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cman asked whether a tool existed that would help a young (or old) investor better understand gathering assets to achieve critical mass (discussed here)
I wonder if anyone has a favorite calculator. So far I like to comprehensiveness of AARP calculator (which is described as a retirement calculator):
There is a bit of confusion about core mass calculation and retirement planning. There are many tools for the latter. They are not necessarily the same.
Having a core mass at any point in time is where you have accumulated enough capital so that the return on capital (after considering taxation) equals or betters your wage earning capability at that time to satisfy your needs including saving for retirement. This can happen in your 30s (if you have a good stint on Wall Street or have a successful startup, as easy but not so common examples) or say in your 50s if you have had a good career and saved wisely (or unfortunately for many never).
I don't think many people think this way but rather think in terms of accumulation phase where you work and work and work and an age-based retirement age because you lose your job or get too tired to work.
I think there is a different way to look at this to decide career choices and financial plans, for example, taking large risks when young to quickly accumulate capital in labor markets in high paying but unstable jobs rather than lower paying stable jobs. This is not different from taking higher risks in investing when young.
While the extreme states of of all labor and all capital may seem unrealistic for most, consider that having a core mass is possible for many before the traditional retirement age with a disciplined and steady career and it is possible to make lower paying but healthier or better quality of life career choice long before retirement when you consider both the return on your capital and labor as your total income.
This is somewhat like the quantitative analysis people do on whether one spouse staying at home looking after a kid is more or less expensive than the costs of both working and employing nannies, etc. The answer may surprise some.
I am sure many have stumbled on this type of life planning on their own, but I haven't seen a more thought out general framework especially for young people starting out.
Retirement planning tools are inadequate for this because the model for investment return is over-simplified and designed more for a relatively shorter drawdown period using simple market returns only.
Comments
regards,
Ted
http://www.blackrock.com/cori-retirement-income-planning
Having a core mass at any point in time is where you have accumulated enough capital so that the return on capital (after considering taxation) equals or betters your wage earning capability at that time to satisfy your needs including saving for retirement. This can happen in your 30s (if you have a good stint on Wall Street or have a successful startup, as easy but not so common examples) or say in your 50s if you have had a good career and saved wisely (or unfortunately for many never).
I don't think many people think this way but rather think in terms of accumulation phase where you work and work and work and an age-based retirement age because you lose your job or get too tired to work.
I think there is a different way to look at this to decide career choices and financial plans, for example, taking large risks when young to quickly accumulate capital in labor markets in high paying but unstable jobs rather than lower paying stable jobs. This is not different from taking higher risks in investing when young.
While the extreme states of of all labor and all capital may seem unrealistic for most, consider that having a core mass is possible for many before the traditional retirement age with a disciplined and steady career and it is possible to make lower paying but healthier or better quality of life career choice long before retirement when you consider both the return on your capital and labor as your total income.
This is somewhat like the quantitative analysis people do on whether one spouse staying at home looking after a kid is more or less expensive than the costs of both working and employing nannies, etc. The answer may surprise some.
I am sure many have stumbled on this type of life planning on their own, but I haven't seen a more thought out general framework especially for young people starting out.
Retirement planning tools are inadequate for this because the model for investment return is over-simplified and designed more for a relatively shorter drawdown period using simple market returns only.