Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
That is the key. A lot of people do not know how to be frugal. They grew up spoiled by their parents or parent who couldn't say no. That is the end result when they are adults. There is a lot of stuff people can cut back on. Going to the movies every week? Bad habits like pubs or clubs most nights of the week. Eating out all the time instead of cooking at home. The list is huge.
As for the question of attaining a million being easier for older people, my opinion is that we were raised by folks who endured the Great Depression and WW2. They taught us to spend wisely and save for the future. Somehow the lesson got lost as generations went by and now young children have iPhones and parents spoil them silly. Us older people were working in our school years already. Summers might mean picking berries or whatever was local. Now there are restrictions on how much young people can work.
My keys to attaining a lot of money? Learn the discipline of saving early on. Even if the amount is small, it is that discipline that gets ingrained into one's mind and eventually you are putting several hundreds into your retirement accounts. (depending on your salary of course) Another key is to quit loaning money to the government in the form of overpaying your taxes. How many people get huge refunds every year? A lot. For example if you got $3000 back on your taxes that works out to $115 each paycheck. (3000 divided by 26) That money could be going to your 401k etc. Reduce your withholding so that you get close to break even. As you put more money into your tax deferred accounts, your taxable income goes down more and that provides you with even more money to put away. Usually big refunds get spent on adult toys or vacations etc.
If you get a bonus or a raise, think about what would happen if that hadn't happened. Put those raises and bonuses into your retirement accounts too.
How was my life after all that? I ate well, drove new cars, went on vacations etc. I wasn't deprived of the good things in life, I just knew what my limits were. I never let credit cards ruin my financial plan. That is very easy to do. I had a average middle class wage at my work but I did work OT and that also was saved. By the time I was in my early thirties I had my first $100k. Getting to $200k was much faster. The curve really takes off once you hit a certain amount. My accounts continued to soar as I kept to my plan. I won't tell exactly how much here but it is substantial. I was fortunate to have a good bull market. That is something we don't know or can predict. I made my share of mistakes as well. I pulled out of my funds after Oct 1987. That crash rattled me but it was a learning experience and I didn't make that mistake a second time. I thought about buying AAPL at $18. Hindsight. Thats water under the bridge now. I had money in Twentieth Century Ultra fund when it rose 87% one year. I had money in the TRowe Price New Asia fund when they had some booming years early on. Gold was spectacular in the early 2000's. I guess those made up for the mistakes.
The main point is to keep pumping the money away and whenever you have an opportunity to increase that, go for it. It's called paying yourself first.
I apologize for the long post. I didn't mean to drift off here but I wanted to share my experience and maybe someone can use some of my tips to increase their assets.
Let's slow down here - you may have some good points, but the facts are rather mixed up.
When Social Security began, it meant that a person would not be a pauper but food, clothing and shelter. Now, it means food, clothing, shelter, travel costs, cable TV, dining out, internet, Obamacare etc.
When SS began, there was nothing else in place for health care - so to the extent that SS was intended to help people survive, that included medical care. It was only decades later that medical care was taken out of the equation.
In 1965 (effective 1966) Medicare was created, but it is not part of SS. And because there is Medicare, the ACA (aka Obamacare) explicitly prohibits people over age 65 from purchasing individual plans. (Payments for Medicare can be made directly out of SS as a convenience; it is not a part of SS.)
Even the idea that poor people had to be accepted and treated by hospitals isn't something that the government promised until COBRA, passed under Reagan in 1986 mandated that hospitals that take Medicare accept all patients regardless of ability to pay or lack of insurance.
As to Social Security helping - look at how much you lose if you take it at 62 vs 65. AND, what a person gets if they do not make a lot of $ when working.
Then there is inflation - although the official CPI is low the retirement CPI is higher - food, energy and health care.
The two statements implied - that one gets more money by waiting, and that SS doesn't keep up with inflation - are contradictory.
In theory, the expected real value of SS payments is the same no matter when one starts payments. (The term is actuarial equivalent.) But if SS COLA isn't keeping up with inflation (as you suggested), then the later dollars are worth less. So if one benefit (starting payments at 62) has more early dollars than the other (starting payments at 65), one doesn't lose by taking at 62. One wins.
(Note: I don't agree with that conclusion for a variety of reasons; I'm just trying to show where the statements lead.)
Where I think you are spot on is the difficulty that many people have in saving for retirement. That $50K average household income doesn't leave much room for saving, especially if one is raising a family. (That $1K/mo for two kids in Berkeley aside.)
Let's slow down here - you may have some good points, but the facts are rather mixed up.
When Social Security began, it meant that a person would not be a pauper but food, clothing and shelter. Now, it means food, clothing, shelter, travel costs, cable TV, dining out, internet, Obamacare etc.
When SS began, there was nothing else in place for health care - so to the extent that SS was intended to help people survive, that included medical care. It was only decades later that medical care was taken out of the equation.
As to Social Security helping - look at how much you lose if you take it at 62 vs 65. AND, what a person gets if they do not make a lot of $ when working.
Then there is inflation - although the official CPI is low the retirement CPI is higher - food, energy and health care.
The two statements implied - that one gets more money by waiting, and that SS doesn't keep up with inflation - are contradictory.
Let's slow down AND understand each other - not make inferences.
Medical costs - Medical costs and ins have sky rocketed from the time SS came into being and even since the mid 1980s. That is why I specifically mentioned Obamacare. If a person was to retire now or in the future before medicare/medicade kicks in that would be a significant cost that would impact the $1M question.
The other two statements were only to be linked regarding the $1M, not inflation. The first one relating to if, a person retires before 62 or 65 & not at the high end of the wage earning scale. This is important because many people (especially at the high end of the earning scale) do not have the option to work until SS kicks in - they are offered buy outs, laid off or other things happen. The second about specific inflation for a retired person VS the general CPI.
So, to really evaluate if a person can retire on $1M, we need to know their assumption for spending, investments and expected returns.
Very interesting thread. The diversity of responses is terrific. The thing that strikes me the most is the diverse circumstances and different ideas people feel were important to achieving their retirement wealth.
For my wife and I, the biggest benefit we had was living in a place where you could come out of high school, get a good paying job at a fortune 500 company and feel secure until you were ready to retire. That just doesn't happen any more for younger generations. We accumulated (with savings and pension) $1m by the time I was 54, and all we had to do was blindly put around 10% of our wages into a 401k and stay working long enough to get our lump some pensions. I now realize how lucky we were.
We were very lucky to have the employment cards we were dealt. And to be honest, we weren't big spenders but bought whatever we wanted even if we couldn't afford it at the time. We carried credit card debt all the way up until maybe a year or two ago. And cash reserve on the checking account, always a balance. Very much contrary to everybody else's advice. Still did it. Go figure.
>> If a person was to retire now or in the future before medicare/medicade kicks in that would be a significant cost that would impact the $1M question.
Too true, but ACA has nothing to do with it, and in fact has made this scenario quite a bit better.
Eloquent and thoughtful writeups, as others have said. msf's progressive history is highly useful to keep in mind, JohnC's advice is spot-on, and MikeM's situation is gratifying to hear about but for sure no longer available to anyone but the very rarest of situations. My own story is a combo: intensive and constant savings over the years, luck living in bullish decades, some in-law money to help with college, expensive location but frugal lifestyle, many layoffs and long stints of unemployment during which I consulted and had skills in moderate demand, and now sudden, enforced, but seemingly sustainable retirement. Lots of luck throughout, some of which I suppose I enhanced.
Dex, Thank you for clearing some things up. One's choice of words lead to certain interpretations.
We're talking about rising costs of health care; that is, health care has always been a part of retirement costs. But it has become a larger part over time. This might have been clearer had health care been listed in the original list of costs.
You mention Medicaid as something not kicking in before age 65. But Medicaid is a program based on income, not age. It's a different program in many ways from Medicare. For example, Medicaid covers long term care, Medicare does not.
With respect to SS and Full Retirement Age (FRA) - As I understand your clarification, your first statement was that some people will have to take SS before (FRA) because they need the money. Fair enough.
However, if SS COLA does not keep up with inflation, then everyone - whether they need to or not, should take payments early, because they would get more real value, as I explained. So people who have to take benefits before FRA are not disadvantaged (they don't "lose"). You may not have linked the two statements, but the two assertions are logically coupled.
One last note on medical costs - they are rising at their slowest rate in fifty years. http://www.factcheck.org/2014/02/aca-impact-on-per-capita-cost-of-health-care/ (One can just look at a couple of bar graphs in the article if one doesn't want to read the whole text.) And for 2015, Medicare premiums are rising less (0.0%) than SS benefits (1.7%).
That's not to say that health costs are not a major concern. IHMO, they are one of the two most significant retirement uncertainties, and I said as much in another post. But if one is going to say that they are skyrocketing, one should acknowledge recent trends too.
"However, if SS COLA does not keep up with inflation, then everyone - whether they need to or not, should take payments early, because they would get more real value, as I explained ..."
I like the way you think Sir. Along with that thought ... I'd rather be lucky than good. By sheer chance I had started taking SS at 62 about a year before markets bottomed in March '09. Using that extra income (to pay the taxes), was able to convert a sizable chunk of our traditional IRA to a Roth in March '09. Need I say more?
There's perhaps never a bad time to convert, but during depressed markets makes more sense - especially when you are older and have a shorter time horizon. One more note per Junkster's earlier lament - While Roths are currently exempt from the RMD requirement, the (Obama) administration is seeking to have that provision axed in 2015. I can't vouch for the accuracy of that report, but believe it to be accurate and certainly hope the change is not enacted.
It will never get passed, and in any case would make no particular difference except perhaps to heirs, or your tax bill, or if you're so wealthy you would have left things alone indefinitely. In other words, it has no immediate tax effect, and simply precludes further taxfree growth, meaning it moves holdings from one status to another potentially taxable status. That's all.
davidmoran: Thanks for clarifying. Also, that was in the 2015 budget proposal. The fact that the 401K limit has been raised to $18,000 next year makes me think maybe the budget (or sections pertaining to tax- sheltered accounts) has now been settled.
Knocking out the exemption would be a real "downer" here in that protecting that $$ from RMD was the primary motivator in doing the conversion. The paperwork wasn't daunting, but was substantial. I recall paying the taxes off in four equal installments in '09 mailing in the checks along with coupons printed from the IRS website (yes- something works there:).
That is the key. A lot of people do not know how to be frugal. They grew up spoiled by their parents or parent who couldn't say no. That is the end result when they are adults. There is a lot of stuff people can cut back on. Going to the movies every week? Bad habits like pubs or clubs most nights of the week. Eating out all the time instead of cooking at home. The list is huge.
As for the question of attaining a million being easier for older people, my opinion is that we were raised by folks who endured the Great Depression and WW2. They taught us to spend wisely and save for the future. Somehow the lesson got lost as generations went by and now young children have iPhones and parents spoil them silly. Us older people were working in our school years already. Summers might mean picking berries or whatever was local. Now there are restrictions on how much young people can work.
My keys to attaining a lot of money? Learn the discipline of saving early on. Even if the amount is small, it is that discipline that gets ingrained into one's mind and eventually you are putting several hundreds into your retirement accounts. (depending on your salary of course) Another key is to quit loaning money to the government in the form of overpaying your taxes. How many people get huge refunds every year? A lot. For example if you got $3000 back on your taxes that works out to $115 each paycheck. (3000 divided by 26) That money could be going to your 401k etc. Reduce your withholding so that you get close to break even. As you put more money into your tax deferred accounts, your taxable income goes down more and that provides you with even more money to put away. Usually big refunds get spent on adult toys or vacations etc.
If you get a bonus or a raise, think about what would happen if that hadn't happened. Put those raises and bonuses into your retirement accounts too.
How was my life after all that? I ate well, drove new cars, went on vacations etc. I wasn't deprived of the good things in life, I just knew what my limits were. I never let credit cards ruin my financial plan. That is very easy to do. I had a average middle class wage at my work but I did work OT and that also was saved. By the time I was in my early thirties I had my first $100k. Getting to $200k was much faster. The curve really takes off once you hit a certain amount. My accounts continued to soar as I kept to my plan. I won't tell exactly how much here but it is substantial. I was fortunate to have a good bull market. That is something we don't know or can predict. I made my share of mistakes as well. I pulled out of my funds after Oct 1987. That crash rattled me but it was a learning experience and I didn't make that mistake a second time. I thought about buying AAPL at $18. Hindsight. Thats water under the bridge now. I had money in Twentieth Century Ultra fund when it rose 87% one year. I had money in the TRowe Price New Asia fund when they had some booming years early on. Gold was spectacular in the early 2000's. I guess those made up for the mistakes.
The main point is to keep pumping the money away and whenever you have an opportunity to increase that, go for it. It's called paying yourself first.
I apologize for the long post. I didn't mean to drift off here but I wanted to share my experience and maybe someone can use some of my tips to increase their assets.
Hey, JohnChisum! You stole this from me, didn't you?????????
@ msf and Davidmoran - the fact of the matter is that it happened but proving it to you would be next to impossible. Let's just say that we didn't dine on steak and lobster very often and that our rent was halved because I agreed to remodel the home and maintain it while we were living there. Your on your own after that. The point isn't that $1000/mo is possible, it's that $1000/ week seems like a lot. Maybe that's just me.
M - I don't know why it would or has to be next to impossible. Nothing about steak and lobster; just being 'on your own'. Even with halved rent, whatever amount that came to, if you as a family of three (or four if a partner) lived in 1k a month, for however long assuming it was not just a few months, in the modern era with adequate food and water and heat and healthcare as needed, then, as I say, you simply must write it up, if not a book then a magazine article, or something. Seriously. Inspire, and help us understand. Extreme claims call for explanation. And this without any assistance public or private. ~$33/day including roof overhead. Two kids, one adult. Fill us in!
$1000week to spend NO payments and peanuts for bills (phone elect) you have MADE IT in the U.S. (Florida that is), You know how much Food, Bud, entertainment, golf and beach time that is? SO I guess the answer is: yes easy...8% of a million is$80,000 yr. without touching the principal. $1600 a week and your "the Man"
@JohnChisum: The whole thing! And not just about money and frugality. How much BASIC stuff just doesn't get communicated to kids today by their parents? Because their PARENTS are clueless??????? Eh? I was a substitute teacher. Too many kids coming into class without ANY social skills. No decorum. Utterly feral. Disruptive beyond anything we used to try to get away with. It's a VISIBLE decline in the measure of our civilization going on, day by day. Yuk.
@Crash, As a substitute teacher you had a front row seat on this whole thing. I was surprised you used the term "feral". I think in another time the use of that word in conjunction with children would have been described as shocking and deplorable. Sad to say though, it applies. I can remember my early years of school. Kindergarten, where we all had a blanket to sit on and we were attentive to the teacher. I never remember any wild outbursts from any of my classmates in grade school.
The main reason I was surprised at the term feral was because of an incident that happened here in the Philippines earlier this year. A passenger bus was transiting an elevated highway in Manila. They call these flyways here. The bus lost control and smashed through the concrete rail and edge and dropped to the streets below. This was in the very early morning if I remember rightly. Most of the occupants were killed on the spot. A handful survived. Manila, like most large cities, has a big network of cctv cameras to monitor the streets etc, and this whole thing was caught on video. As the bus lay smashed on the pavement and the wheels still turning, a bunch of kids started to appear and they climbed on board and started to get in. They were not helping but rather stealing. Cell phones, purses and wallets. When the sirens got close they scattered. I saw this on the television news and said to my wife that these kids were like feral animals. It was like those apocalypse movies that are abundant these days. Those kids are produced by a mother and were born and raised in the most filthy and decrepit conditions. There are literally gangs of them in the major cities here. They roam at night.
Yep, it is a very sad tale of our civilization these days. What is even worse is working hard and saving your money until one day you realize that you have succeeded only now to be branded as rich which is a dirty word now.
Even back here in the States, my wife tells me that the tone (and assumption) of the communication with her family members in The Phils. is that "of course, you must be rich, because you are in The States." It's a sad, sad story you tell about the gang of kids growing up on the streets and taking advantage of dreadful accidents like that so they can ROB the victims. No one will dare SAY it, but the first, most important thing that could help that country emerge out of the terrible economic state they're in would be for them to discover and USE birth control. Basic, easy to use, BIRTH CONTROL. This is the 21st century, for cripes' sake.
Or working hard all your life, saving and investing, and croaking, before you spend it, and your Heirs say "HE/She was a really nice guy", roll the dice..."nice guy"
@Crash, The current president pushed for birth control availability but I don't recall if it passed or not. For the poorest, contraception would be free.
As for TB's statement, you must understand that it is not the amount of money one has but how they spend money that is the problem. A lot of people here that have money play the keep up with the Juans games. Gambling, drinking, and especially showing off by inviting everyone to eat and be Merry. They are called one day millionaires here. The OFW seaman comes home with a month's pay and it is gone in two days.
Any inheritance would be gone before they knew it. It's not only the direct family you see, it's all the family everywhere, uncles aunt 5th degree cousins, and then throw in neighbors, friends and just plain people.
@JohnChisum. And that's why I'd like to set up a Legacy trust. I've always tried to teach my kids well, but experience has taught me, they don't have a clue.
@JohnChisum: Yes, I'd heard "Junior" was pushing for contraception. But still, very recently, my wife informs me that doctors will not give it to you if you're not MARRIED. Even if you just put aside the ethical question, it is shown time and time again and again that young single mothers with unplanned babies and boyfriends who are quite unable to support them end-up living shit lives. And around and around it goes..... That whole "pasalubong" souvenir tradition is nuts, connected to that case of the sailor, for instance, who comes home and blows his pay. It's expected. Why? Because no one else has any money, nothing to share, they go hand-to-mouth every day. It's just about impossible to break out of that cultural mind-set. They are ACCUSTOMED to poverty, and so accept the bribes from the politicians, and expect relatives to spend all their money on the family, so that not EVERY day is shit. For 99% of people there, there is no future. They must go elsewhere. Just like the Irish, back at the turn of the 19th into the 20th century.
@Crash: Interesting point of view. Unfortunately, I have family members that resemble the situation you mentioned. When I make an attempt to speak to them about investing, I receive the 'not interested' look and some accuse me of belonging to another race. Others look upon me with suspicion. I've come to the conclusion it is easier to get their attention with pie-in-the-sky lies than logical truths. I've likened it to the Matrix's version of being unplugged. I've managed to get through to a few, but far too often the status quo seems comfortable and there's nothing you can honestly say that would make any difference. Human nature is often predictable, depressing and so Darwinian.
The later comments on this thread are not relevant to "Fund Discussions."
While I agree that cheap birth control should be available world-wide, it has little to do with retirement with $1 million.
Depending on the area of this country in which one lives, adding the MDR from $1M to SS can provide a satisfactory existence. I also think it's going to be difficult for my children to achieve this level of savings (which will probably be $3M by the time they retire). I am very pessimistic about their chances of an income allowing savings with the "flattening" of the world, as they compete with low income countries with lower costs of living. One of the few remaining services/industries that can't be moved off-shore is health care, but that has to be paid for by someone, and the payors are reducing reimbursements yearly. Manufacturing returns to the US in robotic factories, which require fewer workers. Education is only rewarded when someone can pay for the knowledge you have. This comment is also drifting off-topic, so I'll stop.
The comment about SS waiting from age 62 to 65 and the comment about CPI not keeping up with "real" inflation are two different things. The SS payout goes up each year you wait based on change in life expectancy, not based on CPI. The inflation change is in addition to whatever the life expectancy adjustment is. For example, if you are 62 you are expected to live another (approximately) 21 years. If you wait a year, you now are expected to live another 20 years so the payout goes up about 5% because of that.
Really? A $1000/week isn't enough? Change your lifestyle then.
p.s. I lived in the Bay Area (Berkeley to be precise) on a $1000/month, with 2 kids, no problem. Guess it all depends.
I know I'll probably get scoffed at, but where I live (MD/Wash DC), $52,000 might get you check to check in a studio apartment, frugal or not, particularly if you are younger and just starting out.
If you live in the closest and cheapest livable suburb in VA (which you'll have to do because living out further will mean you need a car, and living in DC or MD will mean much higher taxes), you'll take home $734.50 weekly of your $1000 salary. That's $3182.83 per month.
Almost no leasing agent will even talk to you unless you make over $45k here, and then you better have sterling credit. 400 sq ft. studios start at $1250 as a rule; one bedrooms go for around $1500-$1700. That doesn't include utilities, internet, phone, water, transportation, food, health care, clothing, or any other outstanding debt.
$3182.50 - take home -$1250 - rent -$ 100 - utilities/electric/water (my BGE bill + water averaged about $125 for a 1BR for the past 4 years) -$ 50 - internet (no cable) -$ 90 - 2GB Phone contract w/ phone through AT&T -$ 350 - Health insurance (figured @8% of $52k) -$ 200 - Transportation on METRO (@$8 p/d, 5 days a week + $25 p/m) -$ 380 - Food (@ $12.50 p/d. It isn't just rent that's steep here) -$ 375 - Student Loan payments (that's about $50,000 @ 6.8% over 20 years, because you aren't getting a $52,000 a year job here without at least 1 or 2 degrees, usually at a higher cost than this.) _______________ $387.50, or $89.42 p/w before car, clothes, and other misc. expenses even start. And that is without any investing in a retirement account to get that $1M or savings towards a downpayment on a house. The obvious solution is to get a roommate, but that is only going to knock your monthly rent down about $400. You could also move some place us, but plenty of us are from here and have family, or have skills that are only employable in DC.
And people don't even want to know what NYC costs.
Comments
As for the question of attaining a million being easier for older people, my opinion is that we were raised by folks who endured the Great Depression and WW2. They taught us to spend wisely and save for the future. Somehow the lesson got lost as generations went by and now young children have iPhones and parents spoil them silly. Us older people were working in our school years already. Summers might mean picking berries or whatever was local. Now there are restrictions on how much young people can work.
My keys to attaining a lot of money? Learn the discipline of saving early on. Even if the amount is small, it is that discipline that gets ingrained into one's mind and eventually you are putting several hundreds into your retirement accounts. (depending on your salary of course) Another key is to quit loaning money to the government in the form of overpaying your taxes. How many people get huge refunds every year? A lot. For example if you got $3000 back on your taxes that works out to $115 each paycheck. (3000 divided by 26) That money could be going to your 401k etc. Reduce your withholding so that you get close to break even. As you put more money into your tax deferred accounts, your taxable income goes down more and that provides you with even more money to put away. Usually big refunds get spent on adult toys or vacations etc.
If you get a bonus or a raise, think about what would happen if that hadn't happened. Put those raises and bonuses into your retirement accounts too.
How was my life after all that? I ate well, drove new cars, went on vacations etc. I wasn't deprived of the good things in life, I just knew what my limits were. I never let credit cards ruin my financial plan. That is very easy to do. I had a average middle class wage at my work but I did work OT and that also was saved. By the time I was in my early thirties I had my first $100k. Getting to $200k was much faster. The curve really takes off once you hit a certain amount. My accounts continued to soar as I kept to my plan. I won't tell exactly how much here but it is substantial. I was fortunate to have a good bull market. That is something we don't know or can predict. I made my share of mistakes as well. I pulled out of my funds after Oct 1987. That crash rattled me but it was a learning experience and I didn't make that mistake a second time. I thought about buying AAPL at $18. Hindsight. Thats water under the bridge now. I had money in Twentieth Century Ultra fund when it rose 87% one year. I had money in the TRowe Price New Asia fund when they had some booming years early on. Gold was spectacular in the early 2000's. I guess those made up for the mistakes.
The main point is to keep pumping the money away and whenever you have an opportunity to increase that, go for it. It's called paying yourself first.
I apologize for the long post. I didn't mean to drift off here but I wanted to share my experience and maybe someone can use some of my tips to increase their assets.
In 1965 (effective 1966) Medicare was created, but it is not part of SS. And because there is Medicare, the ACA (aka Obamacare) explicitly prohibits people over age 65 from purchasing individual plans. (Payments for Medicare can be made directly out of SS as a convenience; it is not a part of SS.)
Even the idea that poor people had to be accepted and treated by hospitals isn't something that the government promised until COBRA, passed under Reagan in 1986 mandated that hospitals that take Medicare accept all patients regardless of ability to pay or lack of insurance.
The two statements implied - that one gets more money by waiting, and that SS doesn't keep up with inflation - are contradictory.
In theory, the expected real value of SS payments is the same no matter when one starts payments. (The term is actuarial equivalent.) But if SS COLA isn't keeping up with inflation (as you suggested), then the later dollars are worth less. So if one benefit (starting payments at 62) has more early dollars than the other (starting payments at 65), one doesn't lose by taking at 62. One wins.
(Note: I don't agree with that conclusion for a variety of reasons; I'm just trying to show where the statements lead.)
Where I think you are spot on is the difficulty that many people have in saving for retirement. That $50K average household income doesn't leave much room for saving, especially if one is raising a family. (That $1K/mo for two kids in Berkeley aside.)
Medical costs - Medical costs and ins have sky rocketed from the time SS came into being and even since the mid 1980s. That is why I specifically mentioned Obamacare. If a person was to retire now or in the future before medicare/medicade kicks in that would be a significant cost that would impact the $1M question.
The other two statements were only to be linked regarding the $1M, not inflation. The first one relating to if, a person retires before 62 or 65 & not at the high end of the wage earning scale. This is important because many people (especially at the high end of the earning scale) do not have the option to work until SS kicks in - they are offered buy outs, laid off or other things happen. The second about specific inflation for a retired person VS the general CPI.
So, to really evaluate if a person can retire on $1M, we need to know their assumption for spending, investments and expected returns.
For my wife and I, the biggest benefit we had was living in a place where you could come out of high school, get a good paying job at a fortune 500 company and feel secure until you were ready to retire. That just doesn't happen any more for younger generations. We accumulated (with savings and pension) $1m by the time I was 54, and all we had to do was blindly put around 10% of our wages into a 401k and stay working long enough to get our lump some pensions. I now realize how lucky we were.
We were very lucky to have the employment cards we were dealt. And to be honest, we weren't big spenders but bought whatever we wanted even if we couldn't afford it at the time. We carried credit card debt all the way up until maybe a year or two ago. And cash reserve on the checking account, always a balance. Very much contrary to everybody else's advice. Still did it. Go figure.
Too true, but ACA has nothing to do with it, and in fact has made this scenario quite a bit better.
Eloquent and thoughtful writeups, as others have said. msf's progressive history is highly useful to keep in mind, JohnC's advice is spot-on, and MikeM's situation is gratifying to hear about but for sure no longer available to anyone but the very rarest of situations. My own story is a combo: intensive and constant savings over the years, luck living in bullish decades, some in-law money to help with college, expensive location but frugal lifestyle, many layoffs and long stints of unemployment during which I consulted and had skills in moderate demand, and now sudden, enforced, but seemingly sustainable retirement. Lots of luck throughout, some of which I suppose I enhanced.
We're talking about rising costs of health care; that is, health care has always been a part of retirement costs. But it has become a larger part over time. This might have been clearer had health care been listed in the original list of costs.
You mention Medicaid as something not kicking in before age 65. But Medicaid is a program based on income, not age. It's a different program in many ways from Medicare. For example, Medicaid covers long term care, Medicare does not.
With respect to SS and Full Retirement Age (FRA) - As I understand your clarification, your first statement was that some people will have to take SS before (FRA) because they need the money. Fair enough.
However, if SS COLA does not keep up with inflation, then everyone - whether they need to or not, should take payments early, because they would get more real value, as I explained. So people who have to take benefits before FRA are not disadvantaged (they don't "lose"). You may not have linked the two statements, but the two assertions are logically coupled.
One last note on medical costs - they are rising at their slowest rate in fifty years.
http://www.factcheck.org/2014/02/aca-impact-on-per-capita-cost-of-health-care/
(One can just look at a couple of bar graphs in the article if one doesn't want to read the whole text.) And for 2015, Medicare premiums are rising less (0.0%) than SS benefits (1.7%).
That's not to say that health costs are not a major concern. IHMO, they are one of the two most significant retirement uncertainties, and I said as much in another post. But if one is going to say that they are skyrocketing, one should acknowledge recent trends too.
"However, if SS COLA does not keep up with inflation, then everyone - whether they need to or not, should take payments early, because they would get more real value, as I explained ..."
I like the way you think Sir. Along with that thought ... I'd rather be lucky than good. By sheer chance I had started taking SS at 62 about a year before markets bottomed in March '09. Using that extra income (to pay the taxes), was able to convert a sizable chunk of our traditional IRA to a Roth in March '09. Need I say more?
There's perhaps never a bad time to convert, but during depressed markets makes more sense - especially when you are older and have a shorter time horizon. One more note per Junkster's earlier lament - While Roths are currently exempt from the RMD requirement, the (Obama) administration is seeking to have that provision axed in 2015. I can't vouch for the accuracy of that report, but believe it to be accurate and certainly hope the change is not enacted.
Knocking out the exemption would be a real "downer" here in that protecting that $$ from RMD was the primary motivator in doing the conversion. The paperwork wasn't daunting, but was substantial. I recall paying the taxes off in four equal installments in '09 mailing in the checks along with coupons printed from the IRS website (yes- something works there:).
Thanks
You stole this from me, didn't you?????????
SO I guess the answer is: yes easy...8% of a million is$80,000 yr. without touching the principal. $1600 a week and your "the Man"
I was a substitute teacher. Too many kids coming into class without ANY social skills. No decorum. Utterly feral. Disruptive beyond anything we used to try to get away with. It's a VISIBLE decline in the measure of our civilization going on, day by day. Yuk.
The main reason I was surprised at the term feral was because of an incident that happened here in the Philippines earlier this year. A passenger bus was transiting an elevated highway in Manila. They call these flyways here. The bus lost control and smashed through the concrete rail and edge and dropped to the streets below. This was in the very early morning if I remember rightly. Most of the occupants were killed on the spot. A handful survived. Manila, like most large cities, has a big network of cctv cameras to monitor the streets etc, and this whole thing was caught on video. As the bus lay smashed on the pavement and the wheels still turning, a bunch of kids started to appear and they climbed on board and started to get in. They were not helping but rather stealing. Cell phones, purses and wallets. When the sirens got close they scattered. I saw this on the television news and said to my wife that these kids were like feral animals. It was like those apocalypse movies that are abundant these days. Those kids are produced by a mother and were born and raised in the most filthy and decrepit conditions. There are literally gangs of them in the major cities here. They roam at night.
Yep, it is a very sad tale of our civilization these days. What is even worse is working hard and saving your money until one day you realize that you have succeeded only now to be branded as rich which is a dirty word now.
As for TB's statement, you must understand that it is not the amount of money one has but how they spend money that is the problem. A lot of people here that have money play the keep up with the Juans games. Gambling, drinking, and especially showing off by inviting everyone to eat and be Merry. They are called one day millionaires here. The OFW seaman comes home with a month's pay and it is gone in two days.
Any inheritance would be gone before they knew it. It's not only the direct family you see, it's all the family everywhere, uncles aunt 5th degree cousins, and then throw in neighbors, friends and just plain people.
While I agree that cheap birth control should be available world-wide, it has little to do with retirement with $1 million.
Depending on the area of this country in which one lives, adding the MDR from $1M to SS can provide a satisfactory existence. I also think it's going to be difficult for my children to achieve this level of savings (which will probably be $3M by the time they retire).
I am very pessimistic about their chances of an income allowing savings with the "flattening" of the world, as they compete with low income countries with lower costs of living. One of the few remaining services/industries that can't be moved off-shore is health care, but that has to be paid for by someone, and the payors are reducing reimbursements yearly. Manufacturing returns to the US in robotic factories, which require fewer workers. Education is only rewarded when someone can pay for the knowledge you have.
This comment is also drifting off-topic, so I'll stop.
If you live in the closest and cheapest livable suburb in VA (which you'll have to do because living out further will mean you need a car, and living in DC or MD will mean much higher taxes), you'll take home $734.50 weekly of your $1000 salary. That's $3182.83 per month.
Almost no leasing agent will even talk to you unless you make over $45k here, and then you better have sterling credit. 400 sq ft. studios start at $1250 as a rule; one bedrooms go for around $1500-$1700. That doesn't include utilities, internet, phone, water, transportation, food, health care, clothing, or any other outstanding debt.
$3182.50 - take home
-$1250 - rent
-$ 100 - utilities/electric/water (my BGE bill + water averaged about $125 for a 1BR for the past 4 years)
-$ 50 - internet (no cable)
-$ 90 - 2GB Phone contract w/ phone through AT&T
-$ 350 - Health insurance (figured @8% of $52k)
-$ 200 - Transportation on METRO (@$8 p/d, 5 days a week + $25 p/m)
-$ 380 - Food (@ $12.50 p/d. It isn't just rent that's steep here)
-$ 375 - Student Loan payments (that's about $50,000 @ 6.8% over 20 years, because you aren't getting a $52,000 a year job here without at least 1 or 2 degrees, usually at a higher cost than this.)
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$387.50, or $89.42 p/w before car, clothes, and other misc. expenses even start. And that is without any investing in a retirement account to get that $1M or savings towards a downpayment on a house. The obvious solution is to get a roommate, but that is only going to knock your monthly rent down about $400. You could also move some place us, but plenty of us are from here and have family, or have skills that are only employable in DC.
And people don't even want to know what NYC costs.