Rhea

Just out of curiosity, if there are never any losses to add to the equation, why bother say "average" return? Why bother say "over 40 years time"?


Am I reading you right? You are claiming that there ARE NO LOSS YEARS? Doesn't this contradict the link in the other thread showing (historical data) that there were 15 periods of 15 years with a less-than 3% return in the last 70 years? That of those 6 periods were actually losses - negative returns?


Are you really claiming these did not exist?

B_Sharp

A cost of living increase is another name for Inflation Tax Protection.

Cost of Living is NOT a natural economic function. Supply, demand, price equilibrium. It is 100% cheap crappy paper money.

The US Govt cheapens the crappy, paper dollars at the rate of 2% per year loss. $100 dollars this year = $98 dollars next year.

Bond rate = 3%/yr minus 2% Inflation Tax = Real Bond Rate = 1%/yr.
Given your bond rate number of 3% average. Probably close but someone could double check.

Inflation Protected Securities are also 'cost of living increase' protection. Expect these to just offset 2% Inflation Tax or Real 0% which is good since they maintain value and don't lose money.

The BEST 'cost of living' protection are Market Securities of 9.5% - 2% = 7.5%. BUT, big but, they must be held for 2 decades or only 1 decade if you understand market timing well enough.

Hitetlen

You seem to miss that I tried to set up an absolutely minimum scenario, not a realistic one. The 10,000 dollar starting income, a 1% net raise are all way below the minimum. And every mathematical model uses simplifications.

Here is a more realistic one:
You see, I assumed 5 setbacks, when 0each time) the portfolio loses 40% of it current value. That is overly pessimistic, but the results are still quite remarkable.

Rhea

So given the 3% instrument used for Soc Sec, the initial payments are quite fair, not a rip-off. And any COLA you get is just a bonus investment. A better return.



Do you have sources that show this to be ROCK-SOLID over a 30-year period with no defaults? Seems to me in my 401(k) that even the "very conservative mututal funds" had some bad years. Some extremely bad years. Some negative years. I can look at my portfolio, and I'm sure I'll find the years when the "very conservative mututal funds" were quite frightneing.

Making Soc Sec a significantly better deal, right?

That's the thing with set-backs. Some people can handle them, some can't. i expect the person getting $500 or less per month can't really survive setbacks.

Right. Those who get small increases get the most "safety". Those with large, well, we're all investing an additional 40% of our income outside of FICA towards our retirement, aren't we? So we can handle those setback and we can thereby reach for those staggering returns. Of course, if we suffer a personal setback, like medical, we still have that 6% that we contributed to an extrememly safe instrument.

Hitetlen

Look at a more realistic example above: over $700,000 result, despite losing 40% of the portfolio 5 times! And tell me which one is better. On the long haul, during 40 years, the stock market will outperform anything and everything you can think of.

There is no such thing as rock-solid return. Even government bonds fluctuate. But with a properly balanced portfolio you have a very good chance of even income.

No it does not. And the numbers prove it.

The setbacks occur during the accumulation time.

Hitetlen

I hate Excel. I am a programmer, not a "user". (User is a four letter word!)

Hitetlen

Teach the kids some economics and math so they will understand. Compounded interest ruleZ! If someone waits a decade, they will have to invest more to get the same result.

If you give people freedom, sometimes they will abuse it. It is still not a good reason to hobble everyone so a few people will not hurt themselves exercising their freedom.

Rhea

You keep saying "over the long haul" as if there isn't a time when you run out of haul. I don't think it's realistic to say that. A savvy investor _will_ start re-balancing as retirement approaches, and, if they are counting on all of their interest income to live (living pay-check-to-paycheck in retirment), then they will have turned to completely conservative instruments when they approach 10 years before retirement. because they can't pay the rent if they have ANY fluctuation.

It's confusing why this group is routinely ignored.


a "very good chance" doesn't pay rent when you live paycheck to paycheck. A very large number of Americans would live this way in retirement. They do live this way while working. Social security, as far as I know, has never given a reduction in benefits. People can pay the rent with that instrument.

How? At 3%, they were approximately equal. Except your scenarios stays the same for the rest of one's life and Soc Sec gives COLAs.

What supports your claim that NO setbacks will occur after retirement? Does the stock market stand still for retirees? I don't understand this claim. A person needs to live on that interest income (or dividend income, or gain). You claim they are going to get 6% after retirement and it will never fluctuate or see a setback. Why do you say that?

Rhea

Another thing that confuses me. Compound interest is not new. You didn't invent this. There have been many generations who have known this information. Yet still, people don't start saving early.


If it has not worked in history, what makes you certain it can or will work now?


And would you please come and teach my kid ("so he can understand") that if he uses manners at supper, he will get a dessert? It's so simple and he doesn't do it. While you're at it. tell my friend that if she eats less and exercises more she'll lose weight. Maybe she just needs someone to teach her so she'll understand, then it will be all better.

When the hobbling is not crippling, and when the effect is a more stable society around us, many have determined that this is a better deal than the absence.

Similarly, do I think we shouldn't have speed limits on roads, because *I* have 200 hours of high-speed driver training and a roll-cage in my car? I should not be forced to drive at just 65mph, should I? Or 45 on those fabulous winding canyon roads? (Hobbled) And yet, we all agree together that we live in a better society if I am protected FROM those who want to drive fast with no training. *I* benefit from being hobbled on public roads. And then I get my jollies on weekends at the race track.

In that vein, *I* benefit from everyone having at least a subsistence income at retirement. Since I'm responsible, savvy and living below my means, I'm able to put aside an additional 40% of my salary towards retirement, which will rock compared to those who are less so, but which will be safer because there will be fewer folks with nothing living around me.

Barbarossa

OK then, just out of curiosity, how old were you when you started saving for retirement?

Your "real numbers" still constitute a hypothetical situation that is not exactly realistic.
It doesn't have to be "abuse." Emergencies can arise.