How do spendthrifts *survive*?

[amberfocus]

I know that most people on this forum are either saving, or trying to save money to plan for the future.

I also know that most people I know (off-forum) are *not* like this. At all.

Which leads me to wonder... What *actually* happens when these spendthrifts get older and reach retirement age? When they are still in debt and/or have no money saved for retirement? I mean, this may seem like a silly question, but they can't possibly starve to death, or drop off the face of the planet. They must be making it (or not) somehow, right?

So are they unable to retire? Do they become reliant on Social Security, and the charity of family and friends? Or do they not actually *need* that much money saved? Is the situation not all that dire, and they can still get by and be "fine"?

What are the real consequences of not saving for the future?

~mimi

[Broken Arrow]

I often wonder about this as well. What I can say is the following:

My ex's grandmother is still alive, in her 80's, and surviving on nothing but Social Security in a broken down trailer. Fortunately, she seems fairly content nowadays, living out her simple life.

I also know two co-workers who are past retirement age, but they continue to work, and even put in as much overtime as they can get it. One even skipped out on paid vacation, because they could not afford the regular rate that vacation time pays. Instead, he opted to come in to work for overtime.

By contrast, my parents have been prodigious savers and are quite frugal, and now, they're talking about retiring early, possibly before they hit their 60's.

From what I can personally see, YES, there are most definitely real life consequences for those who don't learn to save for the future.

[cschin4]

The real consequence is that they will form a Political Interest Group and find a way to tax the savers and investors out of the money they rightly earned.

[disneysteve]

We've just been discussing this over at another site I frequent. Our conversation was spurred by the PBS Frontline show on the retirement crisis. You can watch the whole episode online here:
http://www.pbs.org/wgbh/pages/frontl...tirement/view/

To answer your questions, many people will simply be unable to retire. They will work until they are physically unable to do so or they die. I have many patients who are still working full time jobs in their 70s and even 80s because they otherwise couldn't afford to live on SS alone.

Others will end up on some degree of public assistance.

Reverse mortgages are going to be big business. All those folks who overextended themselves to buy McMansions rather than saving for retirement will find themselves house poor. Some will sell their homes and downsize but many will insist on remaining in their homes and tapping the equity in the form of a reverse mortgage.

Many will depend on their adult children to help them get by, even by moving in to reduce their living expenses.

The "funny" thing is how people adjust their mindset to match their reality. It is quite a good coping mechanism, I suppose. Rather than looking forward to retirement and leisure, as people used to, they are now talking about how they don't "want" to retire. They want to keep working to feel needed and productive.

[Ima saver]

One of my good friends is 62, her husband is 64. They always spent like there was no tomorrow and never saved anything. They have changed jobs so often, so they have nothing coming to them but social security, no ira's either.
They cannot ever afford to quit working. They just bought their first ever home ($85,000) so they have no equity in that either.
I think she thinks I will help her out and support her! She does have 4 children, so perhaps they will help her. (but they don't save either)

[disneysteve]

Originally Posted by Ima saver

They have changed jobs so often, so they have nothing coming to them

One fact they gave in the Frontline special was that 50% of workers cash out their 401K money when they change jobs. So even people who were saving don't stick with it. When given the opportunity, they pull out the money and spend it.

[Ima saver]

That is true. I am sure they have had jobs with 401s, but they always needed the money, so they pulled it out. They never lasted at any job for very long. They just live paycheck to paycheck. They had one job that paid very well, $42,000 but all of their expenses were paid. I mean everything but their car. They got their apt., heat, lights, a/c, phone, food , medical,tv, internet, newspaper, etc. The only thing not covered were personal things and their car.
I really encourage them to save almost all that they made, but of course they did not!

[creditcardfree]

They survive on the assistance of others, whether it be family, friends, churches or government.

I think my incentive to save is driven by the fact that I'd like to have some control of my future. I'd rather save for retirement and know the money I save will provide me choices in my retirement. Reliance on others will not provide me those choices.

[Ima saver]

That is treu. I forgot how much they relyed on their church to pay for everything and the church did. My friend's husband got sick and did not work for months. The church paid all their bills, rent, etc, plus a $200 a month phone bill.(before cell phones, now they each have a cell phone)

I'm glad my husband and I have started saving for retirement. He is self-employed so we had no money invested through an employer. We met with a financial advisor about six months ago and have started putting money away for retirement. Yeah! We have been putting a little extra in-he would love to retire early. So even though we're nearing our 40's it isn't to late to start saving!

[pearlieq]

I worry too. My grandma lives at an assisted-living facility. She signs her SS over to them and is allotted $90 per month for personal expenses. She has healthcare through medicare and the VA. She survives by living very simply and with her kids helping out with expenses and transport. I don't know what she'd do without that.

[greedy4chips]

My grandparents lived off the farm and spent very little money outside of the farm for clothes, utilities, and extras we all think of as necessities like cell phones, movies, dinner out, etc.

They did however save for retirement and did alright for themselves until they we in their late 80's when they passed away. This was because they maintained a very frugal lifestyle in their retirement years, since this was their way of life.

My generation will have to have lots more saved to cover all of our 'Necessities'.

Reverse Mortgages are one of the truly horrible retirement plans that I hear so many people mentioning when you ask how they will get by financially. What happens if you outlive your reverse mortgage? It does happen! Plus you sold an asset, lived in it for 30 years and lost all of that appreciation had you had other investments.

I also believe there will be a tax consequences for the rest of us earners when all the non-financially stable baby boomers retire...not all baby boomers are financially unstable! There will be a huge push to create some sort of safety net for these folks.

[markio26]

the future is unsure for everyone... we just save and hope for the best... we kinda stick to ourselves lately, same pals, family, etc... no newcomers with crazy ideas like live for today.. don't worry about tomorrow.

[disneysteve]

Originally Posted by greedy4chips

What happens if you outlive your reverse mortgage?

Reverse mortgages generally require no repayment for as long as you continue to live in the home, so it isn't possible to outlive the mortgage.

If you take a lump sum payment, you could outlive that money, if that's what you meant. But if you take the reverse mortgage in the form of a monthly payment, those payments would continue for life.

[greedy4chips]

Originally Posted by disneysteve

If you take a lump sum payment, you could outlive that money, if that's what you meant. But if you take the reverse mortgage in the form of a monthly payment, those payments would continue for life.

I actually did mean the monthly payments option. I through in some numbers of 200k home value and born in 1945 into a reverse mortgage calculator and it said I could get $558/ month payment for life...whoopee, big deal. Say I live 50 more years until I was 111. That means I collect $335,000 over the next 50 years ($558/month * 12 months/yr = $6696/yr).

On the other hand if I sold my house outright for $200k and put it in one of those fancy CDs at 5.25% I would earn only $10,500/yr or an additional $3804/yr for life and still have my $200k in principal.

If however I do not borrow more than $200000 before I die my family will get the proceeds from the sale of the house minus any money borrowed versus the whole $200k in CDs.

What a swell deal.

[disneysteve]

Originally Posted by greedy4chips

On the other hand if I sold my house outright for $200k and put it in one of those fancy CDs at 5.25% I would earn only $10,500/yr or an additional $3804/yr for life and still have my $200k in principal.

But where would you live? That extra $3,804/year isn't enough to pay rent or mortgage payments.

By no means am I defending reverse mortgages. I think they are a lousy deal, but I also think we will be seeing more and more of them due to all the people that reach retirement without adequate savings.

[Ima saver]

I don't like them either! My girlfriend's mother who is 85, lives in one of those low rent housing places for senior citizens.

[kealina]

sorry for the coming rant but i worry too... mostly about MIL right now and SIL in the future... MIL is in her 50's and despite having a pretty good job (federal which has good benefits and ok pay) is still always paying off debt only to charge some more and then complaining that she doesn't have any savings and can't afford her rent going up...

then she goes out and spends on stuff like
$60 for something for some co-worker who isn't a friend
$15, at least, a day on fast food
$100 on dinner out with some family members (we refused to let her pay for us and chipped in $20, which covered our $10 entree and more...so $80)
$200 each on matching D & B purses for me and SIL that i didn't even want for christmas...

SIL kept hers (and barely uses it, doh) and i returned mine for credit...
DH returned the shirts she bought him (he doesn't want more clothes until he reaches his weight goal and she ignored that) for another $100... we had $300 credit from her x-mas presents alone... we used some of the credit for things like make-up (for our wedding), a dress (80% clearance) that i wore to a dress function i was in charge of, a small gift for her, and then ended up giving the rest of the credit back to her since we knew she would keep shopping there anyways...

*sigh* and no, these aren't isolated examples. she is always spending like that... it's crazy...
she doesn't have much of savings or an IRA that i know of. i have no idea what's going to happen when she gets older and retires but you know for sure that we won't be funding any spendthrift behavior.

DH and i have talked about it and we think we may help but we'd insist on some control because we don't think it's fair to spend while we save and then expect us to shell out so she can keep spending...

worse, we're pretty sure in predicting that everybody is going to expect us to shoulder any burdens as there is basically only DH and SIL... MIL's other family are all passed away or undependable... and SIL, following in MIL's footsteps, is a major spendthrift although neither will admit it... they are "living life"...

sorry guys... i think this is one of my sore points as we don't ask for money, paid for our own college, our own wedding, etc... we work hard to make sure we aren't a burden to anybody and go out of our way to help with whatever they need and still this stuff happens... I've been forced to repeat "you can only control yourself" and "you can't change them, it's their choice"...