@sax If you put a $55,000 income with 10% savings, conveniently $5,500/year, you will have $1,000,000 at 67 using a 7% return rate. If you start at 25, it will be near $1.5 million. Time value of money. $5,500 is enough if you start in late 20’s. Reality is most can increase the amount in 40’s and beyond. The calculator I used assumed a 2% annual wage increase but the IRA limitations are increased periodically as well. It was $2,000/year when I started saving.
As noted, nothing restricts one to saving outside a retirement account. And as I noted, if married, the limit is $11,000/year with 2 IRAs. @2VU0609 hits the real issue which is paying for healthcare in retirement, particularly if Medicare goes bust.
@MiamiDAP You are presenting a binary solution to your daugher’s problem: an old car with high maintenance costs or a new car with an extended warranty. You must expand options to live below your means. One of the most influential financial articles I ever read was in Inc. magazine twenty years ago. It said the average self-made millionaire in the U.S drives a used car. It might be a certified pre owned BMW or Mercedes but it is used. I firmly believe in buying late model used with 30% or better depreciation paid by someone else. I get ten years out of it and buy another late model used before it becomes a maintenance problem. Changing an alternator at 100,000 miles is routine maintenance, not a problem to me. I routinely have people brag about my truck with no idea it’s ten years old, although if they knew the model differences it would be obvious. Sure I dream of the newer models but it’s amazing how much I can save for college and retirement with no car notes in the family.
And back to kids, we are open with our finances and the cost inlcluding rent/mortgage in a high cost area. Opportunity costs, the next best thing that you give up when you spend time or money, is easily comprehended by teenagers and helps them in decision making. If I pay $20 for X, then I can’t buy Y. Y may be savings for a car or simply another $20 item.
@WISdad23 I think we’re forgetting which generation created the Communist Party here in the US and which one elected FDR. That being said as a “millenial” I don’t plan on retiring, simply because I plan on getting into a career I thoroughly enjoy, and staying in that career. I’ve already set up a Roth IRA, and contribute to a 401K and PERS, plus my portfolio and the long-term bonds I purchase every 6 months. Retirement has always seemed like a silly idea anyway.
That’s $1,000,000 dollars. No I did not adjust for inflation, however inflation has been quite low for more than a decade. I’m not arguing that $1,000,000 is sufficient, but it is a great start, inflation or not. That million will not be withdrawn on retirement day so it will continue to earn money. The calculator did adjust rate of return post retirement to reflect less risky investments. If I remember right, it projected running out of money at 84 years old. But I would argue that in one’s forties and fifties, he or she can invest much more than $5,500/year. Also, you’ve not addressed the single/married issue on $5,500 vs $11,000. If single, $1 million goes much farther. If married, $11,000 per year will be double the assets at retirement.
Is this doable on a minimum wage job? No. But this site is primarily parents of high achieving students or high achieving students themselves. $55,000 by 30 is a reasonable salary expectation. Combined with wise choices on college debt and a reasonable, but not extravagant lifestyle, I believe retirement at 67 is possible. The problem is folks start at 40 or later. It is very difficult to make up for not investinging in late 20’s and 30’s. Time value of money will work for you or against you. In my original post, I used 30 as the starting age to achieve $1,000,000. If one starts at 25, (say after a Master’s Degree) it’s $1.5 million. If one starts at 21 out of undergrad, it’s $2 million. If one starts at 40, it drops to $450,000.
The above paragraph is why I feel all college students, if not HS students should have a basic economics class that is supplemented with a week of finance on the basics of investing in mutual funds. I’ve run those numbers many times showing the year by year chart for young workers and they are amazed. I run the numbers on car loans at various interest rates in the same brief.
@LetterDelivery you are absolutely right. The generations ahead of you have created massive Ponzi schemes (e.g. Social Security) for which your generation will suffer. Plus we have run up huge deficits. Imagine if we included paying down the national debt in our retirement calculations or even paying for a balanced budget.
What is the saying? “We make plans, and God laughs.”
Preparing for retirement, however is not. As a nurse, I can tell you that sometimes retirement imposes itself on a person in the form of illness, accident, or disability. It could happen to any one of us. Glad to see that you have not let your optimism prevent you from preparing for retirement.
A company can also let go of you unexpectedly and it can be hard to find an equal job. Our next-door neighbor, a PhD who has outstanding credentials, was let go a few weeks ago. He’s 64, and not sure if he wants to relocate for a job (there’s not a lot of demand for his skills in Maine). He said he always intended to work quite awhile longer, but now he’s thinking about retiring.
I think one thing that people underestimate and don’t emphasize is the importance of teaching financial literacy. I had to learn about 401K’s and IRA’s on my own - and frankly until now I had no idea whether those were even the right route. I opened a Roth IRA when I was 19 - most people I know don’t even know what a Roth IRA is.
Imagine if high schools had a graduation-retired retirement class that went over basic tax law, 401K’s, IRA’s (Roth vs Traditional), and the math of saving. You could do it in a single semester, even with infrequent meetings, right before everyone graduates high school. Imagine the difference the mere awareness would make, especially for those that aren’t as privileged to have good parents and go to nice colleges, who otherwise could have the means to save but could be unaware of the tax breaks of certain options.
All this said, I agree with most of the others - this seems like par for the course. The past decade has been chalk full of analysis of generations. I’ve detailed before here why they barely exist anyways, but even using the loose definitions most do, you’d think people would figure out that most generations are more or less the same.
Also, an economic or industry downturn could result in your job disappearing (and if you remain unemployed for a while during such a downturn, employers may not want to hire you when business is better later). So can job obsolescence (e.g. will taxi, Uber/Lyft, and limosine drivers become less numerous when self-driving cars become common?). Retraining for a different job may take some time, particularly with the increasing tendency of jobs to require occupational licensing.
Nrdsb4,
When I applied for LTD, I met with a nurse who split her time between NJ and FL. She was paid quite well for doing her “interviews”. No physical tasks involved.
I tell the guy that sits behind me at work (28 years old) that he needs to put enough in his retirement to get the full employer match… his reasoning is “I can’t use that money for a long time”
I had a career that I thoroughly enjoyed. I was a scientific researcher in a pharmaceutical company. The work was challenging and meaningful; my colleagues were bright and dedicated; we worked hard, were successful in getting drugs to the market, and were paid well.
It lasted for 20 years until my employer shut down my research facility and shipped many of the preclinical jobs overseas. Overnight, my colleagues and I - all highly educated, most with PhDs - were scrambling to find new jobs. It’s been 7 years, and many are still unemployed. Almost all are under-employed.
The funny thing is, when I chose this field, one of my requisites was job stability. Scientific research at a pharma company? At the time, that was a rock-solid career; now, not so much. You can still find jobs at biotechs and start-ups, but the employment opportunities for chemists and biologists at the major pharma companies has greatly constricted, and job security is much, much more tenuous.
It’s fairly easy to find a career you enjoy. Finding one that’s stable/profitable/sustainable for 40+ years is much harder.
I hope you find something you love. That is something to admire about the M generation. They want to be happy, not rich.
Agree with Sax. Totally unfair that an IRA only owner is limited to $5500. I will be 50 this year and my max is the 18k, the 15+k my employer will match max, plus an extra 6k catch up. IRA catch up is 1k I think. So where I can put in $39k max, IRA only folks can only do 6500. (And I think I could even do those IRA contributions (no deduct of course) on top of that!) Not fair…raise the max for IRA! PS: Roth is not great if your tax rate is highest now. 401k contributions with no tax at highest rate now vs taking distributions later at a lower rate.
Millennials: get your free $$ for heaven’s sake! I even contributed over the limit my first year at my new job just for the match $. I had to pay tax on the excess contribution, but it was free $ and was worth the “wasted” taxes.
Unfortunately not all employers match. Many do not. It’s a great benefit to be considered when in the position to compare multiple job offers. It could make taking a lower salary a perfectly smart decision.