Food for thought -NYT article

[haapai]

Fascinating article.

www.nytimes.com/2011/01/22/your-money/401ks-and-similar-plans/22money.html?hp

Anyone want to comment?

Adapting to living on half of what you have come to expect hurts. I would not wish to go through that process for the first time in my fifties or sixties. Does that mean there's an upside to going through it earlier?

[Savoir Faire-Demogague in NJ]

I've been doing this since about 1993. At the time I was late 30s and had roughly $8000 to my name.
I am worth roughly $1.2 million. I've made tremendous market gains in the last 10 years. My annual income could drop by 40% and I would be fine.
I have made my bed friends... and I am enjoying sleeping in it... I also enjoy my vacation home.

[Deleted]

That's kind of depressing.

[lynnerself]

Despite all of the advise to invest young and let it grow, I have found in my experience that it just doesn't happen. Money is too tight when kids are around and salaries are just starting. Most people I know put the bulk of their money in retirement after the kids were out of college and they were in their peak earning years. Not smart, but a reality.

[Tiny]

I have a love/hate relationship with retirement savings calculators and some of the assumptions - like my salary will continue to increase up to the point I retire (what if the high powered job burns me out and I spend the last 10 years before retirement working for 1/2 the pay at a less stressful more enjoyable job?)

Along time ago I realized I needed a Big Pile O' Money and that the sooner I got that Big Pile O' Money the better off I'd be... which is kinda what the article implies is a good plan of action - save fast and hard while you are young - get that Pile O' Money growing.
I've been evangelising contributing to 401(k)s or Roths to my neices and nephews for the last couple of years. I think they think I'm crazy - even though they are working they couldn't possibly afford to put 2500 into savings - they barely have enough to buy pizza and beer with on the weekends... youth is wasted on the young.

[haapai]

But good to know about.

[thyme4change]

What would you do if your financial planner prescribed the following advice? Save and invest diligently for 30 years, then cross your fingers and pray your investments will double over the last decade before you retire.

That has always been my plan. Isn't that the way it works?

[Plain Old Petunia]

The articles says a young person will be advised to save 8% of their income. Maybe, but that's not the advice I typically see. If the person is saving 10% and their employer is kicking in 3%, their numbers are very different.

It does raise a good point though, we do rely on investment returns more heavily as we approach our target.

[cronewitch]

We have to and it does suck. I go up and down like a roller coaster thinking I am fine then I will never have enough. One thing I do it not decide on a actual retirement date until it gets here. I am 62 so thinking 65 an extra couple of years makes a huge difference.

Another thing is adjustable cost of living for retirement. I will pick a new house when I retire selling the current house. My retirement home could be less than I want to spend if I can't afford what I want. I am thinking spending the same amount I sell for but I could settle for a single wide on a half acre instead a big home on more land. Even a double wide on land is a decent home not a hardship. A single wide can be two bedrooms and two baths add a garage, barn, sheds and it would be fine for a single senior or couple and cheaper than a real house.

My minimum retirement budget is 35K and that has a bit of wiggle room. My budget calls for 500K in investments and getting SS of about 20K so my investment returns need to be 15K or 3% plus inflation.

So far I saved 525K and with 2 more years work can save another 50K and with luck the 525K will grow. With bad luck it will shrink and I will work to 66-67 to make up for it.

With fantastic luck it will grow really fast, last year was up 73K.

[Plain Old Petunia]

More and more, I think I want to buy a bit of land and put up a modern green prefab house. Rocio Romero sells one I love, starting at 38k. Of course, you need permits and either a contractor or elbow grease.

[motherto2]

sometimes I truly wonder how our kids and beyond will make it. I remember my DS saying very randomly one day as we were driving (he must have been 14-15 at the time) he didn't know how he would ever be able to afford to buy his own home. At that age, he wasn't used to me talking about finances, etc. so I really don't know where that came from. Out of the mouths of babes.....

[gsbrq]

I have never trusted retirement calculators. There are simply too many variables for them to be accurate. My strategy is to save 20% of my gross pay in retirement accounts (my employer doesn't offer a 401k match) and pay off my mortgage & student loan as quickly as I can, then evaluate where I am when I hit age 55.

Of course, that's assuming my income never decreases between now and then...

[formerexpat]

Who would advocate saving just 8%? I always thought 15% - 20% was what was said is needed to save in your working years to have a shot at a decent retirement.

Seems to me like the author / adviser quoted started backwards to figure out a percentage to try and make a story.

As Atsiaru mentioned, most people piss away their money in their 20's and even their 30's before getting serious about saving...sometimes later than that.

My wife and I were just discussing this morning about her cousin and the husband wasting money on useless stuff while always complaining that "money is tight". They bought too much house, buy new cars every few years and spend most disposable income on clothes, shoes, eating out a lot and other non-necessities.

With that kind of imbalance, it's not surprising that money is ALWAYS tight.

Regardless of our income, we intend to largely live a median income lifestyle for the area we live. Trying to live a certain perceived lifestyle based on your income always leads to a disaster in my opinion.

[Deleted]

Jan 22, 2011 12:26:43 GMT -5 formerexpat said:

Who would advocate saving just 8%? I always thought 15% - 20% was what was said is needed to save in your working years to have a shot at a decent retirement.

I thought the same reading the article... whom said saving 8% during your working years would be sufficient to retire on?

I am putting 20% away in retirement now and I am still afraid that it's not enough.... and yes as our income rise I intend to save more.

[TrixAre4Kids]

And what investment return do you folks use in your calculations? The so called standard of 8%, or the 7 & 6% return w/inflation at 3% quoted in the article?
I am that boomer and I need a crystal ball. Rate of return makes a huge difference to me as I am hoping to retire in the next 18 months. (Too bad these boards and SF weren't around in 1993, I would have made some different choices in my life).
I took a 30% loss in my retirement accounts in 2008, had a good year in 2009 (+25%) and 2010 (+12%). Using 5% return my 'monte carlo' projection for the next 40 years is marginal. Using 6% return I am golden. Sigh.

[formerexpat]

And what investment return do you folks use in your calculations? The so called standard of 8%, or the 7 & 6% return w/inflation at 3% quoted in the article?

[/size]

I have 3 scenarios set up in my models. I have my portfolios adjusted between stocks and bonds by my age and my personal investment strategy [more aggressive]. Right now, I'm 90/10 stocks & bonds and I eventually have that slide down to 25/75 stocks & bonds in my retirement years. While the split in my models adjust every 5 years [i.e. when I'm 35, 40, 45], I'm toying with the idea to keep a 90/10 split until I'm 60 - i.e. the full 30 year investing block from my age now. The risk, adjusted for age, might not be beneficial enough.

1) base case - stocks 10% / bonds 6%
2) best case - stocks 12% / bonds 7%
3) worst case - stocks 8% / bonds 5%

These are all gross before inflation. I assume a 3.5% per annum inflation.

[bobbysgirl]

Everything is changing as we speak. Since my speech is not eloquent, I stopped trying to expalin this years ago. The old saying if it's too good to be true, it isn't applies here too. But everyone has been brainwashed into thinking investments will get them free money. My question is for how long?

[HoneyBBQ]

"Money is too tight when kids are around and salaries are just starting. "

That is the problem. When a kid gets their first job the first thing they do is run off and buy a fancy new car and have $300/mo + payments. It just goes downhill from there. Everyone wants everything NOW without saving and working for it.

My H is 50 and lost half his retirement in his divorce a few years ago. He will not be able to retire at 65, probably. I'm in my mid 30's (yeah, yeah) and will probably be able to retire early. We contribute more than 50k a year to our retirements annually, so hopefully "his" will catch up and "mine" will be overloaded. I have lots of time to recover from the past few years... he doesn't have quite as much time unfortunately. We just contribute as much as we can and hope for the best. ;D

[Urban Chicago]

I'm in the "save all you can and hope" crowd too.

I also acknowledge that my kids will have a much harder time finding gainful employment than I did, and may need to live with me for a long time(of course, they will still have to work and pay some rent). That is part of the "retirement" plan but not necessary to keep me afloat.

[debtheaven]

As an Oldie (hopefully a goodie LOL) I'd like to point out that saving more than you need to always gives you options. Even for you younger and wealthier "high-flyers", saving extra for retirement while you are DINKS can give you or your spouse the option of early retirement, or staying home with your kids for a while (either when they are babies, or later.) Or taking a breather between high-stress jobs, or travelling, or paying more for your kids' educations than you think you will want to while they are babies.

Even if you agree with few or none of MY priorities, you can't dispute the fact that having extra retirement savings gives you options for YOUR priorities (both retirement and otherwise).

ETA: And I agree with UrbanChicago, all things being equal, things are GENERALLY harder for our kids today than they were for us.