Younger people shouldn’t save for retirement

[ExFlyBoy5]

Wow! What a great article. I can't wait to read the next one. "Roth IRA and Roth 401(k): the world would be a better place without them".

Everytime I see a link with "Marketwatch" I think of John Candy standing outside Wally World declaring, "moose out front should've told you!"

 

[Finance Dave]

In my experience, people who did not start saving when they were young never developed the habit later.

+1. I started saving in two accounts when I got my first job. I saved $19.69/month in a bank account so that I could buy my dream car...a 1969 Camaro.

I also started saving $10/mo in a retirement account...I was 16 years old. My dad matched me $1 for $1.

When the 401k was introduced, I doubled my retirement savings, then gradually increased it from there. Now I've been "rehired" for 7 years and my friends are all still wor*ing full time.

 

[Walt34]

The sad thing about articles like those is that so many people will take it to heart and "blow that dough!" when they should be socking it away. I saw a lot of people get a very rude awakening in their late 30's to 40's when some physical ailment took them out of the work force.

 

[teejayevans]

I didn’t really seriously start saving for retirement until I was 38, I went from saving 5% to 25% and eventually 50%. But didn’t do it as a master plan.

 

[Major Tom]

Seems like such an easy thing eh? Oh, but don't mess with my "lifestyle"

Amazing.

That word "lifestyle" is used to justify all sorts of bad habits. Many folk feel that they have to continue living "in the manner to which they have become accustomed".

Oh well. Good for them, I suppose.

 

[arcyallen]

Life doesn't always go as planned. One bad car accident can change your future earning prospects overnight. It is best to save while you can and focus on having a fun lifestyle that fits in your budget even when you are young.

Agreed. My head always explodes when I hear this excuse used for people NOT to save money. "I might die tomorrow so I might as well spend it today" always seemed like some short-sighted planning BS. Large sacrifices to plan for the unlikely seems like a generally poor plan.

I think it's the same people that think "saving while you can" can't occur while you "have a fun lifestyle".

 

[FindingForward]

Agreed. My head always explodes when I hear this excuse used for people NOT to save money. "I might die tomorrow so I might as well spend it today" always seemed like some short-sighted planning BS. Large sacrifices to plan for the unlikely seems like a generally poor plan.

I think it's the same people that think "saving while you can" can't occur while you "have a fun lifestyle".

NOT that I'm defending it - I've been a diehard saver - couldn't sleep at night otherwise. But I've noticed quite a few with the "I might die tomorrow" YOLO attitude have lost loved ones very early in life to cancer or accidents - siblings, parents, etc. Or grew up in tough areas where your odds of making it out alive weren't the best.

So much about money - and this attitude to enjoy it while one has it - is shaped by a person's childhood trauma. Those who won the ovary lottery - stable parents, good role models, no major losses early in life - can't always relate to the mental/emotional issues behind financial irresponsibility.

 

[eyenitnoy]

https://www.marketwatch.com/story/m...d-on-a-nobel-prize-winning-theory-11664562570

Basic idea is you should have a constant level of standard of living to be happy, so no saving in the beginning when you are making less, start banking your raises as you get older, then spend down savings at retirement to maintain your standard of living.

Oddly, I sort of agree with this, at least in part.

When I was young and making minimum wage, which at the time was $3.25 an hour, saving was extremely difficult. It's hard to save money when you are broke. Yes, I could have spent less on beer and pizza I suppose, and put that money into an investment account. But I didn't. And I doubt it would have mattered much anyway.

But what I did do and what young people should be doing is investing in their future career. This could be through advanced education, learning a trade, internships, etc.

To me, young people should be focused on their education and training so they can make enough money to actually save it as they get older and not worry about saving a few bucks from some current crappy job.

And, wise or not, advice to someone in their late teens or early 20s to forgo fun to save a few bucks is likely to fall on deaf ears anyway. Better, I say, to give advice that is realistic.

 

[brucethebroker]

https://www.marketwatch.com/story/m...d-on-a-nobel-prize-winning-theory-11664562570

Basic idea is you should have a constant level of standard of living to be happy, so no saving in the beginning when you are making less, start banking your raises as you get older, then spend down savings at retirement to maintain your standard of living.

Part one. To be followed by part two (in 30 years?) which, when paraphrased is: "a. Why did no one tell us you can't retire on Social Security alone?" and b. "I should have bought a house when I was younger-I can't afford one now, and my rent has skyrocketed over the years!"

 

[brucethebroker]

+1. I started saving in two accounts when I got my first job. I saved $19.69/month in a bank account so that I could buy my dream car...a 1969 Camaro.

I also started saving $10/mo in a retirement account...I was 16 years old. My dad matched me $1 for $1.

When the 401k was introduced, I doubled my retirement savings, then gradually increased it from there. Now I've been "rehired" for 7 years and my friends are all still wor*ing full time.

View attachment 43698

You lost me at the photo of the Camaro. Really nice.

 

[Closet_Gamer]

https://www.marketwatch.com/story/m...d-on-a-nobel-prize-winning-theory-11664562570

Basic idea is you should have a constant level of standard of living to be happy, so no saving in the beginning when you are making less, start banking your raises as you get older, then spend down savings at retirement to maintain your standard of living.

What a bunch of academic nonsense.

The thinking predicts a straight, precticable path through life. That is not how life works. In additon to the behavioural points others have made, things happen along the way. People get laid off or ill. More kids arrive than you thought. Marriages fail.

The by product of saving is that you have a stronger balance sheet to deal with these issues. Not saving leads to consumer debt during hard times which is the mortal enemy of wealth and financial stability.

I'm helping my daughter's friend who has gotten in badly over her head with college debt. Its a really sad situation ... super hard-working, smart kid who got horrible advice from parents who don't understand money.

She's two years from a very high value doctorate that will provide a six figure income ... and it will take her nearly a decade to unwind the debt even with aggressive debt reduction strategies and living very modestly.

So I'm teaching this young person about budgets, cash flow, personal balance sheets on how the three interact. She's about to come into a bit of money and we're going to discuss killing the (7 year/6.75% ) used car loan on her balance sheet and that is draining her cash flow.

Working with her is reminding me of the path we took to get out of college debt and onto a good financial path. I think it is a time proven approach:

Step 1: Build a budget

Step 2: Achieve cash flow positive each month
Step 2a: If you can't pay cash, you can't afford it

Step 3: Retire high cost consumer debt

Step 4: Create an emergency fund

Step 5: Capture 401k match

Step 6: Snowball away college debt
Step 6a: 50% of raises go to accelerating debt reduction

Step 7: Begin simple, structured investments
Step 7a: Swing debt payments into monthly savings
Step 7b: At least 20% of raises go to accelerating savings

This path is not easy, but it is very repeatable and nearly guaranteed to end well. And its much easier if young people receive sound advice about not destroying your balance sheet in the first place.

 

[athena53]

It's about forming habits and discipline early to "pay yourself first" (and the benefit of time compounding). My first paycheck over 42 years ago had a $9 deduction into company's thrift plan. I never missed a deduction after that no matter what. The deductions got larger over time and I am benefitting from it now.

This. I was always LBYM. My first job allowed us to buy company stock at no commission and I devoted 2% of my $10K/year salary to that! I saved in a passbook savings account and then later got a "stockbroker" and contributed to 401(k)s as soon as they became available. I never carried a credit card balance.

Some happy accidents along the way- nice profit on house we sold after the divorce, another nice profit on the house I bought after that, moving to a LCOL are for my job at age 50 and marrying second DH, who started collecting SS and was as frugal as I was (travel was our only big splurge).

You may never know till you retire if you correctly hit the sweet spot between spending too much in your early years and over-saving, but the good habits should start early.

 

[klec]

https://www.marketwatch.com/story/m...d-on-a-nobel-prize-winning-theory-11664562570

Basic idea is you should have a constant level of standard of living to be happy, so no saving in the beginning when you are making less, start banking your raises as you get older, then spend down savings at retirement to maintain your standard of living.

NO! Developing the savings habit early is important … not to mention the compounding effect. It doesn’t need to be huge, but it’s just not smart. Retiring early generally requires saving/investing early.

 

[Badger]

Agreed. My head always explodes when I hear this excuse used for people NOT to save money. "I might die tomorrow so I might as well spend it today" always seemed like some short-sighted planning BS. Large sacrifices to plan for the unlikely seems like a generally poor plan.

I think it's the same people that think "saving while you can" can't occur while you "have a fun lifestyle".

An exact description of a very close friend of mine for about 60 years who used to chide me about being frugal. There was nothing I could say or do so I just made sure he knew he always had a friend. Then things went very bad for him. Living on $1k a month SS became too difficult at 70 years old with no home, car, or other income so he found his way to make it all stop. Sad.

Cheers!

 

[lordjust]

NOT that I'm defending it - I've been a diehard saver - couldn't sleep at night otherwise. But I've noticed quite a few with the "I might die tomorrow" YOLO attitude have lost loved ones very early in life to cancer or accidents - siblings, parents, etc. Or grew up in tough areas where your odds of making it out alive weren't the best.

So much about money - and this attitude to enjoy it while one has it - is shaped by a person's childhood trauma. Those who won the ovary lottery - stable parents, good role models, no major losses early in life - can't always relate to the mental/emotional issues behind financial irresponsibility.

I have a friend that had this happen and has this outlook. He says if he has no money then the gov and medical industry cannot take it when he gets sick and dies.... he had a relative that was sick for for a very long time. Hes obviously a bit bitter regarding the cost of medicine as people age so... valid point..

 

[dixonge]

SHOULD it be done this way? I don't recommend it, nor would most on this board.

CAN it be done this way? Sure. My wife and I had pretty much ZERO in savings and a decent amount of debt up until 2007-2008. Once we had an ER goal, we were already in jobs w/ pretty nice pensions. We paid off all debt and saved a lot very quickly then launched. But we also got really lucky. There was no guarantee it would end this way, and we never planned it when we got married in 1990. A lot of luck was involved.

 

[Badger]

I have a friend that had this happen and has this outlook. He says if he has no money then the gov and medical industry cannot take it when he gets sick and dies.... he had a relative that was sick for for a very long time. Hes obviously a bit bitter regarding the cost of medicine as people age so... valid point..

Maybe you could inform your friend about the simple no or very low cost ways to prevent that and have his money go to where he wants.

Cheers!

 

[marko]

Play it in reverse. Anybody on this forum want to have the same standard of living that they had in their 20's??

Beat up car that won't start, cheap clothes and bad haircuts? Eating at McDonald's and wandering malls for entertainment? Pabst Blue Ribbon your big splurge?

Not my personal experience, but kids I knew like that then are still maintaining that same standard of living and, at age 70 it ain't pretty.

 

[athena53]

Not my personal experience, but kids I knew like that then are still maintaining that same standard of living and, at age 70 it ain't pretty.

If there's one thing I learned from having a second husband who was 15 years older, it was that a comfortable life in old age isn't cheap. More work gets hired out, expensive dental work (he had one implant, I now have 7), decent hearing aids, more of the niceties in travel (he was too tall for Coach on long-haul flights and had a creaky back)... that's just off the top of my head.

I see a lot of posts on FB about how "if you enter a nursing home the government takes all your money" as a rationalization for not saving. Ummm, no, the money goes to the government only as reimbursement for what they paid for your LTC.

 

[arcyallen]

SHOULD it be done this way? I don't recommend it, nor would most on this board.

CAN it be done this way? Sure. My wife and I had pretty much ZERO in savings and a decent amount of debt up until 2007-2008. Once we had an ER goal, we were already in jobs w/ pretty nice pensions. We paid off all debt and saved a lot very quickly then launched. But we also got really lucky. There was no guarantee it would end this way, and we never planned it when we got married in 1990. A lot of luck was involved.

I'm curious about how you handled the severe swing in spending habits. If you had debt AND weren't saving anything, you were spending all (and more) of your income. How did you make the switch from that to spending so much less? It's impressive to say the least seeing as your habits were likely well formed.

 

[marko]

I see a lot of posts on FB about how "if you enter a nursing home the government takes all your money" as a rationalization for not saving. .

It's not so much a rationalization but more of an easy excuse. If not that, it would be YOLO, Live for today, Russians are going to nuke us anyway, My father died at 52 and so will I, Grandma died 18 years ago and I still can't get over it, if you give the bank your money, they're going to MAKE money off it! yada, yada, yada.

I've learned that there's no changing people's habits and beliefs and many people self sabotage themselves in order to maintain their comfortable little worldview that says "they won't let you win, so why bother trying".

 

[Andre1969]

Play it in reverse. Anybody on this forum want to have the same standard of living that they had in their 20's??

Beat up car that won't start, cheap clothes and bad haircuts? Eating at McDonald's and wandering malls for entertainment? Pabst Blue Ribbon your big splurge?

Not my personal experience, but kids I knew like that then are still maintaining that same standard of living and, at age 70 it ain't pretty.

Maybe I shouldn't confess this, but in some ways I'm still living that lifestyle. My daily driver is a 20 year old Buick Regal, although it usually DOES start, at least! Very, VERY rarely eat out, so McDonalds would actually be sort of a treat! And hell, I probably bought more expensive clothes in my 20s than I do now. Usually cut my own hair, and I usually don't mess it up, too bad

Many shopping malls are either gone with the wind these days, or have become no-go-zones because of crime, so thinking of the mall actually gets me slightly nostalgic.

I think PBR beer has gotten a bit trendy these days, so it's not like it was back in the day, the cheapest of the cheap. I never drank it. My poison of choice is Yuengling.

It's not that I couldn't afford a newer car, eating out more often and at nicer places, go to a hair stylist, etc...guess old habits just die hard, and I'm set in my ways in some respects.

 

[marko]

Maybe I shouldn't confess this, but in some ways I'm still living that lifestyle. My daily driver is a 20 year old Buick Regal, although it usually DOES start, at least! Very, VERY rarely eat out, so McDonalds would actually be sort of a treat! And hell, I probably bought more expensive clothes in my 20s than I do now. Usually cut my own hair, and I usually don't mess it up, too bad

Many shopping malls are either gone with the wind these days, or have become no-go-zones because of crime, so thinking of the mall actually gets me slightly nostalgic.

I think PBR beer has gotten a bit trendy these days, so it's not like it was back in the day, the cheapest of the cheap. I never drank it. My poison of choice is Yuengling.

It's not that I couldn't afford a newer car, eating out more often and at nicer places, go to a hair stylist, etc...guess old habits just die hard, and I'm set in my ways in some respects.

And yet, you're on the Financially Independent Retired Early forum! So you're not really in the group I referenced! You do you Andre and more power to ya!!

 

[Sunset]

I have a friend that had this happen and has this outlook. He says if he has no money then the gov and medical industry cannot take it when he gets sick and dies.... he had a relative that was sick for for a very long time. Hes obviously a bit bitter regarding the cost of medicine as people age so... valid point..

Pretty sad, I've seen people like that in the news on rare occassions, they have a LOT of missing teeth, because of course they can't pay for dental work. I feel I would suffer living like that....

 

[Koolau]

I saved for university when I was young and began saving for retirement the day I got my "real" j*b. It was a habit that has served me well. I just wish someone had taught me how to invest back in the day. I could have FIRE'd sooner or had more - not that I really regret much of anything (other than a couple of colossal blunders in investing.) I think it's important not to feel "deprived" because of saving for FIRE because it might cause you to chuck the whole thing. Other than that, I think the article is off base for the most part but YMMV.