Saturday, April 18, 2009

Money Is Also A Strange Loop

So I was looking at my finances the other day, and calculating up the amount of money I could have in my savings account at the end of the year if I continued to save 1/5 of everything I earned. It was pretty impressive.

Then I realized, rather obviously, that if I continued to do this for five years I would have a full year's salary in my savings account. That was more impressive.

What was even more impressive was the realization that, no, I wouldn't just have a year's salary. I'd have a year's worth of money that I could live off of (if I needed to) while continuing to put twenty percent of it back into savings.

That's strange loop territory. ^__^

(The stranger loop is that, of course, no I won't actually have a year's salary. Assume I get a COLA at the appropriate intervals, and you see the problem. Like Zeno's Paradox, the numbers will get pretty close--but as long as I only save twenty percent and no more, they'll never meet.

And then, of course, there's the unpredictability of it all; in this economic climate making the presumption that I will have a continued salary for the next five years is, after all, presumptuous. But let's leave that alone for now.)

The next thought, however, brought me back down to earth.

If five years of working earns me enough savings to live on for one year, then how many years will I need to work to be able to have enough savings for retirement?

Never mind the variables or inflation or 401(k)s or anything like that. Let's even ignore things like getting married, having children, buying a house, traveling, major medical expenses, etc. Let's just look at the basic math.

5=1. 10=2. 20=4. And even after working for the next 40 years (which would make me 67 years old) I'd only have enough money saved for 8 years of retirement.

Again, we'll leave the variables out (and the response "but people usually spend less money per year when retired," which I will balance out with "yeah, but stuff is going to cost more in forty years").

What does one do when looking at an equation like this? Try to invest? Try to save more? I can't be the first person who's stared down the end of this equation.

It got even sadder when I started looking into the ING Orange Account, which is supposed to offer the best returns on both savings and checking accounts (which, according to the blogosphere, it does), and saw this:

Read the small print. For every $10,000 you put into the account, you'll get $150 at the end of the year. Here I was going to be all excited about the magic of compound interest, but this is on the level of a fourth-rate magician pulling quarters out of people's ears.

It's got to be investing, doesn't it. Maybe CD ladders, but probably a combination of CDs and investing, which means I really need to sit down with the pen and paper and do some research.


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