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

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[quote=Anonymous][quote=Anonymous]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?[/quote]

You are better off looking at nominal numbers for assets and adjusting withdrawals for inflation.

For example, your savings (assets) would be $5M in nominal terms. Assuming you need $100K now, inflation adjusted you'd need $180K in 20 years. If you were to withdraw 4% from your $5M, that's 200K. Adjusting that for a 15% tax, you are left with $170K. Not that far off from your spend requirement. [/quote]

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