Comments on: How much should you have saved by now?

By: When will you be a millionaire?- 7million7years

When will you be a millionaire?- 7million7years — Wed, 22 Jul 2009 09:39:54 +0000

[...] Last week, I posed the question: how much should you have saved by now? [...]

By: Lee Martin

Lee Martin — Sat, 18 Jul 2009 19:22:28 +0000

My savings is begining to pick up, one of the things I did was open an account that I automatically deposit into but it takes some specific work to withdraw. I also have an “ING” account, so I at least have a savings plan.

By: traineeinvestor

traineeinvestor — Fri, 17 Jul 2009 01:51:30 +0000

@Adrian

The spreadsheet would be a bit too challenging for me but I will have a go….after I hit my number and have some spare time

I suppose compounding could encourage some people to slack off in the early years but it would have the opposite effect for me because (i) I did push myself hard to maximise savings in the early years of my career and (ii) the early savings benefit from the effects of compound returns more than later savings

By: Adrian

Adrian — Thu, 16 Jul 2009 23:45:26 +0000

@ Trainee – when you come up with the spreadsheet, log it in here

Now, the compromise would be to put in compounding numbers, which have the effect of ‘loading’ the annual (hence, cumulative … which is what Money Magazine’s figures are) savings rates in later years …

… but, doesn’t that just take the pressure off us to perform in the early years, when it matters most? That’s why I’m reasonably happy with the linear approach for anything up to, say, 10 years to your Date: the proverbial kicketh up thy owneth backside!

By: traineeinvestor

traineeinvestor — Thu, 16 Jul 2009 14:22:04 +0000

The Money Magazine approach does not work for me either – for the reasons you give. And you can’t work backwards using their numbers (e.g. using their age 60 figure for what you should have if you want to retire in five years time at some earlier age) because they have assumed a given life expectancy and (I suspect) drawing on social security.

Your approach is more sensible, but it assumes a linear rate of progress. This may be reasonably close for short time periods but starts to look a bit uncertain for longer time periods because I’d assume most people doing it the hard way (i.e. saving from a salary) would:

1. having rising incomes as they gain experience etc – which should lead to rising dollar savings everything else being equal

2. have uneven savings rates because everything else is seldom equal (marriage, children, house, divorce, illness, tax increases, working for Lehman Brothers etc)

3. start to benefit from compound returns as they accumulate assets and they start reinvesting the returns on those assets

If you are running your own business it would be even more volatile and unpredictable.

Now if you can come up with a spreadsheet that takes into account all those variables….:-)

By: Adrian

Adrian — Thu, 16 Jul 2009 11:06:53 +0000

@ KC – Thanks for the s/sheet! I’m having “permissions” problems gaining ‘edit’ rights, but to get to $4 mill in just under 10 years from an almost standing start (relative to $4 mill. that is!) sounds like a $400k-a-year savings exercise to me

By: KC

KC — Thu, 16 Jul 2009 10:31:02 +0000

@Adrian. I’ve done a simple spreadsheet that does the subtractions between dates and the Number and current net worth.

http://spreadsheets.google.com/pub?key=t9WqKJrj_uMNj1WPpnRpj0w&output=html

I summarise it here with Scott’s figures:

End date: 01/01/19
Today’s date: 16/07/09

Days: 3456
Years: 9.47

Number: 4,000,000
Current net worth: 223,452

Difference: 3,776,548

Diff / yrs: 398,854

Is that the result you would expect? Or should I alter the spreadsheet?