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Old 04-29-2014, 12:58 PM
 
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Quote:
Originally Posted by jghorton View Post
I'm all for both Financial and Retirement Planning, but, it's not the 'magic bullet' or 'rocket science' that many imagine. -- It's like being overweight! ... The answer is always: "You must stop over-eating and get some exercise."
No financial planning is very different than dieting.

In dieting, you are supposed to spend MORE than you take in.

In financial planning, you are supposed LESS less than you take in. (g)
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Old 04-30-2014, 06:24 AM
 
Location: Los Angeles area
14,018 posts, read 17,726,438 times
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Quote:
Originally Posted by Emigrations View Post
This is what is really alarming.

Almost one-third of households from 55 to 64 years of age have no retirement savings;.....
Yes, that is alarming, but it may not be quite as alarming as it sounds. I wonder what percentage of that one-third of households will have a secure, inflation-protected pension? What percentage have a paid-off house that they can sell and then downsize, thus creating some instant savings?

We should be cautious about the meaning of those one-dimensional statements. I'll bet many of those households with no savings will be able to draw better than the average Social Security retirement benefit, which one can live on by moving to a low cost of living area. I am not claiming one can live very well on it, and I'm glad I don't have to, but it's not the same as being destitute.

When I retired nine years ago at age 61 from 34 years of teaching high school, I started drawing a pension that I can live on with a bit of surplus each month to sock away. I could have had no "retirement savings" at all and I would have been fine for life. My personality is such that I did retire with substantial savings - I wouldn't have felt comfortable otherwise. But I am just trying to make a point about statistics which are naively presented with no analysis and no context.
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Old 04-30-2014, 07:08 AM
 
Location: Central Massachusetts
4,800 posts, read 4,843,254 times
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Escort excellent point on the sale of primary residence to create instant savings. It is one of the things that makes my retirement according to firecalc a no fail situation. I can spend more money then I am now.

I know that isn't in the equation on these gloom and doom statements. Still as a whole we do not save enough. Our society here has been what is the next new toy and I want it now. Dont get me wrong on that. I was the first person I knew to have a bag phone.


We just need to keep on letting our kids know to save now as much as they can and yet still live today.
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Old 04-30-2014, 07:55 AM
 
Location: Tennessee
23,560 posts, read 17,535,380 times
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Quote:
Originally Posted by Escort Rider View Post
Yes, that is alarming, but it may not be quite as alarming as it sounds. I wonder what percentage of that one-third of households will have a secure, inflation-protected pension? What percentage have a paid-off house that they can sell and then downsize, thus creating some instant savings?

We should be cautious about the meaning of those one-dimensional statements. I'll bet many of those households with no savings will be able to draw better than the average Social Security retirement benefit, which one can live on by moving to a low cost of living area. I am not claiming one can live very well on it, and I'm glad I don't have to, but it's not the same as being destitute.

When I retired nine years ago at age 61 from 34 years of teaching high school, I started drawing a pension that I can live on with a bit of surplus each month to sock away. I could have had no "retirement savings" at all and I would have been fine for life. My personality is such that I did retire with substantial savings - I wouldn't have felt comfortable otherwise. But I am just trying to make a point about statistics which are naively presented with no analysis and no context.
That was the point I was making about my grandparents. With a paid-off house, a low key lifestyle, some cash savings (I think about $100k), SS, and occasional work income, they've got enough to live decently, not extravagantly. I never remember them having a new car or taking many vacations. They aren't living at the Villages, but rather at the same home they've had in southwest VA since the 1970s. They eat out occasionally, have a low cost YMCA membership they go to daily, and she takes cost effective trips with the local "Renaissance Center."

I agree that these statements are one-dimensional and don't cover all bases, or even many common scenarios, but such is the nature of these "headline lists." If you had a home in a good area of CA, NY, NJ, MA, CT, etc, and have lived there a long time, you could potentially have hundreds of thousands of dollars in net profit when it's sold. Two retiring NJ teachers with public pensions, SS, and a paid-off home with lots of equity are likely in far, far better shape than most retirees, even if they didn't save a dime of their own money. Someone in this situation would be misrepresented here.

From what I understand, new public employees may not have as good of a pension as older employees, and for us younger folks, I am not confident that state pensions will be as promised for my generation, especially in states that already have woefully underfunded pensions, like Illinois, but I think it's still the best way to go.

Your situation is a bit exceptional. Upon retirement, you still had:

1) Pension income that not only meets your monthly expenses, but exceeds it, so you can add to your savings in some months. Even if you had saved nothing on your own, you could have continued to live a normal lifestyle in retirement due to the pension only. If most private sector people saved nothing, all they would have had would be a company pension (if available, and if so, likely inferior to a government pension) and SS. That person's lifestyle would have taken a dramatic hit in retirement when saving nothing, whereas the hit to your lifestyle would not have been so severe.

2) Personal investments you can draw upon if you have an unexpected expense. Otherwise, the investments can be left alone and hopefully increase in value. In most retirement scenarios, people have to draw down this nest egg to pay for regular expenses. In your case, this is a "reserve" that may need tapped only irregularly.

Also, since you probably didn't have to save anything for retirement, the money you would have contributed for retirement as a private sector person could have been diverted to any asset or use of your choice. This money could have been used to pay off other debt faster, put into another asset, spent on a luxury, etc. This gives the public sector employee a little more flexibility than a private sector person who may mostly stuck with whatever options their employer provides.
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Old 04-30-2014, 08:39 AM
 
Location: Florida and New England
1,231 posts, read 1,416,614 times
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Quote:
Originally Posted by Emigrations View Post
When a third have nothing saved, why are we even concerned that a "pension and a million" may not be enough? ...Little more than 1% of Americans are millionaires when the primary residence is excluded. Someone with a "pension and a million" is a 1%er. If the 1% don't have enough, what will be enough?
I find it hard to believe that less than 1% of US households (not individuals) have more than one million in investment/ retirement assets. I think it's more like 10%. Many of these statistical studies do not include IRAs and annuities as part of net assets, when those accounts are often the largest portion of a household's retirement savings. In any case, one million plus a small pension should be adequate for a modest retirement. Two million plus a small pension is what I would currently aim for. And there are a lot of households (with retired executives or government workers) with large pensions, for whom smaller savings would suffice.

However, even at 10% of households with a million, that leaves 90% without enough for retirement. Those folks will simply have to continue working. The "retirement industry" is focussed on the 10% people who are able to buy their "products."

I think that it would be better for those without savings to ignore all of the retirement chatter, the way a low-income household ignores advertisements for a Ferrari or European travel packages. All of this sturm-und-drang around retirement is to get those who have saved & invested into certain financial products. People without savings will not be retiring in this way.
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Old 04-30-2014, 08:50 AM
 
Location: Glenbogle
730 posts, read 1,026,458 times
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Quote:
Originally Posted by golfingduo View Post
Escort excellent point on the sale of primary residence to create instant savings.
Depends on when the residence was purchased. I took a whopping loss of more than 50% on the sale of the house I bought in the early 2000s (with the proceeds of the previous house, so no mortgage) because it had to be sold post-Great-Recession. I too thought that the house would create instant retirement savings; instead the forced sale created an instant retirement loss.
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Old 04-30-2014, 09:09 AM
 
Location: Tennessee
23,560 posts, read 17,535,380 times
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Quote:
Originally Posted by westender View Post
I find it hard to believe that less than 1% of US households (not individuals) have more than one million in investment/ retirement assets. I think it's more like 10%. Many of these statistical studies do not include IRAs and annuities as part of net assets, when those accounts are often the largest portion of a household's retirement savings. In any case, one million plus a small pension should be adequate for a modest retirement. Two million plus a small pension is what I would currently aim for. And there are a lot of households (with retired executives or government workers) with large pensions, for whom smaller savings would suffice.

However, even at 10% of households with a million, that leaves 90% without enough for retirement. Those folks will simply have to continue working. The "retirement industry" is focussed on the 10% people who are able to buy their "products."

I think that it would be better for those without savings to ignore all of the retirement chatter, the way a low-income household ignores advertisements for a Ferrari or European travel packages. All of this sturm-und-drang around retirement is to get those who have saved & invested into certain financial products. People without savings will not be retiring in this way.
According to the WSJ, somewhere around 6% of the nation's households are millionaires, with the highest concentration of millionaire households along the BOS-WASH corridor. I'm a little struck by how many millionaires VA has, but I guess that's due to the wealth in the northern suburbs. Most states are at <5% millionaire households, with the poor southern states (TN, WV, KY, MS) at something like 3%-4%. Presumably many more of the households along the BOS-WASH corridor could sell their primary real estate, move somewhere cheaper, and then would probably become millionaires with the difference by this definition.

Where Are the U.S.’s Millionaires? - Real Time Economics - WSJ

Someone retiring in NJ may have bought their home for $200k twenty or thirty years ago, but that house may be worth $600k today. The same house may be worth $200k in TN, so they could net a couple hundred thousand profit by simply selling the house in NJ then buying an equivalent one in TN. That's simple math without taking into account upkeep, property taxes, HOA fees if (applicable), etc, all of which are likely to be far cheaper in TN. Even with all the taxes, tolls, fees, and COL in general, the Northeast is still far and away the best place to build real wealth than almost anywhere else in the country, whereas it's probably not a good place to stay once you've made your wealth due to the COL and taxes.

For someone who has lived and worked in the Northeast, the goal of becoming a millionaire is going to be far more attainable than someone living and working in rural TN, KY, or MS.

Still, I can't see how reaching a million in net worth is an attainable goal for most people when even in the best performing states, not even 10% of the population hit the goal. So 90% are going to be unprepared for retirement and will need to keep working? While I agree that there is a problem, I don't think it's nearly this severe, nor do I think you need a "pension and a million" for a "modest" retirement. I personally don't know any retirees who I know are that wealthy, and while these people don't live extravagantly, they're far from deprived.
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Old 04-30-2014, 12:51 PM
 
Location: Florida and New England
1,231 posts, read 1,416,614 times
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Quote:
Originally Posted by Emigrations View Post
Still, I can't see how reaching a million in net worth is an attainable goal for most people when even in the best performing states, not even 10% of the population hit the goal. So 90% are going to be unprepared for retirement and will need to keep working? While I agree that there is a problem, I don't think it's nearly this severe, nor do I think you need a "pension and a million" for a "modest" retirement. I personally don't know any retirees who I know are that wealthy, and while these people don't live extravagantly, they're far from deprived.
The one-million-plus comment referred to a secure retirement, however modest it might be -- a common retirement calculation has one million in assets yielding 40,000 per year. The security of retirement is a key part of this. Retiree households with, say 500,000 net, might be able survive on 20,000 income per year or even 30,000 per year with higher yields. But if a disaster strikes, particularly an expensive health emergency or a complex lawsuit, that consumes 100,000 total after insurance, then that household must adjust their forward budget radically.

I also know retirees with assets (excluding house) under one million, and it can be touch-and-go at times.
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Old 04-30-2014, 01:32 PM
 
698 posts, read 418,699 times
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Retirement assets include home equity, IRA's, notes, insurance, receivables, and anything else you could conceivably turn into cash. In the long run, it is foolish to assume a real net annual rate of return of greater than 2%. Nice if you end up getting more than that, foolish if you PLAN on getting more than that.
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Old 04-30-2014, 04:02 PM
 
29,772 posts, read 34,856,103 times
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Many households have a negative net worth, study finds
Quote:
About one in five U.S. households owe more on credit cards, medical bills, student loans and other debts that aren't backed by collateral — so not including car loans — than they have in savings, checking accounts and other liquid assets, according to a new University of Michigan report.
The above is negative net worth not being even but negative and that is 1 out of 5 families. Count them out having retirement savings. Add in the folks who are breaking even and I believe it is about 30% of households with no savings. So their retirement accounts will be? ER and and a number of others have made good points. The big picture statistics don't necessarily equate with individual outcomes. Some of the folks as noted with no savings may be retiring with pensions and SS. Now if they were high income folks they would be better off than folks with a couple of million in the bank and no pensions. There are three legs to the traditional retirement stool and having one short one doesn't doom you nor in some cases does having two short ones.
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