The power of Compound Interest, the stock market, and your 401K plan

[Trauma-san]

135 grand annually with no savings on your own part would be a very comfortable retirement.  Add on top of that whatever the kid decides to save for retirement himself, and whatever paltry amount social security pays (if it's still around in 65 years) and this kid will live a wonderful retirement. 

[Shallow]

THIS is how people get extremely rich, not by cheating people out of money like the victims among us sometimes claim. 

But THIS isn't "extremely" rich. I don't consider myself a victim and I don't complain about it, but when a company like Ford outsources its plants and takes away jobs from thousands that is "cheating people out of money". In the beginning days of capitolism in England when plant owners would work people for hours on end and then open up a bar across the street so workers could spend most of the money they made in that bar that was "cheating people out of money". When those same people hired children instead of men (to do work that needed to be done by men) because it you could legally pay children less that was "cheating people out of money". All these things may have been legal then or legal now but that doesn't make it right. It's not illegal to look at your classmates test to get answers but it is still cheating. To get "extremely" rich you have to somehow cheat people in most case. I'm sure there are exceptions, but for the most part you are screwing people out of money you you become a multi-billionaire. Like when Walton would open up a store in town, put all the store owners out of business then hire them at 7 or 8 bucks an hour, while making sure no other store can compete with him by forcing suppliers to sell to him for less than anyone else. Walton gets rich, consumers save money, but many workers make a lot less money because of it. I'm not complaining. I'm just telling it like it is.

Also, this plan wouldn't work if everyone did it. The inflation would just rise so high that $700,000 would end up meaning more like $30,000. It's like if every high schoool kid busted their asses off and applied to pre med and all had straight As. The med schools would only take the kids with 95%+ grades instead of 80% or 85% or whatever it is, then in the next few years the work load would just get a lot harder to make sure less people are eligible. Society can't work with out the lower class. It's a fact.

[Trauma-san]

^ I don't think lack of a lower class will ever be a problem, there will always be people ignorant about money who live their entire lives without saving anything, then have to retire penniless.  There will always be people who don't work very hard to educate themselves, and are forced to take lower paying jobs.  There will always be unfortunate people as well who through no fault of their own have no money. 

135 grand a year isn't extremely rich, but having 10 million in a savings account (which he will) IS extremely rich.  Remember this is all money the kid himself had nothing to do with, as well.  Anything he manages to save or invest or buy in his lifetime will be gravy.  With a grandfather like this, I'm sure he'll do JUST FINE. 

[Ant]

Most of this discussion ignores the reality.  Very few people have the ability to put 10,000 away for 65 years and just wait for it.  Most of us have 30-40 years to save.  And as I already pointed out... the stock market will not garantee you an 11% return over time.  For a 30 yr period the market will garantee you with 95% certainty an inflation adjusted return between 2.6% and 10.6%.

It is completely possible for you to put your money in the market TODAY and wake up 30 years from now to find that money has only grown 2.6% or even less.  Over course the opposite is possible too.  But there is no such thing as a garanteed 11% return over time in the US stock market, and there certainly IS NOT a garaunteed 15% over time.  Anyone that tells you this is the case is full of it.

To suggest that:

"Carefully chosen mutual funds can easily offer 11% returns, in fact most of the big players have almost perfected strategies to earn nearly 15% returns with minimal risk."

Is completely ridiculous.

[nibs]

I think it's pretty clear that "nibs" doesn't know what the fuck he's talking about. 

hahahaha @ "135k a year really isn't alot of money.  nothing you'd want to live off if you had a family."
...with 135k, money might be tight if you have the kids in private school, give them 360s, buy them designer clothes...
I'd LOVE to grow up with my fam making that kind of money.

lol.  don't get it twisted.  135k a year will pay the bills and keep food on the table with a family.  but you're going to be on a budget.  i don't feel comfortable saying xyz is alot of money if you have to budget shit in order to save and what not.  you will end up relying on credit to address emergencies, and those types of expenses can add up. 

keep my statements in perspective.  most families in america don't have alot of money.  most people have significant debt and live paycheck to paycheck.  off 135k a year, with a mortgage, say two car notes (for each parent) plus regular household expenses...you really won't have that much left over without budgeting.  simple shit like eating out and hanging out costs.  people like to do these things.  travelling is pretty damned expensive.  if you have to plan 3 or 4 months ahead and budget in order to schedule a trip...that's not a lot of money in my book.  for a single person, sure you could ball out.  for a family, you're going to want more.  i'm going to say for a family of four, you'd want atleast 180k to be comfortable...

sure people get by on less.  the question isn't "how little can you get by on" the question is "what is alot".  i'm saying 135k is not alot for a family, i stand by that.  65 years of effort for effectively 135k a year is not worth it.

[nibs]

you mean 135k in cash or untaxed?

i was actually thinking 135k + taxes, as if it were a salary.  so only a fraction of 135k.  i'm guessing it's about 100k after taxes.  trauma was talking about a 401k, typically with a 401k you put a percentage of your gross salary into the account.  so you're taxable income is less, and the money in the 401k account grows faster as you are putting more in upfront.  but you still pay taxes on that money when it's withdrawn down the road.   

my father made WAY less money anyways.. 6k a month .. I wouldnt call us poor.

i'm not saying it's poor.  what i'm saying is it is not alot of money.  investing for 65 years to get what effectively is 135k is not a big payoff.

[Shallow]

^ I don't think lack of a lower class will ever be a problem, there will always be people ignorant about money who live their entire lives without saving anything, then have to retire penniless.  There will always be people who don't work very hard to educate themselves, and are forced to take lower paying jobs.  There will always be unfortunate people as well who through no fault of their own have no money. 

135 grand a year isn't extremely rich, but having 10 million in a savings account (which he will) IS extremely rich.  Remember this is all money the kid himself had nothing to do with, as well.  Anything he manages to save or invest or buy in his lifetime will be gravy.  With a grandfather like this, I'm sure he'll do JUST FINE. 

I agree, I'm just saying, even if every one did this it wouldn't work. Society would just make it it so 1) the seniors with the 10 mil could never access the whole pot, and 2) everything aimed at them in the market would cost a hell of a lot more.

[nibs]

2) everything aimed at them in the market would cost a hell of a lot more.

aka "inflation", which is exactly what is going to happen if the u.s. continues with these insane federal budget deficits...

[Shallow]

2) everything aimed at them in the market would cost a hell of a lot more.

aka "inflation", which is exactly what is going to happen if the u.s. continues with these insane federal budget deficits...

Yeah but if everyone, or even a vast majority of seniors retired with 10 million, then it would be a very extreme inflation, even if only for retirees. Old folks homes and condos would skyrocket, and the people selling to these old timers would be taxed through the ass.