I was having lunch and one of my friends said that something was troubling him. He said that he worked out the numbers and, by his calculations, he needed to save 25% of his gross income for retirement. And taxes took another 25%. So, that meant he only got to use half of his income. Only half! Only half? Were his calculations wrong?
My first reaction, was no, his computations sound about right. But, I said, “Please tell me more. Maybe I’m missing something too?”
He explained that his projections were 8% return while he is saving, and then 5% while in retirement mode. He explained that he had talked with his parents and other retired folks to estimate what their expenses are.
I asked him about how inflation factored into his calculations. He said that he was estimating about 3-4% for inflation.
So, yes, his estimates made sense. Knowing his age, and assets, etc, made me think that he had it about right.
So he confided, yeah, but I also have a mortgage and property taxes and insurance? That takes, more, maybe another 30%. So that leaves me with, like, 20%. How am I supposed to do anything with that?! My income is whittled down to almost nothing!
I could only sympathize. Yes, I said. You’ve sussed it out. I hope that nonetheless you are enjoying your life. Living responsibly for your future is not easy. You and your family will, hopefully, thank you later. The twin tyrannies, taxes and inflation, are the saver’s ever-present adversaries. Facing them taxes the soul. The intelligent saver faces them nonetheless, perseveres, and is better for it.
That was the best advice I could offer. It is the advice I give myself. It is unsatisfying, it is adult, it is realist. Are taxes and inflation such tyrants, such a drain? Historic facts say yes. It is the harsh truth. The wise face that truth, and succeed in spite of it. Best wishes, and hang in there. You can do it.