The Retirement saving shortfall tidal wave

[rayinpenn]

The latte phenomena - the $4 cup of joe, $30 nail job...

http://www.nirsonline.org/storage/n...ings Crisis/retirementsavingscrisis_final.pdf

The average working household has virtually no retirement savings. When all households are included— not just households with retirement accounts—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households. Two-thirds of working households age 55-64 with at least one earner have retirement savings less than one times their annual income, which is far below what they will need to maintain their standard of living in retirement.

It some pretty scary statistics. Oh course I can't help but wondering why? Was income so low saving was and is simply impossible? Is it a question of poor priorities? The study suggest you need at least 8 times your income at retirement. I guess that too would be dependent on how much of your income you save.

In my own case we utilized the timex phenomena
1. We've always saved first then live on the rest
2. We avoided the $4 latte - I just can't do it.
3. We clip coupons and our big deal was pizza and a movie at home.
5. We made thrift a part of our lives...
You probably can guess the rest ...maintained drove cars until they were tired...etc.,

People generally don't talk about money much - other then to complain. I have observed a couple of things that seem to be prevalent in many friends and colleagues.
Spending windfalls whether it is from an inheritance, bonus, tax return, real estate sale...
The zoom zoom factor - buying too much car or truck ... Do you know what a well appointed f150 costs? I couldn't believe it.
Toys and some of the worse ones have a motor on the back - ( I must admit I have a yen to buy a 2 person kayak for the son and I to fish from)

Is it discipline? How terrible it is out there? Is it a cultural thing ...to much tv?
Your thoughts if you care to contribute?



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[Senator]

Is it discipline? How terrible it is out there? Is it a cultural thing ...to much tv?
Your thoughts if you care to contribute?

It is definitely a discipline thing. Far too many people want everything now. Do not be surprised to find that you will be funding a a lot of others retirements, as well as your own.

Tax collections will fall, unless rates are raised. People are making less money in the generations of people after the baby boomers.

It would be an interesting graph to see taxes paid by age group.

 

[DFA]

I retired 2 1/2 years ago, DW is retiring June 30th. We recently took a vacation to visit family and jobs, money, and saving comes up all the time.

I listened, but did not comment on our situation, but several members of the family are only making $18/hour working at jobs for up to 47 years with a pension of $300/month at 66. With that in mind I did some calculations and this is what I saw:

1. ~$38,000 income
2. one to two kids
3. owned home
4. going to work until SS kicks in.

With these I looked at possible saving for them:

$38,000 less income taxes leaves about $33,500, divided by 12 leaves about $2,800/month, less utilities, food, gas for car, insurance, and misc about $1,000, leaving $1,800, health insurance, Dental, and vision about $500/month, leaving $1,300, next stuff for kids school, clothes, and staycation about $300, leaving $1,000, there is still property taxes, property insurance, and property up keep and maintenance, which could be about $400/month leaving $600 for savings or other emergencies, so there is the reason some have little to nothing in savings that I see.

This represented 5 of the the 12 people at the family cook out and they all living with older cars and other older stuff they take care of a repair themselves.

 

[daylatedollarshort]

This subject comes up often. I think part of it is human brains are generally programmed for short term thinking. There are many INTJs with higher than average long term planning and strategic thinking skills here and the other ER forums, compared to the 2% supposedly in the general population.

 

[ivinsfan]

DFA, at that income level if you are a couple both of you need to work fulltime. If you are single you are going to need a room mate or live with your parents.

Your comment points out the thing that infuriates me about these articles .A cup of coffee and a pedicure are not going to wreck your retirement.

Better yet, work your butt off for 38K a year , pay all your bills and never treat yourself to one darn thing and you still are going to have a very lean retirement.I wonder how many of these writers live a lifestyle like that, very few I'd guess none of them. Some of these workers don't have a choice between 30 bucks for your retirement fund or 30 bucks for a pedicure...they don't have 30 extra dollars to begin with.

 

[pb4uski]

I think it is a societal pressure and keeping up with the Joneses thing combined with low income. When DW worked for the WIC program she saw all sorts of low income families who had premium cable packages (we didn't), fancier landline packages (we just went with basic), sometimes newer cars (we usually kept ours 5-10 years), etc. They had no idea how to LBYM. To be honest, I don't have much sympathy. Everywhere you read how we need to save for retirement and they decided not to so they could have and enjoy the latest and greatest gizmo. My cellphone bill is $10/month... theirs is many times that... they made their bed.

Even a modest amount saved over a 30 year career can add up to a lot of money if done consistently.

 

[DFA]

DFA, at that income level if you are a couple both of you need to work fulltime. If you are single you are going to need a room mate or live with your parents.

Your comment points out the thing that infuriates me about these articles .A cup of coffee and a pedicure are not going to wreck your retirement.

Better yet, work your butt off for 38K a year , pay all your bills and never treat yourself to one darn thing and you still are going to have a very lean retirement.I wonder how many of these writers live a lifestyle like that, very few I'd guess none of them. Some of these workers don't have a choice between 30 bucks for your retirement fund or 30 bucks for a pedicure...they don't have 30 extra dollars to begin with.

All very true, they were married, but the DW had very little work skills and training so most make about $10/hour, but with that comes additional expenses such as daycare, second car, which requires more gas, insurance, repairs, and then more income taxes, SS taxes, and Medicare taxes........ and such. Can't get ahead by much this way either.

 

[Fred123]

I think it is a societal pressure and keeping up with the Joneses thing combined with low income. When DW worked for the WIC program she saw all sorts of low income families who had premium cable packages (we didn't), fancier landline packages (we just went with basic), sometimes newer cars (we usually kept ours 5-10 years), etc. They had no idea how to LBYM. To be honest, I don't have much sympathy. Everywhere you read how we need to save for retirement and they decided not to so they could have and enjoy the latest and greatest gizmo. My cellphone bill is $10/month... theirs is many times that... they made their bed.

Even a modest amount saved over a 30 year career can add up to a lot of money if done consistently.

Ah yes, the undeserving poor. I'm sure you only made $10/hr when you were working.

 

[samclem]

Choices have consequences.

 

[pb4uski]

Ah yes, the undeserving poor. I'm sure you only made $10/hr when you were working.

The example we were talking about made $38k a year.

FWIW, DS is making only a bit more than $10/hour and still seems able to live on his own and still save a bit. He has a prepaid cellphone that costs him about $12/month... his contemporaries have fancier cellphone plans that cost much more. It's not what you make, it's what you spend.

Did you ever read the story of The Little Red Hen?

 

[nvestysly]

I think it is a societal pressure and keeping up with the Joneses thing combined with low income. When DW worked for the WIC program she saw all sorts of low income families who had premium cable packages (we didn't), fancier landline packages (we just went with basic), sometimes newer cars (we usually kept ours 5-10 years), etc. They had no idea how to LBYM. To be honest, I don't have much sympathy. Everywhere you read how we need to save for retirement and they decided not to so they could have and enjoy the latest and greatest gizmo. My cellphone bill is $10/month... theirs is many times that... they made their bed.

Even a modest amount saved over a 30 year career can add up to a lot of money if done consistently.

My first reaction is everyone knows somebody in their circle of family, friends and peers that makes 10% less than themselves and those people are living their lives so figure out how to live on 10% less. Use this fact to identify expenses that you can control so you can begin saving that 10%.

I have taken specific steps to provide assistance/guidance/support for low income households. After several attempts at working with a number of local programs I decided to stop participating in these groups. The non-profit support programs seemed to be much more about how to find sources of money and enroll in various government programs rather than change habits in order to work through financial issues. One gentleman in the rent assistance group specifically said he would not drop the premium NFL cable package to save money. He would rather attend this monthly rent assist program and receive assistance for several months.

The answer was always "I need more money." I never heard anyone indicated they needed to change their spending to match their income.

A friend has a relative that has continual money problems. The relative has no concern about eating fast-food or stopping for a snack here or there. When her spending habits were questioned the relative actually said she has enough money for the small stuff but can't seem to pay the rent!

As somebody said above... it's all about priorities.

 

[pb4uski]

....The non-profit support programs seemed to be much more about how to find sources of money and enroll in various government programs rather than change habits in order to work through financial issues. One gentleman in the rent assistance group specifically said he would not drop the premium NFL cable package to save money. ....

Great example of why it is hard for me to be sympathetic to many of these people (BTW, I still don't buy any premium cable packages even thought I could well afford to).

 

[Dreaming of Freedom]

I have an uncle in an inexpensive city in the midwest that can barely get by on nearly $40,000/year, and he splits his living costs with his girlfriend who also makes between $30K and $40K. His car is almost 20 years old and he swears he can't afford to buy a new, small car. In the next sentence he mentions that his cable package is $175/month. Hmmm, the car payment on my Sentra was only $180/month. Sometimes i remind him and other hopeless spendthrifts in my family who complain all the time that I bought a $110,000 house on a salary of $30K. I really do feel bad for the single parents who are barely scraping by while being responsible with their money, but that is not anyone in my family. At least no one is on welfare...yet.

 

[pb4uski]

.....In the next sentence he mentions that his cable package is $175/month. ...

Heck, my cable, internet, phone and cellphones combined are $150/month and I think that is too much!

 

[Fred123]

The example we were talking about made $38k a year.

FWIW, DS is making only a bit more than $10/hour and still seems able to live on his own and still save a bit. He has a prepaid cellphone that costs him about $12/month... his contemporaries have fancier cellphone plans that cost much more. It's not what you make, it's what you spend.

Did you ever read the story of The Little Red Hen?

Let's look at how much that cell phone plan will save your DS. If his contemporaries pay $100/month instead of $12/month and he invests that extra $88 for 30 years AND the S&P 500 returns for the last 30 years were the same as for the last 30 years (unlikely) AND he invested all (risky) in the S&P , he would end up with an inflation adjusted $100K. That would generate, at 4%, a whopping $4000/year in income. Scrimping helps, but the real difference between those you can retire at a reasonable age and those who can't is income. I'd love to be proved wrong, but I don't see a lot of people posting here who made $40K/year (in current $) and managed to save for a comfortable retirement.

 

[samclem]

Scrimping helps, but the real difference between those you can retire at a reasonable age and those who can't is income.

The "real difference" is just that--the "difference" between what they earned and what they spent--assuming that they saved/invested that difference.
Both parts of that equation--earning and spending--are heavily influenced by decisions people make. No, talent and opportunity aren't equally spread around, but those are far from the sole determinants of income, and even less do they determine spending habits.

So, scrimping on the cell phone plan and spending $88/mo less allowed our thrifty subject to put away $100k over thirty years. Not enough to live on, but a darn good start and more than many people have.

Now, about that $4/day latte habit. That comes to about the same amount if we're buying one per workday. Good--now we're at $200K saved up after 30 years.

Those pedicures? The appointment at the nail salon? Those scratch-off tickets? I'll bet we've got another $100K from those.

Now, let's work on the cable bill. Keep that car for an extra two years. Is our friend taking his lunch to work?

Now--let's talk about the income side. . . is there maybe something in our control that could help insure we don't earn the minimum wage for 30 years? Just asking . . .

 

[robnplunder]

Sorry but the article is not very convincing. Below is simply not what I see around me. Not even close. Most people I know have far more than $3k in their 401k account. Others have IRA account, house equities, .... Not everything on internet is true, eh?


"the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households."

 

[daylatedollarshort]

Sorry but the article is not very convincing. Below is simply not what I see around me. Not even close. Most people I know have far more than $3k in their 401k account. Others have IRA account, house equities, .... Not everything on internet is true, eh?


"the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households."

I found an article recently from pensionrights.org that stated 63% percent of older adults age 65+ have income from assets, and the median income from those with assets is $1,703. I thought that was interesting as it implied even among those already retired there isn't a lot of portfolio kind of income. And only a third had pension income. So maybe the income sources for the next up generation of retirees won't really be so different than those already retired?

 

[papadad111]

Retirement is a relatively new phenomenon not really existing til the 20th century. Most old folks worked till they couldn't work and then moved in with their adult kids til end of life. In most countries this still applies today.

Social security is a relatively new institution not having existed prior to the 1930s.

I think there is a lot of aspiration to retire and media has done well to show old couples hand in hand strolling along the beach.

Reality is that many many people will need to work into their later years and/or be poor/broke pensioners getting by on meager social security income.

The reality is also that lifestyle will decline as the older "pension-rich" generation who get corporate pensions and full 100% SS payments disappear.

Also don't pay attention to averages. They really dilute the situation.

 

[rayinpenn]

Your comment points out the thing that infuriates me about these articles .A cup of coffee and a pedicure are not going to wreck your retirement.

I think the $4 latte and nail job are indicative of not being smart about the small stuff and long term lifestyle decisions. No an expensive cup of joe won't "wreck your retirement" but the math and what Warren Buffet called the magic of compounding suggests abstaining from them could greatly improve it.

Coffee 20 days a month @ $4 = $80 a month.
Nails once a month $30 a month

That's a Total $110 a month or $1,320 a year. I plug that into my handy calculator and say what is the future value of a $110 month annuity of say 5% (real growth after inflation -using historical).

Guess what after $40 years of drinking maxwell house at home and one in the car to go I've got $160k in today's dollars. At retirement If you invested that $160k in a 4% dividend fund you'd get $6,400 a year or roughly $535 a month of income. Probably more than enough to keep you in Coco Puffs.

Ok now let's talk about cigarettes...



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[rayinpenn]

So maybe the income sources for the next up generation of retirees won't really be so different than those already retired?

I am not convinced... Keep in mind many of those already retired did so before the death of the defined benefit plan. With employers paying less and less the burden has shifted to the employee.. At 62 I did get some benefits from the conversion from DB to defined account but that was long ago and the amounts were modest.

In 2014, 46.2 million Americans were age 65 and older. Half of all older adults had less than $22,248 in yearly income from all sources. In 2014, half of all older households received less than $36,895 in yearly income from all sources.

Google income of today's older adults...

A single person managing on 22,248 (or less) even if they own a small home will be very challenging....

We were visiting Florida: The woman behind the at the Walmart Superstore counter was old, very old. Her pace was slow and steady but it felt all wrong. I'd like to think she is there because she wanted to be productive but my gut says no. She is there because she has to be. I think it was another 'there but for the grace of God...' Working until you drop... I have to wonder is that all there is?

 

[Senator]

$38,000 less income taxes leaves about $33,500...

A family of 3-4 making only $38K does not pay any federal income taxes as far as I know. They even get EITC.

The average family of four only makes ~$56K a year, so $38K is below average.

 

[aim-high]

This subject comes up often. I think part of it is human brains are generally programmed for short term thinking. There are many INTJs with higher than average long term planning and strategic thinking skills here and the other ER forums, compared to the 2% supposedly in the general population.

That and the BILLIONS of dollars that are spent on psychological warfare to get you to part with your money what is often a false need.

 

[ivinsfan]

Yes that number does seem a little high on taxes, at that income level you might get some earned income credit. If you have kids, child credits, I can see where it would be zero or you might even come out with net gain.

Of course MN taxes would be a different story, but you might get a property tax rebate if you own a home.

But some some of you guys are really "tough" love. I live in rural MN where there is not a lot of money. A lot of farmers are "rich on paper" but have cash flow problems. I know many people who are "working poor". Mainly young men who didn't really want city life but don't have high value skills. They might work for a local livestock or crop farmer, or at a local body shop,or even at the Menards in town. They marry local girls and have families and are chronically short of money.

These people buy their beer at the store and drink it at home.If they buy coffee it would be a .89 cup at Super America. Their kids wear family hand me downs. Mom doesn't go near a nail salon. I know these people, I've been in their homes and they are not full of stuff.

The kids b-day parties are cake and ice cream for the family, they might go to the local Pizza Ranch on Tuesday nite when kids eat free for a special occasion..their TV is the local UHF which is free. Are people supposed to have no fun in their lives or spend any money on something they think would be fun.

Throwing these people under the bus with someone who has a 175 dollar cable bill, seems a bit unfeeling and kind of smug.

 

[FI by 2024]

Are there some folks whose income and family situation makes it impossible for them to save? Of course. But I think everybody can point to someone with above average income who doesn't save, or worse lives above their means. In my experience, this results from two things: either ignorance of how to save, or willful prioritization of spending over saving. Ignorance is easy to fix, but the mindset that tells someone a $175 cable package is more important than saving is not. Unfortunately most of the people I know choose spending. Oh, they'll say they "don't have money to save" but when you suggest they cut down on the cable package or eating out or $100 bills at the bar each weekend, they refuse. And don't get me started on the people who "need" a new car every 2-3 years. Some have told me it's because they want to work until they keel over (yuck), some because they don't think they'll live long enough to retire, and some say they'd rather enjoy the money now and will cross the retirement bridge when they come to it.

I can absolutely believe the scary numbers presented here, because my family are the ones with $0 in savings. Not just one or two of them, but all of them. I did have one aunt who managed to put over $75K in savings over 30+ years, but when she lost her job at 55 she decided to just use that and unemployment to get through until SS kicked in, and that now represents 100% of her income. Everybody else - parents, siblings, aunts, uncles - has basically nothing. It's a sad state of affairs but none of the suffering anybody has seen has convinced them to change their ways.