Why are we so bad at saving?

[JustMickey]

My boyfriend and I are both 19, and we're very interested in saving for retirement as soon as possible. However, he brought up a good point the other day. He said he's nervous about putting money away for retirement, because our country has only been around for 230 years. Who's to say that we won't be toppled by some other country in the next 50 years, and lose all the money that we invested into our retirements throughout our whole lives? Now I know this doesn't really seem like a real threat, but it kinda makes you step back and think for a minute!

 

[punkin]

My boyfriend and I are both 19, and we're very interested in saving for retirement as soon as possible. However, he brought up a good point the other day. He said he's nervous about putting money away for retirement, because our country has only been around for 230 years. Who's to say that we won't be toppled by some other country in the next 50 years, and lose all the money that we invested into our retirements throughout our whole lives? Now I know this doesn't really seem like a real threat, but it kinda makes you step back and think for a minute!

You have a much better chance of being run over by a truck or dying of some kind of cancer before retirement. I would worry about the likelies first, then the unlikelies and then the fantasies.

 

[Todd&Copper]

My boyfriend and I are both 19, and we're very interested in saving for retirement as soon as possible. However, he brought up a good point the other day. He said he's nervous about putting money away for retirement, because our country has only been around for 230 years. Who's to say that we won't be toppled by some other country in the next 50 years, and lose all the money that we invested into our retirements throughout our whole lives? Now I know this doesn't really seem like a real threat, but it kinda makes you step back and think for a minute!

Sounds like an oddly creative way of justifying fiscal irresponsibility to me.

 

[allison443]

Sounds like an oddly creative way of justifying fiscal irresponsibility to me.

Yeah really

 

[Chicago526]

The thing that bothers me about these news articles is that they seem to focus on one type of person/family or another. It's either a family that does everything by the book 100% right, or the family that made every financial mistake known to man.

DH and I have made mistakes, of course, but we also do plenty of things they right way. We're saving our 401k's, we're driving our cars into the ground, we don't buy new cloths (when we do, it's all on sale or clearance) we pay cash for everything, we're paying down our CC debt. Our mistake was getting the CC debt to begin with, of course. We also aren't paying it down as fast as we could, we eat out, we're renovating our home. But it's getting there.

I'm nearly 32 and DH is 36, we're smack dab in the middle of Gen X. But maybe we're the exception and not the rule?

 

[dvcgirl]

Well, I am 34 and I max out my matching funds to my employer's retirement savings plan, plus I will get a government pension, plus I have an IRA, so I kind of think that I will be able to retire, with or without social security.

This also means I don't buy designer clothes (in fact, pretty much all of my clothes and shoes were bought at some kind of discount), I drive an older car, I am not obsessed about getting the latest cell phone or the biggest cable package, I don't have weekly mani-pedi's, I don't get a venti latte at Starbucks every day. I am perfectly happy with all of this - the status symbol crap just isn't my thing - so don't think I feel deprived or anything.

Maybe the recession will be good for Gen X if it forces us to be more frugal or responsible with our money. Unfortunately, I think so many people give up before they start, or are master procrastinators always claiming they'll start "tomorrow."

Well, we're 40 and 39 and you guys sound exactly like us. We've gotten increasingly frugal as we've gotten older and care less and less about "stuff" with each passing year. We've also been saving a minimum of 20% of our net income since our early 20s. I *know* that we will retire, likely in our early to mid 50s if we choose to, but we also understand that our situation will definitely be affected by the terrible state that most of our peers will find themselves in....

 

[pearlieq]

He said he's nervous about putting money away for retirement, because our country has only been around for 230 years. Who's to say that we won't be toppled by some other country in the next 50 years, and lose all the money that we invested into our retirements throughout our whole lives?

There's also the possibility that aliens might invade the earth and enslave us all in their salt mines. Or that the Earth might wobble off its orbit and crash into the sun. There are always "what ifs".

If you think about it, though, our 230 years is one of the longer runs in modern history of having the same government (same mode of government, line of succession, constitution, etc.). Many modern nations have only had their current government in place for less than the last century. For example, Germany has only existed in its current state since 1990. France, 1958. India, 1950. China, 1949.

You can control a bit for eventualities like a total government collapse, if you really insist, by investing in precious metals, offshore accounts, and the like, but there are huge opportunity costs for that. Plus, that's still dependent on humanity assigning a value to a shiny metal.

What does he propose doing instead?

 

[juliana_sd]

Here's a simple calculator to see if what you're saving is "enough" (always an estimate of course)

http://www.bloomberg.com/invest/calculators/retire.html

For those wanting something to compare, I'm 30, and I have about 45% of my annual income in my 401(k). Including my company match, I contribute 12% annually. Assuming 3% salary increase and 10% rate of return, I'm on track for 50x my current income in savings.

Example w/ easy numbers:
Salary $50000
Current 401k balance $22500
Annual contribution $6000
Retire at 65 with $2.5 million
Depending on rate of return during retirement this should last till age 100

ETA: after playing with examples, as a very rough guideline, at age 35 you should have an amt equivalent to your annual income in your retirement acct.

 

[crisi]

I don't really see a problem with # 2 and 3. If she is 18 and is driving by herself sometimes she probably needs a cellphone. My kids have Ipods that they got for birthday/Christmas. When did they become an ultra-luxury product?

When people are buying them while carrying credit card debt and not saving for retirement.

If you have no credit card debt and are saving 10% of your income for retirement, and live below your means, then they are not luxuries - treats perhaps, but not luxuries. (like that vacation - if you save for retirement AND can take an annual vacation, then its a luxury you can afford.)

When you have credit card debt and you are not setting money aside for tomorrow, a $49 MP3 player IS a luxury.

 

[gabriellyn]

When people are buying them while carrying credit card debt and not saving for retirement.

Perfectly put.

 

[MrsPete]

I've always felt that way Crisi, thanks for saying it. I thought that with this mortgage meltdown. for the last 30 years we've basically been a country of instant gratification. Every where we look, the message is now,now, now and bigger, bigger, bigger and some how we are surprised that every thing now is in the pisser.
The average young lady of 18 today has: (of course not here on the dis )
1) designer bag (coach, fendi, louis vatton)
2) cell phone. probably paid for by parents
3) Ipod-once again paid for by parents
4) victoria secrets bras at $50/bra
Do we really expect her to turn around and become a wonderful saver for the future? Most of us probably grew up not going to the mall every weekend

Yep, most of my students have all this AND MUCH, MUCH MORE. Throw in afternoons at the mall and evenings at the movies several times per week, a $500 prom dress, unlimited texting privledges, a personal car, a trip through the drive-through for breakfast every morning, $50 flip-flops, concert tickets, a beach trip for spring break, huge gifts on birthdays and Christmas . . . and you're getting a picture of what MOST of my students have. I hear kids bragging about having nicer cars than their parents.

Sure, we can look at some've the things and justify them: cell phones for safety, perhaps. But can we justify a new phone every six months? The problem isn't a splurge every now and then -- an ipod for Christmas isn't going to spoil a kid -- the problem is a PATTERN OF BUYING BEHAVIOR that sets kids up for exaggerated expectations, which can only lead to debt or disappointment later in life.

 

[MrsPete]

There is no incentive to save. Interest rates are very low, taxes are collected on the interest paid and yet the banks are charging higher interest rates on credit cards. Add to this that the banks are borrowing money from the government at a discount and you start to uncover the reason. Yes, the instant gratification society have driven up costs in every area possible, there is a very small percentage of the population who live on strict budgets. Until there is federal and state incentive to add money to savings, people will continue to spend away.

You make a good point, but I'd change it a little: There's no IMMEDIATE incentive to save. If I don't put aside part of this month's paycheck for retirement, I'll have MORE money TODAY! Yippee for me. I can go out to dinner tonight, then hit the mall to buy some summers shorts (which I can talk myself into believing that I "need"). On the other hand, if I don't save EVER, a big downside will hit me hard when I'm 65-70ish.

Most of us have grown up in an environment where bad things very rarely happen. Most of us have never seen people put out of their houses and banks selling all their stuff. Most of us have never seen people starve because they have no money for food. Most of us have never seen people die because they have no money to buy health care.

We live in a very insulated world where consequences of poor decision making are very rarely allowed to continue to their final resolution. Whenever that process starts, we expect our government to step in and fix it.

Soooo.....it is very easy for us to make the choice of immediate gratification, because we really don't fear the consequences.

You make an excellent point -- you have a habit of that. We have enough safety nets in place that we don't really see examples of what can happen if we're not financially responsible.

 

[runwad]

When people are buying them while carrying credit card debt and not saving for retirement.

If you have no credit card debt and are saving 10% of your income for retirement, and live below your means, then they are not luxuries - treats perhaps, but not luxuries. (like that vacation - if you save for retirement AND can take an annual vacation, then its a luxury you can afford.)

When you have credit card debt and you are not setting money aside for tomorrow, a $49 MP3 player IS a luxury.

I have a sister that gets on me because I don't have a cell phone, well I do but just for emergencies not to chat. I can't stand cell phones, and not that I couldn't afford it, but we don't need them. For emergencies they're fine but it's not how I choose to spend my money...its definetely a luxury I'm not willing to pay for. So many people are just so clueless and will be in for a rude awakening someday. I know I have family members like this, 20k in a 401k does not equate to enough retirement money to live off of

 

[PatriciaH]

ETA: after playing with examples, as a very rough guideline, at age 35 you should have an amt equivalent to your annual income in your retirement acct.

Really? After reading financial books for years I thought it was more like you should have $200,000+ saved by 35. I was always shocked at how much they said you should have saved but I guess we will need it as people live longer.

 

[rentayenta]

DH and I just refigured our savings/retirement plan. We both invest the max into what our companies will match and we are fully funding a Roth IRA. We have also started both a long-term and short-term savings accounts. It is making things tight, still doable but tight at times, and this is the first time in our almost 15 years of marriage that we are making saving a priority. After reading and investigating, it hasn't been that we haven't made enough money but that we were not using it wisely. Funny we don't seem to be depriving ourselves much, just making better choices.


My inlaws are a prime example of why we should save. They both retired at 60and live a nice lifestyle, not extravagent but comfortable. They always saved.

My mother on the other hand had spent every penny she ever made, and it was a lot of money, and is in a very bad financial situation. She has no retirement and no savings and will have to work until she is physically/emotionally unable.

 

[dolce]

i agree saving is important, and i am a saver, but if i want something i buy it.
We grew up extremely poor and didnt have things others did. I am 28, and my DH is 30. We make decent money, no cc debt, have about 1 year emergency fund in a savings, both contribute 13% in our 401ks, and was able to give 20% down payment on our first home. Our priorities come first, but if we want something, we buy it.

 

[KarenAylwood]

I'm 25 and after a BS and an MS, I only started earning money 2 years ago at 23. In those 2 years I have contributed to both a 401K and started a Roth with some of my savings last year. I've maxed it out for 2007 and have started contributing for 2008.

I put away 5% before tax to a 401K, which is fully matched by my company, and I'll be vested after 3 years w/ the company (ie in exactly 1 year). I put away over 15% of my after tax income into a Roth, and over 25% into a savings account which I don't touch. I still spend on vacations, and buying what I want but definitely within reason. I do all I can to save but don't think I go overboard (ask DBF and my friends and they may say I'm obsessed with saving though ).

My parents are both very financially responsible. My dad started out at 26 years old with $5K in debt after a bitter divorce. He started his own small company and built it from the ground up. He has one of the most amazing work ethics I've ever seen, and is very diligent with saving and investing. At just shy of 60 he's still working and set for retirement. His brother, however, declared bankruptcy this year. You can say they have somewhat different views of money. My uncle was always a "live for the now" type of guy, and he's facing his 60s with no credit and no money

My parents were wonderful role models for me in terms of money. I respect their views and am grateful for all they've been able to give me. After 2 years I have an equivalent of 30% of my salary in retirement, and slightly more in savings.

I work with so many Gen Xer's that are looking at a bleak future. So many want to keep up with the Jones's but are drowning. A friend took out $30,000 from his 401K last year, and $9,000 the year before. He paid off his truck, bought a big screen TV, new furniture, and a few other things. Now after all that, he's not much further ahead and faced with the same issues he was before-living paycheck to paycheck. I've heard others at work mention they have very little in their 401K so they can't retire or quit. It's an eye opener, and only pushes me to save more.

I do understand that my views are not the norm. I guess the idea of being seriously worried about money is just so daunting to me.

 

[juliana_sd]

Really? After reading financial books for years I thought it was more like you should have $200,000+ saved by 35. I was always shocked at how much they said you should have saved but I guess we will need it as people live longer.

Like I said that was based on playing with the calculator; I haven't read anything that specified certain amts by a certain age . It really depends on your income as well... someone who lives on $40k a year has different retirement income needs than someone who earns 3x that.

 

[crisi]

Like I said that was based on playing with the calculator; I haven't read anything that specified certain amts by a certain age . It really depends on your income as well... someone who lives on $40k a year has different retirement income needs than someone who earns 3x that.

I've always disagreed with that. Someone who makes $40k and someone who makes $120k have the same retirement needs - if they both live a $60k lifestyle and want to continue that in retirement.

It isn't what you earn (which is what retirement calculators are based off of), its what you spend. Which is part of the issue of non-savers. Savers don't live off their entire income - those who are truly frugal may live off half of it - or even less. Spenders live up to their income, true spendthrifts live beyond it.

Also, how much you need is a function of not only how you intend to retire, but your anticipated lifespan. If your family tends to drop dead of sudden heart attacks in their early 60s (men in my husband's family), you have less to worry about retirement wise than if you waste away in nursing homes in your 90s (like women in my family).

 

[averysmom]

I'm interested in WHY ppl don't believe there will be social security when they retire?

I'm in Canada - so a slightly different system, but I know that I pay my 1800/yr into Canada Pension, and I do expect to receive when I retire.

And I think that with Canada Pension and Old Age Security and Guaranteed Income Supplement that the guaranteed total "pension" is around 14000/year -more if you worked longer - this is the minimum.

Is it much different in the US???

I'm not saying I'm not saving - I have a teacher pension and I save in RRSP every year (our version of 401K), and I DO think that a lot of things that were considered luxuries 30 years ago, are now considered needs (2 cars, TV in every room, eating out at restaurants, McMansions) and I know that growing old in the US is different because of the high cost of health care - but is not being able to retire really that common?