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I have been talking to lots of my friends and family who are in their 50s and 60s about two of my favorite topics- money and retirement. Many of them are still working and claim they will keep working FULL TIME until the day they die. I tried to tell them that there are few full time workers in their 70s, 80s and 90s, but they did not believe me.
They said it was impossible for someone who was a middle class person all their life to get enough money together to retire.
This got me thinking. What if someone had started working full time in 1972 at age 22 and turned 66 this year. 44 years of full time work. They started their first job at age 22 at $18,000 a year and made a conservative three percent increase a year. After 44 years of working, their salary is now $67,000 a year. (Which is a three percent increase a year.)
From age 22 they put in 6% of their income into a 401K and increased that amount to link with their 3% salary increase each year. The company matched an additional 3% for a total of 9%. (The average company match)
What would they have if the person would have invested in a fund that matched the S&P 500:
$2,635,483.00 (Over 2 1/2 Million Dollars)
(OK, you say, no one works non stop for that many years, they may have faced layoffs and emergencies. Then lets cut that amount in half to 1.3 million. They can still afford to retire! And that amount does not even consider Social Security and any other savings.)
I'm not gonna check over or argue your numbers. To me it is pointless for several reasons. I get tired of everyone ragging on people who have "failed to save". I'M saving...I don't care what they do.
And you will also learn that some people love to "talk poor" even if they aren't. Maybe they are naturally pessimistic or maybe they're in a group of people that just like to commiserate and one-up - "oh, I'll never be able to retire" "ha, I'll end up in the poorhouse because nobody will take ME in"...etc.
This is just not constructive trying to show someone who is 50 now what the COULD have had - does it make you feel better somehow? Not me, I just feel bad for them - doesn't mean I'll give them a dollar if they are holding a sign up but I'll feel bad either because they didn't have money or because they had bad health or employment situations to deal with or because they weren't from a culture that saved, etc. And that will be the end of it - I'll keep my eyes on my own plate. Sorry - to me it is just depressing.
Okay - I can't resist messing with your numbers....not everyone can save 6% straight out of school and not everyone works at a place that offers a 401(k) much less getting a big fat 3% match (even if you say 3% is the average, half get below the median). And not everyone gets 3% raises EVERY year, for sure!. And not everyone wants to invest in "Total Market" funds or even know what that is - they think it is too risky. Or they are stuck paying high fees and don't know any better. And life intervenes...and bad markets intervene. Just because YOU made it doesn't mean everyone can...at that is a FACT. You can wave your figures around all you want, but it won't happen for a lot of folks.
I agree with you . It is what it is and I don't really care what others who failed did or did not do. I learn more from those who succeeded and that is where my interest is
Over the years, there won't always be an increase. I started working full time in 1972, age 23. Didn't start my own retirement fund until my early 30s' didn't have an employer-matched fund until mid or late 1980s. Took a big hit a few yrs ago (as did many) when the stocks crashed.
Point being your example, while interesting, is just a math problem and not too close to reality. Life isn't a formula.
Another couple of possibilities: they don't really want to retire and are using money as an excuse rather than admitting it
they've read too many scare articles about needing a gazillion dollars to retire and believed them
and/or it's just the thing to say, like telling someone your house is a mess when it's spotless.
I cut the 2.6 Million figure in half to account for lower raises and periods of unemployment and other issues. It still gives them lots of money to retire.
This got me thinking. What if someone had started working full time in 1972 at age 22 and turned 66 this year. 44 years of full time work. They started their first job at age 22 at $18,000 a year and made a conservative three percent increase a year. After 44 years of working, their salary is now $67,000 a year. (Which is a three percent increase a year.)
From age 22 they put in 6% of their income into a 401K and increased that amount to link with their 3% salary increase each year. The company matched an additional 3% for a total of 9%. (The average company match)....
I'm not sure what you were thinking because none of this makes any sense. Especially since you claim to be 62+ and would have been working in the 1970s.
First of all, your entire premise/scenario is ridiculous. Someone who made $22k in 1972 would be making a hell of a lot more than $67k in 2016. Are you aware that $22k is the equivalent of over $126k in 2016 dollars? So in your scenario, someone started their first job at the equivalent of a six-figure salary, and then was such a poor performer over the years that their pay has been reduced by about 50% over a 40-year career.
Secondly, $22k was about triple the average salary back then. Relatively few people were making $22k at the time, and those who were certainly were not right out of school at the beginning of their work career.
Finally, 401(k)s did not even exist in 1972. The law that created them did not come into existence until 1978, and even then, such plans did not become common until the mid-1980s.
Over the years, there won't always be an increase. I started working full time in 1972, age 23. Didn't start my own retirement fund until my early 30s' didn't have an employer-matched fund until mid or late 1980s. Took a big hit a few yrs ago (as did many) when the stocks crashed.
Point being your example, while interesting, is just a math problem and not too close to reality. Life isn't a formula.
Another couple of possibilities: they don't really want to retire and are using money as an excuse rather than admitting it
they've read too many scare articles about needing a gazillion dollars to retire and believed them
and/or it's just the thing to say, like telling someone your house is a mess when it's spotless.
I know people that are terrified of retiring because they like the money they make and are afraid of relying on a monthly paycheck. It is some kind of mental trick to have money deposited in your account several times a month.
Then there are those that are supplementing their kids, grandkids and great grandkids with basics and/or luxuries. Can't afford to retire if they want to continue doing this.
Yes there was no access to 401Ks and IRAs years ago but there were many other ways to save for retirement.
Quote:
Originally Posted by MadManofBethesda
I'm not sure what you were thinking because none of this makes any sense. Especially since you claim to be 62+ and would have been working in the 1970s.
First of all, your entire premise/scenario is ridiculous. Someone who made $22k in 1972 would be making a hell of a lot more than $67k in 2016. Are you aware that $22k is the equivalent of over $126k in 2016 dollars? So in your scenario, someone started their first job at the equivalent of a six-figure salary, and then was such a poor performer over the years that their pay has been reduced by about 50% over a 40-year career.
Secondly, $22k was about triple the average salary back then. Relatively few people were making $22k at the time, and those who were certainly were not right out of school at the beginning of their work career.
Finally, 401(k)s did not even exist in 1972. The law that created them did not come into existence until 1978, and even then, such plans did not become common until the mid-1980s.
I have been talking to lots of my friends and family who are in their 50s and 60s about two of my favorite topics- money and retirement. Many of them are still working and claim they will keep working FULL TIME until the day they die. I tried to tell them that there are few full time workers in their 70s, 80s and 90s, but they did not believe me.
They said it was impossible for someone who was a middle class person all their life to get enough money together to retire.
This got me thinking. What if someone had started working full time in 1972 at age 22 and turned 66 this year. 44 years of full time work. They started their first job at age 22 at $18,000 a year and made a conservative three percent increase a year. After 44 years of working, their salary is now $67,000 a year. (Which is a three percent increase a year.)
I started work as a secretary for the State of Florida in 1971. In order to get this job I had to pass a typing and shorthand test, and also pass a test administered at a local junior college. I was 23 years old. My yearly salary was approximately $3,600.00. The minimum wage was $1.60. My husband was just starting out, after having served four years in the US Air Force. We had a one-year-old child who was in daycare. In Florida we had a small apartment with no AC, and a used car with no power steering or AC.
We were early 1st and 2nd year baby boomers. Both of our mothers were widows, so if we ran out of money, there was no safety net. No credit card. Most cars back then broke down about once a month! We bought recap tires. We never went out to eat. We had 3 channels on the black and white TV. We used cloth diapers.
Oh, what an easy life we baby boomers had! I can't imagine anyone I knew that made $18k a year. We bought 1.5 acres of land, paid for it, and had a house built on it by 1975. Grand total of $26k.
As far as saving money, well we weren't able to save initially, but along the way it did happen. Back in the 1970s there were no instructions about how to save, no 401Ks, usually no grand inheritance from parents, no cheap appliances, TVs, or washing machines. Appliances were v expensive. We used to get our TVs repaired at the TV repair shop. Can you imagine! Ha ha.
My point is (sorry for the ramble), that the idea that most people made $18k per year in 1970, in middle America, is ridiculous. I went on to obtain 2 years of college and another type certificate. We moved to Atlanta in the mid 1980s, and only then did I make $18k a year in 1986, and that was considered v good money for a female. Get real!
PS. We have a v comfortable retirement, in large part because we never divorced, There was plenty of plate throwing and yelling, but we persevered, and now have a great life.
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