Scott Burns: Stave off old-age poverty

[Nords]

I don't know how I missed this when it came out, but please correct me if someone else has already posted the subject.

Scott Burns has a pretty scary article (originally published last Nov, back again on MSN Money) on what happens when retirement savings don't. According to Congressional research data, 75% of those over 65 live on less than $26,777 annually. Admittedly for most that reflects no mortgage or other debts, low taxes, Medicare, and perhaps a fairly sedentary lifestyle-- but over half of those over 65 are doing it on less than $15,200. For 40% of those over 65, Social Security is at least 90% of their income.

Stave Off Old-Age Poverty

Income & Poverty Among Older Americans in 2004

Keep saving.

 

[cute fuzzy bunny]

Yeah 26k isnt that scary. My dad is working on about 28k a year, no debt, golfing all the time, eating steak and driving a new car.

We live on not a whole lot more than that, minus a little lexus discretionary spending...

 

[nun]

Yeah 26k isnt that scary. My dad is working on about 28k a year, no debt, golfing all the time, eating steak and driving a new car.

We live on not a whole lot more than that, minus a little lexus discretionary spending...

I agree $26k is ok if you are single and have no mortgage or other commitments. Right now I single and live on $24k a year if you exclude the mortgage.

 

[Jarhead*]

Yeah 26k isnt that scary.  My dad is working on about 28k a year, no debt, golfing all the time, eating steak and driving a new car.

We live on not a whole lot more than that, minus a little lexus discretionary spending...

CFB:  You had me at "golfing all the time", re: the Senior CFB.  The average family income in the north state is $39,500.  Your dad considering everything is paid for, and no CFB's around to financially worry about, I'm sure he's doing fine.

I personally am still trying to figure out, (after close to 20 years), the relationship between your percentage of previous income, having much to do with your retirement requirements.

I have concluded:  Not much.

One word of advice.  Make sure that you don't
suggest he pay a visit to this board.  Some of the more anal-retentive posters might (just might) ruin an otherwise great day.

 

[2B]

My FIL/MIL lived on a major salary in 1985 when he retired. I'm talking big corporate VP with all the bells and whistles. They weren't spending their entire $48K pension and SS (inflation is hell on a defined benefit pension) in 2004. Now they are dealing with nursing homes and assisted living which will hit about $90K. Hopefully, their timeframe won't be too long so that they won't outlive their assets.

Spending, even for the rich and powerful, falls off dramatically as they age.

 

[unclemick]

I'm with Jarhead

1993 to 2006 budget range 12k to 75k/yr.

Last year of work - 1992 100k/yr income including 6k rental income.

No relationship whatsoever. 2006 (da 75k - remodeling yr plus three trips, one cruise plus two more planned,)

Under 5% of port plus early SS plus pension.

Maybe next year - back to cheap SOB or ?

heh heh heh heh

 

[kramer]

Nords, thanks for posting this.

I looked at the definitions in the report, and "asset income" appears to be dividends, capital gains, and interest but NOT principal. So a huge portion of spending is being left out here, at least on the higher end (this would affect the average much more than the median, I suspect). It would be more accurate to detail "spending", which would be somewhat higher due to this issue.

For instance, my grandma's income was so low that she rarely owed any taxes at all. But she had principal from land she had sold years earlier that she was spending down. It never showed up as income, at least taxable income, even when she sold it because the basis of the land went up to current value before she sold it because my grandpa had died and that changes the tax basis due to estate tax laws.

Anyway, I am just pointing out a potential flaw in the methodology, but not discounting the report in general, which seems useful.

Cut-Throat, I am still waiting to see a detailed Trout bum by the River budget

Kramer

 

[Nords]

I looked at the definitions in the report, and "asset income" appears to be dividends, capital gains, and interest but NOT principal.  So a huge portion of spending is being left out here, at least on the higher end (this would affect the average much more than the median, I suspect).  It would be more accurate to detail "spending", which would be somewhat higher due to this issue.

Yeah, that's correct. No principal spending is listed in the study.

But I dug into the footnotes and found that "huge" is a relative term.

"In 2001, the median value of financial assets among families headed by a person between the ages of 65-74 that owned any financial assets was $51,400. The median for families headed by someone age 75 or older that owned any financial assets was $40,000. The median net worth of all families headed by a person 65-74 was $176,300. The median net worth of all families headed by a person 75 or older was $151,400. Net worth is the value of all assets (including a home) minus all liabilities."

FIRECalc would probably confirm that it's pretty hard to get a reverse mortgage or to downsize with those numbers...

The demographic breakdowns were pretty scary too. Kids, stay in school!

 

[SteveR]

...The demographic breakdowns were pretty scary too.  Kids, stay in school!

Amen to that! Having a degree allowed 3X the income as not having one. My extended family seems to bear that out as well. I have a number of cousins that did not go to college. They are significantly less well off than my brother and I who did finish college. However, there are some exceptions. One cousin has a Phd. but is as poor as a chuch mouse. He chooses to not work so he has no $$$. Another cousin owns a small business and seems to be doing very well...he never finished High School. Averages are averages and the trends are hard to argue against despite a few outliers.

 

[Cool Dood]

I think intelligent people tend to go farther in school, and intelligent people tend to make more money. I also think that going to school tends to improve one's income, but when you look at the correlation between education and income you're already bringing in a lot of the influence of intelligence through its effect on the education levels you're measuring.

I think that being lucky by being born smart will probably do much, much more for your bottom line than choosing to stay in school, but of course you can affect the latter by your decisions a lot more than you can change your intelligence...

Anyway, I won't recommend that anyone stay in school, I'm sure someone would call me a hypocrite.

 

[Cut-Throat]

I agree - The college degree = more money thing has more to do with smart people finish college and make more money. Not, that one causes the other.

 

[cute fuzzy bunny]

Correctamundo...backed up by "the millionaire next door"s assertions that most millionaires didnt go to college but rather started their own small business, eschewed the big loan/payout to the college, and ended up friends with Ralph and Sally rather than with high spending Chads and Buffys.

I still wonder how well a degree in computer science would have worked out for me - at the time in the 70's primarily learning cobol programming on punch cards - rather than the 5 years I spent working instead.

 

[SteveR]

I agree - The college degree = more money thing has more to do with smart people finish college and make more money. Not, that one causes the other.

I also think it has a lot to do with what your parents "expected" you to do.  I know many families where neither parent went to college and there was no expectation their kids would either.  This was passed down to the next generation who also were not "expected" to go and so they didn't.  Some kids understand the value of a degree despite not being expected to get one.  They did it on their own and they are much better off because of it.  

expectations=desire

My parents were the first and only family members to go to college.  My brother and I never even thought about NOT going to college.  My kids and his all went to college. There was never any option for them to NOT go. It was expected and discussed their whole lives.  

 

[Martha]

Only one of my sibs went to college.

An advanced degree in the social sciences doesn't mean you are going to make much money. However, running a substance abuse treatment center in downtown LA is rewarding to my sister. Even though she has two bullet holes in her van. I'll pass.

 

[HFWR]

VP Cheney has a substance abuse problem?

 

[MJ]

I guess, I was luckier the most. I am a college dropout and never started a business. I was fortunate enough to learn a growing trade, developing business software working in a company's computer department.

 

[Cool Dood]

Is it... What's that I hear on the horizon? Could it be.... a "level of education" poll?

(Or should it be a "level of ejication pole"? )

 

[wabmester]

I still wonder how well a degree in computer science would have worked out for me - at the time in the 70's primarily learning cobol programming on punch cards - rather than the 5 years I spent working instead.

I was originally a self-taught programmer, and I was sure that the CS department couldn't teach me anything I didn't already know.   I was wrong.   I came away with some surprisingly useful stuff and ended up getting a masters in CS (which was pretty useless).

My first two jobs out of school were doing scientific programming and then making development tools (compilers, etc).   I don't think there's anyway I would have known about a bunch of useful algorithms, theories,  and tools if I hadn't been exposed to them in school.

 

[heyyou]

WAB--Your college education was specific to your career.  Not everyone who gets a degree, leaves with your level of expertise in an employable field.  My BIL has a masters in History of Science.  Making your own telescope from scratch is not in demand.
MHO is your pre-retirement spending level is important for planning, since in this group, almost all were LBYM prior to ER.  We are living on the same spending as when working, I just got rid of the big weekday aggravation.  That is the best thing about a high savings rate, you need less retirement income since you are already living at a cheaper level prior to R.
Joe

 

[cute fuzzy bunny]

I was originally a self-taught programmer, and I was sure that the CS department couldn't teach me anything I didn't already know. I was wrong. I came away with some surprisingly useful stuff and ended up getting a masters in CS (which was pretty useless).

My first two jobs out of school were doing scientific programming and then making development tools (compilers, etc). I don't think there's anyway I would have known about a bunch of useful algorithms, theories, and tools if I hadn't been exposed to them in school.

I guess I cheated. My first computer job was working in one of the very early computer retail stores, and the owner held a doctorate in computer science. When I needed to know how to do something involving complex theory or algorithms, I'd say "How the heck do I do this efficiently?" or "Do you know the best routine for this?" and he'd either tell me in 20 words or less or hand me a book open to a specific page. After a year and a half of that I had absorbed pretty much what I needed to go write operating systems, compilers and languages.

Not only was it a lot cheaper, I got paid.

Apprenticeship?

 

[Nords]

Not only was it a lot cheaper, I got paid.  Apprenticeship?

TH, you remind me of this story. 

A couple years ago the military was rolling out a new computer system to help us all evaluate our skills & experience in terms of college credits.  The idea was to motivate people to get their college degrees by showing them how they probably already had a semester or two of "life experience" that could be converted to actual credits.

The beta testing involved sitting a bunch of actual sailors of different specialties in front of the software while clipboard-toting monitors checked the system's human-engineering useability.  As the hour ticked by, one grizzled E-8 became progressively more upset.  Eventually he began to vocalize his displeasure.

When the monitors checked on his "problem", it turned out that the program had just awarded him more than 150 credits of lifetime experience.  He already had the equivalent of a bachelors and was well on his way to a masters.  The irony was that the only educational certificates he possessed were his ASVAB scores and a GED.  (The Juvie judge had agreed to expunge his other "certificates" if he'd join the military.)

So, TH, next time your self-esteem is feeling fragile (I know, I know, but stick with me here just for the sake of the discussion) you might check into CLEP testing.

 

[wabmester]

Apprenticeship?

That is a great approach.    Basically, the only thing college does for you is to define the curriculum and then set the pace for going through the material.    A curriculum is a useful short-cut, since the alternatives are either a shotgun approach or a depth-first approach as you learn on an as-needed basis.    And having them set the pace for you is useful if you don't have much self-discipline.

Since I've retired, I would love to find apprenticeships in a bunch of fields -- horticulture, furniture making, architecture, etc.    I'm not making nearly as much progress on my own in these areas as I'd like to.

 

[cute fuzzy bunny]

Thinking back on it, it was a good first job. The owners brother also worked there and he was his classes valedictorian in finance at princeton.

Nords...what the hell would I do with a degree anyhow? I'm already an ordained minister, and thats funny enough!

 

[Nords]

Nords...what the hell would I do with a degree anyhow?

What, without a résumé to stick it in? I've been asking myself the same thing since I ER'd.

I think a degree is designed to remind you of why you aren't going back to school even if you now have the time to do so.

I'm already an ordained minister, and thats funny enough!

Travesty of justice, maybe, but funny?!?

 

[cute fuzzy bunny]

Immoral, perhaps, but travesty of justice?!?

I'm surprised the church that ordained me didnt instantaneously burst into flames...