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.
[ Parent
| on HN ]
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%.