Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
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.
There are many possible reasons for this.
My parents did not want to stop working.
I have seen many discussions on this forum where people insist they could never survive on incomes that would be 5X greater than my retirement income.
One couple we know, we met on this forum, they came to our town looking to buy a retirement home, we met them In-Real-Life and had dinner with them. They want to retire, but they insist the lowest they could possibly afford to retire they would need 8X my pension to live on. They are nice people though. But they easily spend 4X or 5X more than the average household working income.
Quote:
... 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
Not everyone is able to work 44 years. Babes happen. Accidents happen. Mental break-downs happen.
Quote:
... They started their first job at age 22 at $18,000 a year and made a conservative three percent increase a year
Very few jobs have given pay raises like that.
Quote:
... From age 22 they put in 6% of their income into, ...
If you are going to play monopoly you start by reading the directions, right? How many people do that?
If you ever thought about the taxes you paid, you would likely take a course on income tax filing. The IRS offers these courses for free. They teach you how to itemize your taxes, to help you to lower your tax obligation. My wife and I have both gone through the IRS course 10 years and we were both certified to file taxes for others. In the process of that we learned to itemize our taxes, and we dropped our income tax obligation from roughly 30% own to zero I have not paid into Income Taxation for many years.
But most people do not care to spend the time and effort required to learn how to play the game.
Most people prefer to file the EZ-form and to pay the highest possible taxes.
Pay 30% or pay zero, you choice. Which path do you select? Most people select the EZ path.
To me it seems insane to volunteer to pay such a huge chunk of your income to taxes when there is no reason [outside of "I don't care"]. But look around at all the people who pay income taxes. They simply have never considered thinking about it.
How many people will consider putting 6% of their income into a 401k? Or even into a cookie jar? Most peopel will never consider it.
Quote:
... 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)
The average employer does not offer any 401k plans.
Quote:
... What would they have if the person would have invested in a fund ...
"... Approximately 26% of adults have no savings set aside for emergencies, while another 36% have yet to start socking away money for retirement."
"... An estimated 38 million households in the U.S. live hand to mouth, meaning they spend every penny of their paychecks. Surprisingly, two-thirds of them earn a median income of $41,000, which puts them well above the federal poverty level."
"... The sooner you start the better - but that's something 36% of adults haven't gotten around to [saving for retirement] yet. "
"... At the end of 2013, the average 401(k) balance was a healthy $101,650. The median balance, however, was just $31,396, which means that half of the workers participating in their employer's retirement had that much or more while the other half had less."
the numbers pertaining to average 401k's mean nothing . don't forget the fact many put a lot of money in is diluted by those who put little in , or just started or have accounts and contribute near nothing .
fidelity says their median balance for those over 55 years old contributing for more than 10 years is over 300k
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.)
Your initial figures are a bit generous but see you cut in that in half. Honestly, it's possible, I'm living proof I had worked since I was 18, never unemployed (worked for same company for last 34 years). Raised family of 2 children, paid for their college (they graduated with $0 in loans), lived reasonably but did save. Now in our early 50's wife and I decided to call it quits. I have seen others who started roughly same time as me, pissed away their paychecks, lived only for the day and not the future, they are still pounding away at their jobs. Those who fail to plan and save just fail overall.
The OP has the investor putting 100% of their savings into equities (e.g., S&P 100 like fund). Does everybody do this? The general guidelines at one time were to put 100 minus age into equities and the rest into bonds. Later this got revised to 110 minus age. I realize that many people have no issue with taking a lot of risk but I would not be able to do this.
By the way his example is how the public sector pensions work. In NJ I contributed between 3.5-7.5% of my pay for so far 37 years and the State was supposed to contribute between 3.2 -5.5. The fund averaged 8.85% over those 37 years.
That is why I always challenge people who claim the math on pensions does not work.
NJ's problem is that for 20 plus years they gave me an IOU as part of my compensation plan.
For my salary I went from $11,400 to $110,000 over 40 years. I will reach the $110,000 in year 40. That includes 6 promotions. The title I started at pays $42,000 now.
I think starting pay of 18000 in 1972 is way high.
I started at 11400 in 1980
Yeah, a little bit.
Here is my work history from 1966 to 1980:
The figures in red are adjusted for inflation and in 1972 I earned $4,516 which was equivalent to $26,021. $18,000 in 1972 would have been equivalent to starting out at $100,000 on your first job in the days before the internet. Yeah, that happened a lot.
During my 20's I knocked around a bit but it didn't matter because I was single, didn't have anyone to support but me and I was doing what I liked to do. In my late 20's I was married with children and you can see from about 1977 on I started to buckle down.
Lots of people wish they had saved more but we are living life and life sometimes isn't always fair, right or just.
Nobody needs to cry tears for me but in my case I owned a company that grossed the equivalent of $4 million and the profit was there and life was good until a large trusted customer decided to go bankrupt on me and I was in a huge mess. The company was big and what they did was allow the construction arm to go belly up so while they came out OK I had some things I had to pay for out of my own pocket.
I went to the only place where I had the kind of money I needed and that was my IRA accounts. It cost me dearly but I kept my reputation for paying my bills in a timely manner with my suppliers. Life sometimes throws a curve ball and that sure was a fast one.
How much did I lose? Don't know really; in 1991 it was probably $60,000 in 1991 dollars which would be close to $200,000 today. Not just the money I lost but how much would $60,000 have grown to if I had left the money in the IRA account alone?
Like I said do not feel sorry for me because overall I did better than average person but just demonstrating that sometimes bad things happen to good people. It is called life.
Get ill, cancer perhaps or maybe hurt like falling off a ladder cleaning gutters, and be unable to work for 9 months and see what everything looks like. Yeah, if there is nothing else you are going to go to the IRA account just like I did.
Oh, when i did that I was just over 40 and retirement was still soooooooooooo far off I didn't worry about it.
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.)
One who STARTS working at 22 doesn't have a 401k. It usually takes a year or so before you can participate (if your employer has 401k for its employees...many do not), and then another several years before you are vested.
It is rare that a 22 year old can afford to lose 3%-6% income. Those are the hand-to-mouth years. The years of counting dimes and pennies to buy groceries, make a small car note, pay the rent, pay for car repairs and insurance, commuting expenses, Christmas gifts, a few luxuries (very few...like a fake Christmas tree), toiletries, household supplies, pet expenses, etc.
I think it's more reasonable that a 30 year old can start putting in about 3% of gross income into a 401k, after working at the same employer for a few years, AND the company puts in some amount, as well.
The 3% can double to 6% by age 38 or so, and then even to 10% by age 40.
No one gets a 3% raise EVERY year. Salaries get frozen during recessions. Employees get laid off. Sometimes raises barely meet the COL...about 2% to 2.5% some years.
You must have worked in an easy world. Where daisies grew out of the workplace floor, and everyone smelled sweet.
Many employers do not provide a 401k. Many people get laid off. Most people change jobs several times. Most people can't consistently save EVERY year all their working lives to the tune of 3% (I personally didn't have expendable income AT ALL for some years in my 20s, much less the huge amount of 3%!). I literally had zero left after paying my expenses, and buying just cans of veggies (no beef...too expensive).
The world and people's lives are not neat, precise things. Save, yes. Saving to the extent you suggest isn't possible for many, or maybe even most.
I think it's best not to be too critical of others, and so arrogant of one's own successes, at least some of which has been because of luck.
I really hate to pile on and I know this is sort of off topic. . . but doesn't anyone enjoy working?! I've been home with kids for years and can't wait to work again.
Sure, co-workers can be totally annoying, but unloading the dishwasher a bajillion times a week? omg.
Don't get me wrong, being a mom is the best thing that ever happened to me, but I do love using my brain for the 1/4-time job I do.
And that leads me to: what happens to moms who have been out of the workforce for years?
Most of your friends in their fifities and early sixties, will change their minds, or they will become unable to work or be hired.
It happens to people all the time. The sad thing is these people probably are not saving. They are using the excuse that they will work till they die, so they don't have to save now. The time when they should have been saving is gone though. This is the lesson we learned. The money you save when you are young is the hardest working money you can save.
We have encouraged our kids to save early and often, and they seem to be doing so.
There are obstacles to maintaining a strong savings plan though. People lose their jobs for too many years, their kids attend college, they have medical bills. Sometimes people don't have much in savings because of bad luck.
And, it is hard to understand how to save. No one can just put money in a bank savings account and get any return. So, we have to figure out what to use for our savings. It takes work to figure this out.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I had worked since I was 18, never unemployed (worked for same company for last 34 years). Raised family of 2 children, paid for their college (they graduated with $0 in loans), lived reasonably but did save. Now in our early 50's wife and I decided to call it quits. I have seen others who started roughly same time as me, pissed away their paychecks, lived only for the day and not the future, they are still pounding away at their jobs. Those who fail to plan and save just fail overall.
