Join Early Retirement Today
Closed Thread
 
Thread Tools Search this Thread Display Modes
5 Mistakes That Will Crush Retirement Dreams
Old 11-28-2012, 07:42 AM   #1
Recycles dryer sheets
 
Join Date: Nov 2006
Posts: 214
5 Mistakes That Will Crush Retirement Dreams

An interesting article that applies most to us hopeful ERers.

Points 1 & 4 are no-brainers. Strong agreement by anyone serious about ER. The 40% target seems high. I am saving ~20% after taxes but I've also paid off the house and cars and saved some for kids college and weddings.

Points 2 & 3 are determined by personal risk tolerance. I'm very conservative based on my background, so I have low assumptions for future returns.

Point 5 is something I don't see discussed much but has been a key for me compared to some peers. I'm all about "tough love" parenting. I told my waivering 17 YO daughter that at 18 she was either in school or on her own, paying for her cell phone and car insurance. Now I have three girls successfully launched and ER looks much more likely.

5 Mistakes That Will Crush Your Retirement Dream
__________________

__________________
Tekward is offline  
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-28-2012, 08:34 AM   #2
Recycles dryer sheets
timeasterday's Avatar
 
Join Date: Aug 2011
Location: GA
Posts: 211
Quote:
Originally Posted by Tekward View Post
Points 1 & 4 are no-brainers. Strong agreement by anyone serious about ER. The 40% target seems high. I am saving ~20% after taxes but I've also paid off the house and cars and saved some for kids college and weddings.
I agree - the 40% is too high for most people. He doesn't seem to even factor in taxes and other pay deductions when he says "You have to determine what is needed to keep your committed expenses at or below 60% of your monthly household gross income. "

My net pay is 67% of gross after the 13% 401K is taken out as well as taxes, etc. So right there is 20% off the top that isn't going to retirement or my expenses (well, OK some of that is Social Security). I max out a Roth IRA and put money aside into a car fund and a vacation fund. After that there's nothing left. And I make a pretty good salary too.
__________________

__________________
timeasterday is offline  
Old 11-28-2012, 09:11 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,971
Quote:
Originally Posted by Tekward View Post
Points 1 & 4 are no-brainers. Strong agreement by anyone serious about ER. The 40% target seems high. I am saving ~20% after taxes but I've also paid off the house and cars and saved some for kids college and weddings.
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.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline  
Old 11-28-2012, 02:32 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,417
+1 40% is ridiculous. I was highly compensated and I don't think that i could have saved 40%.

I think the key is to start young, start out saving the amount needed to maximize the employer match (or at least work up to that) and increase your contributions for 1/2 of all pay increases. If someone did that, LBYM and had access to some reasonable cost investment options I think they would have a comfortable retirement between their nestegg and SS.
__________________
pb4uski is offline  
Old 11-28-2012, 03:24 PM   #5
Recycles dryer sheets
 
Join Date: Aug 2011
Posts: 89
I liked point no. 5, too, but too late now, having already funded college and an MBA for my kid... wished I had seen it before I promised to do so, years ago... oh well.
__________________
boatfishandnature is offline  
Old 11-28-2012, 05:13 PM   #6
Moderator
rodi's Avatar
 
Join Date: Apr 2012
Location: San Diego
Posts: 8,807
Quote:
Originally Posted by Midpack View Post
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.
I hear you on this.

When they rolled back SS payroll contributions last year - I told everyone around me to increase their 401k by that 2%... That way it wouldn't "hurt" when the temporary cut went away. A win-win... averaging out your net pay by diverting it to retirement savings. If SS goes belly up - you've got a few more dollars in the 401k to make up for the shortfall.

I was talking to a coworker (who's likely going to ER the next time he has a bad day at work - he's hit the FI point.) He's been maxing his 401k since the inception in the 80's. He's very conservative... so it's not as big as some of the portfolio's mentioned here... but it's over 600k... He's under 60.

40% of gross is probably extreme - but 25-30% is doable on a midrange salary. Especially if you're using 401k/ira/roth, 529's, etc to divert the money before it hits your checking account.

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.
__________________
rodi is offline  
Old 11-28-2012, 05:23 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
travelover's Avatar
 
Join Date: Mar 2007
Posts: 9,878
Quote:
Originally Posted by pb4uski View Post
+1 40% is ridiculous. I was highly compensated and I don't think that i could have saved 40%.........
I saved 45% in the last 5 years that I worked. Having no kids helps here, plus for #5.
__________________
Yes, I have achieved work / life balance.
travelover is offline  
Old 11-28-2012, 05:27 PM   #8
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
Not sure why this is ridiculous. I save 80-90% + of my salary. I live (very well) on my own, no debt, no kids.
Quote:
Originally Posted by pb4uski
+1 40% is ridiculous. I was highly compensated and I don't think that i could have saved 40%.
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline  
Old 11-28-2012, 05:29 PM   #9
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,099
Quote:
Originally Posted by obgyn65 View Post
Not sure why this is ridiculous. I save 90% of my salary. I live (very well) on my own, no debt, no kids.
Surely you understand you are an outlier.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline  
Old 11-28-2012, 05:31 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Jan 2004
Posts: 2,049
Here's where we can see a clear divide between this board and others (ERE, MMM). Saving 40% is fairly average for those boards.
__________________
eridanus is offline  
Old 11-28-2012, 05:50 PM   #11
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
Agreed. This is why I rarely share absolute numbers. But I don't want my FIRE strategy - and maybe that of others here who are the silent minority - to be described as 'ridiculous'. Some of us earn more, some of us save more, some earn or save leas, but we all share the same FIRE objective.
Quote:
Originally Posted by eridanus
Here's where we can see a clear divide between this board and others (ERE, MMM). Saving 40% is fairly average for those boards.
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline  
Old 11-28-2012, 05:53 PM   #12
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,099
Quote:
Originally Posted by obgyn65 View Post
But I don't want my FIRE strategy - and maybe that of others here who are the silent minority - to be described as 'ridiculous'.
Some man's "ridiculous" is another man's "perfectly normal"...
Attached Images
File Type: jpg butterball.jpg (29.2 KB, 627 views)
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline  
Old 11-28-2012, 06:00 PM   #13
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,863
Quote:
Originally Posted by travelover View Post
I saved 45% in the last 5 years that I worked. Having no kids helps here, plus for #5.
I exceeded 40% for 8 straight years (1999-2006) in my peak full-time earning years and, amazingly, some part-time working years (due to growing investment earnings compensating for the reduction of wages).

But exceeding 40% is a pretty steep level. In those 8 years I was debt-free and (always) childfree. Before that, I was saving between 30% and 40% most of the time, still having a mortgage before I paid it off way early.

Good point in #1 about leaning on the conservative side in the 401(k) because the company match assures you of extra-good return even if the underlying investment is on the low side. A 75% match, for example, gets you a 75% return even if you stuffed it in a mattress.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is online now  
Old 11-28-2012, 06:37 PM   #14
Thinks s/he gets paid by the post
 
Join Date: Jul 2012
Location: Mississippi
Posts: 1,878
Quote:
Originally Posted by obgyn65 View Post
Not sure why this is ridiculous. I save 80-90% + of my salary. I live (very well) on my own, no debt, no kids.
Do you not pay taxes ? 40% of my salary was gone before I ever got it...
__________________
rbmrtn is offline  
Old 11-28-2012, 06:53 PM   #15
Thinks s/he gets paid by the post
 
Join Date: Sep 2009
Location: Hong Kong
Posts: 1,574
We've managed to exceed 40% savings on gross income for a number of years ... of course, it helps that our effective tax rate is below 15% and we live in a city where a car is completely unnecessary.

On #3, I only partly agree with this. Taking too much risk with investments is (IMHO) not a good thing but neither is taking too little risk. Inflation has the potential to decimate the real value of cash/bonds/fixed annuities and over a 40+ year retirement I worry more about inflation than I do about market volatility.
__________________
Budgeting is a skill practised by people who are bad at politics.
traineeinvestor is offline  
Old 11-28-2012, 06:54 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Sep 2009
Location: Hong Kong
Posts: 1,574
Quote:
Originally Posted by REWahoo View Post
Some man's "ridiculous" is another man's "perfectly normal"...

Shouldn't this be in the "recent photo" thread?
__________________
Budgeting is a skill practised by people who are bad at politics.
traineeinvestor is offline  
Old 11-28-2012, 06:55 PM   #17
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,860
Although I do think that extreme saving is hard to do, I don't think it is ridiculous at all. The fraction to be saved depends on the income as well as the timeframe in which someone is planning to retire. It's all in the math.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is offline  
Old 11-28-2012, 07:02 PM   #18
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,099
Quote:
Originally Posted by traineeinvestor View Post
Shouldn't this be in the "recent photo" thread?
No. I've lost weight since that was taken.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline  
Old 11-28-2012, 07:06 PM   #19
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,860
Quote:
Originally Posted by traineeinvestor View Post
We've managed to exceed 40% savings on gross income for a number of years ....
Yes, me too, and there are quite a few others. Others have not and if they can meet their goals, then more power to them. Saving a lot is one way to meet one's ER goals faster when nothing else is working. To quote a professor I once had years ago, speaking about another matter... "If it was easy, everybody would do it." It's a lot easier to save less over a longer period of time, IMO. There are many paths to retirement but no matter which we take, we end up at the same destination.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is offline  
Old 11-28-2012, 08:43 PM   #20
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,608
Quote:
Not sure why this is ridiculous. I save 80-90% + of my salary. I live (very well) on my own, no debt, no kids.
Unless your salary is tiny and you somehow have almost no expenses, I do not see how this is possible. Taxes alone can easily take 20%. Do you live on nothing?
__________________

__________________
growing_older is offline  
Closed Thread


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 09:18 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.