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Comment by bherms | Hacker News Reader

Not my opinion, but I once read somewhere that you should aim for a savings (+investments) of 1x salary by 30, 5x by 40, 10+x by 50.

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Seems to me the most difficult is saving 5x between 30-40, especially at that age when a lot of folks get married, have kids and purchase property. How do you save up to 5x - which for a household income of $100,000/yr is half a million dollar; do you really get a lot of tax breaks on mortgages, kids and filing jointly?

Also, at the current rate of US inflation; by the time I retire which is in about 40 years, $30K/year purchasing power will become $110K/year. Social security will not exist when I retire and a net worth of 1 million dollar, drawing down on principal will last me less than 10 years.

For folks in your mid to early 40's, how are you guys planning for your retirement?

All of the classic planning advice is based on about a century of economic history, most of that time period having little resemblance to today and things are only getting weirder, faster. Inflation is increasing (and increasingly under-reported), investment returns just--to put it bluntly--suck, social safety nets are falling apart, and we're expected to work for much longer in a world where age and experience don't count for much anymore.

In short I don't think retirement is something you can "plan" for if it's more than 20 years out or so. It's more like disaster preparation. Save as much as possible, live as far below your means as you can handle, keep your skills valuable. Keep your money diversified and expect your returns to just about keep up with the real and honest cost of living increases until the world economy feels like taking a dramatic shift for the better. We're still "unwinding" from all the previous crises so I don't foresee that happening anytime soon.

> Inflation is increasing (and increasingly under-reported), investment returns just--to put it bluntly--suck.

This is nearly a self contradictory statement. That is, if inflation were getting out of control, we would see high interest rates accompanying that change.

I'm not saying your advice it bad (savings are a good idea), although maybe a little extreme sounding (too much doomsday feel for my taste). I do, however, wish people would stop it with the "inflation is scary" rhetoric.

The issue is USD is losing its status as the reserve currency and declining exchange rate with BRIC countries are making consumer goods more expensive. Chinese RMB used to be 8:1 in the late 90's, now it's 6:1 and declining.

Also due to several rounds of quantitative easing, the Fed injected a lot of money into the money supply. However, banks are not lending as much money to stimulate the economy which doesn't trickle down to ordinary folks; part of the reason being big banks such as BoA and Citi needed to bolster their capital reserve against their illiquid toxic assets from the real estate speculation bubble. As a result, QE1/2/3 caused real inflation to money supply while the stock market and personal savings account returns have remained anemic.

I remember I was excited when I got a six-figure job, then I realized that 80K in 1998 amounted to 110K in 2011 and realized that inflation was real.

"real inflation to the money supply"

Inflation is what happens to prices, by definition. "Inflation to the money supply" is nonsense, like if you said int x = "foo" or talked about installing new RAM to store your photo album.

Also, the notion that banks can cause inflation by not spending reserves is baffling.

Not at all. There are several different definitions for inflation, each of which is equally valid depending on the context. Consumer price inflation is one type. Other types include producer prices or money supply (including debt marked to market).

This is wrong. CPI is not "inflation" except by common mis-usage. Inflation is defined to be an expansion in the money supply. You can have inflation and falling prices at the same time.

Do you have links to evidence that inflation is increasing, and over what time period? I thought medium term inflation estimates were still under 2%, which is historically rather low.

This statement about inflation contradicts a variety of recent economic studies suggesting that the CPI understates inflation by a percentage point or so (thus inflating the cost of inflation-linked things like Social Security). Any particular source for your sentiment that it's "increasingly under-reported"? http://goo.gl/wbnUu

Caveat: I know next to nothing about finance.

Things that come to mind that help you save more as you get older:

1. Your previous savings will be compounding.

2. If you're lucky, you'll finish paying off a house which frees up a good chunk.

3. If your career is going well, your salary will keep going up, hopefully faster than inflation.

Lesson I will take is: 1) Save like mad. 2) If buy a house, buy with 10%-20% down-payment and financed with aggressive mortgage payback timeline. 3) Climb the ladder and take the money.

It make no sense for most people to pay off their house aggressively. Refinance periodically if you want to lower your payments, but blowing a lump sum on your mortgage principal over a compressed time period is almost always more expensive in opportunity costs.

Quick question: I put $100k in your pocket right now. Would your life be more improved if your mortgage principal was reduced by $100k, or if you went and did something else with it? I think most people could find something better to do -- start a company perhaps? Invest in a rental property? Start a kids college fund?

And again, if you did want to put that into your mortgage: refi.

If you completely ignore risk then what you say is true (especially with interest rates so ridiculously low). However, if we're talking about improving lives, I personally find value in eliminating debt (including the mortgage) as quickly as possible because such obligations represent risk. I could apply all these extra mortgage payments to other things (rental property, stock market, etc.), but then I stand a varying (but non-zero) chance of losing money on those things and still being stuck with a mortgage. I'd rather wait a few years and take those risks with my own money instead of money borrowed from the bank, and I think that economic woes of late suggest we'd be better off if a few more people thought this way.

If you have a fixed-rate mortgage with a monthly payment at a comfortable level, then the mortgage should represent a very low source of risk. Having 12~18 months of payments in the bank saved up for a rainy 1.5 years is a great plan to mitigate that.

The idea of personal comfort is interesting, I think people should attempt to quantify the value of being mentally released of debt burden -- maybe for some there is very high value in it. For me personally, I have always been comfortable with the idea of strategic debt as a way to advance certain goals.

I think what your approach neglects is the fact that being conservative is risky as well. In the last five years, of course, it would be hard to make that case. But unless you die soon, there will definitely be times where you will be left behind -- relative to your economic peers -- if you don't finance your activities externally.

I actually think of it the opposite way: if you put money into paying down debt, you know exactly what the return on that capital will be. It's the interest rate on the debt (in pre-tax dollars for mortgages, after-tax for almost every other form of debt). Money is fungible; any money that's not locked up in debt-service is freed up for other purposes, like investing in other assets.

I tend to advise people I know to pay down debt first these days, because they're usually paying around 6-7% interest, and where else can you get a 6-7% risk free investment? T-bills are at about 3%, inflation-adjusted T-bills are often less, CDs are under half a percent, and savings accounts are basically nothing. You can potentially get more than that in the stock market, but that comes with additional risk, so for a lot of more conservative folks it doesn't make sense to carry a debt and simultaneously invest in the market.

6-7% would be pretty high for a mortgage these days. I was quoted a little over 3% a month ago, and my credit is not the greatest.

For student loans, I agree with you, and I'm putting all my extra money into them while saving the bare minimum for a bit of security if something bad happens.

Wow, maybe I should go buy a house. When my parents refinanced in 2004 they thought interest rates were historically low at 4.5%.

>I was quoted a little over 3% a month ago, and my credit is not the greatest.

You have to consider things like origination fees and points, though. Everybody thinks they're going to stay in their new house for decades, but the average is something like four years.

Based on the 10x at 50 multiplier, I'm guessing that's for retirement savings/investments alone, not a net worth target. (It makes a big difference if you're planning on making any other big expenditures -- down payment on a house, helping the kids with college, etc.)

That's nice, but honestly I'd be surprised if many were able to do that at all without a lot of generational wealth backing it up.

Assuming you went to college and got out in 4 years thats only 8 years to put back 1x salary. Given that a lot of those first few years is invested into "setting up shop" getting things like furniture, a reliable vehicle, maybe buying a house, getting married, sometimes having kids, I don't think thats in the cards for many people.

You can't make a savings rate of 12.5% without "a lot of generational wealth backing it up"?

in light of these new guidelines i'll be getting a job with a drastically lower salary this year. definitely don't want to be behind on savings!

The idea is that if you meet the guidelines with your existing salary, you can expect a lifestyle similar to the one you are already used to. If getting a lower-salary job lowers your lifestyle expectations, it could work. :P

So someone with 50k/yr of expenses should be making 100k, 250k, and 500k respectively?

I think you have it backwards. If your salary is 50k, they suggest trying to save up 50k by the age of 30, 250k by the age of 40, and 500k by the age of 50.

Keep in mind this isn't direct savings. Stock and other investments count.

I believe this means you should have $50,000 in the bank or investments at 30 if you have a $50,000 salary by then, $250,000 at 40, $500,000 at 50 (if income doesn't change)

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