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Or you can bank the excess cash and "retire" as soon as 4% of your savings equals your annual expenses. (Work hard to maximize your salary and minimize your expenses)

Between now and achieving that 4%, focus on excelling at the things you find the most interesting and building relationships in your industry so that once you cross the freedom line you can take on the occasional consulting gig to keep things interesting.

(I'm pushing 40 now and sincerely wish I had done the above when starting out in my twenties)

If I knew where to get a risk free, consistent 4% return these days ...

You won't get risk-free 4% return after inflation, but you can (probably) expect a 4% annual return on average if you put your money in the stock market. At least this is the assumption that the Norwegian Pension Fund, the world's largest stock market fund, operates with. Although it has been discussed to reduce this number to 3%.

The Norwegian fund also has a investment horizon better measured in centuries, not years, so it can afford to to wait out the huge stock market fluctuations in the expectation of that average return. A mere human, on the other hand...

Indeed. Tell me again why people say it's better to save for retirement as an individual...

Wow... I didn't know anything about the Norwegian Pension Fund. That's really cool. At a 2012 net worth of $654 Billion, it's greater than the country's debt ($548 Billion) and represents >$130k for each of Norway's 4.9 million people...

The "external debt" number quoted on Wikipedia is the total debt of all Norwegian companies to external debtors. And note that this is the gross number; I have no idea what the net number is but it is a lot smaller and might be negative.

The national debt is only 100 billion dollars, and is there primarily to ensure smooth trading with our trading partners. (It was roughly doubled due to liquidity measures in 2008, but supposedly some smart bond trading ensures that this won't have any dramatic effect with regards to making or losing money).

Thx for the pointer. I have to look into them. The issue I have is that history prior to 2000 is not valid going forward. You can say that I'm a disciple of Nasib Taleb's Fooled by Randomness.

Why isn't any history prior to 2000 still valid? We've had 10+ year secular bear markets before. I'm not arguing by authority here, but by Taleb's own arguments, it's just as likely that the pre-2000 history is still valid - there is just no way of knowing yet.

My personal thesis is that financial market history prior to 2K isn't valid. The world prior to widespread adoption of the the Internet was a different place. The Y2K cut off is a useful demarkation point ... that's when the tech euphoria went away :) I think this has something to do with the speed of information flow in a post-PC, connected world. That's the short of it anyways.

Half high yield bond funds, half blue chip stock funds, bank all earnings, re-balance once a year, and take out 4% a year from total. On average you will do just fine! (Check against history if you want to verify)

>"On average you will do just fine! (Check against history if you want to verify)"

Famous last words...

Besides the fact that the past does not predict the future, especially with something to do with human nature and economics, if everyone did the same thing, then there would be no return left (after inflation).

Also, some historical data from the S&P 500:


The 4% figure you hear about (usually in the "early retirement" circles) includes drawing down your principal gradually over time. Don't remember the numbers exactly, but drawing 4% of your initial nest-egg each year is supposed to give a 95% chance that your savings will last 40 years. Add in Social Security benefits kicking in at age 67 and that percentage goes up to 100% in most cases (unless you have an insanely large nest egg).

More like 7%, because that should be 4% after inflation...

Shouldn't the percentage of savings go down if you adjust for inflation (i.e., larger savings)?

Inflation is always bad for capital and good for debt.

Australian Government bonds will give you that. But you have to adopt the currency risk, so you'd have to forgo some return in order to hedge that away.

On the opposite side you wouldn't say that your job is risk free either.

Tax-wise it would be better to work less hours (20hr weeks for 2 years puts you in a lower bracket than 40hr weeks for one year).

Focus-wise maybe not.

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