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September 14, 2009


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I'm with you here. I've always believed that earning more And spending less are both equally important.

It would seem that a lot of people have expended a lot of time and energy debating which is more important. But frankly, I don't see the need for such hair-splitting. They're both important.

Rather than argue whether the left leg is more important than the right leg, or vice versa, I think it's easier and more productive to simply acknowledge that you can't move forward without developing both.

This is very true. All it really takes is discipline. That's obviously not easy, but it is true none-the-less. The discipline not to spend more than you earn, the discipline to put money aside every month, and the discipline to set and achieve goals can lead to wealth over time.

Most of the wealthy people I know acquired their wealth either through family connections (parents or spouses) or do, indeed, have high-paying jobs (or cashed out of them before). And when I say a high-paying job, I mean more than $200K.

There's nothing wrong with advising folks to maximize their income and live below their means--I think that's helpful advice regardless of life situation--but I always find it a little sad when people convince themselves that an ultra-comfortable retirement can be accomplished on modest regular savings from some $45K/year cubicle job. Barring some ridiculous luck in investment timing and life expenses, no, it really can't.

Um, yes it can.

I make $45K/year, and at my current rate of savings, I will be able to retire in 15 years, by the time I'm 40.

FMF did the same thing. Sure he makes more now, but I'm sure he made 45K a year for a significant portion of his life.

But if you have any doubts, just do some math. Compounding money works wonders. Perhaps your problem is in your statement "modest regular savings". I don't know what "modest" means to you, but it is often recommended to save at least 15-20% of your income per month, and even more if you'd like to retire early.

save 25% or more, live "well" but, frugally and retire young works! I did it at 47 w/o inheritance, lottery, etc., just hard work! I had over $100K saved/ invsted 20 years ago (1989 so that was a LOT of $$ then!) w/ no debt, two paid for cars and at that time just an income from being an Air force Lieutenant! It can be done!

My father never earned more than $45k a year and retired comfortably. Before his passing a few years ago, he and my mother would travel the US quite often in their van. They wouldn't stay in fancy hotels or eat at top end restaurants while traveling. Mostly staying in State or National Park campgrounds or the local KOA.

It's all about perspective. I'm a $50k a year kind of guy, I like my job and I'm comfortable with my lifestyle. If I continue to be diligent about my savings I should be able to retire in ten or twelve years at my current standard of living with little difficulty. I may never spend the Summer at a place on Martha's Vineyard or eat a $500 dinner at some foo foo spa in the Bahamas, but I'll be no less comfortable than I am now.

Most of us will start out with average jobs, perhaps making $30-40K a year, even after graduating from college. I think the key is to develop the discipline of saving a regular percentage of that income from the beginning, and when we do develop our careers, not allow ourselves to give in to lifestyle inflation, but to continue to save regularly. Either way, one shouldn't end up forty years down the road with nothing but social security to live on in retirement.


Not according to some quick numbers I just ran.

If you started at the $45K salary at age 20, with no debt of any kind (and no savings), continued to receive $45K until retirement, and saved 25% of your yearly income, getting a 7% return, with a 3% rate of inflation, and retired at age 40 on 90% of your current income, with a 3% return on post-retirement income (reflecting a significantly more conservative asset allocation) you would run out of those assets in about a decade. If you drop to 70% of your current income, you only add about 3 years. Assuming that social security payments will replace 35% of your income in retirement (I don't know about you, but I'm quite anxious about what payments will be available to us younger folk at retirement), you're still running out at 67. If you're a 25-year-old guy now, I believe your life expectancy is in the late 70s or early 80s, so if you're retiring at 40, you need to provide for about forty years at least. And that's taking some risks.

I used this calculator here: Of course, you can tinker with the numbers around the edges--my assumptions are, I think, fairly conservative, but obviously I can't guarantee them--but if the numbers require a lot of tinkering, you're taking on a lot of risk.

It's important to remember a few things: (a) average rate of return does not necessarily mean the rate you will have achieved at retirement (most people who had to retire during the current crisis are not getting their average return on their portfolio before last year); (b) you have to adjust the return on your investments for inflation; (c) you're really not supposed to draw more than 4% of your assets in any given year of retirement.

Good luck to you, though.

Would you say that wealth DOES require an income greater than minimum wage?

Interesting comment about spending less when you earn $100K than $50K per year. It certainly gives you a lot more potential to save when you earn $100K compared to $50K. However, it is quite a common trend that the higher one's salary is, the more one spends.

When people say "save" 25% do they really mean "invest"? The two mean completely different things to me. I have $200 going into a Roth each month, and I contribute to a 401K up to the company match. But no amount of money invested is guaranteed to return anything so I have been concentrating on saving up a cash cushion. I am not referring to an e-fund but just money in general to buy a car outright, put a DP on a home if I wanted, help out a family member--things like that. I'd like to have a fairly large sum just in cash when I retire but I'm not sure what that should be.

How much do people typically have in liquid savings when they retire, percentage-wise?

In the Millionaire Next Door the data reflects that the median income of a millionaire is $131,000/year. Half make more, half make less. There were also references indicating that a significant portion of these millionaires had incomes of less than $100,000 and gave examples of individuals making around 60K.

In almost every case the wealth was attributed to frugality. The average millionaire buys a used car that is 4 years old and a house that is only worth 2 times their annual income.

They save and with their savings they invest.

All the frugality in the world will not make a hamburger flipper a millionaire.

To me, it's frustrating to look at the husband's 2009 end-of-the-year gross salary of $109,000, where a lot of that 'pay' was in the form of comp time and overtime, which is not guaranteed income (all overtime pay has been since been cut at least until the end of the fiscal year). His base salary is $76,000 and that is the amount on which his pension is based.

So what do I base our savings rate on -- the $109,000 or the $76,000? Of course after state (6%) and fed. taxes, healthcare premiums and co-pays, union dues, pension contributions, etc., etc., we see a lot less than those numbers in the paycheck!

Oh, and BTW, we've been 'investing' for over 12 years (kind of on auto-pilot...dollar-cost averaging -- aggressive allocation -- in both a pre-tax/deferred comp. plan and in a Roth) and have just had our accounts break even w/ a modest gain, even after the latest bullride!

However, my individual, hand-picked stocks are up 200+% (Ford and others). Go figure!

Seems that, compared to the older generations, it's a difficult hand we genXers have been dealt.

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