The ‘retirement crisis’ that isn’t (relation, late bloomer, mother)
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This was the promise of the 1980s and 1990s. But as has emerged as a theme in this thread, "generational luck" matters enormously as regards stock-market returns. If cumulative returns persist in being low, no amount of diligent savings will be sufficient.
Consider the "standard" 4% safe annual rate of capital-withdrawal, now in some circles reduced to 3% or even less; but call it 4% for the sake of discussion. Assume a 40% defined-benefit pension... paying 40% of one's salary in retirement, annually. For the portfolio to generate the same safe return as the pension, it needs to be 10 times as large as one's gross annual salary. This is readily attainable if we have say a 7% annual rate of return (money doubles roughly every 10 years, not accounting for taxes or inflation).
Now try the same calculation with 0% annual return - after taxes and inflation. This is a more realistic representation of cumulative progress thus far in the 21st century. At 20% savings rate, it would require 50 years to amass 10X of one's gross annual income.
Granted, these numbers are contrived. If the next 16 years of stock-market returns merely follow the previous 16 years, then we won't merely have uncomfortable retirements; we'll have an economic catastrophe. I am not, by any means, an unvarnished curmudgeon or a perma-bear. But it's crucial to realize that diligent savings alone are insufficient. We need for the market to work for us. And the market doesn't always work.
Are you accounting for Dividends and Bond Income as well as Capital Gains? I think a 50% final salary and a 3% withdrawal rate are reasonable expectations, and also fairly "realizable" for most people saving even 10% of gross income during a 40-year career.
BTW, in reference to some upthread commentary, acknowledging simple luck as a component in retirement success/ birth year/ demography does NOT require belief in a supernatural being. But luck cannot be controlled by the individual. Hard work and diligent savings can be controlled.
I often think that young people are doing themselves a disservice by waiting so long to get married.(if they want to get married) -Finding someone compatible in college, grad school or early in a career, has to be easier than when you are 30ish and scattered all over the country, away from friends and family connections. Of course divorce happens. Though making good decisions, getting an education, whether college or trade, mitigates the statistics downward.
Divorces wipe you out too. My brother was shocked when he saw a coworker lived off a car/ van after a divorce. He might have a nice home otherwise. You can't count on marriage.
Divorces wipe you out too. My brother was shocked when he saw a coworker lived off a car/ van after a divorce. He might have a nice home otherwise. You can't count on marriage.
I wasn't saying that one should count on marriage. I was responding to serious when he said it was hard to find someone to marry. One should count on educating themselves-developing market able skills, and living sensibly--
I wonder why the supernatural being loves some so much that they are blessed with defined benefit pensions, while others he hates so much that they are blessed with abusive homes and mistreated until they are murdered.
Frankly and truthfully one of the reasons and one of the primary reasons I have a defined benefit pension is because like a great number of other African Americans born in the 30's, 40's and 50's was that government was one of the few places we could find good professional jobs in Jim Crow or segregated America. So wow oh wow I was so fortunate there was discrimination all around and that I went out everyday one summer in high school trying to find a job and there was none. So fortunate and so thankful to the system that told me and my family and yes many relatives listened and are now retired that we needed to work for government or large employers (who also had pensions) to have a chance back then. Oh cry me a darn river people I have relatives who as kids had a mother who had to borrow money to buy milk for them. My mother was born and lived for awhile in a shack with dirt for a floor in NC and I attribute that to my feeling that I have NC in my blood. I could tell you a lot of other stories but so much of early life was driven by the need to be in some sort of equal chance if possible society. Now do my kids have to deal with that? No! Did we work and give them the opportunity to take advantage of a different society? Yes! Have they? Yes! Have I had to deal with bigotry and bull crap like so many others? Yes! So yes I give thanks and know we could be tested again but the wife and I are thankful for the path that led us to where we are. So what is hilarious it is Jim Crow America and family guidance that is the greatest reason why I have a defined benefit pension. As America changed and I was offered other opportunities it was the retirement advice from another era that kept me in that lane. For me it is about always moving forward and regardless of the current poop find that path that is clear and move on. PS, my mother didn't graduate from high school and worked part time as a domestic and my dad eventually worked for the post office and retired with a defined benefit pension, paid for house and savings ( the old school CD way. More than most people today just around the six figure mark. That was pretty impressive for a person born in 1913 and a minority. learned my lessons from him and other relatives and from those I knew and worked with. Also some of the things I was involved in made me more prone to have people talk to me about finances.
So as Miranda said that's the house that built me!
Millenials are screwed. As long as social security retirement is acceptable to people, everything will be alright. But we know it isn't. I suspect that alone is going to be huge sticker shock to households accustomed to living and raising a family on 75-120K/yr. Households below that mark never had a shot at 70pct income replacement from a defined contribution plan as a primary plan with no pension anyways. So, like the 60 year old neighbor of mine who makes 80K but has nothing to her name for 4 decades of treading water and spotty income stints, she'll enjoy her lifestyle until she can't work anymore, then she's instantaneously in the poor house. A cohort of millions of "middle class" wage earners that become indigent the SECOND they stop laboring
The challenge for the 60-year-old neighbor in your post is not her age, it is that she hasn't saved anything. I've been working for 30 years, and I have also had ups and downs in the labor and stock markets, but I've managed to squirrel away enough to return about 35% of my current salary. I've got another 10 years to work, and there will also be social security on top of that.
70% income replacement is a high level IMHO -- I think 50% is more realistic. People will have to scale back and possibly relocate, but this is not a catastrophe. I just don't know that many (any?) people who have not saved a nickel. Even my layabout 40-something cousin has saved a couple hundred thousand.
Off topic, but it's interesting how the state/local situation, based on the above ruminations, is exactly backwards from the situation amongst federal employees in the Department of Defense. Not many employees are under 50. Quite a few were hired during the Nixon, Ford or Carter administrations, as co-ops or fresh college graduates, and are still working. There's also a sizeable cohort hired towards the tail end of the Reagan administration. These are the aforementioned younger baby-boomers, who will likely remain working past 2020.
I have to chuckle at the moniker "older workers" applied to the above. Around my office, "older worker" means that you remember Pearl Harbor.
I often think that young people are doing themselves a disservice by waiting so long to get married.(if they want to get married) -Finding someone compatible in college, grad school or early in a career, has to be easier than when you are 30ish and scattered all over the country, away from friends and family connections. Of course divorce happens. Though making good decisions, getting an education, whether college or trade, mitigates the statistics downward.
Right or wrong, a lot of times what people want just doesn't work out. I've been in a situation where I wanted to get married, but it didn't work out. I've been in relationships where the woman wanted me to get married, but I didn't want to marry them. It's not always easy to find someone you're compatible with who also wants you, especially by the early 20s.
The best thing about college is that you have a large number of people at relatively the same age and stage in life close together. I'm 30ish and live hundreds of miles away from where I grew up, but I've formed new friendships and connections here.
A nice place to live, a luxury suv and 48K?? Give me a break. That is probably worth 70K a year at least. She is better off than the majority of the population and is a fool if she doesn't take advantage.
I wasn't saying that one should count on marriage. I was responding to serious when he said it was hard to find someone to marry. One should count on educating themselves-developing market able skills, and living sensibly--
Your previous comment was that young people was doing themselves a disservice by waiting too long to get married. My opinion is that they should develop the skills to support themselves, getting married too young as in your early 20s may result in starter marriage also, or divorce in the long run and that's not good for anybody. My motto is take your time when it comes to marriage, no rush.
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