The point is that the vast majority of people are not going to be financially independent by 30, or even 40.
Use inflation-adjusted calculators. Any good savings and retirement calculator will have an option for this.
Inflation is commonly misunderstood in long-term financial planning. It’s important to consider inflation for expenses and future savings amount, but many people don’t realize that inflation will also life their investments to some degree.
For example, if a common house costs $5,000,000 on your future retirement date and you’ve been saving your money in cash this whole time, you’re in a bad spot. However, if you buy a house in your 30s that meets your needs, the value of your house will also rise with inflation. Inflation is also loosely coupled to rising stock prices (except for hyper-inflation or other economic catastrophes) and asset prices. Just don’t keep your money all in cash, because that’s the only guaranteed way to lose out to inflation.
This is really getting off topic.
Do you really think using Gates as an example is legitimate to talk about hard work for normal people? That was the main point.
The successful people I know mostly got there by luck. Sure hard work and intelligence played a role, but I know people who were smarter and worked harder and didn't get half as far.
Are you arguing that people shouldn't work hard or work to improve their knowledge or networks because its not important and won't impact their lives?
Yes he was interested and worked hard but there's a lot more to it.
In the mid 1990's, the top 20% could get to $1M with some good financial discipline and hard work. Today? Maybe the top 1% could save $1M, and unless you inherited the family home, you're still living a lifestyle that is somewhat median in 1995 terms.
The fact that $1M is still some kind of mental benchmark that we hold up for being "rich" tells us everything we need to know about today's economic conditions.
So the principles of the book may still apply, but the outcomes are worlds away from reality.
> The fact that $1M is still some kind of mental benchmark that we hold up for being "rich" tells us everything we need to know about today's economic conditions.
This is a very interesting comment. I wonder why the mentality of this benchmark amount hasn't changed. Economic conditions certainly have, $1mm isn't the same now as it would have been in 1970. Maybe it's a financial independence thing? At $1mm you really are independently wealthy in most cases.
Even with kids. Though that makes the budgeting a little more tight.
On $1MM, one can almost certainly safely take out $35k/year (after taxes on any gains) and still grow the portfolio (so as to offset inflation). That's definitely sufficient to support the barest minimum of "lower middle class" living expenses. Without kids. Add a kid and it blows right up.
But, yes, to support an upper middle class style of living one would certainly need more.
This doesn't strike me as true. A big facet to consider also is liquidity. Are you talking about $1M in net worth? If so, I disagree with you: a big chunk of that $1M is likely very illiquid for a younger person, tied up in a house and retirement accounts with penalties for withdrawal. But sure, if you have managed to save $1M above and beyond equity in your home and tax advantaged retirement accounts, then you are probably independently wealthy (but your actual net worth is probably significantly higher than $1M).
My point wasn't to really give a breakdown of all savings forms, but just to show that saving $10,000/year with historical returns will net you close to $900,000. You don't even have to put it in a tax-advantaged account. Though you should.
And that amount is plenty to retire on and be independently wealthy at least today and for the next 5 or so years. Though I guess maybe that's not the best choice of words since what I mean to say is that you can just live pretty comfortably without working - more financially independent than "wealthy".
Certainly economic conditions can change, so the more the better.
And just to be clear, you could take $1mm right now with 0 assets and buy a decent enough house for <$200,000 and pay pretty low taxes. You'd still have $800,000 left over to appreciate with low cost of living in the vast majority of America.
On the house point, people always seem to forget that people already live someplace and also often have families. No, it is not possible to find a house for a family of four where I live for less than $200k.
> No, it is not possible to find a house for a family of four where I live for less than $200k
Well we weren’t talking about you specifically, but Americans in general. If you need $10mm retire in the Bay Area or something g ya know that’s just what you’ll personally have to work on. I don’t have an answer for you. You can buy affordable houses and live comfortably in almost anywhere in America. In fact there are people who retire and move to other countries, or live very frugally on much less, like $400,000.
200k is unrealistic in most population centers in the country, not just the Bay Area (I don't live there).
> but most people (especially high earners at time of contribution) put their savings in traditional retirement accounts, for good reason.
Not so clear cut. So first if you’re a high enough earner you’re adjusted family income is >$200,000 or so before the Roth IRA starts being phased out for you. So we’re already talking about the top 10% or so of all income earners in the U.S.
Second, you tend to put the money in a traditional IRA, but you might withdraw (probably actually) less than you were making with your income. So if you’ve been phased out and can only contribute to a Traditional IRA, depending on when you want to retire you might withdraw $100,000/year (or less) and potentially pay a lower tax rate on that income then your marginal contribution rate on a Roth.
Lastly, you can still contribute $19,000 to a Roth 401k which doesn’t have contribution challenges related to income (at least for the income the vast majority of people would ever make - idk what happens if you make $1mm or something).
Your point about housing (and mine) would benefit from actual data. My contention is that for greater than 50% of people in the US, that they cannot, without moving (say the concrete metric here is a move that doesn't require children to switch schools), purchase a home for $200k or less. This is my intuition based on experience with housing markets and a general sense for how the population is distributed in the country, but it may well be wrong.
On the retirement account front, what I'm saying is that most professionals in their 40s will have a large amount in traditional 401k/IRA accounts, and much less in Roth or non-tax advantaged accounts. I believe this is accurate.
I think the confusion in our conversation is that you seem to be talking about what people can do, if they're focused from an early age on accumulating liquid savings, whereas I'm making a descriptive point that most people, even with large net worth, do not have most of it in liquid assets.
This must be a misunderstanding. I never made this claim so now this wasn't the original goal posts. Apologies if I somehow gave off that interpretation. I actually was pretty explicit I think when saying you could save $10,000 (this is cash) via a 401k or other investment vehicle and the math works out to be around $900,000 saved.
> Your point about housing (and mine) would benefit from actual data. My contention is that for greater than 50% of people in the US, that they cannot, without moving (say the concrete metric here is a move that doesn't require children to switch schools), purchase a home for $200k or less. This is my intuition based on experience with housing markets and a general sense for how the population is distributed in the country, but it may well be wrong.
Again, not a claim I've made. I've simply stated that you can buy a house for less than $200,000 and live just fine (this was based on accumulating a million dollars and that there was an assertion that you couldn't live off of that). It's trivially easy to see for yourself on Zillow or via another product that you can buy an affordable enough house and live just fine in most of the U.S..
> I think the confusion in our conversation is that you seem to be talking about what people can do, if they're focused from an early age on accumulating liquid savings, whereas I'm making a descriptive point that most people, even with large net worth, do not have most of it in liquid assets.
Yea that about sums it up. So I'm not sure where you're really going with any of this. I guess it's cool as a general assertion (and I think it would be interesting to discuss) but I'm bewildered as to why it would used as a rebuttal to something I've said. That's why I asked why you were shifting goalposts.
Then on top of that $10,000 maybe you buy a house or something. You have the rest of your money to do stuff with too.
The financially independent thing really depends on individual circumstances and desires. For some, $1mm isn’t enough. For others it’s more money than they can spend for the rest of their lives.
> > At $1mm you really are independently wealthy in most cases.
Firstly, my working definition of "independently wealthy" is when you can stop working and keep living. I think this is the common definition, but it's possible you're using a different one.
So from that quote and that definition, what I have been saying is that I don't think it is true that "in most cases" people with $1m are independently wealthy. I think that in most cases, those people have most of that $1m net worth tied up in their house and in illiquid traditional retirement accounts, and could not actually live off of just the remaining liquid wealth once those are subtracted. That's really all I've been saying. It's based on just that one quote that hinges on "independently wealthy" and "in most cases".
> Firstly, my working definition of "independently wealthy" is when you can stop working and keep living. I think this is the common definition, but it's possible you're using a different one.
You are independently wealthy in America at $1mm and do not need to work. It takes very little time to see that hit is the general case. You can buy a cheap house, and buy groceries and probably actually grow the principle amount.
Now from here you can say like it’s not enough money for you, or you don’t want to leave California (or wherever) but you can easily live off of that amount of money in the vast majority of America. You can also say that people accumulated that money in some distribution and all of that too. But even if you had that amount in a house + retirement you can sell the house and move to a different location or downsize or something. If you have a million in assets you’re making a choice to work. Period. There might be some thing you don’t want to give up, or some place you want to live. That’s fine, but you’re making a choice after you’ve become independently wealthy.
It really depends on the assets and the choices you want to make. Generally speaking, if you have $1mm worth of assets, you do not need to work. That's it. Period.
If you find that you need to work, you're making some other choice to work because of some factor that's overriding your desire to not work.
The liquidity of the assets is only relevant if you want to talk about specific cases, and even then it's likely not an issue. You can sell your house. You can withdraw from an IRA or 401k. Etc.
And nobody really has that kind of money early in their career, except maybe the top 1%. You either make a lot of money and spend most of it on housing, or you make a little bit of money and spend most of it on housing.
We should talk more about how people can do it and how we can help those who don’t make enough money instead. Maybe instead of paying into Social Security we could develop a different savings plan?
So at least from my napkin math plus estimates, you've probably got less than a 10% chance of making enough to save any money at all for your first job out of college.
And I don't know about you, but I spent the first 5 years out of college paying off student loans...and I had a pretty low student loan burden compared to most. And many others might start families sooner than you've chosen to, which is expensive as well...and half of them will get divorced which is even more expensive.
I don't have anything against teaching people to do the best they can with the shit hand they've been dealt in life. But selling that by claiming that average people can be millionaires (even in today's terms, let alone 1990's terms) is selling an expectation that will never pan out for the vast majority of them. Any belief in the truth of that claim inherently relies on a very privileged view of the world, either because they were born with a silver spoon, or because they don't truly understand the scope of expenses that other people face, or because they think that average people are even capable of the kinds of jobs that they hold. It is flat out irresponsible to peddle this fantasy.
The person making $50,000 may have other benefits. Items like social security and a lower cost lifestyle in the first place. So maybe for them saving $5,000 is doable, and so they wind up with $500,000 and social security. Maybe that person marries someone and combined they make $90,000 and can save $8,000. I don't know. Y
> And I don't know about you, but I spent the first 5 years out of college paying off student loans...and I had a pretty low student loan burden compared to most.
Yes. I joined the Army to pay for college. Nobody in my family has ever attended. I didn't know what the SAT was. That took up 4 years, and I had no savings (obviously never learned what stocks were or anything like that, though there was some government program called the TSP but I was taught to be weary of the government of course so I didn't invest), and then I spent 3 years getting my undergraduate degree so I was around 25 when I started working. So about the same age, at least investing-wise.
> And many others might start families sooner than you've chosen to, which is expensive as well...and half of them will get divorced which is even more expensive.
Sure. Plenty of things that could happen. They could also choose to start a business, or marry a spouse that makes significantly more than they do. Idk. All kinds of things happen.
> Okay, but you have to understand that you're exceptional...at least top 1% in terms of capability.
Ha. I appreciate the accolades but promise that this is certainly not the case. I'm opinionated, and I'm no dummy, but I wouldn't consider myself exceptional in any meaningful sense to me personally. Maybe statistically.
Moreover, the median SE salary is just below $100k/year[2]. It's uncommon (certainly not rare but uncommon) for a SE to be able to have a sustained savings rate necessary to achieve $1MM by retirement.
So maybe "peddling a fantasy" is a bit strong, but it's not exactly wrong. For most software engineers (over 50%) it simply is not a realistic scenario.
[1] https://personalfinancedata.com/networth-percentile-calculat...
[2] https://personalfinancedata.com/income-percentiles-by-occupa...
And it’s even worse because if they actually retire at 65 they had like a good 40 years of compound interest too, 10 years is a big difference versus the 30 we were talking about.
Americans are notoriously poor savers, also per the US government, but a large percentage of all households -- at least 40% -- could fairly easily accumulate $1M if they were diligent about saving and investing a decent fraction of that surplus income. The surplus income is available but Americans choose to use that income for things other than saving and investing.
And the early years are the most important ones.