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I think Bob Brinker (who I stopped listening to on the radio a long time ago) would refer to a concept he called critical mass. A place where money is longer is a daily concern. I interpret this as an amount of money that meets the needs of an average retiree over an average retiree's lifetime invested in growth and income producing vehicles.
I believe we first grow our assets by saving. As saving accumulate (through investing savings) these assets start to represent multiples of our earned income. I remember saying to myself, "Cool, I have savings (assets) equal to a years salary (earned income)."
Further along savings assets start to "grow" (in one year) in significant ways. They may begins to equals your yearly savings or even a year's salary. I believe it was at that point that the idea of retirement from a day job starts to become a possibility. For many of us, the 2008-2009 downturn ripped many of these thoughts from our heads. But when assets consistently throw off enough earnings to satisfy an individuals financial spending needs that individual starts to feel a sense of critical mass.
Pensions, Social Security, and annuities help solidify some of these investment assets into income streams for those who chose to stop earning an income.
Here's Bob Brinker's website definition of Critical Mass:
A state of freedom from worry and anxiety about money due to the accumulation of assets which make it possible to live your life as you choose without working if you prefer not to work or just working because you enjoy your work but don't need the income. Plainly stated, the Land of Critical Mass is a place in which individuals enjoy their own personal financial nirvana. Differentiation between earned income and assets is a fundamental lesson to learn when thinking in terms of critical mass. Earned income does not produce critical mass......critical mass is strictly a function of assets.
Regardless of all this, I still pick up dropped change.
Further along savings assets start to "grow" (in one year) in significant ways. They may begins to equals your yearly savings or even a year's salary. I believe it was at that point that the idea of retirement from a day job starts to become a possibility. For many of us, the 2008-2009 downturn ripped many of these thoughts from our heads. But when assets consistently throw off enough earnings to satisfy an individuals financial spending needs that individual starts to feel a sense of critical mass.
@bee, this is very wise thinking and something that resulted in a significant career change for me a few years ago. Not exactly retired but no longer beholden to a job.
After the critical mass (which will be different for each), a salaried job is a very poor investment in the bigger picture. Tax treatment of wages vs capital is so skewed in this country that typical upper middle class wages make no sense whatsoever except as means to accumulate capital as much as possible before you get out (which most people unfortunately don't do). Either you earn in the $180k+ range though in most cases it comes with a high stress or BS at work or you earn less than $60k or so in wages which comes with a lot of benefits which are not means tested and helps the growth of capital with favored tax treatment.
It is much easier to get a net return on capital after critical mass than it is to get on career growth because the game is stacked for capital and against wages and there are signs that it will be increasingly so.
If there was a tool out there for people to estimate their critical mass needs easily and early, it would help immensely in this new normal of short careers and stagnating wages.
There is no shortage of retirement planning tools and services; there are legions of them. They have been available for decades, and are getting better each and every day. The issue is not access to these fine resources, but in choosing one or more that you understand and trust. Note that I purposely suggested using more than one such calculator as a means to test result stability.
All the major mutual fund houses (Fidelity, Vanguard, T. Rowe Price) offer free access to their retirement planning toolkit. Many years ago, I deployed early versions of these tools to inform my retirement decision. I’m sure these extended calculators have improved since that time.
I supplemented these tool sets with my own Monte Carlo simulations. Projecting portfolio likely status, with an odds distribution map, is directly in the Monte Carlo’s wheelhouse in both the accumulation and distribution phases of a portfolio’s lifecycle. The mutual fund houses now make liberal use of this tool.
The Internet is almost choked with competing resources that do the same job, many of them are free and easy to exercise. In earlier posts, I mentioned many of my favorites. Here are three such references. This limited list is certainly not comprehensive, but it is representative of what is available with just a little effort by the pre-retiree.
I suggest that you consider the following resources if you want to engage in any needed retirement planning task:
Access to Bill Sharpe’s Financial Engines is somewhat limited, but the other two Links are absolutely free. Financial Engines and Vanguard have partnered, so access is available through a Vanguard account.
These are user friendly simulators. I’m sure other MFO members can substantially add to this brief list.
The simulations run so rapidly that numerous what-if scenarios can be explored in short order. The job is iterative in nature. It is strongly influenced by user investment asset allocation preferences and the uncertainty of unknowable future market rewards. An investor’s optimistic or pessimistic attitude governs the exploration range of inputs. The Monte Carlo calculators permit a testing of the outcome odds sensitivity to this range of unknowable events.
In the end, the user gets to judge if a projected portfolio survival probability satisfies his own personal comfort zone.
A retirement decision is never risk-free. But these Monte Carlo-based simulators enhance the likelihood of a solid decision. The ball is always in the investor/candidate retirees court. Please consider using these Monte Carlo tools to improve the chances of scoring the winning basket.
Sorry, I prepared my comments before some of the intervening submittals, so some of my post is redundant.
Comments
I think Bob Brinker (who I stopped listening to on the radio a long time ago) would refer to a concept he called critical mass. A place where money is longer is a daily concern. I interpret this as an amount of money that meets the needs of an average retiree over an average retiree's lifetime invested in growth and income producing vehicles.
I believe we first grow our assets by saving. As saving accumulate (through investing savings) these assets start to represent multiples of our earned income. I remember saying to myself, "Cool, I have savings (assets) equal to a years salary (earned income)."
Further along savings assets start to "grow" (in one year) in significant ways. They may begins to equals your yearly savings or even a year's salary. I believe it was at that point that the idea of retirement from a day job starts to become a possibility. For many of us, the 2008-2009 downturn ripped many of these thoughts from our heads. But when assets consistently throw off enough earnings to satisfy an individuals financial spending needs that individual starts to feel a sense of critical mass.
Pensions, Social Security, and annuities help solidify some of these investment assets into income streams for those who chose to stop earning an income.
Here's Bob Brinker's website definition of Critical Mass:
A state of freedom from worry and anxiety about money due to the accumulation of assets which make it possible to live your life as you choose without working if you prefer not to work or just working because you enjoy your work but don't need the income. Plainly stated, the Land of Critical Mass is a place in which individuals enjoy their own personal financial nirvana. Differentiation between earned income and assets is a fundamental lesson to learn when thinking in terms of critical mass. Earned income does not produce critical mass......critical mass is strictly a function of assets.
Regardless of all this, I still pick up dropped change.
After the critical mass (which will be different for each), a salaried job is a very poor investment in the bigger picture. Tax treatment of wages vs capital is so skewed in this country that typical upper middle class wages make no sense whatsoever except as means to accumulate capital as much as possible before you get out (which most people unfortunately don't do). Either you earn in the $180k+ range though in most cases it comes with a high stress or BS at work or you earn less than $60k or so in wages which comes with a lot of benefits which are not means tested and helps the growth of capital with favored tax treatment.
It is much easier to get a net return on capital after critical mass than it is to get on career growth because the game is stacked for capital and against wages and there are signs that it will be increasingly so.
If there was a tool out there for people to estimate their critical mass needs easily and early, it would help immensely in this new normal of short careers and stagnating wages.
Coming from such a sharp knife I appreciate the comment here as well as respect your view points elsewhere.
Not sure if this is what you were looking for, but a quick google search provide these:
crystalbull.com/Critical-Mass-Retirement-Calculator/
or, this one from Mass Mutual?
massmutual.com/mmcalcs/RetirementIncome.html?site=retiresmart&contenttype=calculators
I started a new thread and requested help:
mutualfundobserver.com/discuss/discussion/12437/looking-for-a-critical-mass-calculator
Wish and you shall receive.
There is no shortage of retirement planning tools and services; there are legions of them. They have been available for decades, and are getting better each and every day. The issue is not access to these fine resources, but in choosing one or more that you understand and trust. Note that I purposely suggested using more than one such calculator as a means to test result stability.
All the major mutual fund houses (Fidelity, Vanguard, T. Rowe Price) offer free access to their retirement planning toolkit. Many years ago, I deployed early versions of these tools to inform my retirement decision. I’m sure these extended calculators have improved since that time.
I supplemented these tool sets with my own Monte Carlo simulations. Projecting portfolio likely status, with an odds distribution map, is directly in the Monte Carlo’s wheelhouse in both the accumulation and distribution phases of a portfolio’s lifecycle. The mutual fund houses now make liberal use of this tool.
The Internet is almost choked with competing resources that do the same job, many of them are free and easy to exercise. In earlier posts, I mentioned many of my favorites. Here are three such references. This limited list is certainly not comprehensive, but it is representative of what is available with just a little effort by the pre-retiree.
I suggest that you consider the following resources if you want to engage in any needed retirement planning task:
http://corp.financialengines.com/
http://www.moneychimp.com/articles/volatility/retirement.htm
http://www.flexibleretirementplanner.com/wp/
Access to Bill Sharpe’s Financial Engines is somewhat limited, but the other two Links are absolutely free. Financial Engines and Vanguard have partnered, so access is available through a Vanguard account.
These are user friendly simulators. I’m sure other MFO members can substantially add to this brief list.
The simulations run so rapidly that numerous what-if scenarios can be explored in short order. The job is iterative in nature. It is strongly influenced by user investment asset allocation preferences and the uncertainty of unknowable future market rewards. An investor’s optimistic or pessimistic attitude governs the exploration range of inputs. The Monte Carlo calculators permit a testing of the outcome odds sensitivity to this range of unknowable events.
In the end, the user gets to judge if a projected portfolio survival probability satisfies his own personal comfort zone.
A retirement decision is never risk-free. But these Monte Carlo-based simulators enhance the likelihood of a solid decision. The ball is always in the investor/candidate retirees court. Please consider using these Monte Carlo tools to improve the chances of scoring the winning basket.
Sorry, I prepared my comments before some of the intervening submittals, so some of my post is redundant.
Best Regards.