Enough to Retire?

Just came across the 10/10/4 model as presented at Mint.com. It demonstrates a pretty tenuous grasp of reality.

Comments below.

Jess:the life expectancy in the US is only 77 years according the the CDC

Is the current life expectancy or the life expectancy for people who are currently 20 and won't hit 77 for another 50+ years? Do we have a link for this?

Even if we change the model to 80 years (let's give medical science a little credit), that still leaves us with 45 years of working to 35 years of not working. That leaves us with 45 people working for 35 people not working.

Imagine that you're living in a (global) village with 80 people. 45 of those people do all of the hunting / gathering / farming / house-building. The other 35 people are either non-productive children or old people who sit around smoking pipes and eating food brought in by the other 45 people.

Either way.

If you save 10% / year for 45 years, and receive no effective pay raise between 20 & 65 (i.e.: pay raise = inflation). Then you would need ~3.25% real returns (that's returns above inflation) for basically the entire 45 years to meet the goal of having 10x your annual income. That doesn't sound like much, but here's some perspective.

Right now TIPS bonds are offering 0.7% real returns (they were offering 0.0% returns just a few months ago). Real Stock market returns over the last decade are into the negative. If you earn 0% real returns one year you have to make 7.5%+ real returns the next, just to make it up, that's not easy.

What's more, you're subject to a very critical period. At year 30 you have about 5x of your 10x. From year 30 to 45, you're only going to save 1.5x (putting you at 6.5x), which means that you're relying on 15 years of solid returns to make up that other 3.5x. If you have a 5 or 10-year drought, you could end up way short. And a 5 or 10-year drought is going to happen somewhere in those 45 years.

Finally, we made the very unsafe assumption that your "real income" doesn't change. Realistically, your income increases over time.

According to the 10/10/4 model: "...by the time you are 65, you will need 10x your income immediately prior to retirement to retire at the level you want.."

So you need 10x your final income, not your starting or even your average income.

Let's say you're 20 and making 30k today. Your "10x" number is 300k. You save 10% for 10 years and save just over 1 year's worth of income (say 31k). At the end of 10 years you make the big switch and find a new job earning 45k (again, no inflation). Awesome for you!

However, now your "10x" number is 450k, but you only have 31k in the bank. You're behind, right? You're at year 10, you should have at least 10% of your target number, but you only have 6.8%. So what if you continue to plow along for another 10 years and then get another pay raise to 60k? Now your 10x number is at 600k, you're 20 years in to the plan but you're way behind the curve. You should have saved 120k (+ interest), but you're nowhere close to that number.

And then you have to account for medical. If you're earning 60k but receiving 10k in medical benefits (may be low-balling in the US), you now need 700k in savings (not 600k).

You can see where I'm going with this. If you follow the 10% savings route and you also follow a normal pattern of increasing income throughout your career, the 10x goal is very difficult.
- Your increasing income makes previous savings insufficient.
- High medical expenses inflate your "10x" number.
- You need consistent returns well above inflation and you need them at the right times.

Don't get me wrong, I'm a savings advocate. I save 10% and then some in tax-advantaged accounts.

But I make no pretenses of making it to 10x without saving more, getting lucky or making some savvy investments.

Again, the model presented above is very broken. Readers can follow this at their own risk.

Extra Code Worst Software Waste?

Please Note: this is an older post I found in my archives. Originally dated August 13.

Another blog reply, this time to a devlicious blog post by Derek Whitaker.

re-creating massive amounts of code is expensive and time consuming

Umm... no. If codegen is expensive or time-consuming, you're doing it wrong. If members of the team have a difficult time using code, you're doing something wrong.

You're simply attributing the problems to the wrong source. Godegen is clearly not the issue here. The issue is implementation and training.

So you come up with this as a substitute:

Code you create now, but do not have a direct, immediate need for NOW is waste.

But the NOW timeline is really short-sighted.

Here's a classic. We've rigged our generated entity code to have special handling on any columns named "CreatedDate" and "ModifiedDate". Of course, lots of the primary entity tables we created simply didn't have these columns.

Now, to start with, we don't have a reporting interface or any business logic associated with these columns, so according to your logic adding these columns (i.e.: adding code) is a waste. And of course, that continues to be true until a problem arises that is solved by having these columns (except that they don't exist). I can't now go back and add these columns and suddenly get the data, but hey at least I didn't waste any time, right?

The problem with only handling immediate needs is that it opens the door to ignoring common failures.

Take my example. I know from experience that having these columns on specific tables will be useful. Maybe not now, but definitely soon. And we're not talking about full table-auditing, just a couple columns. We can get that information for a time usage so small that it's basically free and you're telling me that it's a waste because we're not going to use those columns now?

As always, good judgment and experience must be applied when making decisions about what code and features to build. I've spent a lot of time "paying for" mistakes that were wrought from the "we don't need it now" mentality.

In the case of our two dates (Created and Modified), we had to fight through support issues that relied on the non-existent data. A year ago, our product didn't have a support team, so nobody put them in, we didn't need them NOW. That cost us time and money for what should've been a "free" feature.

Turns out we'll likely need a full change history on a couple of the tables.. That's fine, we can't get that "for free", so it's OK that we didn't "waste time".

And what about features that don't get used? If I build 5 features and only 1 gets used, is that waste? Technically it is, but realistically, not every feature is going to be a hit. In fact, it's generally acknowledged that failures are a very important component of success. Maybe it just takes the implementation of 5 features to find one that "sticks", all of that "unused code" may be a "success" in some people's book.

I think you can get my point here, waste is not as simple as defining code that does or does not get used. You also have to factor opportunity costs for the code that is written and the "timing of the time". Hours are not equal, the hour when your datacenter is down has a very different value than the hour I spent writing this post.

Calling unused code the "Worst of the wastes" is difficult to swallow without a little deeper comparative analysis. But given the difficulty of even analyzing the value of unused code, I think you'd be in for a challenge there.

Housing illusions

MillionDollarJourney had a post about Cash Back Mortgages.

Instead of the usual comment, I've devolved into one my blog replies, original comments included.

@Nolan: However it does not change the fact that if you buy a house to live in it, and the payments are reasonable for your income, then you are better off owning than renting in the long run.

This has been hashed and re-hashed on this forum and elsewhere. The data in no way supports your thesis and I would urge not to spread such dangerous information.

At best, owning a home is a lifestyle decision with a set of associated risks. We can argue this elsewhere, but there are a dozen guys who've run the spreadsheets. You've successfully listed a few of the risks:
... the ones who can’t afford their payments, speculators (like you said), and the ones who panic and sell when housing prices fall.
but there are more:

• Risk - People with jobs that are heavily dependent on some local resource (mill-towns, mining towns, etc). This is actually doubly risky, b/c if you're losing your job it's likely that nobody else is moving in which means that your housing "investment" won't be doing well at the very time you need to sell.
• Risk - People working in highly transient / mobile fields. If you're in IT and changing jobs every 3-5 years (quite common), being tied to a location can be quite costly. If you're an athlete, a long-haul trucker, etc. similar logic would apply.
• Risk - purchasing a high-maintenance house. Even if you can "reasonably afford the payments", you still need to afford the maintenance. A 20k basement repair on a 120k house is a realistic risk and would definitely wreck your financial plans.
• Risk - property tax increases. As independent homeowners you're still on the hook for these taxes, Yes there are processes, but it takes personal time (read "money") and you don't necessarily have a lobbyist group on your side.
• Risk - school district changes: This is primarily in the US where people pay premium home prices for "top-rated" school districts. A certain % of value is actually tied to the continued school district prosperity. Buying a house for your 5-year old could be a liability by the time they're 18 and it's time to "downsize".
• Risk - Energy Costs: once you buy a place you're locked in to paying the energy required to keep that place running. If your rental place sucks up too much energy (due to size or just poor maintenance), you can move at the end of the lease or request changes (you're income, you have a good bargaining chip). If your own home leaks heat (or cold), you're on the hook for this cost. I don't know if you've noticed, but energy costs are going up almost universally. Right now, 50% of the earth's population is using about 4% of the world's energy, and we still haven't figured out that whole "cold fusion" thing. That's a lot of pressure for energy costs to continue to rise.
• Risk - Politics: don't like that new factory that's being built just around the corner? Think it will influence your house price? Well, the ball's in your court now, b/c it won't be easy to move, especially with that factory weighing down on your home value. (also, see property taxes)

I want to echo one of Jordan's comments here: ...ignorant customers just desperate to get in before they’re “priced out forever” or other such non-sense.

If you are making above-average income you will not be "priced-out forever". The rules of supply & demand still apply. Either house prices will deflate drastically or the salary prices will rise to match the growing cost of living. House prices do tend to be stubborn, but since 1990 we've since house prices grow well beyond the rate of inflation, with people re-investing the money from their first place into the second (and third and so on). Barring government interference they're going to dip like every other investment.

Personal aside: I expect this dip to happen when the average baby boomer retires and "downsizes". But it may be happening sooner, check out this blog on Edmonton housing market (with lots of pretty charts). Notice the Supply vs. Demand and the Price and Inventory Comparisons?

If you want a home and can't afford one, just keep saving your ducats and investing elsewhere. Especially the 20-somethings and 30-somethings with "good jobs" (i.e. average or above-average income).

Did I miss any home-owner risks?
There are definitely some renters risks, but that's a different post.

Why I avoid "the news"

I think Dave McClure from 500 hats, basically summed up CNN in one succinct diagram and comment.
out of a possible 20 "news" items on CNN.com, a full 15 focus on death (usually violent death), crime, weather, religion, or celebrity. of the remaining 5 items, 2 are related to politics, 1 is related to business / entertainment, 1 is science, and 1 is random. in other words, about 80% of news is simply death, weather, or fame.


Thanks Dave, couldn't have put it better, of course YMMV.