Category Archives: Retirement

80 is the new 65: The Fairytale of Retirement

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Have you heard? A new survey came out that shows 25% of middle class Americans say they plan to delay retirement until at least 80. Given the average lifespan of a human is 78 years, that’s basically saying a good chunk of Americans are sure they are going to have work every day until they die.

The Wells Fargo retirement survey also shows that on average, Americans have only saved 7% of the retirement money they hoped to put aside. Yikes. One-third of those surveyed in their 60s had saved less than $25k for retirement.

Of course the study is by Wells Fargo, a bank, designed to scare you into investing your money (with them) so you’ll have enough saved for retirement. But the facts are striking — with the disappearing middle class and lack of salaries keeping up with inflation, it’s tough for most Americans to imagine a real retirement for many years to come. Continue reading →

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How much money do I really need in retirement?

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Mint has been the go-to software for budgeting over the past year, and it’s helped me keep my monthly spending in check, or at least to not freak out when the unexpected wrecks havoc on my budget. They have a feature called “Goals” that I’ve tried out before, but I found it clunky and, as each goal needed to be attached to its own bank account, it didn’t make sense for me to have separate accounts for cars, houses, etc. I just put everything into my investments, minus my $8k CD emergency fund, and allow the success of those investments to guide my goals.

Then I realized I should at least make one massive lump-sum goal for my monthly investment savings. In the Goals product, Mint has a feature that determines how much money you should be saving monthly to reach that goal. I selected their “Retirement” calculator, and put all of my investment accounts into this massive goal, even though in reality they’re also the same funds that I’ll be using one day as the down payment for a house, and to buy a car, etc. In any case, I figured it’s best to at least be saving the amount I need for retirement, and I can build on that as my income goes up in the coming years, knock on wood.

The calculation results are terrifying. And I thought I was being conservative in my requirements for retirement. If I want to retire at age 65 with $60k a year in “income” and I plan to die at 90 and I expect to earn 5% interest on my investments, I need to amass a retirement portfolio of $3.62M. What if I live to 100? I’ll need $4.65M in investments to retire at 65.

The monthly required installments to meet this goal are $2,149 a month. That is, if I can manage to eek out 5% a year interest on average. There is no guaranteed way to do this. I am not sure exactly what my stock market returns have been year over year since I started investing in 2005, but I’ll be lucky if after calculations they’re positive at all. This makes me very nervous about my future. What if there are months I can’t save $2149 a month? What if I need to buy a new car? What if my rent goes up, but my salary doesn’t follow?

This all reminds me how important it is to negotiate the highest possible cash salary, or, at the least, work an extra freelance job or two to bring in an extra $1000 a month.

 

 

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Retirement Impossible

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Looking at my various investment accounts, as they fast erase their gains of the last two years and start to go red, I wonder if retirement will ever be possible. I thought a few years ago when we were in a “recession,” my investments at the bottom would eventually equate to some reasonable returns.

It’s so difficult to understand if I have bad investments, if the market is just killing everyone equally right now, and if there are any other places I should be putting my cash right now. Watching about $10k in investments disappear in two months is painful. I understand in a few months it could swing the other way, but right now I’m starting to lose faith in the economy overall. I can see the next 10 years being the lost years of America, and in that time the market will either remain flat or even decline.

I’m one of the fortunate people in America with a good job, who isn’t in debt, who can actually invest my money in the market and hope to see it grow. But, like the few of us left, there is no growth. The only growth is on Wall Street — for the criminals that received huge bonuses from taxpayer bailout money. I’m not political, I’m not walking the streets protesting, but it does seem a bit unfair that Bank CEO pay jumped 26 percent in 2010 after two years of decline (source: good.is) — I’m a capitalist. I don’t believe in loan-free bailouts. Continue reading →

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See the Future, Wrinkled You and Save More?

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Researchers at Stanford believe that the reason so many 20 and 30 somethings don’t save enough during their valuable investing years is that they actually think their future self is a whole other person than the self they are today.

The trick to making us save more, then, is showing us a digitally altered version of ourselves that’s just recognizable enough to shock us into saving more and spending less. Apparently research proves that this works, to an extent.

In one experiment, young people who saw their elderly avatars reported they would save twice as much as those who didn’t. In another, students averaging 21 years of age viewed avatars of themselves that smiled when they saved more and frowned when they saved less. Those whose avatars were morphed to retirement age said they would save 30% more than those whose avatars weren’t aged.

My question is, how fast will these 20-somethings forget how they looked all wrinkled and grey, and return to their spend, not save, philosophy and reality? Hopefully there is some long-term truth to this study, and it can be used to help people my age save more versus waiting until it’s too late to build up a reasonable nest egg for retirement outside of a cushy mid-six figure corporate job. Continue reading →

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Dilemma: Grad School vs. Work

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Some say a graduate degree (in the right subject) can improve your future potential earnings. But I wonder if taking 2-3 years out of my career right now would actually equal more money in the long term.

Assuming I’d be missing out on an earning potential of $100k per year (let’s call that $60k after tax) and I go to school for 2 years. That’s -$120k plus -$50k per year on school and other costs So In the course of two years I’d be out $220k, give or take.

Let’s say I manage to save half of the money I earn, or $30k a year, $60k total. In 30 years at 5% annual compound interest rate, by the time I’m 60 I’d have $259,316 just from that $60k. Ok, that’s not too impressive — in theory I could make a lot more with a grad degree such as an MBA, which is one potential route.) But I’d also be $100k in debt. Ok, so how does that really add up…

Sans Grad School,
Investing $30k per year for next 30 years:
$2,222,481 by age 57

With Grad School,
assuming -$30k savings lost per year in school
plus $100k in student loans
Income increase to $150k / year, $90k after tax
Savings start 2 years later @ 29
Can save $50k / year after loan repayments
3,066,135.60, by age 57 – 259,316 in lost investment earnings

BUT — it’s really hard to say if that’s actually true. That’s assuming a lot of other variables that are unknown. Namely, it’s quite possible for my income to go up WITHOUT a graduate degree, and for my income to go down WITH one. Over the long run I believe a graduate degree would make my yearly income a bit more predictable (but not by much) and give me opportunities to pursue better paying jobs, but that doesn’t mean I will want to take them. But the two years I am in school may be two years I could have spent at a startup that ends up having a successful exit, and thus the grad school would never be able to equal the fiscal value of those lost years (not to mention the experience may be professionally just as valuable, at least in getting a job, as the degree.)

So the truth is the choice of grad school shouldn’t be about money. Clearly if I get a graduate degree and use it to find a better paying job over the long term it could mean a larger retirement nestegg. But it’s not a certain to say the least, and right now the experience and opportunities outside of graduate study are.

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