A problem I have with these hypothethical savings for retirement situations...

raccoon

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Mon Oct-22-07 01:39 PM
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A problem I have with these hypothethical savings for retirement situations...

"Natalie and Jackson are both newly minted college graduates. Natalie starts saving $4,000 a year in an IRA but stops making new contributions after 10 years. Jackson waits 10 years to start making contributions, but then saves $4,000 a year for each of the next 30 years. They each earn an average of 8% annually on their investments, and both retire at 62. Who has a bigger nest egg?
..."

http://moneycentral.msn.com/investor/calcs/n_rothq/main.asp

Is it just me, or does that 8% average over 40 years seem wildly optimistic?

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pscot

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Mon Oct-22-07 02:15 PM
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1. They say the S&P will yield 10%

over time, and I've found that to be essentially true. The problem with that approach is that there are periods like 1988 to 1992, when the market just laid there, not doing anything, and 2000 to 2004, when my cache dwindled alarmingly. A good blended fund could probably yield around 8%, and one might sleep a little better.

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supernova

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Thu Oct-25-07 11:02 AM
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2. Yield for investments is not unreasonable

But that saving 4K a year fresh out of school I think is. Most entry level salaries (unless you are in a licensed profession like engineering or law) are scrape to get by and you'd do well to pack away 500-1k.

Oh, and if you are earning significantly less than that consistently, it's time to find a better money manager.

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