Thanks.
I know very few (okay, none) teenagers who are making $31k a year. And the vast majority of our elderly clients at my volunteer-tax gig are making less than that figure as well. You are spot on in your assessment of this figure relating to this thread.
Even so, @Sam_Stone is right when he said that 2 million bucks is unattainable for the average Joe in this country. And @bump is probably close with this statement:
When considering what you need for retirement, a lot depends on pensions, both government and private, whether you own your home, what your medical profile looks like, whether your kids are supporting themselves or lean on you, what your plans for retirement are, and a million other things.
Here in Canada, a couple that worked their entire lives and have no retirement income will be eligible for up to $5,000 per month in government benefits ($1300 each for CPP, $600 each in OAS, another $672 each in GIS). How much money do you need for retirement in that circumstance? Not much, which is one reason why average Canadians have abysmal savings.
It’s quite common that at least one spouse has a pension. Our old neighbors were two retired teachers, and lived very well. I looked up the max pension for teachers here, and it’s about $3200 per month. So two retired teachers are getting $6400 in pension, plus $2600 in Canada pension once they hit 65. I’d say the amount of money they needed to save for retirement was close to zero.
Something almost never factored into the savings equation is risk of not benefiting from it. My grandparents saved all their lives so they could travel in retirement. But by the time they retired my grandmother could barely walk, and my grandfather had early stage dementia. They wound up sitting in their house for a few years, then my grandma died of a stroke and my grandfather went to a nursing home and died a couole of years later. The money wound up going to the kids, who fought viciously over it. Lawyers got most of the money, and it split the family apart.
Bottom line: retirement managemnet is complex and not amenable to generic savings advice or simple rules.
I don’t know what is taught in schools now, but when I was growing up there was zero teaching about managing money or even doing something as simple as balancing a checkbook. I’m now 75 and I still can’t balance a checkbook, but I did teach myself about financial health and got out of debt nearly 50 years ago.
My Dad taught me how to do that when I was about 10. I assumed that everybody had learned how to do that at home. I quickly discovered that this wasn’t the case.
I certainly can balance a checkbook. And have. The last time I did it was probably about 1985. Haven’t kept a check ledger since about then either.
I make deposits, I write checks, I pull cash from ATMs occasionally, and in the last couple/few years lately I’ve begun to use e-billing. They have computers to tot all that stuff up. The idea that I’d keep a separate manual record and do the arithmetic myself seems silly to the max. Look over their computer’s roster of what I did recently about once a month and that’s plenty good enough.
“Financial literacy” has IMO zero to do with balancing checkbooks. For sure the idea of income minus outflow = net gain, and more net gain is better than less is better than a net loss is a cornerstone of sound financial management. But you don’t necessarily get there better with tedious manual procedures that rightly glaze the eyes of most people.
Yeah, balancing checkbooks was important back in the day when finding your balance meant a drive to the bank, so people had to keep their balances straight on their own. In the era of digital banking, it’s really not necessary. I haven’t balanced a checkbook in 20 years.
“Balancing” is not keeping your own ledger with a running balance in it.
“Balancing” refers to comparing the balance shown on your monthly statement with the one in your own checkbook ledger. And reconciling any differences between your own ledger’s balance and the banks. Which normally consisted of adjusting one way or the other for each transaction you knew about that the bank had not yet processed, plus any transactions (e.g. fees) that the bank processed that you did not know about.
Formally, this is “ledger reconciliation”. Practically speaking, everybody I knew called that process “balancing” .
Yeah, I reconcile bank accounts all the time as part of my job. There are some clients that basically all we do is reconcile their business’s bank account (and prepare the tax return, but that’s every single client). It’s certainly much more involved than a individual’s bank accounts, and there’s much more likely to be mistakes in the ledger and checks that haven’t cleared that require attention. However, as much as I understand the desire for a professional to look over your books and prepare your tax return, it really pains me to think that these people want to be business owners and can’t even balance their own business’s bank accounts. I suppose it’s because these same people have problems even correctly entering transactions into their ledger. I also suppose sometimes they just inherit the business after working for their parents for years, and their parents probably weren’t any better.
The retirement planners assume that expenses don’t change with time, but in reality expenses go down as people age and are less willing to go on trips and have everything they need. My father-in-law died at almost 101, and while his health was pretty good considering he spent almost nothing except for food and housing.
As for the $2 million figure, one more reason it is higher than needed is that your calculation didn’t include social security for the US. My social security and some of the interest from the accounts is more than I need to live on, and we’re in high cost of living California.
Until they really skyrocket the last few years of your life. If you don’t die quickly after becoming unable to take care of yourself, you could be out of savings really damn quick.
I’ve seen a study that showed that the expenses are high the last year of your life - but of course you don’t know exactly when that is before it is too late. I think we remember the relatively few cases of expensive long term care and neglect the many cases where people just basically drop over dead like both my parents did. (Not at the same time.)
There is a thread in Politics and Elections regarding the WA Cares program to fund long term care for Washington State residents. Now in my opinion, there is quite a bit wrong with that program, and this is not the thread to revive that topic. But one of the issues raised was the seemingly insignificant lifetime benefit of $36,500 for long term care.
I did go looking for information on how WA determined that amount. I can’t recall where I found it, but I did find a fairly well researched study that showed that for a majority of cases, that amount would actually cover most long term care. I was surprised by this, but it did show that a majority of people didn’t live very long after entertaining long term care.
So yes, long term care could become a hugely expensive cost late in life for some people, but not for most.
My Mother spent the last year of her life in the Nursing wing at the LTC facility. Her bill was about $9k per month. So that figure would represent about four months worth of Nursing care.
My recollection is that most of the people in the Nursing wing had been there far, far longer than four months. In fact, my Aunt (Mom’s younger sister) has been there for almost two years now. Anecdotal evidence, to be sure, but it certainly makes me question that study.
The cost and duration vary widely. My dad was in skilled nursing at $15K per month, but for only three months.
Some people don’t need any long term care at all, dying suddenly from stroke or heart attack.
It’s entirely possible for both to be true, that most of the residents when your mother was there had been there for more than 4 months and that $36K will cover most people’s long term care needs. First , there is the matter of counting people - let’s say there are ten beds on a ward. Six of them are occupied by people who have been there for four months or longer. The other four beds have been occupied by people with shorter stays -let’s say one month each. That would be sixteen people in those beds over four months vs six who had been there at least four months. In reality of course, it wouldn’t be one month per person for those four beds. Some will be there for two or three months - and others will be there a few days. Second, long term care doesn’t only cover nursing homes and a home attendant for four hours a day costs much less than a nursing home.
As far as anecdotal evidence goes, only one person in my very large family spent more than a couple of months in a nursing home at the end of her life - and she was 100 years old. There were a couple who needed home attendants for longer or spent time in a nursing home after surgery , but most people in my family have died somewhat suddenly. If not immediately after a stroke or heart attack, then after a short stay in the hospital or of a chronic illness not requiring nursing home care.
I consider my level of financial literacy to be higher than average, perhaps 8 on a scale of 1-10. (And hope Dunning and Kruger aren’t playing a joke on me). But even for people with a high level of financial literacy, planning for long term care is a difficult problem to solve. Two of the issues can be emotional: first, the amount of money needed can be huge; second, at the age that one considers what their plans are for LTC, they probably have first hand experience with someone who has been in long term care and probably have visited these types of facilities. Both of these issues may distort a rational evaluation of the probabilities of needing LTC in the first place, and the length of the stay.
While I was typing this, I see that doreen has made a nice post and saved me a bunch of typing.
All this discussion of LTC brings the obvious problem to the fore.
Right now each of us must “self-insure” against worst-case LTC expenses. Or at least each of us wants to, although most of us lack the financial wherewithal to actually do so.
And with the worst case being WAG multiple years at $10K/month, that’s a very tall order. Most people can’t come close to saving that much money for end-of-life, and most of those who do have foregone an awful lot of valuable living and spending at their margin to get there.
And meanwhile, a large fraction of the elder populace never ends up needing assisted living as part of their end-of-life experience.
This is the ideal kind of situation for a cost pooling = insurance program. Nobody actually wants to be using LTC; the lifestyle in assisted living is no picnic. But somehow between our government and our insurance industry, nobody wants to offer this pooling.
For government this would be taking on a new additional burden that lots of the public pretends won’t happen to them and so they don’t want to pay taxes to fund it. And private industry so screwed the actuarial pooch back in 1995-2005 when LTC insurance went big that they’ll never offer it again. Absent some kind of mandate to do so.
It’s a mess.
Bottom line:
But yeah, if the government took this on, planning $36K per citizen lifetime would probably be plenty to fund everyone, whether they drop dead spending $0 on care or they exist as a semi-veg in assisted living / SNF for years and cost $600K before they kick off.
What’s long-term care though? There’s a lot of situations that could be described that way, and not all of them are equally expensive.
I mean, someone could be in an independent living place, but with some minor assistance in taking their medications on time, etc… That wouldn’t be nearly as expensive as 24/7 nursing care, but it might count as “long term care”. And there’s a lot of ground in between- maybe someone who’s in assisted living, but not in the medically fragile area either.
For sure there are gradations. And the care and insurance industries in the US at least have fairly standardized terms for what’s on each of the menus and what is covered or not how. Medicare / Medicaid have a largely congruent set of definitions.
I’ve recently dealt with this in detail for my late first wife, my late aged MIL, and my own as-yet unused private LTC policy. Digging deeper is a hijack to this thread.
But ultimately what you’re hinting towards is that the insurance companies (or government if that was available) don’t want to find themselves simply paying room and board for everyone who’s old, slow, and kinda lazy, but by no means debilitated. So what they will pay for before the patient is a nearly helpless basket case is pretty darn limited. By design.
It’s not necessarily going to be all that limited. Neither the government nor an insurance company is going to pay for me to live in an independent living community that provides housekeeping , a dining room and recreational activities (even if I am perfectly capable of doing my own housekeeping and cooking) but at least in my state , Medicaid will currently pay for home attendants/assisted living for people who need assistance with bathing/dressing , feeding themselves, using the toilet and so on. You don’t have to be nearly helpless to need an aide a couple of hours a day for bathing/dressing/preparing meals.