At what age do you hope to retire/Personal Finance and Investing Thread

[wallus]

Most people spend money on really dumb things which is why they have no savings.

[OldSchoolSnapper]

If this sort of thing interests anyone, I highly recommend the book The Millionaire Next Door. It is essentially a case study of millionaires as defined as those with a net worth above $1mm. It is from the 90s, so you have to adjust for inflation as you read, but the premise is very interesting. Two researchers begin in an affluent neighborhood but realize quickly that nobody there has any net worth. They are simply high earners that have maxed out all their borrowing power.

 

They end up finding their sample in mostly smaller, humble working class towns. Most of the sample never made more than $60k in a single year. They drove 1 or 2 cars for a lifetime and I believe the average age was 57. They go into far greater detail than I have but it is a great book.

[OldSchoolSnapper]

Most people spend money on really dumb things which is why they have no savings.

 

True for a great many people, but not for all, and the issue is a lot more complex than that. Not too long ago a high school degree was enough to lock down a very cushy manufacturing job that supported a typical family and provided a retirement plan. That is all but gone, wage stagnation is extremely real, and the folks who worked those types of jobs have been hit the most.

 

White collar workers with education were able to keep up with rising COL or outpace it in many areas, but $16 an hour to work in a plant is just not cutting it for those with families who need to be able to put something away after paying bills. I know the response to that is "don't have kids then," but from a economics and demographics perspective that isn't a realistic solution.

 

When you hear that the lower middle class has been crushed, that isn't just blowing smoke. Post-WWII was really a tremendous time of prosperity in this country and it is absolutely nothing like that for anybody working those types of jobs today.

[nodakfan17]

I’ve read The Millionaire Next Door and I’ll second that recommendation. However, you don’t need to read a book to understand that the key to building wealth is to spend less than you earn.

 

Interestingly enough, I read a big driver of inequality post WWII has been the increasing number of women attending college. High-earning men are more likely to pair off with high-earning women they meet while in college and that leads to a small number of high-earning households.

[OldSchoolSnapper]

That fact about women going to college makes a lot of sense. A lot of people also pair off (the first time at least) at a time in their lives when money is not a big driver for what they want in a mate. Real life hasn't hit people in their early 20s for the most part and most have a deluded sense of how much or they will make or how hard life will be.

 

I think that would be much higher up the scale with people who pair off into their 30s and 40s than 20s.

[wallus]

 

White collar workers with education were able to keep up with rising COL or outpace it in many areas, but $16 an hour to work in a plant is just not cutting it for those with families who need to be able to put something away after paying bills. I know the response to that is "don't have kids then," but from a economics and demographics perspective that isn't a realistic solution.

 

If you have two earners making $16 an hour in a household, you make enough to save. Now if you are a single parent, that would be a problem obviously.

[OldSchoolSnapper]

 

White collar workers with education were able to keep up with rising COL or outpace it in many areas, but $16 an hour to work in a plant is just not cutting it for those with families who need to be able to put something away after paying bills. I know the response to that is "don't have kids then," but from a economics and demographics perspective that isn't a realistic solution.

 

If you have two earners making $16 an hour in a household, you make enough to save. Now if you are a single parent, that would be a problem obviously.

 

That's barely above median household income. It's $66k per year, which is not even close to the inflation adjusted salary for a comparable job 40 years ago. It can be done with a frugal lifestyle, but that wasn't my point. Two children in daycare can cost upwards of $2k a month. And we haven't touched the potential of having a student loan.

 

The point was that it was far easier to have an average life in the past. My dad has friends who paid for UW by working at a bowling alley in the summer.

 

I'm a conservative and well above median income but it annoys me when people explain our economic state with one liners about people today being lazy or buying too much stuff. It's simplistic and lazy and ignores the vast issues we have in our economy.

[TURBO]

but it annoys me when people explain our economic state with one liners about people today being lazy or buying too much stuff.

 

it may bother you, but there is at least some truth to these one liners...

[homer]

 

White collar workers with education were able to keep up with rising COL or outpace it in many areas, but $16 an hour to work in a plant is just not cutting it for those with families who need to be able to put something away after paying bills. I know the response to that is "don't have kids then," but from a economics and demographics perspective that isn't a realistic solution.

 

If you have two earners making $16 an hour in a household, you make enough to save. Now if you are a single parent, that would be a problem obviously.

 

That's barely above median household income. It's $66k per year, which is not even close to the inflation adjusted salary for a comparable job 40 years ago. It can be done with a frugal lifestyle, but that wasn't my point. Two children in daycare can cost upwards of $2k a month. And we haven't touched the potential of having a student loan.

 

The point was that it was far easier to have an average life in the past. My dad has friends who paid for UW by working at a bowling alley in the summer.

 

I'm a conservative and well above median income but it annoys me when people explain our economic state with one liners about people today being lazy or buying too much stuff. It's simplistic and lazy and ignores the vast issues we have in our economy.

 

I think you are right in some respects (education costs have far outpaced inflation, and housing costs have skyrocketed) but you could also argue it was easier to live an average life in the past BECAUSE our parents/grandparents were more frugal (sometimes by choice and sometimes just because they didn't have another option). Homes are way bigger than they used to be. Average size of a new home in 1979 was 1760 sq ft. In 2014 it was 2657 sq ft. People spend between $100 - $200 on cable tv, cellphone bills are $50 - $100, high speed internet is also $50 - $100 a month. Back in the 80's there were no such things. You paid like $13 a month for cable if you even had it, and you waited until after 7pm to make a long distance call because it was cheaper. People didn't go out to eat anywhere near as often as they do now. That was a weekend thing.

 

So I agree that yes there are economic pressures that didn't exist 30 years ago but there are also cultural changes that have taken place that add to the burden.

[OldSchoolSnapper]

A lot of those issues are related. Two working parents wasn't always the norm. That meant more time at home, more meals at home, more time to take care of a house and just generally a far more relaxed lifestyle. When two people get home at 6pm eating out is just something most folks are going to do. It's also less meaningful time spent together, which is connected to crumbling family structure etc and a whole bunch of very complex stuff.

 

Money brings the ability to outsource even a couple things that make life easier. Also, white collar workers are much more likely to have flexibility to take off here and there to run errands. Blue collar jobs are a lot less forgiving.

 

I can't argue with the rise of consumerim and giant homes, but that's in most Americans' blood. I think you hit on one of the big things, and that is people's unwillingness to accept that the time of unchecked prosperity is over. You're not entitled to your grandparents life but that is a hard pill to swallow. The general attitude of many boomers doesn't help either. They don't understand the issues young people face today. I think you are starting to see some of that return to frugality with people under 35ish. That generation is waiting to buy homes, delaying kids, renting, living smaller, repurposing goods and more concerned with the effects of consumerim on the environment.

[OldSchoolSnapper]

but it annoys me when people explain our economic state with one liners about people today being lazy or buying too much stuff.

 

it may bother you, but there is at least some truth to these one liners...

 

There is some truth in that some people are lazy and some people buy too much junk. Is that the driving factor in why the majority of people are crippled? No, it's not. When you make $31k and get a $29k hospital bill when you're already $60k in student debt your work ethic isn't gonna help you a whole lot. You are essentially screwed. Expecting most people to be able to grind out of that isn't realistic. It's passing the buck from an infrastructure that has failed and placing the blame on the less fortunate.

 

Even as a lifelong Republican, I'm kind of repulsed when people (I'm not directing this as you) dismiss the very real socioeconomic problems that have caused the retirement crisis as people being lazy.

 

The usual responses are that you don't have to go college or something, and while that may be true in some cases far too many people have no concept of those things at the age they're tasked with making those decisions. The colleges have failed most people miserably at preparing them for actual life as an adult.

[homer]

Yeah I was going to mention the millenials but my post was getting long in the tooth

 

I think some people over value the two income home. The see the income and not the associated costs - daycare, extra car, gas, getting take out by necessity, etc. etc. Sometimes you are actually losing money with a second income if you aren't making enough or, more likely, aren't making enough money to make it worth your while. The ideal would be to have one parent work at home with flexible hours. Easier said than done obviously.

[nodakfan17]

It’s true that the dual-income house leads to extra costs (child care, extra car, etc.), but it also provides a layer of security that past generations have lacked since only 50% of household income is at risk due to job loss or disability.

[nodakfan17]

My wife works in higher education and I often razz her about the wonderful amenities on campus and the increasing costs associated with them. Her response (which I think is mostly true) is that the students demand these amenities and if they weren’t offered at her school, the students would go somewhere else.

[homer]

My wife works in higher education and I often razz her about the wonderful amenities on campus and the increasing costs associated with them. Her response (which I think is mostly true) is that the students demand these amenities and if they weren’t offered at her school, the students would go somewhere else.

 

Oh that's true. I didn't have air conditioning in my dorm. You think that would fly nowadays? No chance. You can probably say the same thing about health care - not anywhere near the only reason for the astronomical costs but it has an impact.

[nate82]

 

I think you are right in some respects (education costs have far outpaced inflation, and housing costs have skyrocketed) but you could also argue it was easier to live an average life in the past BECAUSE our parents/grandparents were more frugal (sometimes by choice and sometimes just because they didn't have another option). Homes are way bigger than they used to be. Average size of a new home in 1979 was 1760 sq ft. In 2014 it was 2657 sq ft. People spend between $100 - $200 on cable tv, cellphone bills are $50 - $100, high speed internet is also $50 - $100 a month. Back in the 80's there were no such things. You paid like $13 a month for cable if you even had it, and you waited until after 7pm to make a long distance call because it was cheaper. People didn't go out to eat anywhere near as often as they do now. That was a weekend thing.

 

So I agree that yes there are economic pressures that didn't exist 30 years ago but there are also cultural changes that have taken place that add to the burden.

 

All good points especially about cell phones, internet, and cable. The only thing I see though is that cable is being replaced by Netflix, Amazon, and Hulu. It is slowly happening but cable is starting to die slowly. Cables major subscribers are the boomers and once they are gone you will start to see the death kneel of cable. Cable companies are already doing the transition from cable TV to internet only.

 

There are also more and more jobs popping up that are work from home where one person can take either a part-time role or a full-time role working at home. Some of these jobs are low skilled and low paying jobs but they are there. Some call center jobs are now moving to work at home jobs as I know UPS and a few other companies have started to move from actual physical call centers to work at homes. It is cheaper to hire someone to work at home and set them up with a phone at their house and have them clock in when they can than it is to set up a call center and set up daily schedules for those employees.

 

Now for retiring there are a bunch of other ideas that you can do to retire at an earlier age. For example I choose to be more frugal and put in 10% of my paycheck to my retirement account. I also do $200 a month to an annuity. While I won't get a lot putting in $200 a month to the annuity I will get about $800 a month which I plan to use for any medical issues.

 

I probably won't retire at an early age but that is by choice and not by financial concerns. Even when I go on vacation I can't be on vacation for more than a day or two as I get overly bored and I am looking for something to do. I usually check in on work and read emails as I am out and address any issues that have come up. I just can't do the vacationing stuff even if I am doing something I am extremely bored and need something to do.

 

I am thinking my retirement will be from my current job and then transitioning to something that doesn't pay all that well but keeps me busy. I might just become a professor at a smaller school and that is how I will spend my retirement.

[TURBO]

My wife works in higher education and I often razz her about the wonderful amenities on campus and the increasing costs associated with them. Her response (which I think is mostly true) is that the students demand these amenities and if they weren’t offered at her school, the students would go somewhere else.

 

Oh that's true. I didn't have air conditioning in my dorm. You think that would fly nowadays? No chance. You can probably say the same thing about health care - not anywhere near the only reason for the astronomical costs but it has an impact.

 

My kids didn't have air conditioning or the option of air conditioning at UWSP (he graduated in 2018) or UWEC (she's a senior now).

 

I don't think all the state schools offer AC in their dorms.

[young guns]

My retirement plan is that we become some sort of utopian star trek society that has replicators thus eliminating the need for money.

[homer]

My wife works in higher education and I often razz her about the wonderful amenities on campus and the increasing costs associated with them. Her response (which I think is mostly true) is that the students demand these amenities and if they weren’t offered at her school, the students would go somewhere else.

 

Oh that's true. I didn't have air conditioning in my dorm. You think that would fly nowadays? No chance. You can probably say the same thing about health care - not anywhere near the only reason for the astronomical costs but it has an impact.

 

My kids didn't have air conditioning or the option of air conditioning at UWSP (he graduated in 2018) or UWEC (she's a senior now).

 

I don't think all the state schools offer AC in their dorms.

 

 

They may not. I think I assumed most had started to do so since Madison built that palace on near the Lakeshore dorms. I thought it was a hotel when I drove by last summer.

[reillymcshane]

 

Oh that's true. I didn't have air conditioning in my dorm. You think that would fly nowadays? No chance. You can probably say the same thing about health care - not anywhere near the only reason for the astronomical costs but it has an impact.

 

My kids didn't have air conditioning or the option of air conditioning at UWSP (he graduated in 2018) or UWEC (she's a senior now).

 

I don't think all the state schools offer AC in their dorms.

 

 

They may not. I think I assumed most had started to do so since Madison built that palace on near the Lakeshore dorms. I thought it was a hotel when I drove by last summer.

My son doesn't have AC in his dorm.

[CheezWizHed]

My retirement plan is that we become some sort of utopian star trek society that has replicators thus eliminating the need for money.

 

Can I live in your basement?

[Nader Raider Tim]

Man, I'd like to say lower 60's but upper 60's is probably likely. Currently debating taking out a loan against my 401k to pay off high interest credit card debt I racked up after a forced move to third shift. My gameplan is to pay off that debt and start putting another $100+ a month towards retirement. Currently doing 5% of income in a 401k. My company has a retirement fund too which puts in another 5-7% in a fund.

 

Being mid 30's and only having $100,000 set aside for retirement is scary. Especially when I've got a bunch of debt hanging over my head.

[Patrick425]

What I tell my son (he's 20) is when he get his first "career" position, whatever the starting annual pay is ($30K, $50K, $80K, whatever), pretend that it is at least 6% less and that is what you live on (the remaining 94%). The 6% goes into retirement savings and you don't think about ever touching it until you retire. If you are fortunate enough to get employed by someone who does some sort of match on more than 6%, then do whatever percentage is the max for matching, otherwise you are just refusing extra money. Then every time you get a raise, add another 1% to your annual retirement savings. Save as much as you can (at least 6%), as early as you can.

 

I think there are too many people who don't have a grasp on how money grows over time in an appropriately balanced portfolio (heavier equity weighted at a younger age), so they decide it's not worth it and that there are other things they feel are more important to spend their money on now. Then they get to age 40 or 50 and realize that they should have been saving for retirement much earlier.

[TURBO]

Great advice Patrick, you don't miss what you don'r realize you had. My son just graduated college, and we have had this discussion.

 

You really can't save too much, as we all find out when we hit 50...

[OldSchoolSnapper]

What I tell my son (he's 20) is when he get his first "career" position, whatever the starting annual pay is ($30K, $50K, $80K, whatever), pretend that it is at least 6% less and that is what you live on (the remaining 94%). The 6% goes into retirement savings and you don't think about ever touching it until you retire. If you are fortunate enough to get employed by someone who does some sort of match on more than 6%, then do whatever percentage is the max for matching, otherwise you are just refusing extra money. Then every time you get a raise, add another 1% to your annual retirement savings. Save as much as you can (at least 6%), as early as you can.

 

I think there are too many people who don't have a grasp on how money grows over time in an appropriately balanced portfolio (heavier equity weighted at a younger age), so they decide it's not worth it and that there are other things they feel are more important to spend their money on now. Then they get to age 40 or 50 and realize that they should have been saving for retirement much earlier.

 

This is a big part of the crisis. By the time most people sit down to think about these things, that ship has sailed. If there is no large inheritance coming, there is very little you can do. It is too easy to kick the can down the road in your 20s and 30s. You have to pay for daycare, get rid of that student loan, save for the house, etc. If you get to 45 and have a 401k with 20 grand in it you are in trouble. It's harsh, but a reality people need to educate their young adult children on. That training has to come from mom and dad because nobody else is going to do it.

 

Some people have nothing left to save, but a lot of people would be better off balancing their goals. Even if you can only put down $150 a month in an IRA or something that is massively better than 0 by the time you hit 45. And a lot of people can save more than they think, they just don't sit down and strategize.

 

I encourage people to start IRAs for their children when they are very young. You can contribute anything up to what you earn in a year. If you have a 12 year old that rakes leaves, shovels snow, etc. and he makes $800 he can contribute $400 to an IRA. You can even 'employ' them to do menial jobs for your side job and pay them, all that counts as earned income and they can contribute to their own IRA.

 

It gets them in the habit of it and is a good way to teach. It is pretty cool to send a kid to college and already have them rocking an IRA with a few thousand dollars.