Retirement

Why saving for retirement is easy … for just about anyone

For many liberals it’s a given that the struggling middle class can’t save for retirement, hence among other things, we need to increase Social Security benefits. I am a great believer in personal and life choices and their consequences. I’ve put together an arbitrary list of some of the things most people could do to save (almost painlessly) for their future retirement. I’ve assumed an average 7.5% return and retirement at age 65.

Perhaps you have other ideas. Note that in some of these examples only a one-time sacrifice is necessary. 

  • Don’t buy one Hoverboard (or similar useless purchase) at $400 to $800 and more: accumulate $12,000
  • Skip one Tattoo @ $1500: accumulate $30,000 (imagine if some people skipped multiple ink
  • Stop Smoking @ $240 a month and have a secure retirement with $730,000
  • Don’t go to one NBA game and avoid a set of tickets for a family of four and you will have $16,000
  • Regularly save only $50 a month and your retirement will be $152,000 better (what if each partner in a couple does this?)
  • Skip one trip to Disney (or other vacation) with the family at age 40 and you will have $19,500 at age 65
  • Switch from Starbucks cappuccino something daily to regular coffee and by 65 you will have $180,000
  • Instead of buying the car of your dreams, buy the transportation you really need to get from here to there and save $150 a month in payments and by age 65 you could have $675,000

Despite the above, the left continues to insist the answer is not encouraging personal saving, but expanding Social Security. Consider this from a 1-3-16 editorial (a neatly worded one-sided editorial):

Currently, 36 percent of retirees rely on Social Security for 90 percent or more of their income; over all, 65 percent of retirees rely on it for more than half of their income. The average monthly benefit hovers around $1,300. Retirement security won’t be any better for those now in their 50s. The Government Accountability Office recently found that 52 percent of American households with someone 55 or older have nothing saved for retirement and that only half of that 52 percent will get anything from a company pension. For those ages 55 to 64 with retirement savings, the median amount is barely in the six figures.

That $1,300 average benefit is as misleading as the women earn 70% of what men earn scenario. The average Social Security benefit reflects nearly 40 million people, many who retired early and many who have been collecting benefits for decades. The number also does not reflect a household benefit and is meaningless unless you also know the income of the person before they retired.

Younger workers are arguably worse off, because saving has become increasingly difficult, or impossible, in the face of stagnating wages, high debt, high rents and the lack of employer-provided retirement benefits. In 2013, 44 percent of workers on the lower half of the income scale had a retirement plan at work, down from 54 percent in 1995, according to data from the Federal Reserve.

Some buying and spending may have become increasingjy difficult, but it’s a personal decision whether that means no saving or saving first and no something else. Clearly many people opt for the no saving alternative.

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3 replies »

  1. First, I think the problem with getting people to save is that they do not know anybody that is destitute in retirement. Up until the mid-1990s a large percentage of the population got pensions from their jobs, some of which were very, very generous. It has been 20+ years now with the seismic shift away from defined pension plans and more and more of these people are going to retire soon. People also lost years of savings during the housing bust due to the loss of jobs and some might have even had to draw down their savings. Until kids see what destitute is, that is their grandparents moving in with their parents and back to multi-generational households like before WWII, I do not think you’ll be able to convince a kid to start saving for retirement fresh out of high school. To date the government has help senior citizens from special housing to special transportation so why would I think any differently.

    Second, financial planning is a crapshoot just like life. Back in 1980, the “experts” said to save 10% for retirement and you’ll get 8% return average in the stock market, drawdown from your savings at 5% and you’ll only need 60-80% of your income in retirement, and homeownership was an investment. Now in 2016 the “experts” say that you need to save 15% for retirement, expect a 6-7% return on investments, drawdown at a rate of 4% and you’ll need 100% income replacement in retirement and homeownership in many markets is resulting in negative equity. With healthcare costs being unpredictable, can one ever save enough? Why try, the government will take care of you.

    Back in 1980 there was inflation but passbook savings did pay 4.5%. In 2016 there is almost no inflation and no real passbook saving rates. It is hard to save knowing that you will only make a few pennies this month in interest. My 401K has not seen a 6% ROR since the tech bubble burst and the investment selection is aggressive. My fear is that after a lifetime of working the government or the banks will change the rules and retirement will still not be a possibility.

    In 1980 I was living at home making $4.50 hr, 10% would have been $18 a week toward retirement. Yes I was going out to the bars, trying to find a girlfriend, trying to save to move out of the house, trying to experience life. Today if I was making $7.50 hr that would be $30 a week or more like $45 (at 15%) or $180 a month. $180 in today’s dollars is a lot of money that one might need now when you do not have the cash to spare. I do not think that $180 / month would have covered my car insurance back then and not a chance now for a teenage driver today.

    Third, the government, Wall Street, and Madison Avenue have most people convinced that you should buy that big house and chase your life dreams. Retirement savings amounts are restricted. Instead of saving for that trip to Disney World and paying cash, Mastercard wants you charge it. People never run of money today with everything being paid with some form of plastic. When you walk into Starbucks and you do not have the $5 in your pocket you will leave but with plastic you keep on buying.

    My long winded point here is that fresh out of high school, we set our spending patterns. Then kids come along and some people make those cut backs that you suggest to feed the kids and buy that minivan. The kids finally leave the nest and you decide to start living again after 20-30 years of raising your kids and then and only then do you see retirement on the horizon. Since the New Deal in the 1930’s, America has demanded and got government programs to keep the old from dying in the streets and now we expect to be taken care of in our old age.

    What kids are seeing today is that their parents are moving in with their grandparents because their grandparents have pensions and a stable income where their parents do not. Soon there will be no more pensioners and then the grandparents will move in with the kids. Until a 20 year old can look and say “I do not want to live like that in retirement”, retirement planning will never be a priority unless they make excessive money and they need a tax shelter. You can talk until you are blue in the face, but a young adult can barely see past next weekend, or a young mom past that next soccer match and no one can see retirement.

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  2. It is all about choices and most people including myself, made some poor choices throughout life. That is why—36 percent of retirees rely on Social Security for 90 percent or more of their income; over all, 65 percent of retirees rely on it for more than half of their income. Having less in retirement will force many to have to make some very tough choices.

    Except for buying cheaper used cars none of the other examples apply to many people I know. But, I have been able to cut my food bill by 33 percent, $200 per month. My wife and I eat only 2 meals per day, we have both ;lost 37 lbs since last August.
    I have saved $900 in the last 15 months by getting rid of cable TV. I stream Netflix and Hulu with high speed internet and get 10 free channels from local TV stations, with a $24 power antenna.

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    • Dwayne, I enjoy your posts and agree with about 90 % of what you say. But our government helps families with children, which is a good thing. That is what the welfare people told my mom when she applied for benefits. But most senors are on their own.
      My wife and I have $19,644 per year in retirement income and qualify for ZERO help from our state and federal government programs. My 85 year old mother, lives with my sister in TX and receives $95 in food stamps and her Medicare premiums paid for by a state program. $200 per month with $700 in SS Helps but it is no windfall. If anyone is expecting the government programs to help you in retirement, you are a fool. It probably cost the government 5 times the $200 per month in benefit that my mother receives to get the money to the people who need it. I remember reading back in 1995 that 40 percent of the welfare budget goes for administrative costs, I am sure it is higher today.

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