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jimrandomh comments on Why is it rational to invest in retirement? I don't get it. - Less Wrong
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I don't think the marginal dollar invested in a retirement account yields anywhere near the utility of the marginal dollar spent elsewhere, even with the tax advantages. Freezing your money for decades is a huge deal. If you're 55, sure, go ahead; if you're in your twenties, putting money into a retirement account is almost as bad as setting it on fire.
Sort of, but the value of money is not linear in utility. If we simplify our assumptions and pretend it's really a binary choice, would you rather buy some flying lessons when you're in your twenties, or your own airplane when you're in your fifties? Some trips to Hawaii in your twenties, or a house in the Maldives in your fifties? I may exaggerate, but my point is that larger sums of money can buy an entirely different class of things.
I actually agree with you, however, if only because I believe it's unlikely that the economy will still be around when I'm 55.
If you're expecting a 3.5% ROI, then after 30 years you'll only have 2.8 times what you put away. (Assuming no taxes)
"only"
Good insight. Can you elaborate on why you think it's unlikely that the economy will still be around when you're 55? Also by economy to you mean the world economy, the U.S. economy, or the economy of some other specific country or region?
I suspect this gives me two more posts for the rational financial planning sequence:
I was being tongue-in-cheek, gesturing towards the basic transhumanist stance that everything will be different. What I mean is that any investments I make today are tied to many implicit assumptions about the world's trajectory over the coming years, and that I don't expect these assumptions to hold true over that time frame, especially considering the accelerating change I've observed in my lifetime so far.
None of this actually stops me from investing a reasonable amount in boring investments like index funds because I simply don't have that much stuff I want to spend money on.
Jimrandomh's point (which I strongly agree with) was regarding saving in tax advantaged accounts. The withdraw restrictions, even after retirement age, would not let you make those massive purchases anyway.
You can withdraw money from a traditional IRA for a first time home purchase without penalty, I think.
Only $10K.
There are various ways you can take money out of your retirement accounts if you need to, with and without penalty. For instance, you can take loans against a 401K.
Meanwhile I'm updating my outline for a rational financial planning sequence. I think I may have to begin with posts on why it makes sense to plan for retirement, and how cool compound interest is.
I'd love to read that :)