that I make $210K, am debt-free, and I’m able to save $100K per year.

Even saving at that level, which seems like a huge amount, I have to work for decades and would still have to live a modest lifestyle if I retire semi-early.

In the calculator, I assumed 8% returns, 3% inflation, and a 15% tax rate on my investments. With those assumptions, $100K per year invested for 20 years becomes $2.36M in today’s dollars (it’s almost $5M in nominal terms, but of course, that means nothing).

Using the 3% rule at that time, that means I can pull out about $70K per year to live on, which is not that much more than I currently spend trying to live a frugal lifestyle and stack my investments heavily. And of course, that assumes that I stay in relatively good health so I can afford my own insurance and medical bills before Medicare. Throw kids into the picture, and thoughts of early retirement would be over.

I don’t know – that seems kind of…underwhelming. I guess I always thought that saving $100K would be a fast track to riches. But now, more and more, it seems like you really need exorbitant incomes or significant risk-taking/entrepreneurship to be able to live a really good life at a relatively young age. Am I out of touch here? Missing something? Thoughts?

I think what you're doing feels underwhelming because you're heavily restricting yourself to just save 100K so essentially you're suffering for 20 years for barely any outcome.

But also, your math is wrong. You end up with 3.4M after accounting for inflation. Further, accounting for 15% capital gains means that, you take out 4% of 3.4M (136K), but you'll only see 85% of it (115K).

Not sure what you did for your math. Did you assume that you'd be paying capital gains every year or something? You only pay capital gains when you sell, which I assumed would only happen at the time of you actually withdrawing the funds.

Yes, it takes out 15% for taxes every year. It's a basic phone app so it's obviously flawed, but I figure I'll probably be doing some Roth so will be taxed at ordinary income the first year for those. Some brokerage since I want to retire early -- even though I'm only paying taxes on dividends/cap gains, it's 15% plus 8% for MD. Plus, if I factor in a lot of pre-tax contributions, then at early retirement, I have to pay ordinary income tax on my meager $70K of withdrawals. Overall, these are just approximations/back of the napkin numbers.

[Anonymous]

Once your income goes up, you can start investing in more than public equities. We’ve done with in venture funds, private equity and real estate. Also, don’t marry someone who would be a financial drag. From your post, I’d guess that would drive you crazy.

[Anonymous]

The expectation you can work for 20 years and then not work for 30 or 40 off savings from those 20 is a little ridiculous.

It’s also why saving *anything* in your 20s is highly recommended. And why I plan to give my kids a brokerage account with a couple hundred thousand dollars when they graduate college.

[Anonymous]

Anonymous wrote:The expectation you can work for 20 years and then not work for 30 or 40 off savings from those 20 is a little ridiculous.

It’s also why saving *anything* in your 20s is highly recommended. And why I plan to give my kids a brokerage account with a couple hundred thousand dollars when they graduate college.

Looking forward to seeing how fast they drain that.

[Anonymous]

Anonymous wrote:I was just running some numbers in an investment calculator and, frankly, they’re a little depressing. I’m in my early 30s, single, and have finally gotten my income to the point that I make $210K, am debt-free, and I’m able to save $100K per year.

Even saving at that level, which seems like a huge amount, I have to work for decades and would still have to live a modest lifestyle if I retire semi-early.

In the calculator, I assumed 8% returns, 3% inflation, and a 15% tax rate on my investments. With those assumptions, $100K per year invested for 20 years becomes $2.36M in today’s dollars (it’s almost $5M in nominal terms, but of course, that means nothing).

Using the 3% rule at that time, that means I can pull out about $70K per year to live on, which is not that much more than I currently spend trying to live a frugal lifestyle and stack my investments heavily. And of course, that assumes that I stay in relatively good health so I can afford my own insurance and medical bills before Medicare. Throw kids into the picture, and thoughts of early retirement would be over.

I don’t know – that seems kind of…underwhelming. I guess I always thought that saving $100K would be a fast track to riches. But now, more and more, it seems like you really need exorbitant incomes or significant risk-taking/entrepreneurship to be able to live a really good life at a relatively young age. Am I out of touch here? Missing something? Thoughts?

Did you think riches fall from the sky? Basic investments protects against inflation and a little more.

You spend more on yourself than my family of 4 spends.

Are you counting home equity as spending? 401k?

[Anonymous]

Anonymous wrote:

Anonymous wrote:I was just running some numbers in an investment calculator and, frankly, they’re a little depressing. I’m in my early 30s, single, and have finally gotten my income to the point that I make $210K, am debt-free, and I’m able to save $100K per year.

Even saving at that level, which seems like a huge amount, I have to work for decades and would still have to live a modest lifestyle if I retire semi-early.

In the calculator, I assumed 8% returns, 3% inflation, and a 15% tax rate on my investments. With those assumptions, $100K per year invested for 20 years becomes $2.36M in today’s dollars (it’s almost $5M in nominal terms, but of course, that means nothing).

Using the 3% rule at that time, that means I can pull out about $70K per year to live on, which is not that much more than I currently spend trying to live a frugal lifestyle and stack my investments heavily. And of course, that assumes that I stay in relatively good health so I can afford my own insurance and medical bills before Medicare. Throw kids into the picture, and thoughts of early retirement would be over.

I don’t know – that seems kind of…underwhelming. I guess I always thought that saving $100K would be a fast track to riches. But now, more and more, it seems like you really need exorbitant incomes or significant risk-taking/entrepreneurship to be able to live a really good life at a relatively young age. Am I out of touch here? Missing something? Thoughts?

Did you think riches fall from the sky? Basic investments protects against inflation and a little more.

You spend more on yourself than my family of 4 spends.

Are you counting home equity as spending? 401k?

I pay around $50K in taxes and spend $60K on myself - you think that's too much in the DC area?

I don't own a house. And no, 401(k) would be saving, not spending.

[Anonymous]

Marry rich

[Anonymous]

Anonymous wrote:The expectation you can work for 20 years and then not work for 30 or 40 off savings from those 20 is a little ridiculous.

It’s also why saving *anything* in your 20s is highly recommended. And why I plan to give my kids a brokerage account with a couple hundred thousand dollars when they graduate college.

Yeah that's the part that I don't get- first off, when throughout history has that ever been a reasonable expectation for a significant number of people?

Second, how could it possibly be? Who would do the work?

[Anonymous]

The entire premise of this post is that OP is cranky he can't retire *in his early 50s* with no guaranteed health insurance, no pension, and making $210k each year. Actually, scratch that - he'll have $5m in actual dollars, and using the 3% rule be able to withdraw $150k per year - which in inflation adjusted dollars will be *more* than he spends now.

And this is somehow cause for despair. GMAFB.

Work until you are 60, OP, which is still retiring early.

[Anonymous]

Saving and investing will make you rich but it takes time and a lot of the gains won't happen for 30+ years.

Warren Buffett made 99% of his net worth after 50.
https://finance.yahoo.com/news/warren-buffett-accumulated-99-net-193522940.html

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Wait, you’re saving $100k per year, how many years of that did you put into your calculator?

He said 20 years.

Why do you think OP is a he?

He writes like a man.

[Anonymous]

Anonymous wrote:The entire premise of this post is that OP is cranky he can't retire *in his early 50s* with no guaranteed health insurance, no pension, and making $210k each year. Actually, scratch that - he'll have $5m in actual dollars, and using the 3% rule be able to withdraw $150k per year - which in inflation adjusted dollars will be *more* than he spends now.

And this is somehow cause for despair. GMAFB.

Work until you are 60, OP, which is still retiring early.

This is the key. It just can't be done unless you're earning a salary much higher than the $210k.

Also, this is why most people in the US (maybe not in the DCUM bubble) have to seriously downshift their spending in retirement. I am already planning on a 2 BR apartment in a low COL area because I'd rather have more breathing room in my budget now while I am raising a family.

[Anonymous]

I am sorry, but your math is insanely wrong.

Just saving 100k a year would get you 2 million after 20 years with zero return. That should suggest to you how wrong your math is.

If this is saving in taxable account then you only pay tax on the earnings, not on the principal. If this is in tax deferred (like 401k) then you would pay tax on the withdrawals, not while it accumulates. Either way I suspect you are vastly overestimating the tax take.

Find a better online calculator.