retirement money

[LivingAlmostLarge]

These boards, bogelheads, FIRE boards are obviously outside the norm. I am starting to realize it when I was listening to my neighbors talk about their retirement. They feel they have a lot over $100k but I say nothing being in our 40s and I want to ask how do you plan on retiring? I know the rule of 7 where the balance doubles every 7 years but college years and more spending, living better is all coming up. And if you aren't saving a ton, this is people who could have been saving for 20 years then it doesn't seem like a lot. I realize more likely people just started 10 years ago so 10 years of saving after age 30 because they got married, had kids, bought a house, then started saving for retirement it's a lot.

But I also think in general people save up to the company match and that's it. People don't typically just max out their retirement savings. They don't just toss $20k a year into retirement and more. They make enough to do it, but so many people just save say 5-6% and call it a day. That on top of having CC debt (usually under $10k), car loans, student loans, etc. Talking about owing a $1000+ on car loans and having some CC debt which they pay off each year. I'm realizing that people don't really save a lot of money.

Have you noticed this as well?

[disneysteve]

Nothing new there at all. Most people are normal. Normal is broke. Normal is carrying some 5-figure amount of consumer debt plus a mortgage. Normal is a personal savings rate of about 5%.

I have no idea what all of these "normal" folks are going to do when they can't work anymore.

[kork13]

I think many people look at retirement & say "that's 20+ years away, I have plenty of time." They presume that they'll be working until 65-70+ (perhaps to the very end). That Social Security & their minimal savings will cover their needs. Those can be somewhat daring assumptions.

Realistically, it IS feasible, IF those assumptions work out. The average retiree couple today lives on about $50k/yr. SS can probably provide a couple with ~$3k/mo, leaving just over $1k/mo for savings to cover, which can be reliably be done with just $300k in savings. Especially if their home has gotten paid off over the course of the last 30+ years, that can be a totally reasonable & acceptable retirement QoL. Now, is that the retirement dream that most folks envision? Probably not. But it's entirely workable.

Where the challenge comes in is when plans don't go according to those assumptions. What if injury/illness/economic downturn knocks you out of your profession in your late 50s or 60s? What if you never get that home paid off, and you walk into retirement with a $1000/mo (or higher) mortgage? What if one spouse dies significantly sooner than the other, and you end up reliant upon half of the expected SS amount? It's all of those "what if" situations (which are many & diverse) that will turn such poor preparation into a precarious situation.

So a more practical target for anybody should be to save up at least $1M (today's dollars) by the time they retire. That, plus one person's SS check, should be enough to sustain retirement over the long term. Below that, you basically just start accepting a variety of risks, and have to hope for the best.

[bjl584]

Nothing unusual. I know a lot of people in their mid 40's who live paycheck to paycheck and have nothing saved for retirement.
I have no idea what they are going to do when they retire (if they ever even can)

[jenn_jenn]

I hope this doesn’t come across as flippant but…our general philosophy is to not care what others are doing. I really have no idea what our neighbors do or don’t have and I don’t really care. We just worry about us.

If that’s how they want to manage their lives, good for them. More power to them. However, I’m not interested in living that way and so I don’t/won’t.

[disneysteve]

I hope this doesn’t come across as flippant but…our general philosophy is to not care what others are doing. I really have no idea what our neighbors do or don’t have and I don’t really care. We just worry about us.

I agree in general terms, though I will certainly admit to being concerned about specific people close to us and wonder how they will manage in the future. It isn't my problem. We aren't going to support them or be responsible for the decisions they've made, but they're people we care about so we are concerned in that regard.

[LivingAlmostLarge]

I'm more surprised that people aren't saving. They make good money and seem to be reasonable people. Not super spendy not super outrageous trips or cars. It doesn't seem like the joneses we talk about. But what the heck are they spending their money on? I ask that most seriously? Where is it going if it doesn't seem super flashy expensive cars and stuff?

[kork13]

But what the heck are they spending their money on? I ask that most seriously? Where is it going if it doesn't seem super flashy expensive cars and stuff?

Stuff. Literally just stuff. It's super easy to burn through hundreds or thousands of dollars every month without realizing it if you don't pay attention. It's seriously death by a thousand cuts. Spend more on high-end groceries, constant stream of Amazon boxes at the door, clothes shopping when you're bored, eating out because you can't be bothered to cook, and generally just not being cognizant of all the little things you're spending your money on.

Honestly, my wife has gotten terrible about all this while I've been deployed so much the last couple years. It's not been a big problem only because (a) our living expenses are overall very low; and (b) we earn a strong income & save half of it. Once I'm not 2,000 miles away from home, I'm going to have to work with her to cut back on some of that lunacy. And maybe pull the plug on Amazon Prime, being too strong of a temptation.

[disneysteve]

I'm more surprised that people aren't saving. They make good money and seem to be reasonable people. Not super spendy not super outrageous trips or cars. It doesn't seem like the joneses we talk about. But what the heck are they spending their money on? I ask that most seriously? Where is it going if it doesn't seem super flashy expensive cars and stuff?

It’s not hard. Dining out. Cable and streaming services. Kids’ activities. Leasing cars or buying new and replacing every few years. Hair styling. Lawn care. Cleaning service. Private school. The list goes on and on of things people spend money on that “prevents” them from saving more.

[myrdale]

I know people in their 40's who have saved nothing at all. Reality is going to be a head on collision with a log truck running 65 mph.

A quick google search list the number of people living paycheck to paycheck by income as:

<$50k, 77%
$50-100k, 62%
$100-150k, 45%
$150-$200k, 37%
>$200k, 32%

I am not sure of exactly what a good definition of living paycheck to paycheck is:

1) At the end of the month, you're broke, with no savings.
2) At the end of the month, you're broke, but have 1-6 months of savings.
3) At the end of the month, you've invested, you've got 3-6 months in savings, but you've exhausted your budget so you "can't afford" to spend money on stuff until next month.

I'm of the opinion that #3 should be the goal.

[disneysteve]

I am not sure of exactly what a good definition of living paycheck to paycheck is:

To me, living paycheck to paycheck means that you spend every dollar that you bring home. Nothing is going into savings. No retirement plan contributions. Nothing going into an emergency fund or other savings. All the money that comes in goes out every month. You might have money in savings that was put away previously but you are doing nothing to add to it and you might even be drawing from it because your spending actually exceeds your income.

[Fishindude77]

I've been an avid Ramsey listener for quite a while. A few things he says:
1. If you're doing the right things; saving, investing, paying off your debts, living below your means, etc. you are "weird" compared to the rest of society.
2. Look down you street and 7 out of ten neighbors are probably broke, living paycheck to paycheck. Out of the other three, two are in pretty decent shape but don't have near enough for retirement, and only one is financially solid.
3. 7 Out of 10 Luxury cars are leased, the drivers will never own them.
4. Over half of retired folks are still carrying a mortgage.

I'm 62 and have quite a few friends and acquaintances that I'm sure have very little if anything saved for retirement. I'm sure some of them will wind up in subsidized, income based housing living off their small social security incomes. Some have always worked for under the counter income, off the books construction work, etc. claiming to be independent contractors. They've paid very little in, so will have very little SS.

[james.hendrickson]

I've been an avid Ramsey listener for quite a while. A few things he says:
1. If you're doing the right things; saving, investing, paying off your debts, living below your means, etc. you are "weird" compared to the rest of society.
2. Look down you street and 7 out of ten neighbors are probably broke, living paycheck to paycheck. Out of the other three, two are in pretty decent shape but don't have near enough for retirement, and only one is financially solid.
3. 7 Out of 10 Luxury cars are leased, the drivers will never own them.
4. Over half of retired folks are still carrying a mortgage.

This is a) probably accurate and b) blows my mind. How heck in a modern economy is the general public's personal financial situation so precarious?

[LivingAlmostLarge]

Do you really think 70% of the population is living paycheck to paycheck? And that 2 are in decent shape without retirement? I would guess more like 50% aren't in paycheck to paycheck but that 4 out of the 5 save only the match for retirement. I feel like many people save into a 401k. They just do the match. And when asked they would never consider hitting the maximum. I do know one couple is pretty solid but they have lived below their means for a long time.

[kork13]

Do you really think 70% of the population is living paycheck to paycheck? And that 2 are in decent shape without retirement? I would guess more like 50% aren't in paycheck to paycheck but that 4 out of the 5 save only the match for retirement. I feel like many people save into a 401k. They just do the match. And when asked they would never consider hitting the maximum. I do know one couple is pretty solid but they have lived below their means for a long time.

Mr. Ramsey often errs toward the exaggerated & bombastic (presumably for entertainment value), but the bottom line is generally on the right track. I do agree that 70% check-to-check seems high, and the statistic may be a misinterpretation of the data. Sampling error plays a role as well, on both sides -- you probably don't associate extensively with devastatingly poor families (you likely interact more with folks who are doing okay, but not great), while survey data may be skewed by wealthy/financially secure families being unwilling to respond to surveys. That's why reliance upon statistics is always a bit of a gamble. But 'regression to the mean' tells us that the truth likely lies somewhere in the middle.

This is a) probably accurate and b) blows my mind. How heck in a modern economy is the general public's personal financial situation so precarious?

As to James' #b question: I argue that it's largely because money, finances, and financial security/insecurity remains a taboo topic within families & our society. Most schools/colleges still don't teach basic financial concepts, nor do parents (because they never learned it themselves). Having financial struggles or successes are both shameful topics to discuss. Meanwhile, we just string people along with handouts whenever they get into trouble, never taking the time or effort to fix the core problem of IGNORANCE. It's not an attack on folks who get into trouble -- it happens to the best of us. But when we help someone out, for crying out loud let's at least teach a man to fish while we're also handing him a fish to get him through today.