@cjm "selling whole wheat bread (good for you, kind of gross)" Yeah, uh, I've thought that *not*-whole-wheat bread is more than kinda gross (limited exceptions for good fresh/sourdough) since I was about 5 (aka a loooong time ago). So I guess I'm the weird one?
@HelloTheFuture Further to the prior--playing around with the SS calculator, someone who is 24 and making $40k now, and retiring at 67 (67 is the new 65) is scheduled to expect $18,500 (2014 $$) in SS--46%. Getting that other 40%--and using a 3.5% withdrawal rate, to retain principal--requires that $450k retirement account. That $450k retirement account, at 6% assumed growth, and 43 years of investments, can be had with annual contributions of $2,500--the Latte+Cable+phone amount. I am in *no way* asserting that life would be easy, or fun, or desirable in *any* way, but I am noting that it's *possible* if you happen to be one of the rare people who get it figured out really early. The *key* is to get the savings started as young as possible.
@HelloTheFuture "a Roth IRA, and that has a $5K yearly contribution max" 1. It's $5,500 now, and goes up periodically. 2. There is the $1,000 extra "catch up" starting at 50, which is also indexed. "If your salary is more than $100,000/yr -- and it's probably a reasonably high salary if you can devote $5K a year just to a Roth -- that's four years of retirement." The professional advisers say you should plan to replace 85% of your pre-retirement income. So that alone makes it 4 years. Then you add in your maxed out SS, but reduce it by ~15% for the likely future, and that's $27k, and that makes that $450k stretch to almost 8 years, and that's living the *same* lifestyle that you did while working (which is where that 85% comes from--and they apply that guideline to people making $50k, $500k, or $5mm a year), which always seems crazy to me, *except* on the below median income end, where it definitely makes sense.
@cjm Okay, and it's *easier* to have that emergency savings if you *do* spend that $2,500/year on lattes and cable? Because it's hard, there's no point in trying? Fine. One can file chapter 7 bankruptcy once every 8 years and chapter 13 as frequently as once every 2 (but mostly every 5, under current law). That's the alternate backstop to the $20,000 medical bill, and works pretty well if you have no non-retirement-fund (ira/401) savings.
@AMoney "If you start when you get out of college, maybe age 22, you only have 8 years to amass $300,000 of retirement savings by that guideline." That's a good point, and if you were somehow *at* $300k by 30, you'd be falling behind to "only" have $400k by 40.
@Stina Black Swan!
@cjm "cutting cable and is not going to pay your $100,000 medical bills" The only things that "pay" your $100,000 medical bill are (1) insurance of some sort (which includes, for certain categories of wealth, self-insurance), and (2) bankruptcy. Normal people just don't get stuck with $100,000 medical bills and *ever* actually pay them. It's much more likely to be $8,000 in medical bills and lost wages (bc of the time lost to the medical issue) that put people over the edge. And it's at least plausible for a middle quintile person/family to save enough to survive a $20,000 hit, and there is *no doubt* that forgoing cable and lattes (like what? $2,500/year?) can help that savings *a lot* pretty quickly.
@HelloTheFuture "guaranteed=conservative, aggressive=risk v. reward, yes?" That's basically how I read it. And if anyone knows where to get *guaranteed* 10% returns for a 20+ year investment period, I'd *love* to hear it.
This: "Olen notes that mathematically, paying off your smallest debt first is not always the wisest financial choice, especially when bigger debts have higher interest rates." misses the point of the snowball. The point is to tackle your mess, and to get some positive progress (relatively) quickly. Because the most dangerous thing is ignoring it, and we (people!) tend to go in avoidance mode when problems seem overwhelming. 10 bills to pay seems a lot better than 14 even if the total owed is only reduced by 1%.
@HelloTheFuture "not even with conservative investments" Not even with *aggressive* investments, no?