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I think we can expect better returns in the future since interest rates are at historic lows right now. I sure hope so. I just recently past 1 mil in lifetime earnings after 52 years of work.
Who knows. Not that he is infalliable, but he does seem to know a lot about the stock market, but Warren a few years ago said in an interview that US stocks in the future would have a lower rate of return than previous years.
America is a low wage nation. The median income meaning 50% of all American workers make below this amount is $26,320 dollars a year.
When you get to $39,900 a year 66% of all American workers make below this amount.
Again, there is just no way that you can save for retirement on $26,300, $35,000, or even $50,000 a year.
Think about this you have to put away a pultry sum of money over decades then hope you can pay for college, pay for your children, buy a home without dipping into savings.
You'd have to hope that you don't experience a period of prolonged unemployment, divorce, major medical expenses, so you don't have to use that retirement money to survive.
Then for most the amount that we will need in our 401k's or IRA's is well over 1million dollars. Even $550,000 isn't enough to retire on for an extended period without social security and a pension.
$550,000 in a retirement account will get you about $22,000 a year of income before taxes. 1million in a retirement account nets you about $40,000 a year before taxes.
I understand your frustration. I felt like you a long time ago, when I was 25 (hint: it was the year China was admitted to the UN). The job market right now sucks. But your calculations are too pessimistic.
Let's say that you somehow land a good job (and I realize that that's a BIG assumption). You start putting $5000 a year (or $416 a month, which would be a medium-sized car payment) into an IRA, paying 6% a year, when you're 25. 40 years later, you'll have over $800,000. Here's a simple calculator to plug in any figures you want:
Keep in mind that 6% annual interest is very conservative; an intelligent blend of investments will yield much more.
Also, you are leaving Social Security out of the picture. That's a mistake. Despite all the gloom and doom forecasts, it'll be there for you, possibly at a reduced level than it is for me, but you'll get a reasonable benefit.
Try this scenario: you make it to 65. You've got your 800 grand. No, let's say you needed money for the events you mentioned earlier, and you only have 600 grand. You set your annual withdrawal rate at five percent. That's $30,000 before taxes, added to a Social Security benefit of, say, $15,000. That gives you an annual gross income of $45,000. Not exactly a stairway to the stars, but not too shabby, either. And as a retired person, your taxes on that gross will be negligible (remember, you'll be a senior citizen then. And politicians are scared to death of us!).
It's not as bleak as you think. If you stay healthy, pay off your mortgage and your other debts, defer some luxuries until you can afford them, do without a new car or boat or RV every year, and resist the temptation to snort cocaine off a hooker's belly, you'll do okay.
I understand your frustration. I felt like you a long time ago, when I was 25 (hint: it was the year China was admitted to the UN). The job market right now sucks. But your calculations are too pessimistic.
Let's say that you somehow land a good job (and I realize that that's a BIG assumption). You start putting $5000 a year (or $416 a month, which would be a medium-sized car payment) into an IRA, paying 6% a year, when you're 25. 40 years later, you'll have over $800,000. Here's a simple calculator to plug in any figures you want:
Keep in mind that 6% annual interest is very conservative; an intelligent blend of investments will yield much more.
Also, you are leaving Social Security out of the picture. That's a mistake. Despite all the gloom and doom forecasts, it'll be there for you, possibly at a reduced level than it is for me, but you'll get a reasonable benefit.
Try this scenario: you make it to 65. You've got your 800 grand. No, let's say you needed money for the events you mentioned earlier, and you only have 600 grand. You set your annual withdrawal rate at five percent. That's $30,000 before taxes, added to a Social Security benefit of, say, $15,000. That gives you an annual gross income of $45,000. Not exactly a stairway to the stars, but not too shabby, either. And as a retired person, your taxes on that gross will be negligible (remember, you'll be a senior citizen then. And politicians are scared to death of us!).
It's not as bleak as you think. If you stay healthy, pay off your mortgage and your other debts, defer some luxuries until you can afford them, do without a new car or boat or RV every year, and resist the temptation to snort cocaine off a hooker's belly, you'll do okay.
Did I really say that last part?
Thanks for the advice, but my frustration isn't about me. I make good money. By most standards, I'd be considered high income.
I have a 401k and a pension, for as long as the pension lasts, and I think Social Security will pay out most of what is owed.
I didn't exclude Social Security. I think it is by far the most stable retirement income for older Americans. The OP did exclude SS by complaining about people near retirement age only saving $30,000.
My post was to point out why I think this is the reality for those Americans.
Your advice is sound as far as it goes, but in my opinion it is not realistic. If a worker earns $26,324 or less like 50% of all American workers do, how can that worker realistically save $5000 a year for 40 years?
I know your advice was based on landing a good job, but the American economy produces a lot more low income jobs than high income jobs.
The conventional idea that people move the up the income ladder as they age is true to an extent, but it is also true that many of those stuck in low income jobs tend to stay in low income jobs.
66% of all American workers earn less than $39,900 a year. Where are these people going to find $5000 dollars a year to save?
Then let's not forget the 40 year thing. In a 40 year span, a significant % of Americans will be unemployed for an extended period of time, and/or get divorced, and/or have major expensive medical costs, and/or go to college, and/or buy a home, and/or have children, etc.
In order for the advice to work in my opinion, it depends on nothing bad happening and a person earning a lot higher income than most Americans earn so they can afford to overcome all of those likely financial set backs.
Thanks for the advice, but my frustration isn't about me. I make good money. By most standards, I'd be considered high income.
I have a 401k and a pension, for as long as the pension lasts, and I think Social Security will pay out most of what is owed.
I didn't exclude Social Security. I think it is by far the most stable retirement income for older Americans. The OP did exclude SS by complaining about people near retirement age only saving $30,000.
My post was to point out why I think this is the reality for those Americans.
Your advice is sound as far as it goes, but in my opinion it is not realistic. If a worker earns $26,324 or less like 50% of all American workers do, how can that worker realistically save $5000 a year for 40 years?
I know your advice was based on landing a good job, but the American economy produces a lot more low income jobs than high income jobs.
The conventional idea that people move the up the income ladder as they age is true to an extent, but it is also true that many of those stuck in low income jobs tend to stay in low income jobs.
66% of all American workers earn less than $39,900 a year. Where are these people going to find $5000 dollars a year to save?
Then let's not forget the 40 year thing. In a 40 year span, a significant % of Americans will be unemployed for an extended period of time, and/or get divorced, and/or have major expensive medical costs, and/or go to college, and/or buy a home, and/or have children, etc.
In order for the advice to work in my opinion, it depends on nothing bad happening and a person earning a lot higher income than most Americans earn so they can afford to overcome all of those likely financial set backs.
Good points.
I based the $5000 figure on the likelihood that even people whose current income is modest will experience higher earnings as they move up the employment ladder and new fields of endeavor open up for honest and ambitious.
The current employment and wage stagnation can't last forever. Personally, I have taken advantage of overseas opportunities in my field form time to time, and currently benefit from a favorable currency exchange rate, since I am paid in yen and convert my savings to dollars when depositing them into my US accounts.
Both of my sons have worked overseas and realized significant earnings before they were 30. More and more young Americans are seeing the value of international employment, the value of language study, and the advantages to be gained from internationalizing their resume and making friends and contacts globally. This is an area where it is possible to escape -- if only temporarily until things improve --the low-wage jobs to which you accurately refer as affecting so many younger Americans' prospects of a comfortable and stable retirement.
I based the $5000 figure on the likelihood that even people whose current income is modest will experience higher earnings as they move up the employment ladder and new fields of endeavor open up for honest and ambitious.
The current employment and wage stagnation can't last forever. Personally, I have taken advantage of overseas opportunities in my field form time to time, and currently benefit from a favorable currency exchange rate, since I am paid in yen and convert my savings to dollars when depositing them into my US accounts.
Both of my sons have worked overseas and realized significant earnings before they were 30. More and more young Americans are seeing the value of international employment, the value of language study, and the advantages to be gained from internationalizing their resume and making friends and contacts globally. This is an area where it is possible to escape -- if only temporarily until things improve --the low-wage jobs to which you accurately refer as affecting so many younger Americans' prospects of a comfortable and stable retirement.
It can. Look at third world nations where wages remain low forever.
Wages are a factor of supply and demand. When labor is limited in supply, then wages go up because employers must compete for the labor. When the labor is made unlimited, then wages can go down.
Now the whole world competes for the jobs created through our consumerism. Many jobs are exported and employers can bring in unlimited supplies of third world workers who are happy to work for much less than Americans can live on.
Not sure your point, I missed where anyone was claiming it was.
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