5 Mistakes That Will Crush Retirement Dreams

[HFWR]

I save 80-90% + of my salary.

I save 109.3%. Of course, I live in a shoe box in the middle of the road...

Surely you understand you are an outlier.

Yes, I am aware of that...

 

[Backpacker]

It appeared to be an article for a general, mainstream audience. I critiqued it from that POV, not my own experience.

A lot of people HERE have managed to save 40% or more, but would you feel comfortable trying to convince a mainstream audience to do the same?

I dare you...

CEO and I were talking just yesterday about wanting to talk to our staff about retirement, as many of them have the "I'll just work until I die" mentality. SOunds like you've tried that route wtih limited success. This is my fear as well. We have about 40 people on staff here and I bet about 5 (counting me and the CEO) have any kind of realistic plan in place to fund retirement.

I hate to give up before we even try but I think the buy in to why you all need to save more would be dismal.

 

[REWahoo]

CEO and I were talking just yesterday about wanting to talk to our staff about retirement, as many of them have the "I'll just work until I die" mentality. SOunds like you've tried that route wtih limited success. This is my fear as well. We have about 40 people on staff here and I bet about 5 (counting me and the CEO) have any kind of realistic plan in place to fund retirement.

I hate to give up before we even try but I think the buy in to why you all need to save more would be dismal.

Please don't give up without a try.

Yes, it is unlikely you will win over many to the need to save/invest more for retirement but chances are a few may see the light. Even if you only get one to come around think of the potential good you've done for them - and perhaps for their family as well.

 

[Midpack]

CEO and I were talking just yesterday about wanting to talk to our staff about retirement, as many of them have the "I'll just work until I die" mentality. SOunds like you've tried that route wtih limited success. This is my fear as well. We have about 40 people on staff here and I bet about 5 (counting me and the CEO) have any kind of realistic plan in place to fund retirement.

I hate to give up before we even try but I think the buy in to why you all need to save more would be dismal.

We offered a 401k plan, so we were required by Fed regs to provide an annual 401k plan meeting for all employees (though what content is not specified...). We tried every angle we could think of to encourage planning (scare tactics, easing into contributions, estimated nest egg calcs, etc.) and our company and plan administrators had online tools so they could learn and experiment on their own (in private). We even suggested they go outside our plan if they were more comfortable with a broker/FP.

Doesn't mean I'd ever have given up trying, and we met to review our approach each year, but it's very tough sledding IME. And in fairness, we did influence some employees, but definitely a minority. The (unfortunately hourly) majority just whined about why we didn't offer full COLAd pensions and retiree health care beginning at age 55...

 

[samclem]

CEO and I were talking just yesterday about wanting to talk to our staff about retirement, as many of them have the "I'll just work until I die" mentality.

I wonder how this might be done. Or if it should be done. These folks are employees, not pals, and it's really in the best interest of the company that they keep being productive for the company, right? Add in the chance of alienating employees by bringing it up ("Sure Mr Bigshot can think about quitting--so could I if I had his paycheck! He knows nothing about how things are at our level") and it's clear why most companies leave this stuff to their HR department or the common sense of their employees. There's no reason for the average employee to believe the CEO or anyone in management knows better than they do about retirement planning, and any attempt to officially intrude on this fairly personal issue is likely to breed a bit of resentment.

 

[Midpack]

I wonder how this might be done. Or if it should be done. These folks are employees, not pals, and it's really in the best interest of the company that they keep being productive for the company, right? Add in the chance of alienating employees by bringing it up ("Sure Mr Bigshot can think about quitting--so could I if I had his paycheck! He knows nothing about how things are at our level") and it's clear why most companies leave this stuff to their HR department or the common sense of their employees. There's no reason for the average employee to believe the CEO or anyone in management knows better than they do about retirement planning, and any attempt to officially intrude on this fairly personal issue is likely to breed a bit of resentment.

I guess you could interpret it, but it's required as I understand it. From US DOL site...

Providing Information in Participant-Directed Plans

When plans allow participants to direct their investments, fiduciaries need to take steps to regularly make participants aware of their rights and responsibilities under the plan related to directing their investments. This includes providing plan and investment-related information, including information about fees and expenses, that participants need to make informed decisions about the management of their individual accounts. Participants must receive the information before they can first direct their investment in the plan and annually thereafter. The investment-related information needs to be presented in a format, such as a chart, that allows for a comparison among the plan’s investment options. A model chart is available on this web site. If you use information provided by a service provider that you rely on reasonably and in good faith, you will be protected from liability for the completeness and accuracy of the information.
Investment Advice And Education

More and more employers are offering participants help so they can make informed investment decisions. Employers may decide to hire an investment adviser offering specific investment advice to participants. These advisers are fiduciaries and have a responsibility to the plan participants. On the other hand, an employer may hire a service provider to provide general financial and investment education, interactive investment materials, and information based on asset allocation models. As long as the material is general in nature, providers of investment education are not fiduciaries. However, the decision to select an investment adviser or a provider offering investment education is a fiduciary action and must be carried out in the same manner as hiring any plan service provider.

Meeting Your Fiduciary Responsibilities

 

[obgyn65]

Well I am not sure how to say this but I did my calculations at lunchtime again, and I can confirm that 80-90 % is the right ballpark figure. This made me realize that :

1) I am one of the most conservative participants here with zero equity;

2) I may be one of those here who spends least money as compared to his income. Maybe that's why I can ER now at age 47, after only 10 years of work in the US.

And no, I don't live in a shoebox but in a high rise luxury condo.

I save 109.3%. Of course, I live in a shoe box in the middle of the road...

 

[REWahoo]

Well I am not sure how to say this but I did my calculations at lunchtime again, and I can confirm that 80-90 % is the right ballpark figure.

So you're telling us you put 80-90% of your before tax earnings in savings? That leaves you only 10-20% of your before tax earnings to pay income taxes and live on. Since that 10-20% may not even cover your income taxes (you do pay taxes, right?), your numbers don't make sense.

I think you need to re-check your math.

 

[plex]

I save 75-80% net and plan to continue to do so through my working career. That works out to 60-65% gross. My salary increases from promotions go into a higher savings rate for the most part, the inflation increases mostly do not.

 

[REWahoo]

I save 75-80% net and plan to continue to do so through my working career. That works out to 60-65% gross.

That's really aggressive but unlike Obgy's numbers, I can see where it is possible.

 

[obgyn65]

Let's try this again - using fictitious numbers. Someone makes $250,000 a year (say $7,000 bi-weekly, net of 401k contributions) and spends $30,000 annually (he is single, LBYM, no kids, no debt).

His income after taxes = $7,000*26 weeks= $182,000 per year

His spending = $30,000 per year

Saving ratio after taxes = 1-($30,000 / (182,000+17,000)) = 85% [Edit : 17,000 is the 401k plan contribution.]

Saving ratio before taxes = 1-($30,000 / $250,000) = 88%

Again, not my actual numbers, but within ballpark. And again, I am not in finance so my methodology may be wrong. Apologies if this is the case.

So you're telling us you put 80-90% of your before tax earnings in savings? That leaves you only 10-20% of your before tax earnings to pay income taxes and live on. Since that 10-20% may not even cover your income taxes (you do pay taxes, right?), your numbers don't make sense.

I think you need to re-check your math.

 

[obgyn65]

I should stay away from financial numbers. They don't really interest me since I am not materialistic nor greedy. What is more important, in my view, is what I do with my money, such as sending medicines to third world countries, give to United Way, or help support free clinics.

 

[REWahoo]

In your example:

Earnings before tax = $250,000
Tax = ($250,000 - $182,000) = $68,000
Expenses = $30,000
Savings = ($250,000 - $68,000 - $30,000 + $17,000 401k) = $169,000

Percent of salary saved = ($169,000/$250,000) = 68%

I should stay away from financial numbers.

You and I are in total agreement here.


Edited to include 401k savings

 

[obgyn65]

Ok. If this is the normal way to calculate savings ratios, then I was wrong. Apologies.

In your example:

Earnings before tax = $250,000
Tax = ($250,000 - $182,000) = $68,000
Expenses = $30,000
Savings = ($250,000 - $68,000 - $30,000 + $17,000 401k) = $169,000

Percent of salary saved = ($169,000/$250,000) = 68%

You and I are in total agreement here.

Edited to include 401k savings

 

[Backpacker]

Please don't give up without a try.

Yes, it is unlikely you will win over many to the need to save/invest more for retirement but chances are a few may see the light. Even if you only get one to come around think of the potential good you've done for them - and perhaps for their family as well.

Great points; I am sure we'll give it the old college try. A few years ago we hired a Financial Planner (independant of any firm) that bills out at about 50-60 bucks an hour and gave all employees a free hour with him. They and their spouse could meet with him and get a review of their current plan and he made recommendations on areas to change. Such as AA and amount contributing, discussed income replacement, etc. I dont think we had 100% participation then but we did have several folks make some important changes.

I think the advice from an outside expert may be easier to take for some people vs a "sermon" from the CEO or the EVP Also helps avoid the you rich guys can't relate complaint.

 

[youbet]

Do you not pay taxes ? 40% of my salary was gone before I ever got it...

+1 Yep! It's hard to pay yourself first when your uncle butts in line in front of you........

 

[Huston55]

After conducting annual 401k and other financial planning meetings with (salary/hourly-blue/white collar) employees for over 20 years, and hundreds of individual employee discussions - I can tell you 40% would be considered ridiculous even insulting to at least 99% of an audience.

• We used to suggest a measly minimum of 10% (relative to the article above), or at least the 6% threshold for matching funds - IMPOSSIBLE!!!
• We also used to recommend things like increase 1% a year from where you are until you reach 10% - IMPOSSIBLE!!!
• We used to recommend putting all or part of their annual increases into their 401k contributions before they got used to having the additional income (seems relatively painless) - IMPOSSIBLE!
• If we had ever recommended 40%, the whole room would have been screaming at us for days/weeks - and we'd have no credibility from then on.

Unfortunately they're all still working, we (my Dept Mgrs esp HR, Corp & I) really wanted to help them build their nest eggs and tried everything we could think of. Management (us) just sucks!!!

Boy I miss those days

But I'd love to watch Lance present his recommendation to a live, mainstream audience.

Pack-

Hopefully, you send them a Xmas card every year noting how much you're enjoying retirement.

 

[Huston55]

As far as kids... I own up to being a mean mom. I've told the kids if they want a car, we'll match them dollar for dollar... and they have to pay for their own insurance and gas. We'll be happy to keep their bicycle in good repair if they can't afford it. College will be the same deal I got. Public school, degree related to a marketable career (no art history on my dime), I'll pay tuition, books. and base rent... spending money, laundry money, commute money - that's what a part time job is for. If they don't like it - they can move out and support themselves.

Mom/Dad - is that you??

 

[Huston55]

Some man's "ridiculous" is another man's "perfectly normal"...

I've seen "deep fried" turkeys. But, this is the first time I've seen a "deep skewered" turkey.

How many minutes per pound?

 

[Huston55]

Uhm...that's not true, is it? I'm not familiar with the US approach, but let's say I get a "100% match on the first 3% to 6%" as quoted in the article. That would be REALLY generous, I guess. Let's further assume that I make 100,000$ a year and contribute the maximum 17,500$. On the first 6,000$, I get a 100% match, meaning total payment into the 401(k) is my 17,500$ plus 6,000$ from my employer, which equals 23,500$. The match adds 34% (6,000$/17,500$) to what I contributed myself. Great!

+1

It's a 100% return on the first 3-6% contributed if the employer match is 100%. Very surprising that a financial blogger would make such a fundamental mistake.

BTW, my company may be REALLY generous but, it matches the first 6% of 401k contributions dollar for dollar.

 

[obgyn65]

I thought that non-financial people like me could participate in forums like this one and learn from more savvy investors without being ridiculed. Apparently not everyone agrees, which is ok.

I've seen "deep fried" turkeys. But, this is the first time I've seen a "deep skewered" turkey.

How many minutes per pound?

 

[MichaelB]

I thought that non-financial people like me could participate in forums like this one and learn from more savvy investors without being ridiculed. Apparently not everyone agrees, which is ok.

You participate quite a bit without any problems. As you point out, though, some folks here are more numbers oriented than others, so when you choose to engage in a discussion around numbers or math you invite this type of challenge.

I enjoy and benefit from the attention to numerical detail here and don't take it personally when my numbers are challenged.

 

[obgyn65]

Point taken. Thinking about it, maybe I am not that useless at financial planning after all since I have achieved financial independence after working here for 10 years or so, at 47, with no debt. Projected cash flows about $85k- $100k a year for the next 48 years. All this while touching the lives of thousands of patients here and abroad. Not bad for a non finance guy with ridiculous posts

Must go to work now. Have a good day everyone.

You participate quite a bit without any problems. As you point out, though, some folks here are more numbers oriented than others, so when you choose to engage in a discussion around numbers or math you invite this type of challenge.

I enjoy and benefit from the attention to numerical detail here and don't take it personally when my numbers are challenged.

 

[Midpack]

Pack-

Hopefully, you send them a Xmas card every year noting how much you're enjoying retirement.

Wow, that's way off track...

 

[Texas Proud]

I guess you could interpret it, but it's required as I understand it. From US DOL site... Meeting Your Fiduciary Responsibilities

You do not have to have meetings to meet the requirement..... just send out the paperwork provided by the 401(k) company....


I was at a mega company for 15 years and never once did I have a meeting about 401(k)s....