Stored
savmgs
Age 25
No half-nuts
stored
Squirreling Away up to Half of Our Nut-per-year Earnings
Yearly earned till age 55:
Yearly saved till age 55:
Yearly consumed always:
Age 35
10 half-nuts
stored
10 half-nuts
eaten so far
Age 45
20 half-nuts
stored
20 half-nuts
eaten so far
Age 55
Retirement
30 half-nuts
stored
30 half-nuts
eaten so far
Age 65
20 half-nuts
stored
40 half-nuts
eaten so far
Age 75
10 half-nuts
stored
50 half-nuts
eaten so far
Age 85
No half-nuts
stored
60 half-nuts
eaten so far
Our retirement planning is similar to the squirrel's. Each year we can consume half of our
earnings, and save the other half to pay for consumption in one of our retirement years. After
taxes and fees, safe after-inflation investments like inflation-indexed government bonds are
yielding close to zero, which is the yield that a squirrel gets. So if we want to work for only half
of our adult lives, and ignoring any employer or government help, we need to save 50% of our
pay. If we assume 2% p.a. interest after inflation, tax and fees we need to save 35.6% of pay for
the 30-30 years goal. More attainable is a 40-20 years goal: 33.3% of pay using 0% p.a. and
21.30% of pay assuming 2%p.a. Though pay rises above inflation makes a benefit based on
final pay more expensive.
htip://fisher.utstat.toronto.edu/sharp/WebEdv01 .hå-n
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Comments welcome to shap@utstat.utoronto.ca
Mar 23, 2009
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