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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 734557  
Subject: ER Savings Goals For Young People Date: 7/16/2002 11:33 AM
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One young man on the LBYM board posted his frustration with suggested formulas for net worth because he found them unrealistic for young people who've just recetly entered the work force:


I find it frustrating because I am only 24. It seems like there is no true calculation for my age group.

In this chart, I am very high for my age but way low for everything else. According to the Millionaire Next Door calculation I should have $108,000. Now I ask you how is that possible when I have only been out of school for a year? Does anyone know a good formula for young people?

I always think I am doing well until I look at the formula/statistics.

MinKim



In reply, I suggested that a number of people on this board have saved half their after tax income and been able to ER after twenty years or so, so that might be a goal worth considering.


That produced a poll:

http://boards.fool.com/Message.asp?mid=17520811

Someone said that some folks on the Retire Early Homepage board have been saving 50% of their net income for years. Now that got me to thinking. Without becoming homeless or eating beans every meal, could you save 50% of your net income if you tried hard?



Perhaps some may want to comment on the thread this is producing.





Seattle Pioneer



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Author: galeno Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70465 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/16/2002 11:44 AM
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I saved and invested 20% of my gross monthly income for 13 years and then FIRE'd. I started from zero.

20 to 40% of gross monthly income is fast-track to FIRE. The young man in question should simply look at it in terms of percentages and not nominal amounts.



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Author: nas90skog Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70468 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/16/2002 11:57 AM
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galeno:

I saved and invested 20% of my gross monthly income for 13 years and then FIRE'd. I started from zero.

No med school loans?

nas90skog

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Author: bigboy8888 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70470 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/16/2002 12:11 PM
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Hey it is not that tough. Lets see if the following numbers add up: I think I can hit some where close to "Teddy ballgame". BTW these figures are approx but the math should be right and all numbers are per month.

Earn pre-tax : 4.8K
max 401(k) : -1k

Taxable Income : 3.8K
Total Taxes : -1.3K (slightly over 1/3rd - easy calc)

Money left : 2.5K
Invest in Stocks : -0.6K

Money for Life : 1.9K
Rent+Utils : -0.9K (Total rent=2.4K for 3bedroom house + Utils)
I know i know but this is Boston.
Food+beer : -0.4K
Fun Money : -0.35K (those redsox tickets cost money)
Vacation money : -0.15K

Balance : 0.00

Saved = 1.6K
Spent = 1.9K
Taxes = 1.3K

Net Income : 3.2K (1/3rd of 4.8K is taxes)
50% saved but not all tax free as I will eventually pay taxes on my 401(k). So does this count as 50% saved or am I batting 0.333?. E-fund was in place before I invested and I am 25.

-BB

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Author: galeno Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70472 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/16/2002 12:22 PM
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nas90skog wrote:
No med school loans?

No loans. Medical school in Costa Rica is very affordable. It's either free if done in the public University of Costa Rica or about $6000 per year if done at our most prestegious private medical school.

And best of all, we start medical school right after high school. I graduatated from medical school at age 22 and went into post-graduate training (in the USA) from age 22 to 25. All of my post-graduate collegues where in their late 20s and early 30s. At age 25, I was debt-free and in private practice as an internal medicine specialist.

I'd like to see my four children go to medical school either here in Costa Rica or in Cuba. France is also opening up an excellent program for Latin Americans that would cover tuition, books, and living expenses. I'm keeping my eye on that.

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70479 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/16/2002 12:58 PM
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galeno writes,

And best of all, we start medical school right after high school. I graduatated from medical school at age 22 and went into post-graduate training (in the USA) from age 22 to 25. All of my post-graduate collegues where in their late 20s and early 30s. At age 25, I was debt-free and in private practice as an internal medicine specialist.

You must have been the "Doogie Howser" of your residency program. <grin>

intercst


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Author: michaelangela Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70501 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/16/2002 3:09 PM
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Without becoming homeless or eating beans every meal, could you save 50% of your net income if you tried hard?

Absolutely yes. I've done it, and I've seen lots of other people do it -- even 70%. It's not easy, by any means, but it's absolutely do-able.

Think of it this way: how much are we "living on" when we graduate college? Shared apartment (or parent's house), used car, Gap clothing, fast food. Not a high-priced existence. If you choose to set it as a goal, you don't have to go much beyond this as you transition to full-time employment.

Now, sure, if you want the new car, snazzy clothes, fancy job in the big city (expensive apartment, food, taxes, fuel, etc.) it's tough. But these are all choices.

Choose whatever you will, but expect to reap only what you sow.


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Author: nas90skog Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70513 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/16/2002 5:18 PM
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galeno relates:

And best of all, we start medical school right after high school. I graduatated from medical school at age 22 and went into post-graduate training (in the USA) from age 22 to 25. All of my post-graduate collegues where in their late 20s and early 30s. At age 25, I was debt-free and in private practice as an internal medicine specialist.

I wondered how you did that. My acquaintances were in CV surgery where they had 4 years under grad, 3-4 years med school, 5 year surgical residency and a 3 year CV/Thor residency. By the time they got out, they had a couple hundred thousand in debt run up and were in their mid thirties. Of course there were a few who chose this time to run off with a nurse and leave the woman and children who had stuck by them during their training. In addition to their debt, they now had alimony and child support along with a job market where the reimbursement was being slashed. Seemed like a lot of effort. Even knew a fellow from India who had trained in England, but couldn't get board certified without a US CV residency. In the end, he was almost 40 and had to endure two 3 year residencies in CV. The guy sure could slice and dice though.

How did the U.S. programs view your lack of undergrad education? Would it affect your ability to practice in the U.S. if that had been your choice?

nas90skog


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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70522 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/16/2002 6:19 PM
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Here's the basic bottom line.

If you hold a single job from the age of 20 to the age of 65, never get a raise other than inflation adjustment, and invest just 10% of your wages - with an inflation-adjusted internal rate of return of 6% per year - you can retire at age 65 and withdraw from your portfolio exactly as much (inflation-adjusted) as you were getting (after investments) from your job.

And expect to draw that amount FOREVER. You're good for the worst 60 years on record, with ample money to spare.

If you want to start later, or retire sooner, or have a higher income, you'll have to invest more.

Oddly, getting periodic raises is a handicap - unless you increase your savings percentage, or are happy with a retirement income rather less than your working income.


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Author: nuyawkr Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70532 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/16/2002 9:30 PM
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I'm always a little concerned when I read about people complaining about how the formulae in The Millionaire Next Door don't work for them.

It's my understanding that the function (age * income) / 10 indicated whether or not you could count yourself as a "Prodigious Accumulator of Wealth". For me, that number works out to about $96,000. I only have about one-third that amount saved right now, so therefore I am clearly not prodigiously accumulating wealth. I'm not worried about labels though, as I am putting 20% of my salary into my 401(k), and fully fund my Roth IRA (another 8%). Anything extra gets tossed into a taxable brokerage account as it appears, although I'm starting to rethink this allocation for the tax reasons that have recently been pointed out on the Fool. So I'm at about 35% savings. It's unrealistic to expect to be able to save much more than that in New York at my salary levels, given rent and tax rates.

If I had managed to get my hands on that much money, especially while still in college, then I would consider myself fully worthy of the PAW label. That's what prodigious means, doesn't it?

<rant>
It sounds to me like a lot of people are reading The Millionaire Next Door but not paying full attention to what it's saying. Don't worry about what other people are doing--just keep your own house in order. Don't worry about the labels being applied to you--just do what you have to do. You might wind up a lot happier at the end.
</rant>

Nuyawkr

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Author: friendlygirl Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70552 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/17/2002 9:25 AM
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It's my understanding that the function (age * income) / 10 indicated whether or not you could count yourself as a "Prodigious Accumulator of Wealth".

I understand what you are saying, but I still think it is a poor measure of PAW-dom in those younger than, say, 35. I believe that the authors would agree with me on that. Those who are PAWs should not only be on the high end of the wealth spectrum (which, due to compounding, should be more than proportionally lower for young people) but also people who accumulate much of that wealth themselves. I would venture that most of the people in their 20s who have sufficient wealth to be classed as PAWs by the equation are people who have inherited the money. Not only haven't PAWs had enough time to make and save their money (particularly considering the possibility of student loans), but UAWs who inherited haven't had enough time to run through it and show their stripes either.

That said, I agree that we should try to ignore the statistics. It seems clear that there is no good guide to determine whether 20-somethings are PAWs, and we shouldn't worry too much about it.

friendlygirl

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70558 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/17/2002 10:06 AM
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<<That said, I agree that we should try to ignore the statistics. It seems clear that there is no good guide to determine whether 20-somethings are PAWs, and we shouldn't worry too much about it.

friendlygirl >>


I think there is a good guide, and it's the percentage of your after tax income that goes to savings and investments. A number of people on this board have retired early after saving half their after tax income for a number of years, so I suggest that as a goal for those who fancy themselves "PAWS" (the Millionaire Next Door's "prodigous accumulators of wealth).



Seattle Pioneer

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Author: LivAboard Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70577 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/17/2002 11:34 AM
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I'm always a little concerned when I read about people complaining about how the formulae in The Millionaire Next Door don't work for them.

It's my understanding that the function (age * income) / 10 indicated whether or not you could count yourself as a "Prodigious Accumulator of Wealth". For me, that number works out to about $96,000. I only have about one-third that amount saved right now, so therefore I am clearly not prodigiously accumulating wealth. I'm not worried about labels though, as I am putting 20% of my salary into my 401(k), and fully fund my Roth IRA (another 8%). Anything extra gets tossed into a taxable brokerage account as it appears, although I'm starting to rethink this allocation for the tax reasons that have recently been pointed out on the Fool. So I'm at about 35% savings. It's unrealistic to expect to be able to save much more than that in New York at my salary levels, given rent and tax rates.

If I had managed to get my hands on that much money, especially while still in college, then I would consider myself fully worthy of the PAW label. That's what prodigious means, doesn't it?,


What makes me question the formula isn't so much how impossible it would be to be considered a "Prodigious Accumulator of Wealth" when you are young, it's how easy it is when you're old.

If you are 65 and making 100k, you would only need 650k saved to be considered a "Prodigious Accumulator of Wealth". By this formula you are considered "wealthy" at 65 even though you could only retire by cutting your income by more than half.

It seems to me taht if you really are a "Prodigious Accumulator of Wealth" you would have retired before you were 50, and not taken a paycut in the process.

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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70579 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/17/2002 11:51 AM
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What makes me question the formula isn't so much how impossible it would be to be considered a "Prodigious Accumulator of Wealth" when you are young, it's how easy it is when you're old.

If you are 65 and making 100k, you would only need 650k saved to be considered a "Prodigious Accumulator of Wealth". By this formula you are considered "wealthy" at 65 even though you could only retire by cutting your income by more than half.

It seems to me taht if you really are a "Prodigious Accumulator of Wealth" you would have retired before you were 50, and not taken a paycut in the process.

********************

Actually, the authors indicate in the book that they have developed a quite sophisticated statistical model (probably some painful multiple regression thing) that is far more accurate than the simple rule of thumb that they offer in their popularization (TMND). If you looked up their scholarly articles, I've no doubt that you could see their full model in all its stultifying glory. However, they do say (even in TMND) that the biggest correlate of wealth is age. So if you don't include the effects of age, the formula/rule of thumb is pretty meaningless.

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Author: LivAboard Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70617 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/17/2002 4:10 PM
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Actually, the authors indicate in the book that they have developed a quite sophisticated statistical model (probably some painful multiple regression thing) that is far more accurate than the simple rule of thumb that they offer in their popularization (TMND). If you looked up their scholarly articles, I've no doubt that you could see their full model in all its stultifying glory. However, they do say (even in TMND) that the biggest correlate of wealth is age. So if you don't include the effects of age, the formula/rule of thumb is pretty meaningless.

I don't doubt that they have a better formula, I just thought their "rule of thumb" was crap, because I don't think it took into age into account enough. The curve on their rule of thumb is just not steep enough.

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Author: galeno Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70630 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/17/2002 5:16 PM
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nas90skog wrote:
How did the U.S. programs view your lack of undergrad education? Would it affect your ability to practice in the U.S. if that had been your choice?

I did 11 interviews for GOOD US internal medicine programs. All they cared about was that I got an 85 on the ECFMG exam; had a J-1 Visa; and spoke English well. I NEVER got asked about my lack of undergrad training.

I wonder if that would be a factor today??? That said, I know of one undergrad + med school program in the USA that takes six years. These kids go into this program after high school too. I forgot where the program is located but I met a young female US doctor that graduated from such a program.

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Author: Hyperborea Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70641 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/17/2002 6:04 PM
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I don't doubt that they have a better formula, I just thought their "rule of thumb" was crap, because I don't think it took into age into account enough. The curve on their rule of thumb is just not steep enough.

Sure, there should probably be some sort of exponential on age (to account for the exponential effect of compounding returns on investments) but then you would have a "rule of thumb" that the majority of people couldn't calculate.

Hyperborea

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Author: LivAboard Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70642 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/17/2002 6:15 PM
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Sure, there should probably be some sort of exponential on age (to account for the exponential effect of compounding returns on investments) but then you would have a "rule of thumb" that the majority of people couldn't calculate.

If it has to be hard to calculate to be right, then it should be hard to calculate. If it's easy to calculate, but is off wildly at the extremes, and correct for a small portion in the middle it's almost as useless as saying your wealthy for your age when you have 500k. It'll be right at some point, but it's hard to call it a rule of thumb.



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Author: ariechert Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70677 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/17/2002 11:54 PM
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"I'd like to see my four children go to medical school either here in Costa Rica or in Cuba." - Galeno

I read an article, either online or in a magazine, about Cuba allowing 6 or 7 U.S.A kids who were poor/underpriviledged to go to medical school in Cuba. I think it was for free. It sounded pretty good to me. I have always thought that the Cuba would be a great place to retire to. They have lots of doctors and pretty good hospital care, the cost of living would be reasonable, it would be a nice climate, great music and dancing, and it's only 90 miles to Key West. Too bad that the U.S. goverment won't allow it. It would bring jobs and money into Cuba, and it would be a real benefit to all the baby boomers that are going to have to try and retire on just social security, not enough to have a decent life in the U.S. but would be a good life in Cuba. I wonder how long the the U.S. goverment is going to keep up it's illogical non-trade policy with Cuba? It only hurts the Cuban people.
And also those of us who would enjoy a closer relationship with the real Cuba. I saw a movie on Cuba when I was in college about how bad things were in Cuba before the revolution. They had children and families living in garbage dumps. The life of a sugar cane cutter wasn't much better. It was a country that was ruled by the mafia and was very degrading to the Cuban people. - Art

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70678 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/18/2002 12:01 AM
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ariechert writes,

I read an article, either online or in a magazine, about Cuba allowing 6 or 7 U.S.A kids who were poor/underpriviledged to go to medical school in Cuba. I think it was for free. It sounded pretty good to me. I have always thought that the Cuba would be a great place to retire to. They have lots of doctors and pretty good hospital care, the cost of living would be reasonable, it would be a nice climate, great music and dancing, and it's only 90 miles to Key West. Too bad that the U.S. goverment won't allow it. It would bring jobs and money into Cuba, and it would be a real benefit to all the baby boomers that are going to have to try and retire on just social security, not enough to have a decent life in the U.S. but would be a good life in Cuba. I wonder how long the the U.S. goverment is going to keep up it's illogical non-trade policy with Cuba? It only hurts the Cuban people.
And also those of us who would enjoy a closer relationship with the real Cuba. I saw a movie on Cuba when I was in college about how bad things were in Cuba before the revolution. They had children and families living in garbage dumps. The life of a sugar cane cutter wasn't much better. It was a country that was ruled by the mafia and was very degrading to the Cuban people. - Art


Great post, Art.

I wonder how many of "the mafia" escaped Castro's revolution and are now living in Miami?

intercst

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Author: peteyperson Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70688 of 734557
Subject: Re: ER Savings Goals For Young People Date: 7/18/2002 5:43 AM
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Any formula like that will be crap because all circumstances will be different and a standard comparison will please some while depressing others!

What matters is what you can do today to move you towards Financial Independence. Looking back can often be quite negative if your financial behaviour was poor for many years. Understanding and using better financial habits, being able to calculate real likely future results from steady saving & investing over the coming years is a far more valuable lesson.

If you take someone like SeattlePioneer as an example. He didn't start saving until his 30s and did so steadily for 20 years. That sort of thing gives me hope having just recently turned 31 but looking back see a combination of poor financial habits crosses with poor circumstance.

Petey



I don't doubt that they have a better formula, I just thought their "rule of thumb" was crap, because I don't think it took into age into account enough. The curve on their rule of thumb is just not steep enough.
(Using your mouse you can highlight, copy, and then paste any of the above message into your reply)


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