Savings, Debt and Retirement

[brook]

I have a pitiful amount in retirement savings (that I won't be able to access until 70 or so). Without a dramatic and unexpected change in my circumstances I'm unlikely to be adding any more to that anytime soon.

I save a small amount, I could save more but honestly the money I 'waste' is what makes my life at all bearable, I don't think I'd even be likely to make it to retirement without it.

On the upside I will very shortly have no debts (also no assets).

ETA no debts except higher education contribution which it is extremely likely I will never have to pay back.

[Ormond]

I have always rented and never owned a house (or condo) because I have never been the sort of person who liked any sort of domestic chores and didn't think I should own a house when I was single -- and I've unfortunately never found a partner.

 

I got a late start in saving for retirement -- only did that around age 36 because of various issues that led to me not getting my Ph.D. and a good full time job until I was 35. However I am lucky that I have had an employer who matches my retirement plan contributions up to 8%, and I've always taken full advantage of that. So I was having the equivalent of 16% of my salary put into retirement savings from about age 36 and have gradually increased that -- today at age 64 I am contributing 14% of my salary to retirement and so that's the equivalent of 22% with the matching.

 

I tell people I am planning on retiring between 2 and 4 years from now but that really depends on what advice I get from the retirement plan people when I consult them within a year. 

 

I also usually save a bit beyond the retirement plan every year -- in 2009 I bought my latest automobile (brand new) for cash with my savings and so have no regular car payments (other than insurance.)

 

But I know I'm very lucky -- my entire student loan burden was $500 (obviously that would be more today, but even if it was ten times more it would be less than I know most college students carry today) and the rest of my undergraduate college tuition was paid by my parents and a small scholarship. My graduate school expenses were taken care of by a teaching assistant's salary and living very frugally (For example, I never owned a car until I was 35 and finally got my Ph.D.). 

 

Oh, and I've never carried any credit card debt. I have a hard time understanding my friends who have loads of credit card debt which has been generated from discretionary purchases. I know there are people who end up carrying lots of debt on their cards as a side effect of major medical expenses, etc., and I don't blame them -- but people who run up credit card debts just to buy clothes or furniture or other "stuff" that's more than they really need puzzle me. 

[mcbigski]

 

That's far too late to start.  Even with low investment returns likely in the next couple of decades, it is still necessary to start early to accumulate compound returns for longer.

Even starting at 40 is too late.  Start as early as student debt allows, no later than 30, and at least contribute enough to get the maximum employer match.

 

I'm guessing you've seen the illustrations comparing saving from age 25 to 35 versus 35 to 65?  With a reasonable historic rate of return, (not perhaps what you were forecasting above, but still...) you'd be better off saving 20% of pay from 25 to 35 and then just spending all of your current employment income until you turn 65, than you would be delaying savings until age 35 and then saving for an additional 30 years!

 

Sounds like voodoo to the folks who haven't thought it through, but in the early saver case, at some point the compounded investment returns out pace what ever make up contributions you could handle starting later would be.  The actual ages would vary with assumed interest rate, but really, if you aren't saving 20% of your income right now, you're doing yourself a long term disservice.  

 

 

My employer has a 401(k) equivalent (or the non-profit version) that they do not match.  But there's also a pension which everyone has to pay into.  Not sure if that's better or worse, but the pension sounds pretty attractive to me.  It's not insanely generous, but one tends to make half of their peak earnings annually in retirement if they worked there for a big chunk of their career, and kind of like social security you can get it earlier if you're willing to take a less generous version.  You can also take the lump sum option, but there's a new tier to the system for newer employees, and I guess there's no lump sum option for them.

 

 

Sounds like a final average salary plan, 50% is actually very generous, and a shockingly huge benefit, assuming you stayed there your whole career, and they don't freeze accruals at some point in the interim.

 

Of course, the non-profits have nothing compared to the government cheese, where you can get all that plus an annual cost of living adjustment in retirement (and potentially buff the average with overtime in the last few years).  Probably need to invest your 401(k) in equities for the next three decades or so you can use that to cover inflation in retirement.  (again, assuming you can accrue that full pension benefit.)

 

I save 12% of my pre tax earnings in my 401(k), the company puts in 5%. I know I should be putting my money into a Roth instead of the 401(k), but I still use my 401(k). If I continue to put in 12% of my pay, continue to get 5% pay raises, and get an 8% annual return from the market, I will have a million bucks when I retire at 65. And it wont be near enough. 

 

I also save for both my kids college through Coverdell Education IRAs I maintain at TDAmeritrade, I am able to buy individual stocks and Mutual Funds and the accounts have no service fees. My oldest daughter also has a prepaid tuition plan, that will provide her 4 years of tuition at a state school. 

 

I do a poor job saving enough outside of my 401(k). I know I need to do better. 

 

If your employer doesn't allow for Roth 401(k) contributions you need to ask them why not.  It's a pretty straightforward plan amendment to allow it, and you could do some of each and hedge your lifetime tax liability a bit.  

 

Surprised people are still using Coverdells. More flexible investment choices than 529 plans, but the contribution limits are so low.

 

All that being said, I target a 15% annual retirement contribution for myself, but being self employed, it's a bit of an inexact science until my CPA gets the rough draft of my taxes done.  I should finally be blowing throw the TWB this year, so I'm expecting that I'll have enough put aside to hit 15%.  (I put 35% of my gross into my tax/retirement account, (and have about 25% of my gross as schedule C deductions, before retirement contributions) and make my HSA contribution out of cash flow.)

[karaddin]

I've got a moderate amount of retirement savings and 16% of my salary goes into it, but I was given special dispensation to tap into it early to pay for my surgery so it went down a fair bit this year. That said after losing a bunch of the value in 2008 I've got it parked in government bonds which have returned 6-8% this year in Aus so it's recovered most of what I took out just this year.

I don't normally carry credit card debt but the unexpected medical complications following surgery have blown out this year costing probably close to an extra 10k, along with temporarily causing a substantial hit to my pay, so I'm carrying some at the moment which I intend to get paid off soon and then get some saving done. Not for retirement though, for a wedding trip!

Housing market in Sydney is stupidly inflated and I keep expecting the bubble to burst, but it seems awfully resilient. Getting into the market will be extremely difficult - even the literally worst suburbs in Sydney with terrible public transport and higher crime are basically 500k minimum. Something we would need in an area we want to live is over a million, so renting would appear to be the plan. The housing bubble is largely fueled by boomers investing, and kept inflated by government policies that really need to go.

[ThinkerX]

Said it in the other thread, might as well say it here:

I am the guy who bought land, built a house on it, and paid it all the way off over a five year period on the proceeds of running pizza around in rectangles (and sometimes triangles). No mortgage. Because the house is energy efficient, fairly low utility bills. When I hit a rough patch a while back, I was getting by rather comfortably on something like $500 - $600 a month.

I was going to build a rental (duplex) a few years ago, but reluctantly decided I'm simply not that tough anymore, and the proceeds not enough to make the project worthwhile. I tell myself now and again I might have enough left in me to build a cabin. Done right, a small cabin can be built very quick and cheap like.

Savings, yes. Consequence of low living expenses.

A few months back, I went from 'employee' to 'contractor' with USPS, which mostly means a pile of indecipherable paperwork and I get to foot the bill instead of the boss. In theory, I got a whopping raise, in practice, I may have taken a slight pay cut (lots of uncertainty at the moment.)

I figure SS will be my retirement should I somehow live that long.

And Wise Fool needs to go to the USPS site and submit his application for either custodian or clerk. As long as he remembers that a dead chicken is smarter than most of the upper level management types, he'll do fine.

[Fragile Bird]

Fuck this thread is depressing as fuck.

  

And Wise Fool needs to go to the USPS site and submit his application for either custodian or clerk. As long as he remembers that a dead chicken is smarter than most of the upper level management types, he'll do fine.

Ok?

[Tears of Lys]

To those of you who find it near impossible to save, you need to do this tonight:  Draw up a budget.   Write down your rent, utilities, average food outlay, student loan repayment - any $ figures that you know you have to pay each month.  Does it leave you anything left over? You can take a small percentage of that money for "entertainment." (Any budget that doesn't allow for some fun won't last long.) Entertainment can be something as simple as renting a movie or going to the dollar show. If you really need to make up your savings fast, then plan on making your entertainment bike riding or a picnic in the park. There's tons of free stuff out there to do.

Whatever's left over, you SAVE. Think of saving as another expense - only this time you're paying yourself. (Not yourself as in now-self, but future-self.)

My husband's father died at 54 and left my mother-in-law in dire straits (mainly because he thought he'd live forever AND work forever, so they'd continue to be well off. Well, that didn't happen, so my husband had it impressed upon him at an early age to plan for the worst. When I married him, I picked up - by osmosis - a good general knowledge of how to be a moderately successful investor. But the most important things I learned from him were 1. The glories of compound interest; and 2. It's not how much you make, but how much you KEEP. Plenty of people make very good livings, but (barring any catastrophes that occur) they can end up with nothing because they spent it just as fast as they made it.

Lastly, it's never too late to start saving, but the sooner, the better (see compounding interest above.)

ETA: And if you are in good health,but you just don't make enough, get off the damn Board and get yourself a part-time job, FFS.

[ThinkerX]

I have managed to accumulate a nice 401(k) balance, but am nervous about my credit card debt, which I am making a concerted effort to pay down.

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).

[Tears of Lys]

Doh!

[Lany Freelove Cassandra]

We used to save, til the crash.  We've used about 70% of our retirement now to avoid losing the house and may end up having to use the rest (but my fingers are crossed that that won't happen)

 

we'll just work until we die, then we won't care anymore

[A True Kaniggit]

Currently paying 20% of my paycheck into TSP. Other than my car note I don't have any debt, and that'll be payed of in 3 more months. Not really a big spender so most of what I earn just ends up sitting in the bank.

[Guest]

 

Sounds like a final average salary plan, 50% is actually very generous, and a shockingly huge benefit, assuming you stayed there your whole career, and they don't freeze accruals at some point in the interim.

 

Of course, the non-profits have nothing compared to the government cheese, where you can get all that plus an annual cost of living adjustment in retirement (and potentially buff the average with overtime in the last few years).  Probably need to invest your 401(k) in equities for the next three decades or so you can use that to cover inflation in retirement.  (again, assuming you can accrue that full pension benefit.)

 

I confess being relatively ignorant of pensions.  Haven't been at this place all that long and haven't done a lot of homework (thank you, thread).  Maybe I'm confused because I have heard of state employees from older tiers making more than their salaries in retirement from their pensions.  So compared to such a benchmark 50% really does seem kind of meh.

[Fragile Bird]

I confess being relatively ignorant of pensions.  Haven't been at this place all that long and haven't done a lot of homework (thank you, thread).  Maybe I'm confused because I have heard of state employees from older tiers making more than their salaries in retirement from their pensions.  So compared to such a benchmark 50% really does seem kind of meh.

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?

[all swedes are racist]

Most of my retirement is tied up in CDs, but as they are rapidly depreciating, I'm diversifying into a more vinyl heavy porfolio

[mcbigski]

Grrr.  Stupid touchpad and Scotch ate my post.

 

Shorter version.  My parents were both public school teachers in CT who retired with 70%+ of salary pensions..  10 years into retirement with 2-3% annual COLAs they are grossing as much as they made in their last year, afaik, and almost certainly netting more, since they don't have to pay the mandatory retirement contribution.  They retired at 62.  Pretty sweet deal all in all.

[Guest]

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. 

[DreamSongs]

Retirement plan:  5% into TSP and drop dead at the end of a shift at age 70.

[ThinkerX]

Pensions are evil, evil things that can easily bankrupt a company. Hence, their disappearance.

I've seen many pensions in my career, and the key word is "de-risk". So many people ignore how quickly the damn things can go south...and then you're stuck with the PBGC paying 70% of your expected benefit.

Or Congress passing laws to keep your multi-employer plan afloat in order to not bankrupt any companies and simultaneously keep it in Company hands and out of PBGC.

My understanding is stealing from pension funds is a major source of income for certain people.

[HexMachina]

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.

[deleted01]

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.

My parents never did this (they were on low-income, plus other factors), but my grandad put an amount into shares for his grandchildren. There's only 3 of us, so it gets split 3 ways. They gave me some while I was at uni, but I will gain control of an amount next year. I'm definitely more fortunate than others in this.

Re pensions - I'm not completely in the know on how ours work, but it seems fairly generous. Will have to check my paperwork again. I'll be automatically enrolled next month, my SO is already contributing. But we'll need to see if we can afford it, after our living costs.