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

[Anonymous]

In the calculator, I assumed 8% returns, 3% inflation, and a 15% tax rate on my investments.

Your assumptions are incredibly conservative. Long term annual returns on the S and P run a bit over 10%, and inflation runs about 3%. Federal Reserve target is 2%, so 3% is conservative enough. If you are putting the money into your brokerage account, it will just sit there growing. Capital gains in index funds like S and P are negligible as there is not much buying and selling. No need to tax adjust this growth.

So I would look at annual inflation adjusted growth of 7%, instead of the 5% you are assuming. You will not pay the taxes until you withdraw, so it makes sense to reduce withdrawals by 15% if you are trying to get to income after taxes.

[Anonymous]

Anonymous wrote:

In the calculator, I assumed 8% returns, 3% inflation, and a 15% tax rate on my investments.

Your assumptions are incredibly conservative. Long term annual returns on the S and P run a bit over 10%, and inflation runs about 3%. Federal Reserve target is 2%, so 3% is conservative enough. If you are putting the money into your brokerage account, it will just sit there growing. Capital gains in index funds like S and P are negligible as there is not much buying and selling. No need to tax adjust this growth.

So I would look at annual inflation adjusted growth of 7%, instead of the 5% you are assuming. You will not pay the taxes until you withdraw, so it makes sense to reduce withdrawals by 15% if you are trying to get to income after taxes.

NP -- fwiw, I typically assume 5 percent growth on my investments because if I'm going to be surprised when I retire, I'd rather have it be "I have more money than I thought I would" than "I don't have enough money." But I'm also not doing much with those calculations other than just reassuring myself that I'm saving enough; I don't have plans to retire at 52 or whatever like some PPs.

[Anonymous]

If you start early, save a lot and invest smartly you can get rich. I made a lot of money so I would be considered UC in terms of income but now I’m very high net worth because of my saving and investing. Compounding is a wonderful thing.

[Anonymous]

Your math is not mathing. Try a more sophisticated calculator that will figure inflation for you. For example, I put your numbers into cfiresim calculator (starting with 100,000; adding 100k every year until 2044, and then being retired until 2093) and you were able to withdraw 100k every year in retirement (adjusted for inflation) with a 100 percent success rate. You could even increase your spending in retirement to $150k and keep an 88% success rate. And this is not including any social security.

If you can keep your spending in check, I can’t imagine you won’t be able to comfortably retire early. Or if you work until normal retirement age, retire to a luxurious lifestyle.

[Anonymous]

As someone also in my 30s - there’s no way to predict the future. Save what you can, lean into tax-advantaged accounts, and don’t worry about it too much. You’ll maintain your sanity.

You will presumably have some form of Social Security, though it’ll likely be vastly reduced or we won’t be able to collect until much older. Look into getting a job with some form of pension. The more “streams” of income you can reasonably guarantee yourself, the better.

Think about buying property. I have $300k equity in a house I bought less than 5 years ago. Have times already changed since then with higher prices and interest rates, yes. Does this really mean anything to me right now, no. It’s not liquid and it’s not an investment in the typical sense. But it’s another form of stability to have a. another asset strategy and b. a paid off property to either live on or leverage during retirement. You have to pay to live somewhere. Might as well pay yourself.

[Anonymous]

Anonymous wrote:Your math is not mathing. Try a more sophisticated calculator that will figure inflation for you. For example, I put your numbers into cfiresim calculator (starting with 100,000; adding 100k every year until 2044, and then being retired until 2093) and you were able to withdraw 100k every year in retirement (adjusted for inflation) with a 100 percent success rate. You could even increase your spending in retirement to $150k and keep an 88% success rate. And this is not including any social security.

If you can keep your spending in check, I can’t imagine you won’t be able to comfortably retire early. Or if you work until normal retirement age, retire to a luxurious lifestyle.

Thank you! I will look into this. It doesn’t sound like a big difference but, to me, $100K in retirement would be a lot more than my initial projection of $70K. $100K would allow me to do everything I would reasonably want to do – if that’s doable in 20 years, I would be very happy with that.

[Anonymous]

Like others I think your calculations are off somewhat. You are just starting off into investing for your retirement, you just have to stay with it. If you do have kids, it means you will have a spouse who probably will also work and invest. You didn't mention any benefit from SS, which will help some also. Money earned and invested over a few decades doesn't vanish in a month or bear market. Sometimes you build up a portfolio that kicks off enough passive income that you don't really have to take out principal unless for RMDs.

[Anonymous]

If you started from ZERO in your early 30’s that’s a you problem. I knew how compound interest worked in my teens (literally algebra II level math) and started at 0 from 22, hit 1M at 30. That 1M will double 3 times in 30 years to become 8M on its own by the time I’m 60 at 7% inflation adjusted returns.

[Anonymous]

OP, you’re doing the right things. Keep working hard and saving and investing. I was at a similar income level at your age and steadily invested and saved, and even did some house renovations and vacations along the way while we built our family, and if you continue at this rate, you will probably look at your finances in your mid-40s (my age) and be amazed by how much you have accumulated. Some years, it feels like you only move a few inches and other years, it feels like you move forward miles.

Also, careers themselves are long and you may be making more money. At your age, I never planned on making more than what you currently make, but through a series of fortuitous events and taking opportunities laid in front of me, I tripled my income a few years ago and that has made a huge difference.

Point is that a lot can happen along the way and saving/investing is the right path. Keep doing it and good luck.

[Anonymous]

OP, I agree that your online calculator is terrible. You can do better with the free planning software that Fidelity offers beginner investors (it’s a Monte Carlo simulation). There are many of these available through financial planning services. I like Smart Asset’s calculators when I do my own wealth planning.

You aren’t calculating compound returns accurately. I’m wondering if your calculator has input assumptions that are overly pessimistic.

We have a lot of reasons to be concerned about future growth, but that’s not happening yet.

It will take a few years of consistent investing before you start to see the effects of compound growth. The last year had been weirdly good so buckle up but be patient and don’t stop investing. Keep it simple now. Total stock market index funds that are low cost are a great way to get going.

[Anonymous]

Slow and steady wins the race! Time is your friend with investing.

[Anonymous]

Yes, kind of. Ignoring this calculator seems off.

One key factor many people don’t consider is simply earning more money. The average American is limited and if he or she wants to amass a lot of money, he or she has to scrimp and save.

My own parents are worth millions and my father never earned more than 200k in today’s dollars. They didn’t have cleaners, stayed at inexpensive hotels, no yard person, scrimped and saved over the years.

They judge my lifestyle because live large but we also earn close to 800k, which allows us to save around 250k in 401ks and RSUs. Instead of saving more, I’d prefer to focus on earning more.

[Anonymous]

Anonymous wrote:If you started from ZERO in your early 30’s that’s a you problem. I knew how compound interest worked in my teens (literally algebra II level math) and started at 0 from 22, hit 1M at 30. That 1M will double 3 times in 30 years to become 8M on its own by the time I’m 60 at 7% inflation adjusted returns.

You only started in your early 20’s?
That’s why you would only have 8M at 60. That’s a you problem. I knew how compound interest worked when I was born. I started at birth and now in my early 50’s I have 30M.

[Anonymous]

Anonymous wrote:If you started from ZERO in your early 30’s that’s a you problem. I knew how compound interest worked in my teens (literally algebra II level math) and started at 0 from 22, hit 1M at 30. That 1M will double 3 times in 30 years to become 8M on its own by the time I’m 60 at 7% inflation adjusted returns.

I bet you were a lot of fun in your 20s…

[Anonymous]

Anonymous wrote:Yes, kind of. Ignoring this calculator seems off.

One key factor many people don’t consider is simply earning more money. The average American is limited and if he or she wants to amass a lot of money, he or she has to scrimp and save.

My own parents are worth millions and my father never earned more than 200k in today’s dollars. They didn’t have cleaners, stayed at inexpensive hotels, no yard person, scrimped and saved over the years.

They judge my lifestyle because live large but we also earn close to 800k, which allows us to save around 250k in 401ks and RSUs. Instead of saving more, I’d prefer to focus on earning more.

Wow, I never thought of that. One weird trick...