On Track to save for Retirement????

[iheartscience]

Although after the .com bubble burst and the most recent economic collapse, sometimes I think putting more $ into a regular old savings account or CD is a better idea. I should probably get a financial planner, but haven't gotten around to it yet. Not sure I would trust someone more than I trust myself anyway.

This is my DH's view, and I haven't been able to convince him otherwise. I do understand his fear, but at the same time, there's no real alternative to the market if we want to even just hedge against inflation. He does have a pension, not a great one, but at least it's something. He's fortunate to have had a job that allowed him to save a lot starting pretty young, and even though a lot went to our down payment, he still has a good amount of assets for a person his age. I, on the other hand, worked for a nonprofit after college and didn't make much. I did put a bit into a 403(b) (no employer match) but it was pretty paltry. Rolled it into an IRA when I went to law school, and the value when I finished school was almost exactly the same as when I started, thanks to the recession. When I started working again, I contributed 7% plus a 5% match, and have increased my percentage since then. I also have some going into the Roth fund and some to the regular fund, since I want to balance out taxed and tax-free distributions. I may (fingers crossed) get a bump up in pay soon, and if I do, I might actually be able to come close to maxing out my contributions, which would be awesome. Plus, I will (maybe?) have some kind of pension, Congress willing, but I refuse to factor that or SS into my planning. And we definitely don't plan to keep our current home in retirement, so with a bit of luck we'll be able to sell it and buy a less expensive place outright at that time. I just hate that it feels like even when you try to do things the "right" way, it's still a total crapshoot as to whether it will work out the way you hope or not.

Yeah, I agree-what else can you do? My parents lost a TON of money in the .com bust so I've always been pretty nervous about it. It feels like gambling! I mean what goes up must come down, right?

I've considered investing in real estate and maybe buying a duplex or multi-family home in the city and living in one of the units for a while before buying another home. Maybe your husband would be interested in that? My parents have an investment property that they've had for years, and have the mortgage paid off and have long term tenants, so now they have that steady income every month. It'll be a PITA if their tenants leave, but they could always go with a management company if they don't want to deal with it themselves.

I totally agree, though-it all seems like a giant crapshoot. But us even talking about it and thinking about it is more than a lot of people do, so that's something, right?!

 

[gemtastic]

Great topic!

FYI: if anyone has an account with TIAA-CREF they offer a program called 360view where you can input all of your financials (bank account, car payment, mortgage, student loans, 401k, IRA, stocks etc) from any company. It updates daily to let you know your "net worth", basically if you are in the red/black in terms of debt to savings. I have found it really helpful to put everything in one place. Having had multiple jobs, I have multiple smallish retirement funds that I can now track on one screen. It also breaks down all of your investments from different sources into one pie chart so you can track your diversification.

Regarding paying down student loan debt--you need to figure if the debt works for you. I have a fixed rate of 2.63%. While I hate having debt, with such a low interest rate, it doesn't make sense for me to pay off earlier--I would rather put any extra money into savings/investments, where in theory, I can earn more off that money. Means that I will continue to pay my loans until 2019
Depending on your tax bracket, you can also write off the interest accrued on the loans. Not for everyone.....trust me, I understand the want/need/desire to just pay it off earlier.

Its never too late to start saving. I remember sometime in college my father trying to teach me about investing, with hand-drawn pie charts that I still have fifteen years later. I did start saving late, having pursued the graduate school route. I was acutely aware of my friends that graduated at 21-22 and had jobs where they could start saving. I knew what Tgal learned--that I would never be able to "catch" up for not investing in my twenties like my friends. But that's life.

I also invest separate from my husband, I have my own IRA, 401K, 403b, stocks, etc. As many have commented in this thread, you never know what life will throw at you, or you may have different views on how to manage finances.

 

[justginger]

justginger: I have the same feeling about debt, especially when you're relatively young. I want to pay off all of our student loans and not take on any more debt, except a mortgage. The Dave Ramsey baby steps are:

1. have an emergency fund ($1,000)
2. debt snowball to $0 in debt, except for house
3. save 3-6 mos. of expenses for emergency fund
4. invest 15% of household income into retirement
5. work on college funding for children
6. pay off your house early
7. build wealth and give

We are still on baby step #2, except we have a much larger emergency fund than $1k, because we have high deductible health plans and like having a larger cushion.This was very helpful last year when my car was dying and we were able to buy a used car with cash and still have some savings left. Dave's advice is to go in this order, because your kids' educations won't feed you in retirement!

Living in Australia, it never occurred to me how much some people will have to sacrifice and save for their children's education. Even with my first college degree in the States, I was on a full academic scholarship, so only had the cost of books. Now in Australia, as I've learned from studying for my citizenship test, the access to higher education is considered a basic right. This means that while tuition averages $20-30k, the Australian government pays all but about $8k for you. That 8k is also able to be borrowed from the government with no interest other than yearly inflation adjustments, and all payments are deferred until you're earning a threshold salary (>$50k). This means that paying for my children's education doesn't have to be a major life financial priority. They will never be saddled with a debt they can't afford due to ballooning interest and payments that are due either immediately, or directly upon graduation.

I think the States would benefit from an examination of the current tertiary education funding scheme. So many young adults are really struggling due to the true cost of a college degree.

 

[sonnyjane]

Great topic!

Regarding paying down student loan debt--you need to figure if the debt works for you. I have a fixed rate of 2.63%. While I hate having debt, with such a low interest rate, it doesn't make sense for me to pay off earlier--I would rather put any extra money into savings/investments, where in theory, I can earn more off that money. Means that I will continue to pay my loans until 2019
Depending on your tax bracket, you can also write off the interest accrued on the loans.

Yeah. I have the dreaded "private loans". Right now I have one at 6.55%, one at 4.75%, and one at 1.75%. After paying the top two off, the 1.75% one I'll just pay a bit more than the minimum because I'll earn more on investments.

 

[bluegirl123]

Justginger, I'm in the same boat as you in that we are aggressively paying off our mortgage before investing into retirement. We'll be done in 3.5 years and we're almost 29. We prefer this approach because
- it's easiest for us to do and we can see immediately see the effects this has so we remain dedicated to the goal
- we cannot stomach risky investments, but the safe ones are yielding peanuts
- we don't want to be in a position where one or both of us becomes unemployed and have to worry making mortgage payments ever again (or until we upgrade i suppose )

We're thinking about having children soon, and I really want to be mortgage free before that occurs. It takes the stress away if I decide to be a SAHM.

 

[bluegirl123]

I recall reading an article about how the amount that is required for retirement that people throw around can be overestimated as by the time you retire, there are certain expenses that you shouldn't have anymore, or would be heavily reduced. For example, reduction transportation costs as you don't need to go to work regularly anymore.. and you may be able to consolidate down to one car. Or, perhaps your mortgage will be fully paid off, etc.

Does anyone here adjust for that? I find that minus housing and transportation costs, our yearly spending is actually quite low (which is why we are able to aggressively reduce mortgage).

 

[sonnyjane]

I recall reading an article about how the amount that is required for retirement that people throw around can be overestimated as by the time you retire, there are certain expenses that you shouldn't have anymore, or would be heavily reduced. For example, reduction transportation costs as you don't need to go to work regularly anymore.. and you may be able to consolidate down to one car. Or, perhaps your mortgage will be fully paid off, etc.

Does anyone here adjust for that? I find that minus housing and transportation costs, our yearly spending is actually quite low (which is why we are able to aggressively reduce mortgage).

That is true, but some costs increase (such as healthcare). DH's job is mobile, so we have decided not to buy a home until we are retired (or at least until we have jobs in a permanent location). That puts us at a disadvantage in that respect, however we hope to save up a lot and make a giant (50% or more) downpayment when that time comes.

 

[softly softly]

justginger: I have the same feeling about debt, especially when you're relatively young. I want to pay off all of our student loans and not take on any more debt, except a mortgage. The Dave Ramsey baby steps are:

1. have an emergency fund ($1,000)
2. debt snowball to $0 in debt, except for house
3. save 3-6 mos. of expenses for emergency fund
4. invest 15% of household income into retirement
5. work on college funding for children
6. pay off your house early
7. build wealth and give

We are still on baby step #2, except we have a much larger emergency fund than $1k, because we have high deductible health plans and like having a larger cushion.This was very helpful last year when my car was dying and we were able to buy a used car with cash and still have some savings left. Dave's advice is to go in this order, because your kids' educations won't feed you in retirement!

Living in Australia, it never occurred to me how much some people will have to sacrifice and save for their children's education. Even with my first college degree in the States, I was on a full academic scholarship, so only had the cost of books. Now in Australia, as I've learned from studying for my citizenship test, the access to higher education is considered a basic right. This means that while tuition averages $20-30k, the Australian government pays all but about $8k for you. That 8k is also able to be borrowed from the government with no interest other than yearly inflation adjustments, and all payments are deferred until you're earning a threshold salary (>$50k). This means that paying for my children's education doesn't have to be a major life financial priority. They will never be saddled with a debt they can't afford due to ballooning interest and payments that are due either immediately, or directly upon graduation.

I think the States would benefit from an examination of the current tertiary education funding scheme. So many young adults are really struggling due to the true cost of a college degree.

I am in Australia and I am definitely making being able to fund my children's future tertiary education a financial priority as I believe the university funding schemes we have in place here are entirely dependant upon future governments being able to fund them - something an aging population combined with the welfare state we have here will place under strain. This link shows Tertiary education funding in Australia has historically been subject to change based upon differing social conditions, government philosophies and economic conditions. Fees were abolished by the Whitlam government in the 1970s only to be reinstated in the late 80s by the Hawke government in the form that you described above. While I agree that this system is more affordable than that in the US it has already been subject to two reforms, both of which have increased the financial burden on students. http://en.wikipedia.org/wiki/Tertiary_education_fees_in_Australia.. I would not be surprised if government financial assistance had been abolished or scaled back significantly by the time my kids reach university age in 10 years.

Primary and Secondary education can also be expensive in Australia if you chose to use the private system. Fees of up to 30k per year are not unheard of in capital cities.

 

[aljdewey]

I recall reading an article about how the amount that is required for retirement that people throw around can be overestimated as by the time you retire, there are certain expenses that you shouldn't have anymore, or would be heavily reduced. For example, reduction transportation costs as you don't need to go to work regularly anymore.. and you may be able to consolidate down to one car. Or, perhaps your mortgage will be fully paid off, etc.

Does anyone here adjust for that? I find that minus housing and transportation costs, our yearly spending is actually quite low (which is why we are able to aggressively reduce mortgage).

I don't adjust for that because the few expenses that may reduce are more than offset by others, and I've seen this firsthand for my folks who retired 5 and 7 years ago, respectively. They no longer spend on transport to work, but that's been replaced by outings outside the house.....which are even more important now that they're home so much. They don't spend on dry-cleaning work clothes, but they spent more in heat by being home during the day when they weren't previously. Food, gasoline, property taxes, insurance and healthcare have gotten exponentially expensive - the rise in food costs alone over the last five years has been *significant*.

Keep in mind, too, that when employed, most people hopefully make regular salary increases or potential promotions. Once you're retired, your 'rate' is set, and it's much more likely to suffer funding cuts than any kind of reasonable COLA.

They bought their house in 1978. Though their house is paid off now (just last year), their monthly property tax cost today equals what their monthly mortgage payment was all those years ago.

What I have seen change for them: sharp drop in consumerism. They older you get, the less you really need. Their wants are really pretty basic, and as long as we help keep them gifted in gift cards to buy their Kindle books or iPad games, they're pretty happy. They happen not to be huge travellers, so their needs list is a bit less. They enjoy going to out to breakfast or to dinner from time to time, and they're well able to do that. Luckily, they have covered heathcare from my dad's military service. If not for that, I'm pretty certain they'd still have to be working.

 

[rubybeth]

I recall reading an article about how the amount that is required for retirement that people throw around can be overestimated as by the time you retire, there are certain expenses that you shouldn't have anymore, or would be heavily reduced. For example, reduction transportation costs as you don't need to go to work regularly anymore.. and you may be able to consolidate down to one car. Or, perhaps your mortgage will be fully paid off, etc.

Does anyone here adjust for that? I find that minus housing and transportation costs, our yearly spending is actually quite low (which is why we are able to aggressively reduce mortgage).

That is true, but some costs increase (such as healthcare). DH's job is mobile, so we have decided not to buy a home until we are retired (or at least until we have jobs in a permanent location). That puts us at a disadvantage in that respect, however we hope to save up a lot and make a giant (50% or more) downpayment when that time comes.

Our costs are already so low for housing and transportation that I really don't adjust for it. Assuming we buy a house and have it paid off before retiring, then I might adjust for that, but we hope to have a house that costs less than 25% of our take home pay each month. Housing in our area is cheap-cheap-cheap compared to the rest of the country. Even cities only 100 or so miles away, like Minneapolis, have significantly higher housing and costs of living.

If, however, you are within 10 years of retiring and you have a $1,200 mortgage payment that is 33% of your take-home pay, and that will be paid off prior to retirement, then maybe you can live on $2,400 or a bit more each month to account for taxes and insurance. But those costs rise every year, so it would be safer to plan on needing more than plan on needing less.

What I keep thinking about is medical costs. My grandparents were/are fairly healthy in their mid-late 80s, but medical bills are the number one cause of bankrupcty in the US. One major medical issue and you're in trouble, like Loriken's story, which is all too common. I think the medical and education systems in the US need an overhaul.