Jorge,
I answered your question in the last page.

quote:

Originally posted by George Smiley Heh, piece of piss innit?!

absolutely.


if guerra's 35 million number is correct, i made a pretty accurate guess; that's a little more than 11 percent of the population. That number means that most people need to make around 125K to save that much. score!

quote:

Originally posted by George Smiley So tell me how much they would have had to put aside each month. And tell me how much they would need to earn each year to be able to afford to do that, and for how many years would they need to save...

Ok. I will answer here for you. Earning enough money is not the problem. About 80 to 87% of Americans have the money to invest in. The problem is that most do not begin early. So if you want to start late, at the time most Americans begin to save money, 40, you would need to put 2 750 a month to earn that same million. But if you started early at 29 than its just 90 dollars a month.
Watch 1080 * 38 = 41040 for a million dollars
2750 * 12 * 27= 891000 for the same million as above^

quote:

Originally posted by guerra-monstru Not true

You clearly don't know how to do Future value calculations if you think my number is wrong. Plus, you gave no interest rate. how can you tell how much 1080 will grow without knowing the interest.

EDIT: actually, you're right, i was wrong, you need to save more than 9000 a year, i was doing monthly compounding at 4.5%. If the annual rate of return is only 4.5%, then you need to save more - $9300.

enter this into excel, =pmt(0.045, 40, 0, 1000000). That's how you find the required payments to accumulate 1 million.

you could also see the how you accumulate over a period of time by doing this: =fv(interest rate, term, payments each year, 0)

Last edited by jerZ07002 on May-29-2008 at 22:56

quote:

Originally posted by guerra-monstru Ok. I will answer here for you. Earning enough money is not the problem. About 80 to 87% of Americans have the money to invest in. The problem is that most do not begin early. So if you want to start late, at the time most Americans begin to save money, 40, you would need to put 2 750 a month to earn that same million. But if you started early at 29 than its just 90 dollars a month. Watch 1080 * 38 = 41040 for a million dollars 2750 * 12 * 27= 891000 for the same million as above^

what? not only does that not make sense, but it also doesn't add to a million dollars.

what about compounding interest? that's what causes the wealth to grow.

quote:

Originally posted by guerra-monstru Ok. I will answer here for you. Earning enough money is not the problem. About 80 to 87% of Americans have the money to invest in. The problem is that most do not begin early. So if you want to start late, at the time most Americans begin to save money, 40, you would need to put 2 750 a month to earn that same million. But if you started early at 29 than its just 90 dollars a month. Watch 1080 * 38 = 41040 for a million dollars 2750 * 12 * 27= 891000 for the same million as above^

Ok, I'm no economist or financial expert, so you're gonna have to explain it in simpler terms than that cos all I see is you get to $41,040 and somehow you've managed to add interest on that to come to $1m, that right?

I don't understand how you get to $1m!

quote:

Originally posted by jerZ07002 what? not only does that not make sense, but it also doesn't add to a million dollars. what about compounding interest? that's what causes the wealth to grow.

I was trying to use an example from an economics professor a long time ago. Sorry for forgetting all of it Im old anyways and too rich for this shit, now I go back to work

quote:

Originally posted by George Smiley David Bozo's comment's and attitude is exactly why right-wing capitalist economies are fucked socially. High poverty and high crime. I don't think Obama is telling people they shouldn't follow their own desires, he's saying that that's not all they should be striving for. Individualism and materialism is why my society and your society is fucked. Everybody is so selfish and care only about themselves. This is an attitude personified by the ruling elite (and by that I'm talking about the big corporations and their allies in government) because if people weren't so selfish, if they didn't live under the illusion that "everyone can be a millionaire" then they'd begin to stick up for each other and that would be bad for these elites who rely on the poor to keep their dollars rolling in to maintain their privileged positions in society. You two fall for it hook line and sinker every time, they must have seen you comin a mile off

+1, end of thread. The CATO Institute never fails to piss me off. They mis-characterize everything in order to make it seem like someone is after their guns, money, or personal right to do whatever the hell they want. Always playing the victim card, it's pathetic.

It's not like Obama said "don't become a businessman and don't join the military." He simply noted that there's something in life bigger than yourself and to be a good citizen of the society you live in you should think of ways to give back. Whether that's a life devoted to service is up to you.

___________________

quote:

Originally posted by guerra-monstru I was trying to use an example from an economics professor a long time ago. Sorry for forgetting all of it Im old anyways and too rich for this shit, now I go back to work

try microsoft excel, its more accurate.

quote:

Originally posted by George Smiley Ok, I'm no economist or financial expert, so you're gonna have to explain it in simpler terms than that cos all I see is you get to $41,040 and somehow you've managed to add interest on that to come to $1m, that right? I don't understand how you get to $1m!

my revised number of 9300+ over 40 years at 4.5% is 100% accurate (my first one was inaccurate because i used monthly compounding instead of annual RR). disregard anything else, i am pretty good with financial calculations.

Last edited by jerZ07002 on May-29-2008 at 23:07

quote:

Originally posted by George Smiley Erm no funnily enough! Can you give me the wage that you'd need to be earning to be able to save $1m by the time you retire? Or tell me how much a person would need to save each month and add their other outgoings on top of that?

sorry, was away. It's not so much the wage that matters, it's how much the person saves and invests. It depends on their expenses. He or she may choose to live modestly now in order to secure a more comfortable retirement. A person could rent a shabby apartment for $500/month or choose to have a nicer house and pay a $2500 mortgage. There's a $2000/month gap right there. It all depends on savings and how you structure your lifestyle. Too many people want too much too early and they end up hurting themselves down the road because of their own poor planning. Then they expect the government to simply pick up the tab for their own lack of prudence and frugality. The problem is the "keeping up with the Jones" mindset, not necessarily a pure maldistribution of wealth, as you believe.

1) 4.5% is a rather low rate of interest to use as a long term figure considering that the risk free rate of return on a 10 year U.S. treasury is just over 4% as of today. The long term average return of the S&P 500 is over 10%, though I think that is also a bit aggressive as it captured the anomalous period of astronomic growth in the 1990's. I'd say 7-8% is probably a fair long-term assumption to use.

2) Jerz07002 has correctly pointed out that it is the compounding effect of interest that truly creates wealth (George, for the non-financially schooled, this means that if I earn a 5% rate of return and save $100 at the end of 1 year, I have $105 ($100 plus my 5% return). Beginning in year 2 I am earning the same 5% rate of return, however this time it is based on a $105 base, so at the end of year 2, I have earned more than $5 in interest. It doesn't seem like much, but after a period of years, the earnings accrue substantially. The earlier you start, the more compounding will work its magic).

There is a general rule of thumb called the rule of 72 in economics. It goes like this: Take the prevailing rate of interest and divide it into 72. The resulting number is the approximate number of years it takes your initial investment to double. So if the interest rate is 7%, it would take roughly 10 years to turn my $100 into $200 without any additional contributions.

Anyway, to use the Excel formula for present value, you'd want to calculate an ending value of $1,000,000 using an interest rate of 7% per year. The other variables are the number of years of savings involved, and the amount of each contribution. The problem with just using the basic present value formula P=Ve^rt is that it does not account for additional monthly contributions, rather it just tells you a future value of your present savings based on a given rate of return.

Since contributions are monthly and interest payments are generally credited monthly, we need to also use a monthly interest rate, so 8%/12 = 0.66667%/month. For a 30 year period (30x12 = 360 months) you'd need to save $670/month. Maybe not an easy feat for many, but with financial discipline it is also not out of reach for a great many.

By the way, here's a link to the financial calculator I am using:
http://www.dinkytown.net/java/FinCalc3.html

Now let's assume you were smart and started saving when you were 20 and you retire at 65...that's 45 years of saving (540 months). Now in order to have $1M when you retire you would only need to contribute $190/month.

Now simply for argument's sake, let's say some wise industrious person started saving $300/month when they were 20 and didn't retire until they were 70. 50 years of savings...720 months. At an 8% constant return, that person would have over $5M upon retirement! Fuck me, right?

What if that person was able to eek out a 10% return (0.833333%/month)? Fuck-n-a, they'd have over $14M when they hit 70!

Get it now? Start early, pay yourself first. People don't seem to grasp the time value of money concept, but it is no excuse for bigger government and more welfare/entitlement programs.

For argument's sake, you could also say that as a person gets older, his/her income likely goes up and his/her monthly contributions might also rise (though I have a daughter and my savings have clearly gone down!)