MarketWatch: Many young people shouldn’t save for retirement

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jharkin
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Re: The dumbest article ever written

Post by jharkin »

bobcat2 wrote: Sat Oct 01, 2022 10:15 am I think the article makes sense for a lot of people including most college graduates. If people age 30 or younger are going to save it makes more sense to save for a house down payment than for retirement that's 35-40 years away. I see no reason for people that young to save more for retirement than the company match.

I remember reading that the great economist Milton Friedman would advise young colleagues at the University of Chicago to avoid saving too much at an early age.

BTW my wife and I are financially doing well in retirement and neither of us began saving for retirement until we were in our early 30s. I think we were implicitly following the life-cycle model without explicitly being aware of it. :happy

BobK
+1. I only saved a bit more than the match through my 20s and early 30s. My wife barely saved anything until she met me. Now in our mid 40s we max everything and have a lot left over, but honestly if we don’t plan to retire before 55 we will probably end up with far more than we will ever need in retirement.

As I’ve said many times, the membership on this board tends to lean very frugal and over save. If you actually read the research the article was based on and don’t jump to extreme conclusions there are some good points there.

You can’t take it with you when you die, so why not put a little effort into enjoying more of it in your peak active years?
visualguy
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Re: The dumbest article ever written

Post by visualguy »

jharkin wrote: Mon Oct 03, 2022 5:44 am
bobcat2 wrote: Sat Oct 01, 2022 10:15 am I think the article makes sense for a lot of people including most college graduates. If people age 30 or younger are going to save it makes more sense to save for a house down payment than for retirement that's 35-40 years away. I see no reason for people that young to save more for retirement than the company match.

I remember reading that the great economist Milton Friedman would advise young colleagues at the University of Chicago to avoid saving too much at an early age.

BTW my wife and I are financially doing well in retirement and neither of us began saving for retirement until we were in our early 30s. I think we were implicitly following the life-cycle model without explicitly being aware of it. :happy

BobK
+1. I only saved a bit more than the match through my 20s and early 30s. My wife barely saved anything until she met me. Now in our mid 40s we max everything and have a lot left over, but honestly if we don’t plan to retire before 55 we will probably end up with far more than we will ever need in retirement.

As I’ve said many times, the membership on this board tends to lean very frugal and over save. If you actually read the research the article was based on and don’t jump to extreme conclusions there are some good points there.

You can’t take it with you when you die, so why not put a little effort into enjoying more of it in your peak active years?
Exactly. I don't know why this would be controversial.
skierincolorado
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by skierincolorado »

Most of those criticizing obviously have not read past the title. The studies findings are mathematical and irrefutable, but based on a set of assumptions that may not be appropriate.

The primary assumption is that we want to spend as much as possible but also to spread that spending out across our lives as evenly as possible. Those two purposes can work at cross roads but can be used to derive a utility function. We can then maximize our lifetime financial utility.

The problem with their assumption is that most people want or need to spend more money as they get older. They have kids and college and medical expenses. But beyond that, people just socially expect to spend more money as they are older.

If you want to spread your lifetime inflarion adjuated spending out fairly evenly across time, the article is perfect for you. It actually isn't too far off from what many people do. Young people making 50k save almost nothing. When they are 55 and making 200k they save a lot mote and it all works out.
KlangFool
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by KlangFool »

skierincolorado wrote: Mon Oct 03, 2022 11:31 am
Young people making 50k save almost nothing. When they are 55 and making 200k they save a lot mote and it all works out.
skierincolorado,

Isn't this fundamentally wrong about this article? Many people do not make 50K when they are young. And, their earning/income do not plateau at 200K and/or 55 years old. Their earning peak hit at the a younger age and lower level. Plus, they won't know this until they hit their peak and much later.

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skierincolorado
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by skierincolorado »

KlangFool wrote: Mon Oct 03, 2022 11:39 am
skierincolorado wrote: Mon Oct 03, 2022 11:31 am
Young people making 50k save almost nothing. When they are 55 and making 200k they save a lot mote and it all works out.
skierincolorado,

Isn't this fundamentally wrong about this article? Many people do not make 50K when they are young. And, their earning/income do not plateau at 200K and/or 55 years old. Their earning peak hit at the a younger age and lower level. Plus, they won't know this until they hit their peak and much later.

KlangFool
My example was a bit exaggerated. The study considered several different assumptions about earnings growth. In some fields, growth from 70k to 200k is the mean. In other fields, earnings grow very slowly or not at all. They recommend that people in those fields save at young ages.

But in a field that grows from 70 to 200 saving little to none while young will maximize the lifetime utility function especially if you don't expect to spend a lot more when you are older.

The reality is that spending creep is real. If you had a hard time saving 15% when making 70k, you'll still have a hard time saving 15% when you make 200k. And even harder saving 25% to make up for the lack of saving when young.

But the article makes a good point for people don't want to spend a lot more as they age and want to spend at a similar level while they are young and fit and active. The idea that you have to save a high % in your 20s and early 30s is a bit overplayed. The reality is most people don't and didn't and we don't have an indigent elderly population.
Last edited by skierincolorado on Mon Oct 03, 2022 11:58 am, edited 1 time in total.
Starfish
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Starfish »

It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.

Purpose in life is to maximize happiness, not retirement accounts. Early years are very important in happiness. The value of these years surpasses by far any puny amount of money that can be saved. And saved for what? For the worst years? Transferring money from young to old age in general is terrible way of living one's life.
There is more: money have a lot more value for young people because they can buy a lot more happiness. Invest your money in happiness, in memories, in a good life, not in retirement accounts!
In my case I started saving money for retirement at 31. Sacrificing the bests years of my life for several thousands of dollars saved would have been a very bad idea. My income in my 20s was also much smaller than later on, but also the value I could squeeze from each $ (in terms of happiness) was much higher than later. I think this is pretty common, most people make much less money in the first years of work. We were pretty good at doing a lot of things with very little money and buying lots of happiness and memories (think backpacking, sleeping on the beach, hitchhiking, booking lodging in large groups, hanging out with friends drinking cheap alcohol, all kind of cheap but dangerous adventures etc). The idea of missing that for maybe 20k$ more in retirement accounts it's laughable.

PS: I did not read the article, but the idea seem very straight forward to me.
Last edited by Starfish on Mon Oct 03, 2022 12:03 pm, edited 1 time in total.
sls239
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by sls239 »

I don’t believe that consumption itself is the same across a lifespan so I don’t believe there should be an attempt to keep it even.

For example when I was a college student, I shared a room with someone I was unrelated to, and saved that money. And that was fine at that age and situation. But I wouldn’t do it now.

I never *felt* richer than when DINK, and yeah, we shoveled money into savings.

And spending on my kids medical care, well I cannot imagine those dollars being equated to anything else at any point in my life.

The goal should be to have enough for the things that are most important, whenever those are needed.

But an excellent way to do that is to use the tax advantaged retirement accounts and 401k matching and all that. Just because it is in a retirement account doesn’t mean you have to use it strictly for retirement. They all have hardship exemptions and first home purchase exemptions and so forth.
stoptothink
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by stoptothink »

skierincolorado wrote: Mon Oct 03, 2022 11:31 am Most of those criticizing obviously have not read past the title. The studies findings are mathematical and irrefutable, but based on a set of assumptions that may not be appropriate.

The primary assumption is that we want to spend as much as possible but also to spread that spending out across our lives as evenly as possible. Those two purposes can work at cross roads but can be used to derive a utility function. We can then maximize our lifetime financial utility.

The problem with their assumption is that most people want or need to spend more money as they get older. They have kids and college and medical expenses. But beyond that, people just socially expect to spend more money as they are older.

If you want to spread your lifetime inflarion adjuated spending out fairly evenly across time, the article is perfect for you. It actually isn't too far off from what many people do. Young people making 50k save almost nothing. When they are 55 and making 200k they save a lot mote and it all works out.
Do you think the random "young person" is going to read past the title? IMO, it's not the study findings that are the problem, it is the headline itself. More than 70% of "clicks" online result in less than a handful of seconds; few people are reading past the headline and that is exactly how these articles are written. Far more people are going to see the headline and use it as a rationale to not save (when they can and should) than jump to a conclusion (without analyzing the study) that the findings are fallacious.
GAAP
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by GAAP »

My fundamental issue with any lifecycle model that I've seen is that it only considers inflation when leveling income. This completely ignores lifestyle improvements at a societal level which in turn is connected to per-capita real GDP growth, not just inflation.

When I was 20, mobile phones required a radio installation in a vehicle, and calls to those phones involved contacting a mobile operator who made the poor-quality analog connection. Text messaging didn't exist. The cost for that service and that hardware was greater in nominal terms than 5G is today. The IBM PC hadn't been invented yet, and the PC market as whole was for hobbyists. I built my first IBM PC a few years later, buying the base unit from a grey-market reseller called PC's Limited (later known as Dell), and adding other components at a cost less than half the list price -- but still more in nominal terms than it would cost today for a far more powerful device.

Inflation is not the only thing consider over multi-decade periods. Until these models start acknowledging that fact, I will continue to ignore them.
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Starfish
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Starfish »

I wonder how many of you would pay a lot of money to get back only one of the years sub optimally used to add 3000$ to the retirement account.
Wannaretireearly
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Wannaretireearly »

Starfish wrote: Mon Oct 03, 2022 11:58 am It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.

Purpose in life is to maximize happiness, not retirement accounts. Early years are very important in happiness. The value of these years surpasses by far any puny amount of money that can be saved. And saved for what? For the worst years? Transferring money from young to old age in general is terrible way of living one's life.
There is more: money have a lot more value for young people because they can buy a lot more happiness. Invest your money in happiness, in memories, in a good life, not in retirement accounts!
In my case I started saving money for retirement at 31. Sacrificing the bests years of my life for several thousands of dollars saved would have been a very bad idea. My income in my 20s was also much smaller than later on, but also the value I could squeeze from each $ (in terms of happiness) was much higher than later. I think this is pretty common, most people make much less money in the first years of work. We were pretty good at doing a lot of things with very little money and buying lots of happiness and memories (think backpacking, sleeping on the beach, hitchhiking, booking lodging in large groups, hanging out with friends drinking cheap alcohol, all kind of cheap but dangerous adventures etc). The idea of missing that for maybe 20k$ more in retirement accounts it's laughable.

PS: I did not read the article, but the idea seem very straight forward to me.
Good and fair write up. I couldn’t help but replace ‘early years’ with ‘early retirement’ and come up with similar conclusions :)
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JackoC
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by JackoC »

GAAP wrote: Mon Oct 03, 2022 1:23 pm My fundamental issue with any lifecycle model that I've seen is that it only considers inflation when leveling income. This completely ignores lifestyle improvements at a societal level which in turn is connected to per-capita real GDP growth, not just inflation.

....

Inflation is not the only thing consider over multi-decade periods. Until these models start acknowledging that fact, I will continue to ignore them.
Good point. It's easy to look up historical CPI and it's one central set of data acknowledged as standard (even if people criticize the methodology they are arguing against it because it's standard, if it was some obscure thing they'd ignore it). There isn't the same accessible standard for wage/income growth, though there are measures and some of them have real world personal financial impact*. But though 'cost of living' increases vary individually, relevant wage/income increases vary more, in who you're likely to compare yourself to. That's part of skierincolorado's also good point:
"...most people want or need to spend more money as they get older. They have kids and college and medical expenses. But beyond that, people just socially expect to spend more money as they are older."
The social expectation depends on your social circle, to some degree and that's about income growth in that subset, not the general price level.

That said, it's not necessarily invalid for authors to suggest people reexamine their beliefs and behavior. Maybe planning to spend more in some indefinite future when you'll be less physically able to enjoy it isn't such a good idea, even if it's the natural tendency of some.

Also I'd reiterate that the relative trade off of early v later saving is affected by the expected return. In the extreme, the reason Buffett could say (or at least supposedly said) he'd avoid the price of haircut now to invest more, if he could earn say 20% real pa for 30 yrs $25** jumps a couple of orders of magnitude to $6k. At the 'long term past' stock index return say 6% it's looking shaggy for years to able to pay for 3 times as frequent haircuts when you're older, a lot less compelling. Likewise if the expected index return now is 4% not 6% the relative long term impact of relatively small early retirement savings is less. Then it's more purely psychological (form saving habits) to start small, early. If the expected return is lower you have to eventually save more, not less, to build up the same expected pile, but there will be less 'magic of compounding' skew by which the relative few dollars most people can manage in their 20's makes a significant difference in the final result.

*Social Security is adjusted at CPI-W once you start receiving it, but while working your benefit is indexed up at an index of wage growth.
**cue the BH's saying that's way too much to pay for a haircut :happy
JBTX
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by JBTX »

The main problem I have with the article is it presumably equates spending with utility and presumably assumes all spending provides equal utility and that living a higher standard of living leads to higher utility. I would argue they are correct in terms of spending in terms of experiences like travel, spending on education, health. To a degree spending on home / residence. However spending on day to day stuff, like food, restaurants clothes and other routine consumption arguably doesn’t lead to much long term utility.

Also assuming you will always be healthy and will always have increasing income seems problematic not me too.
homebuyer6426
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by homebuyer6426 »

I'm 36 and what I saved in my 20s is now the biggest part of my portfolio. The amount I could save yearly has remained fairly stable throughout my career post-college. I never felt deprived or poor due to my savings rate. We live in an age of material abundance.
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hoofaman
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by hoofaman »

The risk with saving money is that it could be taken from you in the future, life experiences cannot be taken away
stoptothink
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by stoptothink »

hoofaman wrote: Tue Oct 04, 2022 12:04 pm The risk with saving money is that it could be taken from you in the future, life experiences cannot be taken away
There isn't a just as strong risk that what you spend money on in youth will provide experiences that you would rather forget? This is not an all-or-nothing topic; you can do both (save and "invest" in good experiences).
GoldenFinch
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by GoldenFinch »

We spent every penny we made when we were young on our family. We started investing in our 30s, but it all turned out okay.
Last edited by GoldenFinch on Tue Oct 04, 2022 7:41 pm, edited 1 time in total.
meadowrue
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by meadowrue »

Starfish wrote: Mon Oct 03, 2022 11:58 am It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.

Purpose in life is to maximize happiness, not retirement accounts. Early years are very important in happiness. The value of these years surpasses by far any puny amount of money that can be saved. And saved for what? For the worst years? Transferring money from young to old age in general is terrible way of living one's life.
There is more: money have a lot more value for young people because they can buy a lot more happiness. Invest your money in happiness, in memories, in a good life, not in retirement accounts!
In my case I started saving money for retirement at 31. Sacrificing the bests years of my life for several thousands of dollars saved would have been a very bad idea. My income in my 20s was also much smaller than later on, but also the value I could squeeze from each $ (in terms of happiness) was much higher than later. I think this is pretty common, most people make much less money in the first years of work. We were pretty good at doing a lot of things with very little money and buying lots of happiness and memories (think backpacking, sleeping on the beach, hitchhiking, booking lodging in large groups, hanging out with friends drinking cheap alcohol, all kind of cheap but dangerous adventures etc). The idea of missing that for maybe 20k$ more in retirement accounts it's laughable.

PS: I did not read the article, but the idea seem very straight forward to me.
Great perspective. I spent my early 20s backpacking through SE Asia and South America on less than $10/day, slept in a hammock on a beach in Mexico with friends for three straight weeks, worked at a ski resort for a winter season (where I met my husband!) and spent a few weeks in Greece living on cheap olives and feta cheese. This all made me a better, stronger, and more resilient person. I am now settled down with a home and family and investing/saving as much as possible but I wouldn’t trade an extra zero in my bank account for those early experiences. You only get one life. If you wait to start living it until you’ve FIRE’d or padded your retirement account sufficiently, you might miss out.
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stoptothink
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by stoptothink »

meadowrue wrote: Tue Oct 04, 2022 2:23 pm
Starfish wrote: Mon Oct 03, 2022 11:58 am It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.

Purpose in life is to maximize happiness, not retirement accounts. Early years are very important in happiness. The value of these years surpasses by far any puny amount of money that can be saved. And saved for what? For the worst years? Transferring money from young to old age in general is terrible way of living one's life.
There is more: money have a lot more value for young people because they can buy a lot more happiness. Invest your money in happiness, in memories, in a good life, not in retirement accounts!
In my case I started saving money for retirement at 31. Sacrificing the bests years of my life for several thousands of dollars saved would have been a very bad idea. My income in my 20s was also much smaller than later on, but also the value I could squeeze from each $ (in terms of happiness) was much higher than later. I think this is pretty common, most people make much less money in the first years of work. We were pretty good at doing a lot of things with very little money and buying lots of happiness and memories (think backpacking, sleeping on the beach, hitchhiking, booking lodging in large groups, hanging out with friends drinking cheap alcohol, all kind of cheap but dangerous adventures etc). The idea of missing that for maybe 20k$ more in retirement accounts it's laughable.

PS: I did not read the article, but the idea seem very straight forward to me.
Great perspective. I spent my early 20s backpacking through SE Asia and South America on less than $10/day, slept in a hammock on a beach in Mexico with friends for three straight weeks, worked at a ski resort for a winter season (where I met my husband!) and spent a few weeks in Greece living on cheap olives and feta cheese. This all made me a better, stronger, and more resilient person. I am now settled down with a home and family and investing/saving as much as possible but I wouldn’t trade an extra zero in my bank account for those early experiences. You only get one life. If you wait to start living it until you’ve FIRE’d or padded your retirement account sufficiently, you might miss out.
You can absolutely make the argument that those experiences in your 20's are more valuable than saving, but that certainly is not how most people I knew as young adults used their excess funds.
TheDDC
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by TheDDC »

The article feeds int other stupidity and excuses given with regard to not having established sound financial practices at a young age. Unfortunately this is all too evident today with the poor financial literacy observed amongst most of the population (not just "young people" whatever that means anyway).

Dump the article. We save to invest... whether investing in ourselves, our families, charity, whatever. But you need to SAVE first before investing. And saving begins when you have an income. So "JUST DO IT" and don't come up with excuses why not.

-TheDDC
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PoorHomieQuan
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by PoorHomieQuan »

Starfish wrote: Mon Oct 03, 2022 11:58 am It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.

Purpose in life is to maximize happiness, not retirement accounts. Early years are very important in happiness. The value of these years surpasses by far any puny amount of money that can be saved. And saved for what? For the worst years? Transferring money from young to old age in general is terrible way of living one's life.
There is more: money have a lot more value for young people because they can buy a lot more happiness. Invest your money in happiness, in memories, in a good life, not in retirement accounts!
In my case I started saving money for retirement at 31. Sacrificing the bests years of my life for several thousands of dollars saved would have been a very bad idea. My income in my 20s was also much smaller than later on, but also the value I could squeeze from each $ (in terms of happiness) was much higher than later. I think this is pretty common, most people make much less money in the first years of work. We were pretty good at doing a lot of things with very little money and buying lots of happiness and memories (think backpacking, sleeping on the beach, hitchhiking, booking lodging in large groups, hanging out with friends drinking cheap alcohol, all kind of cheap but dangerous adventures etc). The idea of missing that for maybe 20k$ more in retirement accounts it's laughable.

PS: I did not read the article, but the idea seem very straight forward to me.
Right, so save for retirement and also have fun on the cheap when young. Not sure why you'd have to miss out on hitchhiking because you socked too much money away in a 401k.
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JoeRetire
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by JoeRetire »

Starfish wrote: Mon Oct 03, 2022 11:58 am It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.
Since the value of money in the future is always heavily discounted, do you feel middle aged people should not save for retirement? How about old people who still face heavily discounted future value of money?
In my case I started saving money for retirement at 31.
For you, 31 is no longer young?
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by smitcat »

stoptothink wrote: Tue Oct 04, 2022 1:49 pm
hoofaman wrote: Tue Oct 04, 2022 12:04 pm The risk with saving money is that it could be taken from you in the future, life experiences cannot be taken away
There isn't a just as strong risk that what you spend money on in youth will provide experiences that you would rather forget? This is not an all-or-nothing topic; you can do both (save and "invest" in good experiences).
"This is not an all-or-nothing topic; you can do both (save and "invest" in good experiences)."
Absolutely - balance in life is a key, all through the journey.
TheDDC
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by TheDDC »

PoorHomieQuan wrote: Tue Oct 04, 2022 3:02 pm Right, so save for retirement and also have fun on the cheap when young. Not sure why you'd have to miss out on hitchhiking because you socked too much money away in a 401k.
It's a question of priorities. This is nothing new. You put your retirement investing before spending on crap, save for emergencies and big ticket items (so as not to go into debt) and generate multiple streams of income throughout life... BY SAVING. Not hard. But that strategy doesn't generate the clickbait so we won't see it.

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Starfish
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Starfish »

Wannaretireearly wrote: Mon Oct 03, 2022 11:40 pm
Starfish wrote: Mon Oct 03, 2022 11:58 am It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.

Purpose in life is to maximize happiness, not retirement accounts. Early years are very important in happiness. The value of these years surpasses by far any puny amount of money that can be saved. And saved for what? For the worst years? Transferring money from young to old age in general is terrible way of living one's life.
There is more: money have a lot more value for young people because they can buy a lot more happiness. Invest your money in happiness, in memories, in a good life, not in retirement accounts!
In my case I started saving money for retirement at 31. Sacrificing the bests years of my life for several thousands of dollars saved would have been a very bad idea. My income in my 20s was also much smaller than later on, but also the value I could squeeze from each $ (in terms of happiness) was much higher than later. I think this is pretty common, most people make much less money in the first years of work. We were pretty good at doing a lot of things with very little money and buying lots of happiness and memories (think backpacking, sleeping on the beach, hitchhiking, booking lodging in large groups, hanging out with friends drinking cheap alcohol, all kind of cheap but dangerous adventures etc). The idea of missing that for maybe 20k$ more in retirement accounts it's laughable.

PS: I did not read the article, but the idea seem very straight forward to me.
Good and fair write up. I couldn’t help but replace ‘early years’ with ‘early retirement’ and come up with similar conclusions :)
I completely agree, a very similar argument can be shown for RE. The only issue here is they contradict each other :D. They are mutually exclusive. Most people don't RE, so at least they should do the basic stuff.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Starfish »

.....
Last edited by Starfish on Tue Oct 04, 2022 7:42 pm, edited 1 time in total.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Starfish »

PoorHomieQuan wrote: Tue Oct 04, 2022 3:02 pm Right, so save for retirement and also have fun on the cheap when young. Not sure why you'd have to miss out on hitchhiking because you socked too much money away in a 401k.
Right, great solution, live your life, have fun, spend, take vacations, and save a lot of money. Don't be sick and poor, be rich and healthy!
homebuyer6426 wrote: Tue Oct 04, 2022 10:40 am I'm 36 and what I saved in my 20s is now the biggest part of my portfolio. The amount I could save yearly has remained fairly stable throughout my career post-college. I never felt deprived or poor due to my savings rate. We live in an age of material abundance.
This is not about feeling poor, it's about optimizing the best years of your life. The question should be if you lived the best life you could live, not if you felt poor.
Bogleheads are all about optimization. Being a financial forum, the assumption is often the amount of money has to be optimized. I argue that money is just a mean to an end, so should not be the object of optimization.
Last edited by Starfish on Tue Oct 04, 2022 7:42 pm, edited 2 times in total.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Starfish »

JoeRetire wrote: Tue Oct 04, 2022 3:36 pm
Starfish wrote: Mon Oct 03, 2022 11:58 am It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.
Since the value of money in the future is always heavily discounted, do you feel middle aged people should not save for retirement? How about old people who still face heavily discounted future value of money?
You made up "always" and try to push it as my own. There is no always in my text, why distort it? Money is always discounted, not always heavily discounted. The function is nonlinear.
In my case I started saving money for retirement at 31.
For you, 31 is no longer young?
31 is not young for most people, it's a completely different phase in life. Marriage, kids, career, less etc When you have less time you could as well start saving.
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Re: In Retirement, You May Not Need to Spend So Much

Post by ElJefeDelQueso »

AnnetteLouisan wrote: Sat Oct 01, 2022 9:09 am
JoeRetire wrote: Sat Oct 01, 2022 6:58 am
AnnetteLouisan wrote: Sat Oct 01, 2022 6:31 am MarketWatch has a piece today quoting a purported Nobel Laureate named Robert Powell. The gist of the piece is that you don’t need to save until you are older.
https://www.marketwatch.com/story/many- ... 1664562570

It's a bit more nuanced than that. Some good points, some silly points, IMHO.
Not sure if it’s a similar argument to what is in the NYT article
It's not really the same thing. It focused more on "optimal spending" throughout your life, than "spending less in retirement".

The concept is to smooth out your lifestyle by spending more (and saving less) when you are young and when you are old, and spending less (and saving more) in the middle years when income is highest.
I have a theory that says you should spend more in crappy times (illness, unemployment, bummer situation of whatever kind) than when things are going well for you, because you need it more in bad times. So in my view it isn’t age related. Sometimes you need a little extra being good to yourself and sometimes you don’t.
This is (imo) a great theory and even better advice.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Ed 2 »

tfunk wrote: Sat Oct 01, 2022 1:47 pm I am wondering why this tread is getting any responses. Non actionalble.
Because from those who read MarketWatch garbage articles?
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by AnnetteLouisan »

TheDDC wrote: Tue Oct 04, 2022 3:51 pm
PoorHomieQuan wrote: Tue Oct 04, 2022 3:02 pm Right, so save for retirement and also have fun on the cheap when young. Not sure why you'd have to miss out on hitchhiking because you socked too much money away in a 401k.
It's a question of priorities. This is nothing new. You put your retirement investing before spending on crap, save for emergencies and big ticket items (so as not to go into debt) and generate multiple streams of income throughout life... BY SAVING. Not hard. But that strategy doesn't generate the clickbait so we won't see it.

-TheDDC
Yes you need to build a *financial base* starting fairly young (20s-30s), consisting of savings, investments, credentials, work experience, expertise, job or a business - and above all, a certain amount of consistency in all of that. If you don’t have a base upon which to build, I don’t see accumulating larger amounts without a windfall or unusual event.

Similarly with spending, if you don’t learn and practice the basics of being in control of your money (budgeting, planning, prioritizing) it may be hard to handle larger salaries if you earn them, which is a big if. Doesn’t mean you can’t have fun and make lots of mistakes too.

These are of course generalizations that don’t apply to everyone but it’s what I believe.
Last edited by AnnetteLouisan on Wed Oct 05, 2022 6:20 am, edited 1 time in total.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by VanGar+Goyle »

tfunk wrote: Sat Oct 01, 2022 1:47 pm I am wondering why this tread is getting any responses. Non actionalble.
Yes, many young people should be playing outside, doing chores, and saving for toys, their own cellphone, and freemiums.
When they get a real job, they can start to think about saving for retirement.
But to be fair, I did not read the article, or the post, just the clickbait title. :annoyed
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by nps »

JoeRetire wrote: Tue Oct 04, 2022 3:36 pm
Starfish wrote: Mon Oct 03, 2022 11:58 am It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.
Since the value of money in the future is always heavily discounted, do you feel middle aged people should not save for retirement? How about old people who still face heavily discounted future value of money?
The value of money is more heavily discounted the longer out you look.

The present value of money to be accessed at age 70 is lower for a 20 year old than for a 50 year old, i.e. it is more heavily discounted.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by JoeRetire »

nps wrote: Wed Oct 05, 2022 6:18 am
JoeRetire wrote: Tue Oct 04, 2022 3:36 pm
Starfish wrote: Mon Oct 03, 2022 11:58 am It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.
Since the value of money in the future is always heavily discounted, do you feel middle aged people should not save for retirement? How about old people who still face heavily discounted future value of money?
The value of money is more heavily discounted the longer out you look.

The present value of money to be accessed at age 70 is lower for a 20 year old than for a 50 year old, i.e. it is more heavily discounted.
I understand how the time value of money works.

I reject the idea that there's a magic number (such as 31) below which one is "young" and shouldn't save for retirement and after which one is no longer "young" and should save for retirement.
This isn't just my wallet. It's an organizer, a memory and an old friend.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Starfish »

JoeRetire wrote: Wed Oct 05, 2022 6:26 am
nps wrote: Wed Oct 05, 2022 6:18 am
JoeRetire wrote: Tue Oct 04, 2022 3:36 pm
Starfish wrote: Mon Oct 03, 2022 11:58 am It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.
Since the value of money in the future is always heavily discounted, do you feel middle aged people should not save for retirement? How about old people who still face heavily discounted future value of money?
The value of money is more heavily discounted the longer out you look.

The present value of money to be accessed at age 70 is lower for a 20 year old than for a 50 year old, i.e. it is more heavily discounted.
I understand how the time value of money works.

I reject the idea that there's a magic number (such as 31) below which one is "young" and shouldn't save for retirement and after which one is no longer "young" and should save for retirement.
Well, you are on the wrong topic then. 20s is referred as an young age in many posts. There is no "magic" number, it was my example because this is how I hear this is how you make a more compeling argument.

Roughly speaking, for most people, somewhere between beginning of high school and starting of obligations (serious employment, family, mortgage) it's the only time in their life when they have the time, the health, the enthusiast desire to explore the world and do stupid and wonderful things with very little money. You can do that or add some money to your retirement account and retire at 63 instead of 65.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by CyclingDuo »

smitcat wrote: Tue Oct 04, 2022 3:45 pm
stoptothink wrote: Tue Oct 04, 2022 1:49 pm
hoofaman wrote: Tue Oct 04, 2022 12:04 pm The risk with saving money is that it could be taken from you in the future, life experiences cannot be taken away
There isn't a just as strong risk that what you spend money on in youth will provide experiences that you would rather forget? This is not an all-or-nothing topic; you can do both (save and "invest" in good experiences).
"This is not an all-or-nothing topic; you can do both (save and "invest" in good experiences)."
Absolutely - balance in life is a key, all through the journey.
Well stated! :beer

I did read the article and grasped the tenor of what the author was saying. I remain torn between what was presented and being an early saver in one's 20's, but your mention of balance certainly strikes a chord of agreement from us.

Using our own household as an example, the issue we take with the article centers around those years known as the child rearing phase/parenting expenses. At least for us, those were not inexpensive years by any stretch of the imagination. Adding two additional members to our household and the choice to invest/save for their college educations didn't leave as much as we would have liked to be sending towards retirement savings from say ages 32-58. Had we not done any saving/investing before those years hit, I don't think we had as much income to work with for those set number of years to be funneling into retirement due to the expenses at home and college education expenses. Perhaps not a problem for households that have some of the highest incomes (say top 10%), but just pointing out for those not in the that league - we would certainly look for a decent balance to enjoy, but also sock some away for retirement in the early going.

In spite of that, it is a choice we made (children and to fund their educations), so using a 40 year +/- working career, we knew we most likely would have some remaining time to play catch up in the empty nest red zone provided we remained in our careers, remained employed, and did not face the misfortune of illness to alter that path. We are currently in year 7 of the empty nest red zone pictured below in the graphic. The years before the child rearing + the empty nest red zone have boosted our plan. I'm not sure skipping one or the other would have turned out to have been as successful in our particular household.

Image

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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Jags4186 »

CyclingDuo wrote: Wed Oct 05, 2022 1:58 pm
smitcat wrote: Tue Oct 04, 2022 3:45 pm
stoptothink wrote: Tue Oct 04, 2022 1:49 pm
hoofaman wrote: Tue Oct 04, 2022 12:04 pm The risk with saving money is that it could be taken from you in the future, life experiences cannot be taken away
There isn't a just as strong risk that what you spend money on in youth will provide experiences that you would rather forget? This is not an all-or-nothing topic; you can do both (save and "invest" in good experiences).
"This is not an all-or-nothing topic; you can do both (save and "invest" in good experiences)."
Absolutely - balance in life is a key, all through the journey.
Well stated! :beer

I did read the article and grasped the tenor of what the author was saying. I remain torn between what was presented and being an early saver in one's 20's, but your mention of balance certainly strikes a chord of agreement from us.

Using our own household as an example, the issue we take with the article centers around those years known as the child rearing phase/parenting expenses. At least for us, those were not inexpensive years by any stretch of the imagination. Adding two additional members to our household and the choice to invest/save for their college educations didn't leave as much as we would have liked to be sending towards retirement savings from say ages 32-58. Had we not done any saving/investing before those years hit, I don't think we had as much income to work with for those set number of years to be funneling into retirement due to the expenses at home and college education expenses. Perhaps not a problem for households that have some of the highest incomes (say top 10%), but just pointing out for those not in the that league - we would certainly look for a decent balance to enjoy, but also sock some away for retirement in the early going.

In spite of that, it is a choice we made (children and to fund their educations), so using a 40 year +/- working career, we knew we most likely would have some remaining time to play catch up in the empty nest red zone provided we remained in our careers, remained employed, and did not face the misfortune of illness to alter that path. We are currently in year 7 of the empty nest red zone pictured below in the graphic. The years before the child rearing + the empty nest red zone have boosted our plan. I'm not sure skipping one or the other would have turned out to have been as successful in our particular household.

Image

CyclingDuo
In general I agree with this graph, however, as more folks have children later it leaves less time at the end to catch up. We plan to have a 2nd child and that child wouldn’t finish college until we were 62. 3 or 4 years of accelerated savings is unlikely to allow someone who has been spending it all to catch up. Additionally, I think many folks once the kids are gone are ready to spend money on themselves. If one plans to retire at a relatively normal age of 65-67, slow and steady savings is still, IMO, prudent. With a 40+ year investment horizon, saving 10% of your income might just do it. It’s really not that much.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by CyclingDuo »

Jags4186 wrote: Wed Oct 05, 2022 2:12 pmIn general I agree with this graph, however, as more folks have children later it leaves less time at the end to catch up. We plan to have a 2nd child and that child wouldn’t finish college until we were 62. 3 or 4 years of accelerated savings is unlikely to allow someone who has been spending it all to catch up. Additionally, I think many folks once the kids are gone are ready to spend money on themselves. If one plans to retire at a relatively normal age of 65-67, slow and steady savings is still, IMO, prudent. With a 40+ year investment horizon, saving 10% of your income might just do it. It’s really not that much.
Regarding less time at the end to catch up, yes I agree. In our case, my spouse had 7 full years to utilize (unless she gets a part-time job after being retired from the main gig), and I have a full 11 years to utilize based on our age differences if need be.

In your case and if so, you will have your last child just a bit beyond our ages when we had our last. Our last one was born when we were 33 and 37 respectively - and we had already paid off our college education loans and been saving for retirement before the kids came along. So yes - not utilizing those pre-child rearing years to save could be detrimental for a family that chose to save later, then also have children later unless they had a salary (or combined salaries) to work with such as the article's target audience in the #1 point made:

1. High-income workers tend to experience wage growth over their careers. And that’s the primary reason why they should wait to save. “For these workers, maintaining as steady a standard of living as possible therefore requires spending all income while young and only starting to save for retirement during middle age,” wrote Jason Scott, the managing director of J.S. Retirement Consulting; John Shoven, an economics professor at Stanford University; Sita Slavov, a public policy professor at George Mason University; and John Watson, a lecturer in management at the Stanford Graduate School of Business.

I would imagine those in the upper 10% such as the below graphic depicts would have a different life-cycle model as the article depicts than those in the median or say up to the 75th or 80th percentile groups...

Image

Image

Obviously, different careers bring in different salaries and growth of those salaries than others, so each household is unique based on their careers, number of children, when the children are born, and the ability of the couple to save before, during, and after the child rearing years. We certainly advocate saving for retirement during the child rearing years as well even if the rate may not be able to be as high as the before and after stages.

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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by VanGar+Goyle »

Starfish wrote: Mon Oct 03, 2022 11:58 am It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.

Purpose in life is to maximize happiness, not retirement accounts. Early years are very important in happiness. The value of these years surpasses by far any puny amount of money that can be saved.
This ignores hedonic adaption. We may fondly remember youthful backpacking and hostels in Europe, but if we first stayed at first class hotels and used private guided tours, we might not appreciate later trips and spending.

In a similar theory, your most attractive girlfriend/boyfriend should not be your first, but your last.
Otherwise you compare all later girlfriends and boyfriends unfavorably, and settle unhappily in marriage :)
A corollary is always tell your spouse that they are the most attractive.
Now take a cold shower, and eat your vegetables. you may thank me later ;)
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by smitcat »

CyclingDuo wrote: Wed Oct 05, 2022 1:58 pm
smitcat wrote: Tue Oct 04, 2022 3:45 pm
stoptothink wrote: Tue Oct 04, 2022 1:49 pm
hoofaman wrote: Tue Oct 04, 2022 12:04 pm The risk with saving money is that it could be taken from you in the future, life experiences cannot be taken away
There isn't a just as strong risk that what you spend money on in youth will provide experiences that you would rather forget? This is not an all-or-nothing topic; you can do both (save and "invest" in good experiences).
"This is not an all-or-nothing topic; you can do both (save and "invest" in good experiences)."
Absolutely - balance in life is a key, all through the journey.
Well stated! :beer

I did read the article and grasped the tenor of what the author was saying. I remain torn between what was presented and being an early saver in one's 20's, but your mention of balance certainly strikes a chord of agreement from us.

Using our own household as an example, the issue we take with the article centers around those years known as the child rearing phase/parenting expenses. At least for us, those were not inexpensive years by any stretch of the imagination. Adding two additional members to our household and the choice to invest/save for their college educations didn't leave as much as we would have liked to be sending towards retirement savings from say ages 32-58. Had we not done any saving/investing before those years hit, I don't think we had as much income to work with for those set number of years to be funneling into retirement due to the expenses at home and college education expenses. Perhaps not a problem for households that have some of the highest incomes (say top 10%), but just pointing out for those not in the that league - we would certainly look for a decent balance to enjoy, but also sock some away for retirement in the early going.

In spite of that, it is a choice we made (children and to fund their educations), so using a 40 year +/- working career, we knew we most likely would have some remaining time to play catch up in the empty nest red zone provided we remained in our careers, remained employed, and did not face the misfortune of illness to alter that path. We are currently in year 7 of the empty nest red zone pictured below in the graphic. The years before the child rearing + the empty nest red zone have boosted our plan. I'm not sure skipping one or the other would have turned out to have been as successful in our particular household.

Image

CyclingDuo
"In spite of that, it is a choice we made (children and to fund their educations), so using a 40 year +/- working career, we knew we most likely would have some remaining time to play catch up in the empty nest red zone provided we remained in our careers, remained employed, and did not face the misfortune of illness to alter that path. We are currently in year 7 of the empty nest red zone pictured below in the graphic. The years before the child rearing + the empty nest red zone have boosted our plan."

The empty nest 'red zone' coincides with the timeframe where we spent larger time and funds with/on our parents.
YMMV
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by CyclingDuo »

smitcat wrote: Tue Oct 11, 2022 8:54 amThe empty nest 'red zone' coincides with the timeframe where we spent larger time and funds with/on our parents.
YMMV
Ah, very good point! Thanks for bringing it up.

That's another consideration for those who face or will face that during the time period known as empty nest red zone. In our situation, ours all passed before entering our empty nest red zone.

I have had colleagues and friends that faced issues of caring for loved ones that did in some way impede their ability to take full advantage of the red zone due to devoting time and funds for parents.

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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Starfish »

VanGar+Goyle wrote: Tue Oct 11, 2022 6:05 am
Starfish wrote: Mon Oct 03, 2022 11:58 am It's obvious that in most cases young people should not save for retirement.
This is an extreme example of time value of money. Value of money in the future is heavily discounted, so heavily that 8% or whatever the market provides cannot even come close to compensate for it.

Purpose in life is to maximize happiness, not retirement accounts. Early years are very important in happiness. The value of these years surpasses by far any puny amount of money that can be saved.
This ignores hedonic adaption. We may fondly remember youthful backpacking and hostels in Europe, but if we first stayed at first class hotels and used private guided tours, we might not appreciate later trips and spending.

In a similar theory, your most attractive girlfriend/boyfriend should not be your first, but your last.
Otherwise you compare all later girlfriends and boyfriends unfavorably, and settle unhappily in marriage :)
A corollary is always tell your spouse that they are the most attractive.
Now take a cold shower, and eat your vegetables. you may thank me later ;)
I did not say anything about luxury, actually this was the entire point: you don't need any luxury when you are young.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by mr_brightside »

skierincolorado wrote: Mon Oct 03, 2022 11:31 am The studies findings are mathematical and irrefutable, but based on a set of assumptions that may not be appropriate.

non sequitur
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by skierincolorado »

mr_brightside wrote: Fri Oct 14, 2022 8:33 am
skierincolorado wrote: Mon Oct 03, 2022 11:31 am The studies findings are mathematical and irrefutable, but based on a set of assumptions that may not be appropriate.

non sequitur
It's not a non sequitur since the study clearly outlines what the assumptions are and under what assumptions their conclusions apply.
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