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AM I ALLOWED another rant?
I have a tip for anyone under age 50. Someday—if you’re lucky—you’ll stop working and still need income to live. Most of us call that retirement.
How in the world do people reach their 50s and suddenly have a revelation that retirement is somewhere in their future?
I get it. If you’re in your 20s or even early 30s, it’s time to have fun. But there’s the trap. Fun for too long, without long-term planning, can mean a not-so-fun old age. Trust me, old age—which I refuse to acknowledge—sneaks up on you.
I frequently read about the plight of retirees and their surviving spouses—especially the surviving spouses—and think, “How did that happen? How can they be living only on Social Security?” These aren’t necessarily people who were poor all their lives. Many are average Americans.
The poor have any number of safety net programs at both the federal and state level. It’s the people who don’t qualify for most assistance who really need to think about their future. I’m talking about the people who blow a tax refund or their stimulus check on “stuff,” instead of using the money to open an account that could jumpstart their retirement nest egg.
I remain convinced that the overwhelming majority of Americans can save something every month. For Pete’s sake, at a minimum, put your daily change or a few dollar bills in a jar every evening, and go from there.
Then there are the folks who claim they don’t know what Medicare will cost, what Medigap will cost, what they’ll receive from Social Security, how much retirement income they’ll need. A modicum of effort will get you answers. For goodness’ sake, get your head out of the sand.
I see all this “not knowing,” even as I read about young people planning to retire in their 50s. I couldn’t retire in my 50s, even with a pension. I was still paying a mortgage and college bills. Besides, my wife wouldn’t go for the idea. Just imagine spending three or four decades in retirement with me ranting, I mean, writing cogent words of wisdom.
I’m in my fifties and have been calculating and saving for retirement since my twenties. I have otherwise intelligent friends whose dangerously unrealistic retirement plan is to work until they die.
But what it took for us to save for retirement, own a home, and raise three kids through paid off college in a one income family on a median or less household income took more planning, research, determination, record keeping, and self control than I have seen anyone around me, rich or poor, willing and able to put in.
We had to live differently than the people around us, which is isolating. We had to have good luck with our health, the economy, and marriage. We, and our children, needed to be able to be happy being independent and introverted. We have wide ranging DIY skills. My personality leans towards taking the long view, organization, responsibility, and security, without the effort those traits take for some, and I like math.
I learned about investing from an employer long ago. He and his wife were well educated, uber-frugal, hippie farmers who came from well-to-do families that gave them money confidence, free legal and financial advice, and inheritances early in life. He gave me Money magazine to read and a lot of frank discussions. A natural investigator who wanted to homeschool my future children (i.e. never have two incomes), I did a lot of library research on money management and investing, and consistently followed through in my actions, for decades thereafter.
Without that chance encounter, though, I do not know if I would have gotten the message that it was possible, acceptable, and worthwhile to study up on money. Before that, I knew one ought to save, but thinking strategically about budgets and investing in more detail seemed shameful and greedy.
What I have seen elsewhere is people who know and save little, however hard working, sensible, and responsible they seem to be otherwise, and people who are in a better position because their jobs provide pensions, retirement programs/advice, good insurance, and they have professional advisors.
In other words, I don’t think it’s that hard to not know much about money, mostly because fears and prejudices block rational thought. It’s also not hard to be unlucky. Having the backstops of enough money and professional help can lend calm and confidence for financial decision making and planning, while constant feelings of lack and risk distort thinking. I have watched long-struggling people without retirement savings spend an inheritance on little luxuries without putting a dime aside. While I cannot imagine that myself, I have read enough about money psychology and cognitive biases in general to recognize that is a common, deeply ingrained pattern.
So I don’t have a tidy conclusion. Sometimes I see other people’s situations and improvements seem obvious and doable to me, but whatever keeps them from seeing it seems strong and deep.
Thank you for your comment and congratulations. I knew there were people out there who got it right.
Mr. Quinn! Right on sir. I’ve had those same feelings. Some people do not think the future will ever arrive if they do, they can’t imagine how life will change with no employment.
To be sure Soc Sec is their saving grace, as it’s a forced savings entity during their work life. I know several people that rely on that to live, all woman. Two were lucky enough to be married and claim now on their dead spouses earnings which is what makes life bearable. A third lady’s X husband is still living, but she works 3 part time jobs and just turned 71. I should add all three drive much newer cars than I do. Yes, men have the same affliction, failing to plan, and so planning to fail.
My own X wife got a pretty penny when we separated and remarried right away. He was also a ‘spender’ so off they went. They filed bankruptcy shortly after. Then he passed and she was also going to file for his S.S. benefits, however, in his poor work life, he didn’t make as much as her so, she has no additional help from that.
People don’t put priorities in the correct priority and have such a hard time later in life as they are made to finally prioritize.
SAD affairs.
In America there are so many better choices.
THANK YOU Sir for bringing this to light!
If your company has a 401k and 401k Roth, you should fund them both 50/50. At least the Company match amount, then every time you receive a raise, increase your deduction by 1%. You will not miss the money, adjust your spending and will appreciate your decision when you retire in great or fair shape.
Sounds like a good idea to me.
Send them to this website’s new “Two Minute Checkup.” They’re just two minutes from discovering how s***ed they really are.
<rolleyes> 😉
(Snark aside, that’s actually a pretty good idea!)
Please never stop ranting. It’s one of the best parts of this website.
I enjoyed your rant. Why people do what they do is a mystery to me.
Might be a good idea to give the Checkup a try too.
I think the rant applies for some people, but not all. I know a person who is in their early 50s, worked for 30 years, saved $6 million (taxable/retirement) and pulled the plug on work, although they will likely move to a lower paid profession that brings more satisfaction. That person spends less than what they could, but lives a great life. If the stock market does what it normally does, that person will continue to be in great shape.
I know there is a two-minute checkup here. But I often use firecalc. I find it helpful. I’d be interested what folks think about it.I know Jonathan wrote a WSJ article sometime back about it.
I enjoy Dick’s “rants” as well. I think your friend is more the exception than the rule. I think quite a few, if not all, who read this site get the point and are probably on their way or already in a comfortable retirement. Or at least not depending on SS alone. But just in my immediate family, I have 2 older sisters that live on SS alone. We recently had to take my wife’s mother in and she lives on SS alone as well. I don’t know my mother-in-law’s choices in life, but my siblings and I were all given a good example and decent start in life but my sisters just made some bad decisions and choices.
I hadn’t noticed it, thanks.
That’s not surprising — the Two-Minute Checkup was only just added to the site.
Great new feature. A one page starting point to share.
When I tell it I’m retired, it doesn’t let me input my income (pension plus SS). Seems to be allowing a 5% withdrawal, I wouldn’t want to go that high.
You already know what your SS and pension are, so there’s nothing to calculate. Indeed, the message from the calculator likely told you that SS, pension and other income was in addition to the calculated withdrawal rate. The suggested withdrawal rate is indeed 4% to 5%. Two things on that 5%: First, a withdrawal rate higher than 4% should be possible if you stand ready to cut spending if financial markets perform really badly. Second, the often-mentioned 4% withdrawal rate is the sum for the first year only. In subsequent years, the sum withdrawn as a percentage of beginning-of-year portfolio value will tend to rise, so later in retirement many seniors will find themselves withdrawing well over 5%.
If, as usually advised, you increase the withdrawal by the amount of inflation each year, one would hope that the portfolio also increased by at least that amount. Of course, in a year like this one, you might want to reduce the withdrawal, if possible. The planned length of the retirement is also a factor.
Remember, the 4% withdrawal rate is designed to ensure a retirement portfolio lasts 30 years. The portfolio may indeed grow in nominal terms in the early years, but the inflation-adjusted withdrawals will likely be growing even faster — and pretty soon the portfolio stops growing in nominal terms and, later in retirement, can start shrinking rapidly. This, in part, is why almost nobody actually follows the 4% withdrawal rate strategy. It would be too scary. My intention is to simply withdraw 4% to 5% of my portfolio’s value as of the beginning of each year. That means the dollars withdrawn will vary with my portfolio’s performance, but it also means I’ll never run out of money, because I’m always withdrawing a percentage of whatever is left.
Never touched my IRA until the IRS made me start taking RMDs at age 72, but then you withdraw what they tell you to withdraw – your only choices are when to take it and in what form, monthly, annually, etc. Or you can take out more if you feel frisky.
Several years ago a ten years older friend suddenly realized he was eighteen months from a forced retirement at age sixty-five. He was panicky, and speaking of getting a low-paying type of job to make ends meet. I was incredulous. He is highly skilled and was well-paid, although in a niche profession. I spent time encouraging him and helping him look for work in his field. He found a bridge job for a couple of years and eventually landed a teaching job in a new, growing part of the field. He is very happy to be busy and useful, things are turning out okay. But he had failed to give himself choices.
Working closely with him caused me to double down of my efforts to encourage others to get serious about retirement planning. This website makes it easy to share good information in a concise format. And your rants are fun to read, thank you. And you get the most comments!