Tuesday, October 15, 2002
I was doing some calculations last night (as was made obvious by the previous post). The sooner you start saving, the better off you are. That is obvious, but I don't think people are aware of the degree to which that makes a difference. Every $10/month you save for 30 years is another $8000 in your retirement fund. And the more principal you start with, the more the interest will help. With a sufficiently large starting fund, all you have to do is leave your money alone for a while (not too long) and then you can live off the interest. For example, if you start with $1 million at 5% above inflation and leave it alone for 5 years (while you, say, work), you will be able to live off it for another 27 years, withdrawing $7,000/month (that is worth more than $7,000/month from a regular job because you don't pay Social Security tax on interest, as far as I know). If you wait 7 years to touch it, then you will be able to live off it for another 35 years. If you wait 10 years to touch it, you will have money for 61 years after retirement. And if you wait just two more years to start tapping your fund, your money will last forever. So this is the plan: get a million dollars. Work for twelve years. Live forever.