February 25, 2005

How to Retire Without Really Trying

THE RANTING RAVEN has a nice little chart showing folks how they can set aside money in their 401(k) retirement accounts without really having to make any sacrifices whatsoever. Basically, it's a variant of the economist-devised Save More Tomorrow plan, which works quite well -- but we link to it here as a reminder for those folks who may be wondering how they can a) save for retirement and b) do everything else in life.

It is not a perfect chart, as the Raven only counts principal in his balances, which doesn't take into account any compounded growth over the years. That would boost the totals far higher. For example, after 5 years he has an initial investment of about $20,000 in his hypothetical 401(k) account. At an ensuing 8 pc annual return, that initial $20,000 (excluding further contributions) would double to $40,000 after about 9 more years.

But one advantage to Raven's chart is that it shows even the extraordinarily risk-averse how much money can be socked away over time using a Save More Tomorrow approach, even at a real return of 0 pc. And some day, even that might count for something.

Posted by Benjamin Kepple at February 25, 2005 12:57 AM | TrackBack

Thanks for the kind words about my 401k paper!

As someone else noted--I also ignore the tax impact. If you're taxed at 28% (let's say), then one extra dollar of income only nets you $0.72 in takehome pay, but you can put a full $1.00 into your 401k. Think of it as an instant 38% return on investment!

Posted by: Ranten N. Raven at February 25, 2005 08:02 AM