When Is It Enough? (Retirement Funds)

[disneysteve]

We learned by observation mostly. Our parents didn't just "talk the talk", the walked the walk....

This is so important. Teaching your kids about money is great, but if they hear you say one thing and then see you do something else, guess which one they will emulate.

Years ago when I was a kid, financial education just wasn't as important because the world was a different place. Credit card use wasn't so ingrained. The banking and credit industries hadn't been deregulated yet so all the predatory stuff we see today (check cashing stores, payday loans, refund anticipation loans, subpar lenders) weren't around. It was much harder to get into trouble compared with today.

Also, most Americans didn't do much investing outside of banks and US savings bonds. Stock ownership was a fraction of what it is today. People didn't have IRAs, ROTHs, 401Ks, etc. The mutual fund industry had a few hundred funds, not the thousands there are today. So education is much more important because there is so much more to know.

But MrsPete is right. Many parents aren't teaching their kids about finances because they don't know the stuff themselves. If you don't feel that you know enough to teach your kids, start by educating yourself. Start reading Money magazine and some general finance books that we are all always recommending. There are also some great books for teaching your kids. I recently read "The First National Bank of Dad" which I thought was a good one.

 

[dvcgirl]

This is so important. Teaching your kids about money is great, but if they hear you say one thing and then see you do something else, guess which one they will emulate.

Years ago when I was a kid, financial education just wasn't as important because the world was a different place. Credit card use wasn't so ingrained. The banking and credit industries hadn't been deregulated yet so all the predatory stuff we see today (check cashing stores, payday loans, refund anticipation loans, subpar lenders) weren't around. It was much harder to get into trouble compared with today.

Also, most Americans didn't do much investing outside of banks and US savings bonds. Stock ownership was a fraction of what it is today. People didn't have IRAs, ROTHs, 401Ks, etc. The mutual fund industry had a few hundred funds, not the thousands there are today. So education is much more important because there is so much more to know.

But MrsPete is right. Many parents aren't teaching their kids about finances because they don't know the stuff themselves. If you don't feel that you know enough to teach your kids, start by educating yourself. Start reading Money magazine and some general finance books that we are all always recommending. There are also some great books for teaching your kids. I recently read "The First National Bank of Dad" which I thought was a good one.

Education is the first step. Most Americans aren't educated with respect to finances, and again and again we hear that the majority of people start thinking about retirement in their 50s. That's *way* too late to be thinking, and so many wonderful and strategic investing years are behind you.

There are lots of Americans who not only think that "everything will somehow work out", but also that they will actually see an increase over the quality of life that they have now. But so many are setting themselves up for a really tough road to retirement because of how they are living their lives right now. And so, those people who are saving very little, or plan on starting later, and think everything will work out....are deluding themselves.

And it's so true, that our parents just *couldn't* get into the trouble that many will find themselves in down the road. For one, many, many more had defined pension plans than we have now....and even less will have them in the future. Secondly, Visa and Mastercard were only given to people who could afford them. Third, there are just so many more ways to spend money now than back then. Think of all of the different stores that exsist now that did not exist even 10 years ago...let alone 30. Think about restaurants alone that exsist now vs. 30 years ago. It's mind-boggling to me. And then add on the "Keep up with the Joneses" effect where we have people trying to live "the good life" of the upper crust/celebrity set making a tiny fraction of what they do. All of these things are slowly but surely eating away at peoples' futures.

I remember reading an article by Suze Orman that talks about what people spend on vacations. That's a big, big place where people spend money that they don't have. Something we see here all of the time I might add. Anyway, she told the story of going to have her hair cut, and talking with the shampoo woman. The shampoo woman told her of a luxurious vacation that she just took...to the tune of $4,000. It all went on a CC of course. Orman pointed out to her that this is a pretty expensive vacation and her response was..."I work so hard...I deserve it." Thirty years aog that never would have happened, not because people had it easy at work...but because that woman never would have had access to easy credit. These are the same people who are likely to complain that they live paycheck to paycheck and can't get ahead. We now have a socieity where we all believe that we deserve nothing but the best, and a banking industry that provides incredibly easy access to credit regardless of income level....a lethal mix that will really affect the future of this country.

 

[Julia M]

getting back to a subject that was earlier in the thread......when you talk about replacing income, are you referring to pretax or post tax income?

While I know there will be tax on interest income, I'm sure that's still less than what we're paying now!!

For us, post tax vs. pretax makes the difference of over a million dollars!

On the subject of child finance education.......my parents modeled behavior, but that wasn't enough for me. I couldn't learn from their example. I never got in horrible trouble (like credit card debt) but couldn't pull it together on my own. Luckily for me, my mom knew this, and knew I wouldn't respond well to her "instruction". She asked my aunt (someone I respect greatly) to help me budget. She taught me the "envelope" system, and that has worked for me ever since. She actually used envelopes, while I use varied savings accounts, and a small spiral notebook to keep track of categories in my checking account.

When I saw her a year after she taught me (and taught me well), I showed her my little notebook, and I was SO proud. But I told her my problem, every time I would save a little (I was making 12K a year....paying $300 for rent, $100 in student loans and $150 in car payments, so I was broke much of the time!!), I would have to spend some of it (on a car repair, a wedding gift, whatever) and she just laughed.....and told me that's what an emergency fund was for!

I am SO grateful my mom had the insight to ask this beloved aunt to help me out.....I truly believe it has made a significant difference in my life. And now that I'm older and wiser, I can discuss finaces with my mom and appreciate her input.

Julia

 

[disneysteve]

Visa and Mastercard were only given to people who could afford them.

The shampoo woman told her of a luxurious vacation that she just took...to the tune of $4,000. It all went on a CC of course. Orman pointed out to her that this is a pretty expensive vacation and her response was..."I work so hard...I deserve it." Thirty years ago that never would have happened, not because people had it easy at work...but because that woman never would have had access to easy credit.

I don't think most people think about how drastically credit has changed over the years. Back in the 50's and 60's and even into the 70's and early 80's, you actually had to qualify for a credit card. If you didn't have a good credit history and an adequate income, your application would be denied. I've told before how in college (82-86) my friends and I would go to the mall and apply for all the store cards to get the free gifts knowing there was no possible way any of us could qualify for a credit card, and none of us ever did.

As the industry was deregulated, the lending rules got much more lax and we're now at a point where virtually everyone can get credit. College students can get credit cards even though they have no job, no income and no money. People can go out and get a credit card or even a mortgage within months of filing for bankruptcy. And, of course, lots of people think if they qualify, it must be okay to do. That's where most of the trouble came from. If we could return to the days when how much credit you were granted was actually based on your personal financial condition, many of our current problems would cease to exist.

 

[dvcgirl]

getting back to a subject that was earlier in the thread......when you talk about replacing income, are you referring to pretax or post tax income?

While I know there will be tax on interest income, I'm sure that's still less than what we're paying now!!

For us, post tax vs. pretax makes the difference of over a million dollars!

Julia

Well, we'll all pay income tax on the money withdrawn from our 401Ks. Nothing on the Roths, if you have them. And then yes, capital gains tax on our taxable accounts, if you have them. Keep in mind though, we are in an historic low tax phase right now. Capital gains taxes were as high as 35% in the 1970s, then down to 20% in the early 80s, back up to 28% in the late 80s and then all the way down to where we are now...15% for investments held more than a year....(very low!). There is just no way of knowing where we'll be when we retire....

 

[dvcgirl]

I don't think most people think about how drastically credit has changed over the years. Back in the 50's and 60's and even into the 70's and early 80's, you actually had to qualify for a credit card. If you didn't have a good credit history and an adequate income, your application would be denied. I've told before how in college (82-86) my friends and I would go to the mall and apply for all the store cards to get the free gifts knowing there was no possible way any of us could qualify for a credit card, and none of us ever did.

As the industry was deregulated, the lending rules got much more lax and we're now at a point where virtually everyone can get credit. College students can get credit cards even though they have no job, no income and no money. People can go out and get a credit card or even a mortgage within months of filing for bankruptcy. And, of course, lots of people think if they qualify, it must be okay to do. That's where most of the trouble came from. If we could return to the days when how much credit you were granted was actually based on your personal financial condition, many of our current problems would cease to exist.

It's amazing isn't it? There are lots of young people living in Orlando, and so I see lots of cars with these very expensive rims on the tires. Apparently these things can run one thousand dollars or more...per rim. And so guess what kind of business has popped up out of this one item...."Rent to Own" rim stores.....amazing.

There would have to be a major overhaul of the banking industry in order to turn this giant mess around though...and I just don't see it happening anytime soon. My Dad made the equivalent to about 40K when I was a kid...maybe 50K if he was lucky enough to make some overtime. And we just didn't do the things that people do today with that same income. And we sure didn't have the things that people have today. Why? No credit cards. Combining instant credit with our need for instant gratification will have a far reaching negative impact on this nation.

 

[MrsPete]

It's amazing isn't it? There are lots of young people living in Orlando, and so I see lots of cars with these very expensive rims on the tires. Apparently these things can run one thousand dollars or more...per rim. And so guess what kind of business has popped up out of this one item...."Rent to Own" rim stores.....amazing.

We saw one of those "Rent to own tires" stores one day when we were out, and I commented on it. For the life of me, I couldn't figure out why any one would RENT tires. My friend explained to me -- in the "duh" voice -- that it was for people who have to have those big, fancy tires and can't afford to buy them. They pay $$$ each week to have them. Personally, I don't even know what kind of hubcaps I have on my Explorer; it's just not something that's important in my world.

 

[DMRick]

This thread has had a lot of hits..I'm interested in what those of you reading and not posting think about the original question. When is it enough for you? I know I've gotten several pm's about what others have planned and some have already started retirement, but I think others would be interested in what might work for you to make you retire. I don't think the OP meant you had to have it..just what you think will be enough for your circumstances? Hopefully people can feel that they can post it, and we won't tear it apart.

 

[DVCLiz]

This thread has had a lot of hits..I'm interested in what those of you reading and not posting think about the original question. When is it enough for you? I know I've gotten several pm's about what others have planned and some have already started retirement, but I think others would be interested in what might work for you to make you retire. I don't think the OP meant you had to have it..just what you think will be enough for your circumstances? Hopefully people can feel that they can post it, and we won't tear it apart.

The OP most certainly did not mean you had to have it. If the OP had meant that, the OP would be wringing her hands and tearing her hair out, because the OP ain't there yet, kids.

Come on, you lurkers, join in the fun!!!

 

[tinaluis]

I posted early on in the thread and have been actively reading it since. I follow C.Ann's logic and am of the mind that I live a frugal life now and expect that to continue when I retire. DH and I will do the best that we can for our DDs while we're alive, help with college, weddings, babysitting, etc., but there won't be any big inheritance to speak of. We also don't expect to have $2-3 million when we retire and that's OK too. We do the best that we can as far as savings go, but we also do the best that we can to enjoy our lives together now (as frugally as possible). I saw my father stress when his company stock took a nosedive (back in the day when owning 100% company stock was the thing to do) only to see him commit suicide a few years later at age 51. Then my mom died of heart disease at 50. They stressed about saving for retirement, stressed when the company stock took a nosedive and never lived to see their retirement. Not me. DH and I are as frugal as we can be with our money, saving what we can, but not at the expense of our happiness now.

 

[DMRick]

I am so sorry about your parents. I can see by what people post, just how much our past lives have a part of how we decide to treat retirement. I know sometimes I sound like a broken record when I comment on how much more money we had when the kids left (ya gotta have them to know how expensive they are..back when my 3 kids got braces, that wasn't covered at all by inurance..and that was about $12,000 alone..and of course I've mentioned the other normal things..private school, college, weddings, etc!). For some, that may have to be when retirement savings start.

I posted early on in the thread and have been actively reading it since. I follow C.Ann's logic and am of the mind that I live a frugal life now and expect that to continue when I retire. DH and I will do the best that we can for our DDs while we're alive, help with college, weddings, babysitting, etc., but there won't be any big inheritance to speak of. We also don't expect to have $2-3 million when we retire and that's OK too. We do the best that we can as far as savings go, but we also do the best that we can to enjoy our lives together now (as frugally as possible). I saw my father stress when his company stock took a nosedive (back in the day when owning 100% company stock was the thing to do) only to see him commit suicide a few years later at age 51. Then my mom died of heart disease at 50. They stressed about saving for retirement, stressed when the company stock took a nosedive and never lived to see their retirement. Not me. DH and I are as frugal as we can be with our money, saving what we can, but not at the expense of our happiness now.

 

[dvcgirl]

I am so sorry about your parents. I can see by what people post, just how much our past lives have a part of how we decide to treat retirement. I know sometimes I sound like a broken record when I comment on how much more money we had when the kids left (ya gotta have them to know how expensive they are..back when my 3 kids got braces, that wasn't covered at all by inurance..and that was about $12,000 alone..and of course I've mentioned the other normal things..private school, college, weddings, etc!). For some, that may have to be when retirement savings start.

Very true, kids are expensive...no doubt about it. I know what my friends and relatives spend on their children....and it's a whole lot. Just curious though DMRick, don't you guys have a pension (or two)? For people without a pension, waiting until the kids are gone can be mid 40s to mid 50s, and catching up from that point is tough. Anything a person can do to take advantage of tax deferred saving, even if they aren't maxing out accounts like 401ks and Roths is really a big deal. Waiting until 40s or 50s if you have one or two pensions is one thing, but for those without one, it's a lot tougher. I'm not saying that this is everyone's priority....just that it's something that a lot of people don't think about and sort of kick themselves for not throwing something in those tax-deferred/tax-free accounts down the road.

 

[disneysteve]

We also don't expect to have $2-3 million when we retire and that's OK too.

This number keeps coming up, which might be my fault, but I just want to clarify this. Certainly, not everyone needs to save $3 million in order to retire comfortably. If you earn the US median of about $45,000, the traditional rule of thumb would suggest that you would need just over $1 million. And when you add in SS benefits (assuming they are the same as today's system), your savings need drops to about $725,000, far less than $3 million. People who are projecting needing $3 million are people who are earning well above the median.

 

[crisi]

Very true, kids are expensive...no doubt about it. I know what my friends and relatives spend on their children....and it's a whole lot. Just curious though DMRick, don't you guys have a pension (or two)? For people without a pension, waiting until the kids are gone can be mid 40s to mid 50s, and catching up from that point is tough. Anything a person can do to take advantage of tax deferred saving, even if they aren't maxing out accounts like 401ks and Roths is really a big deal. Waiting until 40s or 50s if you have one or two pensions is one thing, but for those without one, it's a lot tougher. I'm not saying that this is everyone's priority....just that it's something that a lot of people don't think about and sort of kick themselves for not throwing something in those tax-deferred/tax-free accounts down the road.

One of the reasons our kids didn't arrive until our mid-30s. Had we had them in our 20s, we'd never have been able to put money into 401ks. As it was, by the time the kids arrived, we had enough socked away that we'd have been able to retire - if not comfortably - at least not without needing to take jobs as Wal-Mart greeters to pay the heat bill.

 

[MrsPete]

I saw my father stress when his company stock took a nosedive (back in the day when owning 100% company stock was the thing to do) only to see him commit suicide a few years later at age 51. Then my mom died of heart disease at 50. They stressed about saving for retirement, stressed when the company stock took a nosedive and never lived to see their retirement. Not me. DH and I are as frugal as we can be with our money, saving what we can, but not at the expense of our happiness now.

That's a horrible story, and I'm sorry you had to live through it.

I don't think anyone here has suggested that happiness should be sacraficed for retirement savings; I personally don't think that's necessary. Looking at your post, I have the impression you'd agree that it's possible to be frugal and happy.

 

[MrsPete]

This number keeps coming up, which might be my fault, but I just want to clarify this. Certainly, not everyone needs to save $3 million in order to retire comfortably. If you earn the US median of about $45,000, the traditional rule of thumb would suggest that you would need just over $1 million. And when you add in SS benefits (assuming they are the same as today's system), your savings need drops to about $725,000, far less than $3 million. People who are projecting needing $3 million are people who are earning well above the median.

Add a few more words . . . People who are earning well above the median AND are looking to retire to a high-cost lifestyle.

The person -- regardless of pre-retirement income -- who wants to buy a little cabin on Walden Pond may be able to live on the same income as the guy who retired as a Burger King shift manager. It's not how much one earns pre-retirement, but what one wants to spend during retirement.

Personally, I am very willing -- perhaps even eager -- to downsize my housing in retirement. I'm willing to continue to be frugal with grocery shopping, clothes shopping, and other day-to-day necessities. But I want to know that I have enough in the bank for security purposes, and I want to know that I can travel.

 

[DMRick]

I've made no secret that we have a pension (and we took a large cut in pay to retire early). I've also said that my husband did better as a financial person than my employer (Stateof NY) was doing and we removed my money when I left my job, and he invested it..so we do have decent savings. That said, we can easily live on under $2000 a month and still travel. Our savings are there if we need it, and someday we'll have to draw some of it (just because of age)...but some of us really do make it in our 50's on a lot less than what Kiplinger's thinks we can do. We just don't have a lot of bills. I find it interesting that my parents only had social security (and waitresses and taxi driver's didn't get a lot of social security). While we helped towards the end with some extra's, they never felt deprived. My parents were happy with whatever they had..and brought up 4 children who all did well..with no help for college, or a headstart on a house, or inheritance.
People here aren't saying they aren't saving at all. And I'm not saying that they shouldn't start until the kids are gone (and I don't know why you keep making it sound like I am saying that). I am saying though, that while they may not have the amount you plan on having, once the kids are gone, they can save a lot more. I'd be interested in seeing just what people's answers are to the OP's original topic, rather than continually just saying..don't wait. Everyone knows it would be best to save what they can NOW. But some just don't feel like in this time of their lives, they can. So rather than be doom and gloom, perhaps they can look past right now and orthodontist bills, and college and see that while they may not save a million, as someone else said, they also may not be eating cat food.
I'm interested in what others think will be enough for them..not so I can tell them it won't be..but to just see how others feel. If we can get anyone new to post and share.

Very true, kids are expensive...no doubt about it. I know what my friends and relatives spend on their children....and it's a whole lot. Just curious though DMRick, don't you guys have a pension (or two)? For people without a pension, waiting until the kids are gone can be mid 40s to mid 50s, and catching up from that point is tough. Anything a person can do to take advantage of tax deferred saving, even if they aren't maxing out accounts like 401ks and Roths is really a big deal. Waiting until 40s or 50s if you have one or two pensions is one thing, but for those without one, it's a lot tougher. I'm not saying that this is everyone's priority....just that it's something that a lot of people don't think about and sort of kick themselves for not throwing something in those tax-deferred/tax-free accounts down the road.

 

[DMRick]

at least not without needing to take jobs as Wal-Mart greeters

My husband is a person people. This is his dream job..I just won't let him apply for it.

 

[disneysteve]

It's not how much one earns pre-retirement, but what one wants to spend during retirement.

Absolutely. Can't argue with that at all. The general assumption, though, is that people will want to maintain a reasonably similar lifestyle post-retirement to what they had pre-retirement. If pre-retirement, you dined out occasionally, maybe went to a show now and then, traveled a few times a year, etc., you likely don't want to suddenly switch to sitting on a rocking chair on the porch every day for the rest of your life. If you want to, great. You won't need nearly as much money. I just don't think that's the average person's plan for retirement. Neither way is right or wrong. The point is just to try and prepare for the retirement you would like to have. If it is a very simple retirement, your needs will be relatively small. If it is a more elaborate retirement, then your needs will be considerably larger.

 

[DMRick]

For some, that may have to be when retirement savings start.

Just to clarify because of a PM I got. I assume people save for things other than retirement. Because some people have to save for college..they may have to wait to save for retirement. I'm not advocating no savings at all until the kids are gone. But you may be able to be a lot more agressive once they are on their own.