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Comment by leetcrew | Hacker News Reader

this is a variation of the "avocado toast" argument. if you go crazy and subscribe to amazon prime, a music streaming service, and several video streaming services, you're paying somewhere around $100/month. if instead you invested the $100 every month, you could expect to have an extra ~$200k (inflation adjusted) after forty years. that's not nothing, but it doesn't add a whole lot to your safe withdrawal rate in retirement (roughly $8000/year). if you're only able to save a couple hundred bucks every month, that extra $100 makes a big difference. if you're saving $1000+, your subscriptions aren't going to make or break your retirement; you need to dig into those bigger fixed costs to really move the needle.

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We might be talking about different budget levels, but to normal people (people who don't have the word 'software' in their job title), 200k in retirement is a lot.

Actually the median 401k balance at retirement is only around 60k, so that alone would quadruple their retirement savings.

yeah, I'm assuming most of the people on this forum have upper-middle salaries or will likely have them in the future. I mostly wrote the post with this audience in mind, though I think the bit about analyzing spending in relation to your savings rate is relevant to everyone. I am very fortunate to have the opposite "problem": I tend to be very stingy and waste a lot of time and energy trying to save amounts of money that just aren't very meaningful compared with my savings trend. unless you're unable to save anything at all, I think it is very important to strike a balance between saving for retirement and spending on stuff you enjoy in the moment.

also minor addendum: someone with the median 401k savings might receive something close to the median social security payout of ~$15,500/year. since this is a guaranteed payment until end of life, this is like having >$375k in a retirement account at age 67. $200k is a meaningful amount to add to a $60k retirement account + social security payments, but it doesn't do anything close to quadrupling the person's safe spending capability. it's more like a 45% increase, which is still nothing to shake a stick at!

> since this is a guaranteed payment until end of life, this is like having >$375k in a retirement account at age 67.

I would not bet on social security retirement age staying at 67, nor would I bet on the purchasing power of $15.5k remaining anywhere close to it is today.

sure, don't lose track of the thread though. I'm comparing against someone who is currently retiring with $60k in their retirement account. $60k probably won't be the median 401k value in forty years. all this stuff is subject to change.

>> Actually the median 401k balance at retirement is only around 60k, so that alone would quadruple their retirement savings.

You are comparing apples and oranges. You are comparing today's values at retirement to future values at retirement. It is almost certain that $200k 40yrs from now will not be worth $200k in today's dollars. Inflation accrued over 40yrs -- however low and however faked -- is absolutely going to make that $200k seem not so much.

Presumably, some of the $200k invested will grow, but also, not all the 200k is invested right now, it drips in over 40yrs.

You also forget the wildcard of healthcare lottery. One large medical surgery co-pay and you lose half your nextegg.

I got the $200k figure assuming a 6% rate of return, which is basically the inflation-adjusted rate of return for the S&P 500. both the $200k and $60k are 2020 dollars.

>> both the $200k and $60k are 2020 dollars.

This is the problem. $200k in 2020 dollars wont mean much 40yrs from now. Similarly, $60k sounded like a huge figure in 1980 for retirees planning for 2020. For a proper comparison, you'd need to compare purchasing power of $60k to a retiree today vs $200k to a retiree in 2060 -- i'll bet it is about the same!!!

Inflation is a huge unknown here. My parents' home in 1981 was $35,000. The same exact house today is over $1,000,000. Rent used to be $150 to $200/mo. The same rent today is over $3500.

I re-ran your numbers here: https://www.investor.gov/financial-tools-calculators/calcula...

I did a monthly $100 contribution at 6% assuming tax free comounding for 40yrs and came up with your figure of $200k. That is right -- you'll have $200k at this rate. But in the year 2060 that might be just a year of rent and you're broke!

I hope this doesn't come off as condescending, but I think you are missing the distinction between real and nominal value. if I just say "$200k" without qualification, that is a nominal value. if I associate that nominal value with an instant in time (a whole year can be a narrow enough window when inflation is reasonably low), it becomes a real value. when I say you would have $200k in 2020 dollars in forty years, inflation is already taken into account. if a dollar is worth half as much in 2060, I'm saying you would have $400k in 2060.

you are right that inflation is a huge unknown. if inflation goes up massively without a corresponding increase in nominal returns (unlikely, but possible), it would make that 6% figure incorrect. in this case, you would have less than $200k 2020 dollars in 2060, but the real value of a 2020 dollar would not have changed.

as a concrete example, suppose I own a three shares of microsoft stock and you have a brand new ipad air. both are worth about $600 today. if I offered to trade you my microsoft stock for the air, you might be happy to do so if you don't have any use for the ipad. if the fed prints trillions of dollars overnight causing the value to collapse, it doesn't change the fact that my three MSFT shares have roughly the same real value as the ipad. "2020 dollars" is just a slightly more abstract way of describing this dynamic.

Fair, but i'd say the 6% assumption is suspiciously high in that case. I think you might be doing something like ({mean SPY return} - CPI)

Except that CPI is a deviously misleading number. I wonder if the same approach applied in 1980 would come close to aligning with 2020 numbers (including healthcare, college, rent, energy, etc.)

Please be brutal in your response, I want to understand if my understanding of this is all wrong!

keep in mind, this is really just a back-of-the-napkin calculation. I'm certainly not an expert on the matter, but AFAIK 6-7% is generally accepted as the real rate of return on the S&P 500 (at least historically and over long periods of time). inflation calculations are always kind of messy thing though. in reality, some goods/services increase in price much faster than others, and CPI will be very sensitive to what goods/services you choose for your basket. even when you take into account overall inflation, college tuition is vastly more expensive than it was a few decades ago. it also gets tricky when you consider that the quality of goods can increase over time. a mainstream CPU costs about the same as it did in 2000, but is way more powerful. is that deflation, or is technological advancement a separate thing? I never got far enough in economics to know the answer.

Given today's interest rates, a 6% inflation adjusted return rate is going to be impossible. More like 1% if you are lucky.

I'm not sure how one would survive on 60k for even 10 years. This isn't an "investable" amount and it's not enough for food, yet along housing expenses.

Clearly nobody is in that situation. If you have any money at all in 401k, you almost surely have paid significant amount into Social Security, which pays out retirement benefits independently of whatever you might or might not have in 401k account.

>which pays out retirement benefits

. . . maybe . . .

This all depends on what you assume for spending. Speaking from experience, it is pretty easy for an "entertainment" budget to hit $1000 per month, or a $2MM inflation adjusted savings.

4x nice restaurant or dates = $200 1x Weekend trip = $250 Hobby projects = $100 Drinks with friends = $100 Media Subscriptions =$50

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