You're going to be poor if you're not investing at LEAST 20% of your gross pay in index funds.

saw a stat from Fidelity recently that the average investor with a million or more in their retirement fund invested on average 16% of earnings. The investors included in this study all had household incomes under $150k. The key was most started saving in their 20s.

Whatever you invest in, the millennial generation will rob your accounts in 30 years.

I contribute at least 15% of my income yearly (maximum allotted per my age and retirement account). I guess I'm screwed. Irrespective, I'm planning on retiring early for the sole purpose of collecting my rightfully earned benefits from Uncle Sam while social security still remains (somewhat) solvent. I'm looking forward to resting on my laurels for once and enjoying the benefits of my own g'damn money.

Fidelity wrote:

saw a stat from Fidelity recently that the average investor with a million or more in their retirement fund invested on average 16% of earnings. The investors included in this study all had household incomes under $150k. The key was most started saving in their 20s.

Yeah, no. It doesn't add up right. Median U.S. income suggests the persons capable of saving like that have one of a very small number jobs where income is very high.

Median U.S. income is $51,000 and let's pretend it's a household with two workers. 102,000 before taxes and imagine 71,000 take home. It takes 27 years just to hit a number above 1 million saving $20,000/yr at a yield of 6% and that's without discounting for inflation.

Save $40,000/yr at a yield of 6% and it takes 17 years to break into the once esteemed category of millionaire, not factoring for inflation which will grind that number to valueless bits. Theoretically having 40,000/yr to save means the earner's income is one of very few incomes because it is so far away from the median, likely a six-figure salary.

Also, real income has declined and will continue to decline while their income is discounted by inflation. So, progressively fewer people will be able to earn their way into Fidelity's stats.

you're way off on returns. Google a stock market calculator and on your example of 27 years, You'll find the average return from 1987-2014 for the S&P 500 was 12.02% with dividends reinvested.

Redo your calculations and you'll be in for a surprise.

His assumptions include other pessimistic oversight. He posits that inflation will 'grind down' the spending power of returns but doesn't reason that it will inflate the yield? Investing 101. One of the most important incentives for saving/investing is to keep ahead of inflation.

Also the employer match increases contributions. Also, people work for like 40-50 years.

It may take 27yrs for wealth to compound and accumulate, but the magic in compounding interest is in the long run. Re-run your numbers and observe the difference in what happens in years 28-40 vs the previous 27. This is why planners are adamant about getting started with saving early in life no matter what the amount being set aside amounts to.

^ This

It takes a lot of discipline, a lot of years and some courage to invest wisely in the market before your net worth hits critical mass and begins to grow faster than you could have imagined. 10-15 years past that point you're ready to retire in comfort.

Index funds are for poor people. Separately managed accounts are where it's at if you are a true baller.

Even steven wrote:

Also the employer match increases contributions. Also, people work for like 40-50 years.

How many employers match?

What is the match formula?

How much do they match? Low single digits.

How many defer? Again, discounts contributions.

FYI the request to "recalculate."

Annualized S&P 500 Return (Dividends Reinvested) No inflation

1987-2014 9.559%

1986-2013 9.871%

1985-2012 10.282%

1984-2011 10.863%

Correct for inflation and yields drop to about 6%.

I absolutely agree that starting early is mandatory. No doubt. But, yields are down and median wages are way down.

Point #1: The idea of using 6% is it's a LIKELY return. Is it possible to get double-digit yields? Yes. Is it likely? No.

Point #2: It is progressively less likely with each year that passes that a median employee CAN start saving early enough based on wages alone.

Isn't putting money in an index fund like putting a dollar on every horse in a race? A key difference is you are buying through a middleman who takes a cut of any winning or takes a cut even if you don't win.

Xactly wrote:

Isn't putting money in an index fund like putting a dollar on every horse in a race? A key difference is you are buying through a middleman who takes a cut of any winning or takes a cut even if you don't win.

Yes, but your analogy is off base. If you buy a managed fund, you get destroyed with fees, unlike with Vanguard, who only takes a miniscule percentage. Over the years, index funds through Vanguard pretty consistently beat managed funds over the long haul.

A better calculator which also included raw data for yearly gains of the S&P 500.

http://www.moneychimp.com/features/market_cagr.htm

Inflation may eat into gains, but hopefully your salary progression exceeds the losses, meaning contributions based on a percentage of earnings will grow faster than inflation.

Xactly wrote:

Isn't putting money in an index fund like putting a dollar on every horse in a race? A key difference is you are buying through a middleman who takes a cut of any winning or takes a cut even if you don't win.

The cut is like $7 buying and selling-- not significant unless you're talking tiny sums of money.

runDirtyrun wrote:

Fidelity wrote:

saw a stat from Fidelity recently that the average investor with a million or more in their retirement fund invested on average 16% of earnings. The investors included in this study all had household incomes under $150k. The key was most started saving in their 20s.

Yeah, no. It doesn't add up right. Median U.S. income suggests the persons capable of saving like that have one of a very small number jobs where income is very high.

Median U.S. income is $51,000 and let's pretend it's a household with two workers. 102,000 before taxes and imagine 71,000 take home.

You understand that $51,000 is median "household" income, so it already assumes two incomes. The example you are using is a household income that is double the median (it would be about top 15%).

That's Great!

I feel sad for so many people in this thread.

The average wage at my work is about $90k. Every single person nearing retirement has $1-2 million in retirement accounts. 5% match from the company and aggressive saving.

Calculator man wrote:

A better calculator which also included raw data for yearly gains of the S&P 500.

http://www.moneychimp.com/features/market_cagr.htm

Inflation may eat into gains, but hopefully your salary progression exceeds the losses, meaning contributions based on a percentage of earnings will grow faster than inflation.

Thanks for the calculator! I hadn't realized how poorly the S&P had performed since y2k versus several of the largest managed mutual funds since y2k even when front loads are included.