The arguments for saving go something like this: You start early, and keep putting some of your money in a tax free account (IRA or 401k). Then after 30 years of compound interest you’ll have a lot of money.
There are two issues that I have with this logic:
Young people need money a lot more old people. Yes I’ll have a lot of money when I’m 65, but what am I going to do with it then? Tax free accounts don’t allow you to take out your money until a certain amount of time has passed. While I will eventually have more money, I’ll have it at a time when I need it the least in my life.
This doesn’t mean that you shouldn’t invest your money in anything, just don’t invest toward retirement.
How safe is all that money going to be in 30 years? The people retiring in 2008 when the market crashed saw a big drop in their 401Ks. This isn’t the best example, but my Great-Grandmother saved money all her life living in the Soviet Union, only to lose all of it to inflation. How safe is it to put money into an account that I won’t be able to touch until a future date decades from now? Is the US government stable enough that investing 30 years into the future is a safe bet?
I’m not really worried about point #2 as much as I’m worried about point #1. If I do save a lot of money toward retirement, what I’m I going to do with it when I’m 65? Burn through the cash by drinking Mojitos in a month long trip to Aruba?
I don’t want it to sound like I’m picking on old people and saying that they have no interests. I can only speak for myself. I don’t imagine that I’ll be doing much of anything after I retire, except maybe lots of reading and talking about them good old days.
You have a inaccurate idea of age. I am 67 and play 10 to 12 hours of racquetball every week. I walk my beagles a mile to 4 every single day. if I could afford it ,I would golf every day. I am involved in politics and work for local candidates.
Your money is not safe any more though. Many retirement programs have been gutted. You worked your life with the understanding you would have your retirement and healthcare safely provided. Not so .
The rich and powerful bankers want to get their hands on Social Security. When that happens, you better find a way to save a lot of money. They are not trying to provide a service. They want to skim the pool .
Buying a house was one way we thought we could provide for our retirements. Buy a big house when the family is young. Pay it off. Then downsize or sell it to give a cash charge to your retirement. That was dealt a big blow by our thieving bankers. I can not predict what they will loot next, but they will find something.
I think you either need to commit to it and save a bundle, or you need to just enjoy your income now and future be damned.
My mother is just about to go into private pay assisted living/nursing care. Her entire nest egg, which isn’t very much will be used to pay her monthly expenses for maybe the next year. And then, more than likely, she’ll pass. Saving that money did nothing for her. She did what she was supposed to do but she wasn’t able to enjoy it, nor will she be able to pass this money along to her children. Maybe I’m just in a bad mood because I just visited, but what a waste.
She could have spent that money on any number of things when she was alive enough to enjoy it, but now, she needs to spend it on living expenses until she passes or Medicaid kicks in. Too late to give it away.
There are lots of things she could have done, but she didn’t. In this situation, it’s better if she hadn’t have saved to begin with.
You need to have a lot of money when you retire because it has to last you from the time when you retire until you die, which can easily be 20 or more years later.
If you are near retirement, the vast majority of your money should be invested in low-risk investments like bonds for precisely this reason. Invest your retirement money in the stock market when you are young and the ups-and-downs from year-to-year don’t matter because you don’t need the money.
If you live in an economic basketcase saving is a risky proposition, sure. But while the US has some genuine economic problems a complete collapse isn’t in the future unless the government completely loses its mind.
I never denied myself anything; if I had money, I spent it. If I didn’t have money I tightened my belt until I did.
Now, I am seventy years old and I have enough income to live reasonable comfortably** if I’m careful and if** I don’t have a major medical problem. Those are two mighty big ifs; I do wish I had been more careful with my money. Even if I had been, the Bush years cost me what little I did have.
Save your money, or at least 10% of it and always vote the straight Democrat ticket. Remember, a vote for a Democrat is a vote a Republican can’t have.
I really wish we could have a discussion without this type of partisan wankery.
You need to save for the reason that, no matter your partisan leanings, you have no idea what the future will bring. You don’t know how long you will live, how healthy you will be, and who will be there to support you.
Even as a financial planner though I do believe that the pressure for very young people to save is misguided. When you are poor and struggling to find a career, get married and buy a house your level of savings may well be nominal. It is much more important to avoid consumer debt and build the right career. If you are entering your forties or in your fifties and not saving then you are a fool.
You should save money for your retirement, but don’t impoverish yourself so that you can live a life of luxury in retirement.
My grandparents saved every nickel they had. They lived like paupers even when they were doing well financially. They were saving everything for their retirement. Except within a year after their retirement my grandmother had died and my grandfather was in the early stages of Alzheimers. Their money went to the family, who fought over it like cats and dogs.
If the estate tax comes back, then if you die with money left over, 55% of it will go to the government. So don’t over-save.
On the other hand, don’t trust that Social Security will be there for you. Those who rely on government will eventually discover that government is unreliable.
To me, the best strategy (if you can manage it) is one in which you manage to cover your own health care, maintain a standard of living similar to what you have during your working life, and when you die, you die broke. That would be the optimal financial plan. Managing to achieve that, on the other hand, is not so easy.
Also, everyone’s situation is different, so no one can tell you what the right strategy is for you.
That’s a good point. Back when the retirement age was originally set at 65, the average life expectancy was something like 69 or 70. You weren’t expected to live a long time in a retirement.
If you ask me, the retirement age for Social Security and Medicare purposes should be set to the average life expectancy - 5 years. If life expectancy goes up, the retirement age should go up. If you want to retire sooner than that, pay for it yourself. Expecting people to work for 30-40 years then spend another 20-30 years living off the public teat is a recipe for disaster. The need to provide huge retirement benefits also makes companies less competitive in world markets.
I’m with you, anyway. I don’t plan to retire. I plan to simply shift my work habits away from my current 9-5 job and into some form of self-employment and/or consulting work.
You can either save for retirement and hope you live a long time.
Or, don’t save for retirement and hope you die young.
Do you really want to put yourself in situation where your best outcome is that you die immediately after you quit working?
I’m the youngest son of a youngest son therefore many of my close relatives were older. And I’m from Mississippi so a lot them were poor also. Old and poor is not a good combination.
You don’t really need money to be happy when you are young. I’ve recently entered my 40’s and it’s become apparent that getting old is going to a painful process. I currently work a ton of overtime, repair my own cars and do a ton of my own yardwork and house repairs. When I’m in my 60’s or 70s I’d prefer to have the money to pay someone to do those things if they prove to be too painful to do. Not having money really reduces your options.
It is statements like this which make people think conservatives don’t know shit all about anything.
You don’t pay on the first $3.5 million dollars of the estate. Cite. If you over-save to that level, it is reasonable to assume you can afford a tax planner.
You don’t only save when you are young - you save all the time, and increase your savings as time goes on. Starting when you are young has the advantage of compounding, of getting you into the habit, and of encouraging you to give up a lot of crap which you don’t really need in favor of savings. I went to a savings for college program when my older daughter was a couple of years old, and got hooked up with a financial planner, and I’m glad I did, because it made me aware of savings. Now I’m 58, both kids are out of college with no debts, we have a lot saved for retirement, and are on track to save what we used to pay in tuition.
And do tell us how you plan to live on Social Security only. I think it will be there, and it is a nice addition, but not a lot of fun as your only source of income.
Yeah, probably. And you are incorrect about not touching the account. You can’t take money out, but you can move money around to your heart’s content without penalty. If you want to put all your retirement money in one stock you can, if you want to out it in T-bills, you can - though neither are great alternatives. We move our money around all the time. The nice thing - no capital gains tax - right now, that is.
Well, by your plan one of the things you won’t be doing upon retirement is eating.
I recommend you find a financial planner, or go to a free seminar. I’m sure most will meet with you first time for free. He or she might be able to put some sense into your head.
Might work for you, but how many consultants do you see out there over 65? In my field, none. I fear that many people are going to fool themselves about consulting, and run into all the other newly retired people with the same idea. My wife is a freelance writer, and has built up a steady client list over a decade or two. It is not something you do right away. If I want to I can probably leverage on her client list, and I’ve got good clips for it. But I also wonder about how gung-ho people will be on working more after 40 years of labor. I hope at least some people have interests outside of work they can do - but maybe I’m wrong.
To Point 1–The earlier you start to save, even a small amount, the less you will be forced to save when you get older. $50 saved every month from age 20 to age 65 will compound even assuming a modest 6% return to over $138k. Of course if you contribute more it will only get larger. If you can do it pretax in a 401k it will even be better as that $50 will be taken out pretax and your take home pay actually won’t even go down that much! If you wait until your are 45 to suddenly realize that retirement is a scant 20 years away you will need to to save $300 a month in order to even come close to having the same amount, and that is only if you have a strong enough stomach to be that aggressive. You think it is hard saving money when you are young, try it when you are trying to put your kids through college! I guess what I am saying is that as a young person you have the dual advantage of age to get the full weight of compounding interest AND you can be more aggressive with your portfolio.
Which brings us to Point #2 - Diversity is your friend as well. Don’t put all your eggs in one basket. Is the stock market the best choice, in my opinion most likely as it over time has traditionally beaten inflation. Times are tough now, but then again I imagine they have been saying that for a lot of our history. But by diversifying you stand the best chance of beating inflation, beating failed businesses, etc. and increasing your retirement funds. I have friends that just do real estate, as recent history has shown that hasn’t worked out (but I think it will–things adjust over time). As you get older your portfolio will (or should) become more conservative. I know lots of people took it in the shorts recently who were within 10 years of retirement–they shouldn’t have had that aggressive of a portfolio as they dont’ have enough time to recover from it. A young investor does have time–time is your very good friend!