Retirement - 1 million dollars ain't enough

[shotgunner]

Essentially I see the headline is "all ye who entertain hopes of ever retiring should abandon all hope."

1-million-doesnt-cut-it-for-retirement: Personal Finance News from Yahoo! Finance

 

[walkinwood]

But we know better...

 

[ziggy29]

News flash: Inflation means that a million bucks at retirement won't mean as much to someone who is 25 as someone who is 65. Someone go award the Nobel for Economics now; we have a winner....

And to OP's comment, I really do think we are reverting to the historical mean after a post-WW2 bubble, and that includes things like more extended family living arrangements to deal with elderly parents and grandparents, because the expectation of a long, comfortable and independent middle class retirement is slowly but surely withering away over the next few decades. Once the public sector jobs stop offering pensions to new hires, the transformation will be almost complete and no one will be able to retire unless they save and invest until it hurts for many, many years.

 

[shotgunner]

One of my thoughts is the numbers are so large and will be seen as impossible by many young people. If the majority believe they can never acumulate enough money many who might adopt LBYM principles and become investors will say "screw it", I'll live for the moment.

 

[hankster]

News flash: Inflation means that a million bucks at retirement won't mean as much to someone who is 25 as someone who is 65. Someone go award the Nobel for Economics now; we have a winner....

And to OP's comment, I really do think we are reverting to the historical mean after a post-WW2 bubble, and that includes things like more extended family living arrangements to deal with elderly parents and grandparents, because the expectation of a long, comfortable and independent middle class retirement is slowly but surely withering away over the next few decades. Once the public sector jobs stop offering pensions to new hires, the transformation will be almost complete and no one will be able to retire unless they save and invest until it hurts for many, many years.

This is why I constantly [-]browbeat[/-] encourage our kids to save like crazy while they are in their 20s. It is a constant battle against the materialism that tempts them as their incomes increase

 

[ziggy29]

One of my thoughts is the numbers are so large and will be seen as impossible by many young people. If the majority believe they can never acumulate enough money many who might adopt LBYM principles and become investors will say "screw it", I'll live for the moment.

And many of the younger folks have seen their parents and grandparents able to retire despite not being prodigious savers, being that their parents and grandparents came of age in the "golden age" of middle class retirement when SS was a decent deal and many private companies offered pensions. That's less and less true today, and these folks may enter their 40s and 50s with a rude surprise that they will never retire unless they move in with their children.

 

[F4mandolin]

These kinds of articles have their place, but since I am planning on retiring in 15 months....and will likely only have about $700k (house paid off etc)...smallish pension....I am going to quit anyway. I kind of agree with the article, but if you are still willing to withhold blowing money on things you don't need you won't need that much. Now I have to agree with other posters, I have a pension and I think they are dying out. Without the pension and hopeful VERA I would have to work for at least a few extra years before I could quit.

 

[unclemick]

Hmmm - seems to me, I'm seeing more and more couples with their children moving in (or never leaving) than the other way around.

Maybe I have a tendency to live in bad neighborhoods.



heh heh heh - one is probably not going to see 'aggressively frugal articles' on the Yahoo Finance pages. Nor how to have a 'cheap but good lifestyle'.

 

[ziggy29]

Hmmm - seems to me, I'm seeing more and more couples with their children moving in (or never leaving) than the other way around.

Yeah, one way or the other it's that reversion to the mean. It was only in the last few decades after WW2 that the "nuclear family" arrangement became the norm and later the expectation, because only then was the economic growth and prosperity to sustain it in place. As it feels like that is slowly slipping away, I expect to see a lot more extended family living arrangements in the coming decades. I prefer not to think of it as declining prosperity, but rather a correction to a temporary period of plenty which provided unsustainable prosperity for the two generations fortunate enough to come of age in it.

Middle class retirement will still be attainable for many, but increasingly you're going to have to plan for it and save like hell in your 20s and 30s or else it ain't happening.

 

[W2R]

heh heh heh - one is probably not going to see 'aggressively frugal articles' on the Yahoo Finance pages. Nor how to have a 'cheap but good lifestyle'.

A million dollars at 4% is $40,000/year. After taxes, maybe $2500-$3000/month. If a person has a paid off house and car, and has everything else they will need to live a happy life, to me this much in today's dollars is a huge amount of income (at least in the "flyover country" parts of the South and the Midwest). No need for frugality here. No need for a "cheap but good lifestyle", IMO.

The big unknown is health insurance but that is exactly what it is - - a big unknown. For all we know, it could be free by the time these kids retire.

I think this article is feeding some Poor Little Old Me (PLOM) tendencies in younger generations. Not to say that they have a copyright on those tendencies, but still it is what it is. I think they have serious challenges ahead, just as we did, but I just can't feel sorry for someone retiring with a million dollar portfolio if he has otherwise prepared for retirement.

 

[ERD50]

And many of the younger folks have seen their parents and grandparents able to retire despite not being prodigious savers, being that their parents and grandparents came of age in the "golden age" of middle class retirement when SS was a decent deal and many private companies offered pensions. That's less and less true today, and these folks may enter their 40s and 50s with a rude surprise that they will never retire unless they move in with their children.

That may be true, but what I'm trying to stress to my kids (well, the one out of college anyway), is that whether or not you retire early, having some savings is a powerful thing. An emergency fund can keep an emergency from dragging you down in a hole that is tough to climb out of. Having some funds gives you options, you can take advantage when opportunity knocks. So rather than fret about "the number", just save (and spend wisely) as much as makes sense while maintaining balance in your lifestyle. You will be better off than 99% of the people if you do that, and that is what will count.


Of course, there is something to be said for having gargantuan amounts of fun, racking up a pile of debt, and then walking away from it!

-ERD50

 

[W2R]

Of course, there is something to be said for having gargantuan amounts of fun, racking up a pile of debt, and then walking away from it!

Oh pul-eeze! I have been trying for, let's see, 31 years to persuade my daughter that it is NOT cool to do things like that. Speaking of which, she did get very deeply in debt (mostly for medical bills) but pulled herself out of it all by herself without walking away from anything and I am very proud of her for that.

 

[ziggy29]

I think this article is feeding some Poor Little Old Me (PLOM) tendencies in younger generations. Not to say that they have a copyright on those tendencies, but still it is what it is. I think they have serious challenges ahead, just as we did, but I just can't feel sorry for someone retiring with a million dollar portfolio if he has otherwise prepared for retirement.

All generations have their challenges. But I think the coming economic challenges are a real problem to the current young generation because they'll need a time machine to correct, and without such time travel someone who doesn't "get it" at a young age is doomed in terms of prospects for retirement. If you don't "see the light" in your 20s and 30s, there will increasingly be no retirement for you.

And really... how many people have saved a million dollars for retirement at ANY age? (This board is full of outliers in that regard; statistically we are an anomaly and a blip on the radar.) But as fewer and fewer people have significant income outside of personal savings in retirement, there will be a very rude awakening. I just hope those who prepared for it aren't asked to pay the bill.

 

[W2R]

OK, here's the most hilarious paragraph from that article:

"I've never been a big fan of planning to earn less in retirement than you are making now," he says. "I'd like to see an individual continue making the same amount of retirement as when he was working. Who wants to set themselves up in retirement to make less?"

Who would be stupid enough to think that your salary is an allowance for you to spend? By the time a person is over 50, anybody serious about ER will be contributing $22,000/year to their 401K and what, $6500/year? to their Roth if they qualify. Plus, hopefully they will be paying off their home with extra payments, and saving in taxable to build a taxable portfolio. My last year I was spending less than 24% of my income and even those who like spending more than me probably don't ever spend 100% of their income.

What younger generations (and some of us boomers too) refuse to acknowledge is that we have all been given a salary haircut with the demise of pensions. Salary is not a spending allowance, and I don't think 100% of one's salary is a necessity or even a realistic goal these days.

 

[Alan]

A million dollars at 4% is $40,000/year. After taxes, maybe $2500-$3000/month. If a person has a paid off house and car, and has everything else they will need to live a happy life, to me this much in today's dollars is a huge amount of income (at least in the "flyover country" parts of the South and the Midwest). No need for frugality here. No need for a "cheap but good lifestyle", IMO.

The big unknown is health insurance but that is exactly what it is - - a big unknown. For all we know, it could be free by the time these kids retire.

I think this article is feeding some Poor Little Old Me (PLOM) tendencies in younger generations. Not to say that they have a copyright on those tendencies, but still it is what it is. I think they have serious challenges ahead, just as we did, but I just can't feel sorry for someone retiring with a million dollar portfolio if he has otherwise prepared for retirement.

I agree. The article says Gen Y (age 18-26) need to save between $2 and $3 million. If a million is enough today then in 40 years at 3% inflation you will need $3.16 million, so where is the surprise in that?

 

[brewer12345]

That may be true, but what I'm trying to stress to my kids (well, the one out of college anyway), is that whether or not you retire early, having some savings is a powerful thing. An emergency fund can keep an emergency from dragging you down in a hole that is tough to climb out of. Having some funds gives you options, you can take advantage when opportunity knocks. So rather than fret about "the number", just save (and spend wisely) as much as makes sense while maintaining balance in your lifestyle. You will be better off than 99% of the people if you do that, and that is what will count.

-ERD50

Why wait until they are out of college? My 5 YO asked me on Sunday (with a very serious look on her face) "Daddy, why don't some people save money?" Yesterday morning she asked DW if she (daughter) has any stocks or bonds.

 

[W2R]

Why wait until they are out of college? My 5 YO asked me on Sunday (with a very serious look on her face) "Daddy, why don't some people save money?" Yesterday morning she asked DW if she (daughter) has any stocks or bonds.

How adorable! Treasure these moments. I'll bet she is such a cutie.

 

[ziggy29]

Who would be stupid enough to think that your salary is an allowance for you to spend? By the time a person is over 50, anybody serious about ER will be contributing $22,000/year to their 401K and what, $6500/year? to their Roth if they qualify. Plus, hopefully they will be paying off their home with extra payments, and saving in taxable to build a taxable portfolio. My last year I was spending less than 24% of my income and even those who like spending more than me probably don't ever spend 100% of their income.

Agreed. Consider:

* Paid off home in retirement = less income need to pay mortgage/rent

* No need to save for retirement *in* retirement = less income need to fund 401K, IRAs and other retirement investments

* Lower income = even lower income need to pay income taxes, especially cash flow from Roths, savings and taxable investments

* No jobs = possibility of needing only one car, having lower wardrobe expenses, less dining out because you're too busy/tired to prepare your own meals yourself = even more cost savings

In reality, the only expenses that would likely rise are health care and (perhaps) hobbies and travel if someone is into that. But I once calculated that even if I assumed $10K a year went to health insurance, we could comfortably retire on what is now about 40% of our current income. Without blinking.

But all of that, even with almost no pension coming, was made possible only because I saw the writing on the wall even in my early 20s and just starting out on my own. If I didn't save aggressively for my first 15 years in the "real world," my retirement dreams would be toast.

 

[Fireup2020]

Bravo!

Why wait until they are out of college? My 5 YO asked me on Sunday (with a very serious look on her face) "Daddy, why don't some people save money?" Yesterday morning she asked DW if she (daughter) has any stocks or bonds.

Great parenting!! Thanks for providing a warm chuckle today!

 

[ziggy29]

Why wait until they are out of college? My 5 YO asked me on Sunday (with a very serious look on her face) "Daddy, why don't some people save money?" Yesterday morning she asked DW if she (daughter) has any stocks or bonds.

The fruit doesn't fall far from the tree. Sounds like she'll be an exception to the coming rule.

 

[ERD50]

Why wait until they are out of college? My 5 YO asked me on Sunday (with a very serious look on her face) "Daddy, why don't some people save money?" Yesterday morning she asked DW if she (daughter) has any stocks or bonds.

Agreed, the "out of college" remark was getting specifically to retirement details. I don't think a 5YO is quite ready to grasp it at that level. But if they ask, that is great, and try to give them an age-appropriate answer.

All 3 of our kids seem to have a level head when it comes to spending wisely. We have only rarely had a conscious 'talk' about it, but I guess they pick up on the day-to-day conversations about whether this thing or that thing is a good value, looking for sales, etc, the regular LBYM stuff. And they see that we don't 'stress out' over money matters. Kids pick up on that stuff.

-ERD50

 

[brewer12345]

Although I think the stuff they sell is generally cwap, the dollar store has been very useful as a teaching aide. DD has learned about spending vs. saving, making a choice when you want more than you can spend, and all about sales tax. Explaining what I was doing when filling out income tax returns was a little more cahllenging...

 

[Jay_Gatsby]

I agree. The article says Gen Y (age 18-26) need to save between $2 and $3 million. If a million is enough today then in 40 years at 3% inflation you will need $3.16 million, so where is the surprise in that?

I've always had a problem with articles like these. They try to use fear to motivate saving more. Yet by throwing out numbers that most people can't fathom ever reaching (because they're living paycheck-to-paycheck), they do little to motivate anyone.

If you want to reach anyone in their 20s, you must approach them in a way that they don't perceive as stifling their desire to enjoy the best years of their lives (discretionary income, no kids, etc....) Tell them that you understand and want them to enjoy these years. Then explain how things like: saving ~15% of their gross pay, get the 401(k) match, fund the Roth and other tips to maximize their retirement savings won't stifle things. Save first, then they can spend the rest however they want.

 

[ERD50]

Who would be stupid enough to think that your salary is an allowance for you to spend?

I'll take it a step further, and say it is stupid (since that is the word you used), to make *any* correlation between salary and spending needs in retirement.

I could paint all sort of scenarios, but simply, what one spends in retirement is what they need to determine. And then determine if they have the resources to support that. It may or may not relate to what they earned in their last few years of working.

Anything else is an oversimplification that might be OK in general, but is dangerous to apply to an individual.

-ERD50

 

[Alan]

If you want to reach anyone in their 20s, you must approach them in a way that they don't perceive as stifling their desire to enjoy the best years of their lives (discretionary income, no kids, etc....) Tell them that you understand and want them to enjoy these years. Then explain how things like: saving ~15% of their gross pay, get the 401(k) match, fund the Roth and other tips to maximize their retirement savings won't stifle things. Save first, then they can spend the rest however they want.

Exactly. My kids have always been good with money, learning to budget and save for things they want to buy. DS started working full time 3 years ago and I help him with his tax return each year. He doesn't earn much but saves enough in his 401(k) to get the full match, plus he puts some money into his Roth each year. He doesn't have targets in mind yet as he is only 27 but the fact that he is aware of the issue and saving now is really good to see.