Can I interest you in saving and investing about 25% of your income?
(I know that there are quite a few "characters" around here ... but when I finished the subject line ... it assured me that there were only 2 left.)
Those of you who expect to die within the next ten years can mostly pay much lower attention to this story.
Most of us who are employees in this part of the world have received very little in the way of salary increase during the past 6, 8 ... 10? years.
Do you expect that situation to improve, as far as recipients are concerned, any time soon? I think that, for most of us, that's somewhat doubtful: and I'd not want to rely on it happening.
Without referring to many employment situations being much less secure than in earlier times ... and fewer alternatives at comparable levels of income ... especially for folks in advancing years.
And while fewer employees have such a benefit now than in earlier years, many employers are trying to reduce their pension liabilities to current employees who have one, as well.
Many pensions don't have much of an escalator, either ... and with
interest rates as they have been, many current recipients haven't had any for several
years, recently.
As for costs of housing and rents, they keep going up. Same with food, buying cars and most of the goods and services which we consider necessities, apart from what many consider luxuries.
Do you expect that situation to improve, any time soon?
I don't.
So ... don't most of us need to expect about the same number of dollars having to cover more costly expenses, in the years to come?
And those costs to increase, year by year?
If your expected number of years remaining are substantial, aren't you likely to need a major financial cushion to draw on, in future years?
Do you have it?
Better make some plans now, looking at 10? 20? 30 years down the road.
As many of you have heard me say, "Learning how money works is an interesting hobby ... that pays well". But less so, for interest earners, in recent years.
Sorry to be such a spoil-sport, folks.
(And on the day after Thanksgiving, for many - aren't you ashamed?).
(But - they do call it "Black Friday", don' t they?)
ole joyful ... well, most of the time so
Scary, isn't it? I made a comment to someone the other day that the maintenance I'm doing this year only has to last 20 years. And then I added 20 years to my present age.
Hi there, Happy,
So - the repairs last for 20 years ...
... and you're arranging for 20 more years ... or is that a 20 year extension?
But ... then you'll need to revitalize again: the house, that is - but, then ... you'll probably be downsizing ... so the "revitalizing"'ll be someone else's concern.
Maybe some "revitalizing" for you, too?
ole joyfuelled ... who claims that it helps with the "revitalizing" if one mixes some happiness in with it ... and you're at least partially equipped
No, I have never had an income.
Sue
In the last 5 years, US personal income is way up, unemployment is way down, and the stock market has almost doubled since its 08-09 fall. I understand that a rising tide doesn't lift all boats, but I think many of the OP's opening assumptions aren't valid. Anyone who is experiencing decreasing circumstances and opportunities over this period probably needs to reassess their job strategy.
Having said that, it's never too soon to start saving for retirement. 25% of income is an unrealistic target for most people.
Snidely, I think for many, many people personal income is not in fact up. There are many people working part time, with no benefits. A lot of families barely making it. There are lots of politicians that love to wave statistics, and I think those statistics can be manipulated to say whatever is called for at the moment.
Will anyone in the US whose income has gone "way up" in the last 5 years please raise your hand?
One percent of Americans can raise their hands, angelaid. The supposed "middle class', not so much.
When he was here to service our furnace, I asked our longtime HVAC tech about the job situation among his friends and neighbors. I asked if there was a shortage of jobs. He said that the only people he knew who were not working just didn't want to work, or didn't need to work. (He's early 30's, married, with two young boys. He built his own house when he was 24, with the help of other tradesmen-friends.) It's ironic that the trades are earning well, while college grads are floundering -- all but the one percent, many of whom started out ahead of the game. Stats say the middle class has lost ground in wages and savings over the last ten years.
People working two and three jobs to survive don't have money to save.
*Raises hand* well, not me but my husband. He got a 17K raise, followed by an 8K raise.
Of course the Affordable Care Act also caused our insurance to increase so dramatically that it seems most of the raise has gone to pay for medical insurance. Still, with the increased raise means the 15% we automatically put into our IRA is a lot more than it was before the raises.
The gloom and doom of the first post isn't what very many are experiencing in recent years. I read the news, I don't make it. Here's an article from a Portland newspaper that ranked metro areas with the highest job growth rates for the year to June 2014 (refer to the table below the photo). :
Job Growth
For all these urban areas (from all regions of the country, though more predominantly in the South and West) with 2-3 percent growth in jobs, things are booming and incomes are up. In my area, one that's listed in the rankings, salaries are way up because it's a seller's market right now. Even recent grads have their choice of jobs and have higher salaries than they ever imagined.
chisue's example of the HVAC tech is typical of what I see and hear. Those who want to work and who have the right job training (whether that's in a technical job, a trade or from a college education) have a pick of jobs. For those in small towns or in traditional manufacturing regions where
plants have closed and won't reopen, sure, it's a different
story. For those with limited training or with skills no longer in demand, yes, there's a problem. But it's not a problem with the economy.
The "one percent" phrase has become a cliche and a red herring. Stratify earnings or wealth however you desire, that strata has always existed and always will. It's math.
Personal income may be up slightly, but it's still down from the most recent highs of 1999.
The median personal income is approx. 53,500. In 1999, it was just under $58,000.
Moreover, nearly half of all households makes less than $49,000.
Imagine the disproportions if the upper income earners can pull the median above what almost half U.S households earn.
So, while the aggregate of personal income may register as an increase, very little is being shared across all wage brackets. Most of the increase is going to the upper percentiles. Since nearly half of all households makes significantly under the median, it is unrealistic to assume that one's ability to just decide to change their individual income is within their immediate control.
Among other factors working against the lower income strata, this doesn't even touch the decline of pensions that many households have traditionally relied upon for retirement income into later years, nor the personal circumstances that both hinders positive personal income growth, and their ability to easily learn and get established in new, or higher paying trades.
Also keep in mind that these are avg. income per household, not per-worker. Imagine the low salaries of the many 2-worker households under the $49,000 mark compared to those above.
Lastly, and here is where the water hits the floodgates, these figures are indeed often manipulated. Statistics lie. Nothing is just 'math'. Not everyone is counted. Not everyone's income is recorded. Benefits and access to assistance is often averaged. Math and figures are used and misused for political purposes. If you listened just to FOX news, for example, or read the comments on Yahoo, you would think that the economy is completely in the tank and the country is about to be taken over by Muslims and Sharia.
The truth is closer to what we've seen on this thread. Snidley has a point, the U.S., as a whole, is not as bad off as many would have you believe. However, so too are other commenters correct, the average person is much worse off (again... on average) than they have been since the great depression. What is considered 'poverty' today is clouded by statistical analysis that doesn't reflect changing times and living conditions. Buying power may be up slightly for a number of U.S. residents, but not often discussed, or realized, is the quality and durability of what people can buy with those 'disposable' dollars. Buy a washing machine 40 years ago and you got 20-25 years of heavy use. Buy one now... 10-20 years of medium-duty use. Such experiences eat away at disposable income. What used to be made of wood, is now press board. Metal is now plastic, and healthcare is now... well forget it... unaffordable without insurance. All these examples, and more, quickly eat away at any gains in disposable income.
Saving 25% is both unreasonable and unnecessary, saving for retirement is best done by starting early and keeping with it.
Just as an example if you start putting back an inflation adjusted $100 per week when you are 25 and continue until 70 you will enough to live comfortably in retirement, even after adjusting for inflation (over $200,000 per year in today's dollars for 30 years). Putting back $200 per week will get a very nice lifestyle.
Posts that call for saving 25% of your income are, in my opinion, counterproductive. They simply scare people away. Start reasonable, stay reasonable but stay with it.
As for the numbers about incomes, you were right 1999 was a very good year for the bottom 20%, and a pretty good year for the next 20% but for everyone else it was nothing special. The problem in any statistical discussion about wages is the bottom 5th or so. These are people whose household incomes in 1999 were $14,000 and today are only $11,600. The problem is that they don't comprise part of the full time workforce. If you limit the discussion to full time workers then you get very different pictures. I am not saying that the bottom 5th are not relevant to any discussion, I am just saying they are a group without any real controls. Since minimum wages are higher today we can only assume that they work less hours than they did in 1999...Why? While that may be a relevant question you can't answer it with the stats.
Bry, how do you know those at the bottom 5th are not working full-time? Minimum wage has barely moved in the last couple of decades and it's pretty much impossible to live on it. There is nothing wrong and everything right about saving 25% of your income, if you are able. Our Ole Joyful knows how to squeeze a dime!
If you feel that there may be noticeable wage increases in your future ... then my original story doesn't apply to you - plus that you don't have to fear job loss, or cutback of hours worked, etc. I think that fewer people annually continue to inhabit that territory. And many feel that they really need two jobs in order to make enough to live on ... but their basic employer requires them to be on call, with very short notice, which inhibits holding a second job.
If you figure that prices won't advance much - same thing.
If you are living comfortably now, with some extra to take up the slack for future probable increases in costs ... and expect to die within the next ten years, you don't have major worries along that line, either ... which proviso was also included in my original story.
And, yes, bry, when I worked as a financial consultant, I recommended that people start putting away a small amount, early, and learn how to invest it wisely. Then leave it untouched, except for emergency use, in which case they had an ironclad guarantee with themselves that they'd replace the"borrowed" funds as soon as possible, in order to stay on track.
About 12 - 15 years ago a local psychiatrist, in private as well as institutional practice, asked whether he could retire early, and we had several discussions, including did he want to continue private practice after leaving the institution, and he said he wanted out of the whole thing.
My reply was that, even with a nice home and $400,000. available otherwise, and since he and his wife lived rather simply and could manage well on the $40,000. that he could earn at 10%, according to his figuring, I said that not only could he not retire early, that it would keep him stretched to afford to retire when the time came ... as he had forgotten the ravages caused on interest income by inflation: some other kinds of investment income are taxed at lower rates, in Canada. Plus counting on getting 10% interest long-term being a bit of a stretch ... as in "improbable" (maybe "impossible"?) ... but quite risky to count on!
ole joyful
First, I know the bottom 5th don't represent full time workers as the average salary is below minimum wage for 40 hours per week and 50 weeks per year.
Second, having $400,000 is an incredibly small amount of retirement money. Investing $100 per week and adjusting for inflation will get you a lot closer to $3 million. Which will get you a comfortable living even inflation adjusted. That gets you an income over $200,000 even after adjusting using the average inflation rate that is still better than $75,000 per year.
As a CFP I constantly advise people to start early and stay with it, the amount you put back is a hell of a lot less important than the time over which you put it back. Just to demonstrate this, if you put back $30,000 in your child's name when they are born, they will have $4.45 million when they are 65. If you decide to wait until your child is 15 before putting back the same $30,000, they will only have $1.4 million. Time is what matters more than anything else...
Never ever withdraw your retirement money for any non life and death emergency.
My mom just refinanced her house. She had 25 years left to pay on it and is sad she now has 30 years to pay on it. I told her she should've gotten a 50 year mortgage as it was just as reasonable to consider paying off. She laughed knowing I was mostly joking. Seriously, does she really think she'll live to be 97 or 102? C'mon! We'll be stuck figuring out what to do with her leftover debt. No matter the number of years left on her pay off. Oy.
" We'll be stuck figuring out what to do with her leftover debt"
During the probate process the house and other assets can be sold by the executor, debts, costs and if applicable, taxes, applied and if you are in her will you will get the balance, as well as any others named, according to the will or if not specified, state law.
I and my eldest brother are the executors of the will. That is my meaning of we'll be figuring it out ;)
Your mother sounds like a smart lady to me, she very likely did several things right by refinancing, and nothing wrong.
The length of mortgage has absolutely no relevance at all when deciding whether or not to refinance. In the end, if you owe $100,000 on your mortgage then you owe $100,000. The only thing that ever matters is the total amount of interest and other fees you have to pay. If the reduction in interest fees are greater than refinancing costs, then refinancing is the correct decision. The length of a mortgage only notes the time for which you are allowed to pay it back, not the time you are required to pay. You can pay off a 30 year mortgage in a few days if you want. While many people try to debate this, it simply isn't debatable, it is a mathematical fact.
Whether or not your mother should take the full 30 years is really a discussion about her financial situation and not yours. While estate planning is an important part of the discussion, I would never encourage someone to put themselves in a difficult financial situation for the convenience of their beneficiaries. Additionally, many people who have left their beneficiaries in great financial positions had 20 year mortgages when they passed. They took advantage of the interest rate spread to add wealth to their estate.
??? I took her to my banker so she could refinance and lower her payments. I totally think she should've! I merely thought it funny she was lamenting over the extra time????
Sorry I misread your story.
Hi again Rob,
Does your Mom have a guarantee on the rate of interest to be levied on her mortgage throughout its life?
Though the Feds have been discussing raising those base rates for some time, some figure that they may soon decide to do it.
Your Mom was around something over 20 years ago when mortgage rates were in the neighbourhood of 20%, so that's not news to her, as it is for folks who matured within the last 10 years or so, and now are considering a mortgage.
As I've never having owned a house, never had one.
But, having lived about half of my career in an employer-owned one, I knew that when I got fired ... or retired ... I'd have to provide housing, so planned accordingly.
ole joyful
Locked in rate :) on her mortgage. At a lower rate. Getting expenses lowered any way she can. I think she's in a better place as she also reduced her insurance (overinsured). Well on her way to being able to enjoy retirement more fully than before. I, for one, am thrilled ! I too locked in my rate before they go up again.
May I share a smile with you - for both of you, Rob?
My rent is $565./mo. for a nice farmhouse ... can stay there, 30 km./20 mi. from town as long as I can drive ... but new hope, if perhaps I may be able to stomach riding in a driverless (sorry - self-driving) car. But it'd have to be a few years, yet ... as I haven't bought a new car in almost 40 years.
I pretty well live within my pensions ... so the investments are pretty well "play money" ... until I may need them to supplement health care, or to pay for residential or nursing home, so don't want them falling over any cliffs.
To leave some for final income tax ... churches ... charities ... kids (no grandkids - and both over 50, so not about to be grandkids: looks like the end of the line for ole joyful's branch of the families.
ole joyfuelled
Nashville has HUGE housing problems. There are people who moved down here, bought up all the properties, and jacked up all our rental prices. Housing is really scarce. We both own to avoid the vastly rising housing costs. I liked renting. Call them, they come and fix it. The market is one of the hottest in the nation. It's actually a problem so huge, it was one of four or five hot buttons in our last mayoral race. Who can blame them? Cost of living is low, it's a beautiful place, has slower pace with big city amenities... I could go on forever. But people have discovered this and it's really a problem for housing and traffic. It's pretty much all that drove me into buying. I would've happily gone on renting, if it just wasn't so dang hard to do.
How hot is our market? Her house she sold in 2010 for $68,000? Just sold two months ago for $264,900. Sure, you could sell and make a killing, but where would you buy afterwards? It'd be great if I'd bought up back then and kept one house. Oh well.
Hind-sight's great ...
... (but not so great if, after a shower, look back when standing with back to a mirror.
o j
The comment, " ... aren't you ashamed ..." near the bottom of the original post about bringing such a sorrow-filled story on the day after Thanksgiving was directed at me, not intended for you readers.
And bry, this story was intended for the middle-aged or older folks who hadn't built a financial cushion for themselves when they were younger. Those for whom it doesn't apply ... can walk on by.
ole joyful
I still believe, that what you are proposing is an unreasonable option and, again in my opinion, more likely to discourage people than encourage them.
If someone were to walk into my office who was 50 years old with nothing saved for retirement I wouldn't start with having them save 25% of their income. This is essentially the same thing as walking into a doctors office overweight and him telling you to run 10 miles a day starting tomorrow.
We would have to look at the assets you have, what you want out of retirement, check for reality, reign in spending, protect a more advanced working age because you are not going to be able to retire early. There are good achievable options and many many people have done it, but setting superhuman goals just makes you fall faster. At middle age or older if you are not prepared for retirement, then you have an elephant to eat, sit down and start on it, one little bite at a time.
The picture, of high inflation rates, that you are painting would have me start to future proof their assets, borrow as much money at today's locked in rates as possible and spread the payback out over as long a time as possible. In other words - get them in a house, or refi the house they have.
bry911, I don't think joyfulguy's financial background is comparable to yours. I'm not sure he understands your points.
The subject line was intended substantially to attract attention ... I wouldn't use that as an opening line with a 50-year-old prospective client with minimal savings, either. Better to initiate a serious discussion as to what might be possible, balancing the realities and what his/her approach was, plus spouse, if possible, to the whole situation.
No sense in frightening the he!! out of her/him.
The purpose would to encourage such a person to develop a plan which they took ownership of and were willing to commit to, over the long term.
I just read on Yahoo news relating to the problems of middle income earners that, according to the New York Times, they composed 55% of the U.S. population in the '70s, and 43 now, and most have not had a raise since '99.
According to the U.S. Census, the article continues, median income in 2014 was $53, 567. , which is 6.5% below the pre-recession level of 2007 and down 7.2% from its peak in 1999.
The heading of the story was that that situation was hurting the mega-brands, some of which are aiming to seek to expand their markets to either or both of lower income and higher income people.
ole joyful
According to the U.S. Census, the article continues, median income in 2014 was $53, 567. , which is 6.5% below the pre-recession level of 2007 and down 7.2% from its peak in 1999. -
Again this just points out the problem with statistics...First, income is down, but disposable income is up. So we are really better off.
Second, this idea that most haven't gotten a raise is complete B.S. you have to understand what you are looking at with stats or you get really scary and grim pictures. Stats can be misinterpreted either on purpose or just because the person doing the investigation doesn't realize it, Yes the average household makes less money today than it did in 1999 - but household size has decreased dramatically. The number of single income households more than doubled, the number of children per family dropped, and that is exactly why discretionary spending is way up. So while a 7.2% drop seems significant, it becomes much less significant when the people the income must support dropped almost 20%.
Finally, stop looking at all income earners and look at full time workers - if you look at the top 80% you get a different picture. Yes the bottom 20% has had a 17% drop since 1999 and is crushing the statistics. But those are not full time workers, we have had a serious increase in the number of part time workers, and a decline in the hours they work, which is a discussion in and of itself but not one relating to middle income earners and the plight of the full time worker heading to retirement.
Added to this that the whole idea of middle class has changed dramatically. One could argue that the whole concept is dated to the extent of no longer being useful. The idea of the middle class came about because it drew a line between certain "haves" and "have nots" - today that line is blurry at best. Access to good reliable internet, entertainment options, telephone communications, access to somewhat reliable transportation, and access to education are no longer restricted to a middle class. Compare the convenience and lifestyle of today's full time career workers below the middle income line to those people in the 1970's well above the middle income line, and see who has it rougher.
Edit: At this point I will jump out of this thread - I will close with this - No matter how old you are, if you can read this take a few minutes to make sure you are making sensible contributions to a retirement plan that is risk appropriate for your age.
Here is a cool chart showing what incomes have done:
http://www.advisorperspectives.com/dshort/charts/census/monthly-household-income.html?household-income-monthly-median-since-2000.gif
Lots of other cool economic data here:
http://www.advisorperspectives.com/dshort/
And some sobering data:
http://www.fns.usda.gov/sites/default/files/pd/SNAPsummary.pdf
http://data.bls.gov/timeseries/LNS11300000
Some entertainment:
https://www.youtube.com/watch?v=7Pq-S557XQU
You heard what Mr. Trump said ... that " ... he (was) going to make America great again", which I assume that he meant that it hasn't been so great, in recent years.
And the evident dissatisfaction with their situation that has fuelled many of his followers' unhappiness indicates that many have been finding life in general somewhat frustrating for an appreciable period.
"A chicken in every pot" ... but ... that was an earlier generation, wasn't it?
Was it also just prior to an election, do ya figger?
ole joyful
This thread ended nearly a year ago. This new comment is unrelated and might have been better in a new thread.