Savings, Debt and Retirement

[Chaldanya]

I'm just curious, for those of you who have children, do you set aside any savings for them? I only ask because my parents did for me (until I turned 18) and knowing I've got that to fall back on in an emergency is somewhat comforting. Its not a fortune by any means, just whatever they could afford to put away each month from their wages, but its nice to have something there if i need it.

 

Yes, I do.  As soon as the little was born I opened an account that can only be touched by him when he turns 18.  We put in a small sum every month and also half of what he gets as gifts for B'day and Christmas.  It won't be a stupendous amount of money (unless our fortunes change and we're able to significantly increase the amount we put aside every month) but it will hopefully help set him on his path no matter what he chooses.

 

N

[Whitestripe]

I'm just curious, for those of you who have children, do you set aside any savings for them? I only ask because my parents did for me (until I turned 18) and knowing I've got that to fall back on in an emergency is somewhat comforting. Its not a fortune by any means, just whatever they could afford to put away each month from their wages, but its nice to have something there if i need it.

I'm saving for the kids' college funds, but not anything else specifically. Both of my children were given some bonds by grandparents/great aunts upon their birth. I am sure they won't amount to much, but they are socked away until adulthood, nonetheless. My parents paid for undergrad and gave me a car upon graduating (and getting married) then wished me well. It was enough for them to give me a debt-free start. My husband's parents gave us the remainder of his college account (several thousand dollars) as a wedding gift twenty-plus years ago. They called it a "nest egg" and we always thought of it as such. We had to use a small portion of it at various times during the grad school years (we went back to back and things were tight) but the bulk has always been either invested or in savings.

I understand that I am extremely lucky in my parents' (and in laws') generosity. Both sets of parents came from very humble backgrounds, and while they want to do better for their children, they have also drilled into us the value of fiscal responsibility. I hope to give my children the same tools.

[Greywolf2375]

I've been saving in my company 401k since I was eligible - 21 years ago.  There have been a couple times when I have had to borrow against it and it has made me want to kick puppies.  I put away 7%, get a full 6% match and have a company pension.  My wife had started a few IRAs and a SEP when she was self employed, but never really put anything into it.  Now that she is in the corporate life, she is putting away 10% with the same 6% match - some portion of that is ROTH as well.

 

I've also been putting $100 every two weeks into a savings account for a few years, it just passed $8k and is inaccessible unless we walk into a branch to get money out.

 

We did have to live very frugally for a long time before my wife got a full time job - since she has been employed we've been very lucky to be able to put away the money we wanted, get the extra savings for the munchkins future going and be able to enjoy things a little more.

 

I remember when I started in financials services in '94 I saw an article that more than 50% of people over 50 had les than $50k saved for retirement.  If you're lucky enough to have a company match, unless it's dire circumstances it's free money - take advantage of it whenever you can.

[Fez]

Credit cards can be downright evil. I have known quite a few people who dug very deep holes for themselves with those little plastic shovels. For a very long time, I had one credit card, for emergencies and the occasional online order. As of late, with considerable reluctance, I obtained a second for work related purchases (gasoline and vehicle repairs).

 

Key phrase being "can be" though. I put absolutely everything on my credit card, unless there's an extra free involved, like my rent, and then pay my entire statement each month. I never pay any interest and I'm earning a few hundred dollars a year in cash back rewards; which get deposited straight into my checking account. Its literally free money.

 

 

A pension higher than retirement salaries would be extraordinary. A very generous pension would be 75% of the average of the last 3 to 5 years' salaries.

I suppose that if a pension was fully indexed with high rates of inflation a few decades ago, the pension could fairly quickly surpass the last years' wages. That's something you should look at when you do your research - how often are pension increases made, and on what basis? Every year, every three years? For the full amount of inflation, or only if exceeds a certain amount?

 

Its been changed multiple times for newer hires, but I know that New York state employees who started around 20 years or more ago will receive pensions of something like 75% of their highest year's salary if they stay with the state for at least 25 years. However, there are COLAs, these pension benefits are not subject to New York state or local taxes, and the state will pay for a certain amount of retirees' Medicare premiums based on how much sick leave they have stored when they retire (If you have enough, the state pays the entire amount). Also New York is not one of those states where state employees are opted out of social security.

 

So for people who started working for the state prior to around 1995*, its pretty easy for them to end up having pension benefits greater than their salaries. Of course, newer employees don't have nearly as generous benefits, since the state realized just expensive this was going to be. But every time a cut has been introduced, its only been for future hires, never for people already employed. So its fine, no contracts were broken.

 

*And for employees who started back in the '70s or '80s, its even more generous.

[mashiara]

This thread is really depressing and I just don't know why I read all this. Now I feel even worse.

 

No debt. We own the house, we own the car, no credit card debt but for a few more payments on the boys' bunkbeds and such. No savings whatsoever. What little there was evaporated over the last couple of years and with the country and the economy the way they are, with my salary having been reduced more than 30% in the last few years while taxes and cost of living have increased, odds of us being able to save anything are non-existent. I will be collecting some sort of pension when I retire since the money is automatically deducted from my pay, but that amount will be laughable, as things are now. I try not to worry about it too much. Worrying about our expenses on a monthly basis is frustrating enough as it is.

 

My biggest regret, being unable to save for the boys. If there was any money to put aside, it would go for their future. But there isn't. :(

[Greywolf2375]

saving for kids:

 

Yes - my parents started savings accounts for us and got us interested in "investing" by letting us choose a stock to buy when we were very young.  Helped build an understanding of how money works, immediate gratification v. long term, etc.

 

We've done the same thing for Jack.  He will "help" with laundry and the deal is he gets to keep the change he finds in the machines.  Now he knows "5 moneys", little too young to  know the various values but does understand that those shiny circles and pieces of paper are what let us get food, games, etc.  He's got a couple piggy banks and I'm going to start something for him - 529, savings acct, something so we can build specifically for his future.

[HexMachina]

 

Yes, I do.  As soon as the little was born I opened an account that can only be touched by him when he turns 18.  We put in a small sum every month and also half of what he gets as gifts for B'day and Christmas.  It won't be a stupendous amount of money (unless our fortunes change and we're able to significantly increase the amount we put aside every month) but it will hopefully help set him on his path no matter what he chooses.

 

N

I'm sure he'll be grateful for whatever you have saved for him. :) Putting in christmas/birthday money is probably a really good idea too, because I know for me at least, I would always spend it on rubbish that I didn't really need and would have lost/thrown away within a few months.

 

 

 

 

My parents didn't do that that I'm aware of. My Mum has the equivalent of a small copse in handwritten notes on her finances though, almost down to the last pound. Thrifty doesn't even come close. Crazy, maybe.

 

However, when my Nan passed away she did leave me some money that acts as my buffer, for which I'm really grateful. I like to think I'd never be overdrawn, but thankfully it's a problem I don't have to worry about.

My Nanna also has numerous books with scribbled notes about her finances. Unfortunately she doesn't trust the banks and keeps the majority of her money in the house too :rolleyes: Though we've at least got her to keep her bill money in the bank for direct debits now, so that's something at least.

 

Ugh, overdrafts. I'm overdrawn already and uni hasn't even started back yet. Luckily its interest free and I'm only overdrawn because my rent came out before the student loan payment. But even so, depressing as hell.

I understand that I am extremely lucky in my parents' (and in laws') generosity. Both sets of parents came from very humble backgrounds, and while they want to do better for their children, they have also drilled into us the value of fiscal responsibility. I hope to give my children the same tools.

Same here. My parents didn't go overboard with my savings. They just put aside whatever they could afford to. Some months it was less than others.

 

As I said, I feel very fortunate that they were able to do even that much for me. I'm very much aware that others cannot afford to do so.

[Tears of Lys]

Key phrase being "can be" though. I put absolutely everything on my credit card, unless there's an extra free involved, like my rent, and then pay my entire statement each month. I never pay any interest and I'm earning a few hundred dollars a year in cash back rewards; which get deposited straight into my checking account. Its literally free money.

 
Same with us. We get gasoline and restaurant gift cards. I suppose there's an option for straight depositing the cash-back too. American Express and MasterCard are the cards we'll use. My husband has even written out a slip for me to use on what card to use for what kind of charge. He really enjoys that stuff! :lol:
 

This thread is really depressing and I just don't know why I read all this. Now I feel even worse.

Your boys will love you just the same, Mash! :grouphug:

It's very understandable how circumstances can make it impossible to save. Just having no debt is a major accomplishment.

[baxus]

My girlfriend and I save between 1/3 and 1/2 of our combined income.

It would be more accurate to say we put that much on the side, since we usually dip into that for things like vacations and things that come up.

At the moment, we're using it as a budget for our upcoming wedding and later we'll save for this big trip to Dubai to visit my sister and her boyfriend in Dubai and all four of will then go to Thailand/Maldives/Bali or some other seaside location.

 

We don't have student loans to repay.

We do have some payments left on our credit cards, but so far it was never a problem since we do pay our bills on time and pay no interest on those expenses.

The only major debt we're in is mortgage on our apartment we bought 2 years ago, but that's going as planned so far and we plan to pay most of it before it's due and reduce our expenses that way.

 

No kids at the moment, when they come we'll obviously have to rethink our finances but until then this way works great.

[Iskaral Pust]

Trisk - absolutely participate in and contribute to that defined benefit pension plan.  You're very lucky to have one.  Unless you're working in the public sector you are fully vested after 5-7 years.  If you leave that job early, they will cash you out with interest and you can roll it over to an IRA.  If you stay a long time, say 7+ years, then you'll always have a monthly annuity waiting for you when you retire.  If you stay there 20+ years, it will be enough to take care of you for the rest of your life (with SocSec on top).

 

Chataya - have you looked into taking a loan from your 401k to pay down the credit card debt?  I'm always wary of loans against 401k but it might be a good solution here because the interest would be much lower and you are paying the interest to yourself rather than to Amex or Visa.

 

 

I don't save for our son beyond his 529 plan for college.  But considering I'm already used to paying $25k a year for private school (I need to take deep breaths as I type that), when he is in college and in his first few penurious years afterward, I'm planning to continue some similar level of support for a little while.

 

 

Let me enjoy a petty rant for a minute: whenever your income grows, you always end up spending it on stuff that didn't seem all that necessary when you could not afford it.  Chicago Public School system is a bit of a disaster but the public school for our district is apparently one of the best (to the point where many families are lying about their address in order to attend).  My son's private school is very nice, but it's not so much nicer that I could justify it being worth a family's mortgage payment.  But because we can afford it, it would seem like parental neglect to not send him to the best school we can afford.  We self-impose this weird escalation of expectations that consumes all the progress you make.

[Frog Eater]

I don't save for my kids, other than their Coverdell accounts. They both have bank accounts that we deposit any money they receive for Christmas or birthdays into. 

[Fragile Bird]

Just double-checked, and 50% does seem to be the max possible, and you probably have to work to age 60, but you're still eligible for SS (assuming it's around), and there's still that 401(k)-esque thing too.  Seems like it might potentially not be too bad if one were able to make it all the way and if one got a good salary going at some point (this place does your best salary years rather than your last though of course it's possible those could be the same). 
 
Hell, if one did end up making it all the way and getting a decent pension I could even envision wishing one had spent more money during their good years rather than putting any money into the 401(k) thing though I suppose that's blasphemy.

Ha ha, Trisk, that's exactly what people with good pensions do. There's a reason why, for example, when Canada goes into a recession the travel industry goes into a dumpster everywhere except the nation's capital region, Ottawa. All those civil servants say, oh, look at the bargains! And they need the break because they are processing all those complaints from across the country from people going bankrupt or starving because the government cut back on benefit payments or made them almost impossible to claim. The poor dears get depressed.

And don't get me started on the topic of public employees, early retirement with full pensions, full COLA benefits etc etc etc.

[Guest]

Iskaral - Just to clarify, the defined benefit plan is not optional.  Everyone has to contribute, but you don't become eligible unless you stay there at least five years.  But it's kind of a forced savings devise like social security. 

 

Then there's an optional 401(k) type thing separate from that but is not matched by the employer.

[Dr. Pepper]

Ugh.  This thread depresses me 

[Iskaral Pust]

Iskaral - Just to clarify, the defined benefit plan is not optional.  Everyone has to contribute, but you don't become eligible unless you stay there at least five years.  But it's kind of a forced savings devise like social security. 

 

Then there's an optional 401(k) type thing separate from that but is not matched by the employer.

 

Good.  Some pension plans are opt-in only, and they try to nudge you to the alternate.  You vest after five years but you have to be eligible within one year of hire.  Eligible means entering the plan and starting accruals, vesting means getting to keep the employer portion of the benefit when you leave employment.  You always get back your own contributions plus interest no matter how early you change job.

 

I assume you have a 403(b) instead of a 401(k), and probably TIAA-CREF funds (absolutely trash).  Even without a match, it's a good idea to do some pre-tax saving in that plan if you can afford to.

[Ded As Ned]

I save 6% in a 401k, my company matches half (so 9% goes in total).  I make a good enough income and put back as much as I can monthly, then every month most of what I've saved I pay into the principal on mortgage or car loan on top of the normal payment.  I hate debt (more precisely, I hate paying interest, even though my rates are fairly low), so I'm trying to get those paid off as quickly as possible.  I'm a single dad of two boys so I don't have a huge excess of cash.  I'm also putting $200 month ($100 per kid) into a savings plan for the boys' college later on.  I keep a small savings for Christmas shopping, one vacation a year, and small emergencies like car repairs and such.  We live comfortably enough. 

[Marcus Agrippa]

Oh, this thread is needed o every website. 401k plans are good-but today they're just a start for the current working generations. Stocks- mainly etf's and commidities should be considered future investments. We don't know how far we can push life. The next 20 years could very well could make people live till we're 85 or 90 as the average age. We gotta start looking at the big picture.

[Rorshach]

I've not worried too much about pensions so far, given that I live in Norway and we have what atm amounts to a nice, public pension. Will probably have to work longer than my parents, and I know I really should look into this stuff (as there may be changes coming up), but so far I haven't had the will to enter into it.

 

Economics are scary - or boring - or both. It's evil that it's neccesary.

[Whitestripe]

I assume you have a 403(b) instead of a 401(k), and probably TIAA-CREF funds (absolutely trash).  Even without a match, it's a good idea to do some pre-tax saving in that plan if you can afford to.

What's wrong with TIAA-CREF funds?

[Iskaral Pust]

What's wrong with TIAA-CREF funds?

 

High fees for bad performance, which is the same as for any bad funds.

The special thing about TIAA-CREF is they have a virtual lock on some sectors of the market -- some public sector DC plans and a lot of non-profit 403(b) plans (mainly people working in education) -- by virtue of institutional relationships rather than any scrutiny of merit.  So a lot of people who work in education don't have any alternatives available to them.  Monopolies rarely encourage good performance or low fees, unfortunately.