Alternative ways of thinking of retirement

[Nika]

Everyone ran the financial retirement calculators numbers... Problem with them is that you have to assume important things we have no way of knowing - such as interest rates or inflation...

What if we ran predictions even rougher. For example, that if you invest X amount per month, 25 years from now, you will have at least X in today's purchasing power to spend. Yes, cost of living will go up, but your earning would have had 25 years of compound growth to at least match that.

So maybe it would help some people to think that way - that whatever they managed to put away THIS MONTH, will be handed as cash in hand to their elderly, living on Social Security selves. And that it would make a lot of difference in a month of that person. Maybe this is the better mindset for an average person than Vanguard calculators that tell them how far out of reach their goal is and it causes them to just give up and try not to think about it.

[sv2007]

Most financial calculators I've encountered on the net are way too optimistic with the equity market in my opinion based on my experience because when they compute probability, they use the normal distribution. I'm a conservative person, and I like my retirement plans to be on the safe side. Read up on fat tail distributions; many think it models the stock market better (e.g. brexit).

As for a different way of thinking, the safest is probably just assume a low return and keep a ready access to cash/credit. Anyway, that's how I'm living it.

[Nika]

The problem is when people assume a low return, it just reinforces their natural inclination to not deal with it at all. "It is impossible for me - so why bother?"

I'm looking for some way to motivate a very average, non-financially inclined person. Trust me, they won't be "reading up on fat tail distributions"!

[disneysteve]

Yes, cost of living will go up, but your earning would have had 25 years of compound growth to at least match that.

How I wish that were true. Earnings haven't come anywhere close to keeping up with inflation. That's a big part of the squeeze on the middle class. I've certainly experienced it personally. My income has been flat for years and years.

The problem is when people assume a low return, it just reinforces their natural inclination to not deal with it at all. "It is impossible for me - so why bother?"

I agree. If you run the numbers for someone and show them how much they "could" earn using a rosy return number, it's more motivating. If they don't achieve that number, they'll still be far better off than if they hadn't invested at all.

[Petunia 100]

The problem is when people assume a low return, it just reinforces their natural inclination to not deal with it at all. "It is impossible for me - so why bother?"

I'm looking for some way to motivate a very average, non-financially inclined people. Trust me, they won't be "reading up on fat tail distributions"!

How about encouraging them to take a look at the average SS monthly benefit, and try to imagine what life would be like living on ONLY that. Even a few hundred per month of additional income would be a substantial improvement.

[Koolmagicguy]

How I wish that were true. Earnings haven't come anywhere close to keeping up with inflation. That's a big part of the squeeze on the middle class. I've certainly experienced it personally. My income has been flat for years and years.

Even truer for someone in the lower/working class.

I'm lucky to see a 3% raise and that doesn't even match inflation, so effectively I'm working more for less each day.

Not to mention that if wages kept up with inflation the MINIMUM wage would be roughly $21.

I suppose you could argue that I should take out tens of thousands of dollars in student debt for a 4 year degree, but the unemployment rate of college graduates is nearly double the national average.

Well, why not a 2 year certificate from my local trade school? I have looked into it. I was going to go for phlebotomy - until I looked up job postings. One opening in my city for 13 hours a week (4 separate days) and one other part time job (30 hours) 40 miles away in a neighboring state. Then I looked into plumbing and electrical engineering. Both start as apprentices for a couple years earning $13 an hour. At $13/hr I would be taking home as much as I am now, because currently I can get Medicaid ($300 monthly value for FREE, with NO DEDUCTIBLES!)

Something has got to change in this country. There is more than enough to go around. Doctors and lawyers aren't the only essential jobs. Someone has to wait tables and drive the taxis.

[disneysteve]

the unemployment rate of college graduates is nearly double the national average.

Sorry but I think that's grossly misstated.

http://www.bls.gov/opub/ted/2015/unemployment-rates-by-educational-attainment-in-april-2015.htm

The percentage of college grads who are unemployed has remained consistently under 5% and is significantly lower than those with less education.

The article you linked to looks only at recent grads and even there, the rate of high school grads is nearly 3 times higher.

[Koolmagicguy]

Sorry but I think that's grossly misstated.

http://www.bls.gov/opub/ted/2015/unemployment-rates-by-educational-attainment-in-april-2015.htm

The percentage of college grads who are unemployed has remained consistently under 5% and is significantly lower than those with less education.

The article you linked to looks only at recent grads and even there, the rate of high school grads is nearly 3 times higher.

Thanks for correcting me. I skimmed the article.

[disneysteve]

Thanks for correcting me. I skimmed the article.

No problem. That article does point to another problem, though. Kids coming out of college with loans to start paying who can't find a good-paying job. All the more reason to not go overboard with the student loans. Also stick with the federal loans as much as possible so that you are eligible for income-based repayment which private lenders usually don't offer.

[TexasHusker]

Every financial investment that we make is a calculated risk.

I look at investing "conservatively" (i.e. mutual funds, etc.) to actually be a very risky play. The risk being quite high that the mediocre returns will nowhere close to fund an enjoyable retirement.

I took a different approach - starting two businesses, getting them going good, and then slowly "retiring" from them. To me that is a very safe investment because the income is substantial and I am in much more control over the situation. CNBC, Bloomberg, and Brexit don't affect my income much.

So I believe mine to be the conservative play. Those out there counting on Fideiity 2040 fund have lots of hiney showing, I'm afraid.

[Nika]

How I wish that were true. Earnings haven't come anywhere close to keeping up with inflation. That's a big part of the squeeze on the middle class. I've certainly experienced it personally. My income has been flat for years and years.

I did not word it correctly - what I meant is, if you put 1K today into SP500, 25 years from now it should at least have the same purchasing power as now. Probably more, but, at least that.

[Nika]

Every financial investment that we make is a calculated risk.

I look at investing "conservatively" (i.e. mutual funds, etc.) to actually be a very risky play. The risk being quite high that the mediocre returns will nowhere close to fund an enjoyable retirement.

I took a different approach - starting two businesses, getting them going good, and then slowly "retiring" from them. To me that is a very safe investment because the income is substantial and I am in much more control over the situation. CNBC, Bloomberg, and Brexit don't affect my income much.

So I believe mine to be the conservative play. Those out there counting on Fideiity 2040 fund have lots of hiney showing, I'm afraid.

Not everyone has an inclination or opportunity to run their own business. Look how many jobs there are out there that are JOBS. And in modern society it is not feasible for everyone to be a business owner. By definition there needs to be more workers than owners. But all of them will need to retire some day. Or will not be able to work any longer. What is the solution for them? For example what do you think your employees should do and how are you helping/encouraging them? Or do you think they are just idiots for working for you and they should not be doing it?

[Fishindude77]

Wasn't all that long ago that ll of these investment tools utilizing the stock market were not available to the average guy. About the best thing going were bonds and bank CD's.

Many generations retired by simply making a bunch of money during their working years, socking it away, then living off what they had saved. They didn't count on interest to increase their savings. What they saved, was what they were going to have to live on.

This can still be done, and a few are still doing it, but the majority are convinced they can trust Wall Street and some second party investment managers to take their savings and double or triple it or more over their working careers, and that it will be there safe and sound for a comfy retirement.

Not so long ago people did things like add more livestock to their herds, farm more ground, invent things, start business and provide services to build wealth. Some of this is still alive and well but many have gotten away from this and want to count on the other guy to handle their money and make them money. With today's interest rates and volatility in the markets, it may be wise for get back to entrepreneurship in lieu of sticking it all in the market and hoping for the best.

[Petunia 100]

Not to mention that if wages kept up with inflation the MINIMUM wage would be roughly $21.

According to the article you linked, if wages kept up with inflation minimum wage would be $10.52 per hour. The $21.72 per hour claim is linked to productivity, not inflation.

ETA: Also, the article states that MW would be $10.52 per hour today only if measured from it's peak. According to the following linked articled, if it were instead adjusted for inflation from 1938, the year it was first established, it would have been $4.19 per hour last year (presumably a bit higher this year).

http://money.cnn.com/interactive/economy/minimum-wage-since-1938/

[disneysteve]

Many generations retired by simply making a bunch of money during their working years, socking it away, then living off what they had saved. They didn't count on interest to increase their savings. What they saved, was what they were going to have to live on.

I'm not sure how far back you're thinking of but for my father's generation (born in 1923), he definitely invested and counted on interest and growth. You need to keep in mind, though, that for a very long time, 5.5% was the standard interest rate for bank savings accounts. You didn't need to shop around. Everyone paid the same rate. If you wanted to earn more, you could buy a CD. You locked up your money for a period of time but were rewarded with a higher rate.

IRAs didn't come into existence until the mid-1970s and took a while to become commonplace. 401ks came along even later. So those foundations of retirement savings that we all look to now didn't even exist 40 years ago.