Re:Champions of the 401(k) Lament the Revolution They Started
by uiri on Monday January 02, 2017 @06:50PM
(#13305481)
Assuming 50% after-tax, you will need about 25 years to retire. To retire in 7-10 years you need to save around 70-80% of your income. In both of these cases, I assume that you spend the other 20-30% and ignore investment gains over the period where you are working which might shave off a few years in the 50% scenario but for the 7-10 year time frame your savings rate will dominate.
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Re:Champions of the 401(k) Lament the Revolution They Started
by kobeya on Monday January 02, 2017 @08:07PM
(#13305836)
That's not how the calculation works at all. If you're saving 50% then your expenses are half of your income, so you need half your salary in retirement. Ignoring investment gains is ignore the entire point of this exercise.
Re:Champions of the 401(k) Lament the Revolution They Started
by uiri on Monday January 02, 2017 @09:59PM
(#13306338)
Treating investment gains over a time period of under 10 years as negligible is a perfectly prudent thing to do when planning a retirement which is going to span multiple decades. I do agree it is somewhat less prudent at a time scale of 20-30 years or beyond.
Your retirement goal is 25 * 12 * x.
If you save 50% then each month you spend x and put x in the bank. At that rate, it will take you 25 * 12 months (25 years) to get to your goal. Counting 1/3 of 1% returns each month, it would take you 208 months (17 years is 204 months). So returns would shave 7-8 years or ~30% off your working life.
If you save 75% then each month you spend x and put 3x in the bank. At that rate, it will take you 25 * 4 months (8 years is 96 months) to get to your goal. Counting 1/3 of 1% returns each month, it would take you 87 months (7 years is 84 months). So returns would shave off ~1 year or 13%.