{"items": [{"author": "George", "source_link": "https://www.facebook.com/jefftk/posts/267984426636805?comment_id=268029929965588", "anchor": "fb-268029929965588", "service": "fb", "text": "Suppose that I understand how interest works. Suppose further that the amount of money I invest is relatively insensitive to my beliefs about the real interest rate and that I have substantial uncertainty about what the real interest rate will be over my investment horizon. How do you explain this?", "timestamp": "1342630746"}, {"author": "Marcus", "source_link": "https://plus.google.com/111675838261170541573", "anchor": "gp-1342635393085", "service": "gp", "text": "Jeff: I'd be curious about whether there could be a situation in which a lower interest rate would lead to more absolute saving today.\n
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\nOne such possible situation would require an individual with a target dollar value for retirement savings at age 70. In that case, a lower interest rate leads to more total savings required, and, that could possibly lead to larger near term savings. (it might depend on the utility function of consumption as to whether the increase in total savings was front-loaded or backloaded). One could, of course, argue that a target retirement total is not the right way to optimize life, but I believe many people do approach retirement in that way.", "timestamp": 1342635393}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/267984426636805?comment_id=268046709963910", "anchor": "fb-268046709963910", "service": "fb", "text": "@George: I'm not sure what you're asking.", "timestamp": "1342635667"}, {"author": "Jeff Kaufman", "source_link": "https://plus.google.com/103013777355236494008", "anchor": "gp-1342636544845", "service": "gp", "text": "@Marcus\n\u00a0That sounds plausible enough to me that someone might reason that way. \u00a0Target retirement is not absurd: maybe I want to live in a retirement community that costs about X, so figure out how much I would have to save to make that likely.", "timestamp": 1342636544}, {"author": "BDan", "source_link": "https://plus.google.com/103775592027106438640", "anchor": "gp-1342662524230", "service": "gp", "text": "Of course, one of the big issues is that word \"expect\".\u00a0 I think it's very difficult to say at this point whether interest rates over the next 40 years will be anything like those of the past 40.", "timestamp": 1342662524}, {"author": "David German", "source_link": "https://plus.google.com/111229345142780712481", "anchor": "gp-1342671046850", "service": "gp", "text": "TL;DR: For most savers in the US, tax incentives are more important. \u00a0\n
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\nIt's standard advice to do the following steps annually, in order of priority, so far as you can afford them. \u00a0Numbers are 2012 contribution limits for a single taxpayer with earned income.\n
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\n1. Save enough in a 401(k) or 403(b) to capture your entire employer match, if any.\n
\n2. Save $5,000 in an IRA.\n
\n3. If you have a high-deductible health plan, save $3,100 in an HSA. \u00a0Do not use this money to pay your medical bills if you can avoid it.\n
\n4. Continue saving in the 401(k)/403(b) until you hit the $17,000 maximum.\n
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\nIn total, you can transfer $22-25k/year [1] plus employer match into tax-advantaged vehicles. [2] \u00a0For simplicity's sake, let's say that your federal+state marginal tax rate \nr\n stays constant your entire life. \u00a0In that case, let's treat Roth and Traditional accounts as equivalent, and pretend all your savings are Traditional. [3][4] \u00a0You save \nx\n, and get the taxable return found in \n@Jeff Kaufman\n's tables, plus \nrx\n in tax savings right now to do with as you please, including invest.\n
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\nMy advice to the country at large: if you are saving less than $22-25k per year, forget about market forecasting. \u00a0You're probably terrible at it anyway. \u00a0Just save as much more as you can. \u00a0The government will give you \nsubstantial free money\n to do so, and every year you don't collect that free money is gone forever.\n
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\n[1] Or your entire earned income, whichever is smaller.\n
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\n[2] Maybe more, but it's complex:\u00a0\nhttp://www.bogleheads.org/forum/viewtopic.php?t=48237\n
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\n[3] They aren't really equivalent. \u00a0A Roth lets you save more effective dollars. \u00a0You should be able to make some kind of useful-but-imperfect forecast about your future tax rate, which could argue for Roth if it's higher or Traditional if it's lower. \u00a0Diversification can hedge the imperfections in your tax forecast, and gives you a subtle advantage when making withdrawals. \nhttp://www.moolanomy.com/1991/tax-diversification-why-it-pays-to-tax-diversify/\n
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\n[4] Also, the HSA is a lot better than this if you expect to have medical expenses in retirement. \u00a0\nhttp://www.bogleheads.org/wiki/Health_Savings_Account", "timestamp": 1342671046}, {"author": "George", "source_link": "https://www.facebook.com/jefftk/posts/267984426636805?comment_id=268179246617323", "anchor": "fb-268179246617323", "service": "fb", "text": "I guess what I am trying to say is that I will invest the same fraction of my income regardless of whether I know that the real interest rate over my investment horizon will be 0.2% or 4% and that I think this might be true for other people also. There are a few factors about my specific situation that are relevant to this, but I am wondering what your situation would have to be for you to be similarly insensitive to the real interest rate (not completely insensitive to it).", "timestamp": "1342676266"}, {"author": "Todd", "source_link": "https://plus.google.com/112947709146257842066", "anchor": "gp-1342698685611", "service": "gp", "text": "\"... forget about market forecasting. \u00a0You're probably terrible at it anyway.\"\n
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\nI think this is an important and overlooked point. Many people's entire careers consist of this, and many of those people do terribly at it. It might in some cases be useful or necessary to make forecasts, but I wouldn't put much stock in any forecast I made.", "timestamp": 1342698685}, {"author": "Jeff Kaufman", "source_link": "https://plus.google.com/103013777355236494008", "anchor": "gp-1342707793205", "service": "gp", "text": "@Todd\n\u00a0but if I'm trading off between spending money on things now and saving it, I do need some sense of how beneficial it is to save.", "timestamp": 1342707793}]}