Comments on: The fuzziness of retirement math A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: hsvkitty Wed, 29 Sep 2010 15:45:07 +0000 Right on ARJTurgot ! “If we can’t afford it and don’t genuinely need it, we don’t buy it.” What a concept!

America seems to be the land of entitlement where people adopt a sense of need and greed, rather then act to save now and for the future.

Hints on how to make math less fuzzy…

Paying off your house should be a priority, not having a mortgage and debt rather then equity … and so few will own their homes by retirement. It should make sense now, not just when you retire. (well, for thos who make their house a home that is…)

Saving does not have to be all about deprivation. Neither does living within your means. And it is never too late to start. Pay off the debt. Forget that the math is fuzzy as it always has been and always will and just act. Throwing your arms up and inaction isn’t going to solve future problems or make that math less fuzzy. Preparation is.

Wrap your credit cards in elastics and freeze them in a block of ice and don’t touch them until they are paid off and then only in dire need. Take the same $$ that was used to pay credit card and use it for savings et voila… you are now a saver and wiser to boot!

Budget. I know it is passée word, but it is about to come back in style

You can do it yourself but do remember financial planners are pie in the sky if not and… they take their hefty slice. Go for a nice basket of diversity with transparent fees.

PS owned my first house and started retirement savings in early 20’s. I am not rich, not wealthy by any stretch, as I am on a reduced pension and work only part time, but I am happily semi retired in mid 50’s and service no debt other then a small mortgage to be paid off before my other pensions kick in.

By: DanHess Wed, 29 Sep 2010 15:40:42 +0000 Dylan Grice has some interesting thoughts (via ZeroHedge) rice-what-weimar-republic-popular-delusi ons-can-teach-us-about-japans-upcoming-h yperi

America is in a better position than most of Europe or East Asia, because of demographics, but the storm will impact us strongly. The real crisis across the developed world is demographics, something that ivory tower types like Krugman discuss almost never.

Japan’s GDP per worker has actually been growing faster than ours for many years. But meanwhile their workforce has been shrinking and herein lies the problem.

Within a decade, their worker-retiree ratio will be 1 to 1. This is absurd and requires massive benefit shrinkage or else there will be national collapse.

Much of Europe has a similar problem. What does this mean for us? The global glut of savings seen now will turn into a global shortage of savings. All those Japanese and Germans who upset us by saving so hard will be doing the opposite, drawing down their savings to fund their retirements. They aren’t engaged in some vicious mercantilist war. They just have very distorted population pyramids and they are sensibly saving for their retirements all at once and will then draw down their retirements all at once. This is the great global hurricane coming. What happened in 2008 was not so severe as what is coming. A global savings shortage will be the real economic storm.

Expect high interest rates. These times of very low interest rates are reflective of global savings abundance, a kind of one-shot demographic dividend. When these trends reverse, interest rates must shoot up. Bonds will be massacred. Growth will be hindered everywhere. With money in short supply, inflation can be expected and owning tangible things (such as a house with a low fixed-rate mortgage) will be very beneficial.

Low consumption in the future will be critical, so it is a good idea to get spending (houses, energy efficiency improvements, lasting furniture) out of the way now, in preparation for much lower spending in the future. Energy efficiency investments are a great way to spend now on guaranteed, untouchable income stream in the future. Low-debt stocks will be a good bet too. For a young person, investing now in valuable skills that will bring an income stream in the future is terrific. Parents and relatives, send everyone you know and love to engineering school, med school, grad school in the sciences, business and so on.

And especially, have several children now!! They represent a big cost now and a huge income stream for your family and America in the future.

By: sditulli Wed, 29 Sep 2010 15:18:00 +0000 greycap hit this perfectly. Future production has to fund future consumption. Its a bit of a zero-sum game, individuals can save better as a whole but the whole still has to consume off the production of current workers. And that is related to demographics, no matter how well funded pensions were they were of hit a rough patch (more savings equals higher stock prices and lower dividends for example).

SS could never work because there was no real way for the government to save SS taxes, it ends up affecting monetary polciy and growth for a society as a whole to try and save cash. The best we can do is make sure all infrastructure is pre-built before the boomers retire so that we don’t need construction workers and the excess labor can move to services for the elderly.

By: TFF Wed, 29 Sep 2010 13:32:35 +0000 Sounds like a wonderful life, ARJ. Hope I’m where you are in 20 years. (And am definitely trying to follow your plan.)

By: ARJTurgot Wed, 29 Sep 2010 12:55:11 +0000 It can all be done, and I’ve done it. Mortgage paid off before the eldest started college. Tuition, books, fees, and room/board at state university for four years for both kids. Retired at 57. Okay, but not great, IRAs (+300K each for wifey and me).

HOW? Not being stupid. We raised two kids in a 1,200sq ft. house in the burbs we bought when I first got out of school rather than buy a McMans when my salary went up. I commuted on the bus rather than driving every day. Vacations were camping trips to the National Parks. We said ‘no’ to the kids when the Iwannas started. We clothed the kids from T.J.Max and Ross instead of whatever overpriced trash merchant was the latest fad. We’ve never bought a new car, only ever good used. We never max our credit cards and always pay off the balance. If we can’t afford it and don’t genuinely need it, we don’t buy it. Oh, and ALL my investments are in Vanguard.

People in the U.S. used to know how to do that. Screw the ones that forgot.

By: TFF Wed, 29 Sep 2010 12:50:22 +0000 Agreed, tmc, there is a battle coming when the pension funds ultimately are forced to bridge the gap between their assets and promises. Promises will necessarily be devalued one way or another.

This is a strong reason to rely on a 401k rather than a pension plan or Social Security. At least the ownership of those assets is clear. If *THAT* part of the system breaks down we have anarchy.

By: tmc Wed, 29 Sep 2010 10:01:32 +0000 Seem a lot of wealth people read this site. Well, it is mostly financial news.  I don’t think many people under 40 believe in retirements at all.  They are the next really big bubble.  They seem to be nothing more than ponzi schemes.  In just a few years there will be proposals to raise taxes to pay for retirements, since they are so under funded.  This is already happening, just with more misdirection.  Once they have to actually admit that they need to raise taxes on the young to pay for the old, things will break down rapidly.  I’m the first of generation X.  I’m already pissed.  Generation Y is going to be told that they have 0 fixed retirements, no unions, can’t possibly pay for their children’s college, and will never own their own home.  If they do they’ll be using a reverse mortgage instead of leaving it to their kids.  I don’t (and they won’t) care what the previous generation promised themselves.  You can’t promise yourself someone else’s future.

By: letsgetgoing Wed, 29 Sep 2010 03:19:37 +0000 I am retired, on soc sec and have no bonds. Bernanke devalued the dollar 1% last week and has made it clear he wants growth and normal inflation. He wants the Market to rise. This will give business the confidence to start spending the two trillion dollar hoard it is sitting on. I believe in the country’s future and am extremely bullish. Let me briefly make the case that we are entering the mother of all bull markets. I invite critiques :
1 We have had growing earnings for 9 quarters and a 40% year over year increase in earnings. This trend of ever greater earnings was countered by a fear of a double dip. This fear has dissipated and I will address it below.Stock valuations are based on future earnings.
2 Earnings have grown through 9 quarters of high unemployment and the absence of a robust construction industry. This argues compellingly that they can continue to coexist. Construction has nowhere to go but up and will bring employment with it.
3 The S&P500 earn half their revenues abroad and this number probably needs to be revised upward because of global growth. Asia is surging. This helps to explain how earnings increased through the Recession. I believe the half will increase to two thirds next year. No one is talking about German business confidence, which is at its highest level since 2007-boom times. For decades Germany exported one third of its GDP. Early this year it was over 40%. Based on the outpouring of German glee I suspect that this figure may be approaching 50%. This sun is smiling at us also. The Germans should know much more about global growth than we, who export 11% of our GDP. This will increase. It probably already has. We can reasonably expect growth in year over year earnings to exceed 50% next year.
4 No one is making the case for a double dip. They are extremely rare. The indicators are growing increasingly favorable. In the unlikely event of a slowdown in growth what is to prevent corporate earnings from growing through it as before? We are fully integrated into the world economy which seems to be growing in tandem.
5 the European debt crisis is and has been boo. Riots in Greece in April,and yellow journalism routes the Market by announcing the imminent collapse of the EU. The IMF and the EU bail Greece out with a 139 billion dollar loan in May and the other PIIGS get their own refinancing . End of story . Read Ken Fisher in Forbes, p70. He calls the reports of a crisis “nonesense”
6 US debt. Chew on this. It was at 3 trillion in 1945. What happened? The 50s, our most prosperous decade. No one is adding our underground economy to our GDP. Add another three trillion. The old estimate was 30%. I am reducing that by a trillion for construction.
I want to say a word to the army of soreheads and nut cases who have no skin in the game. Quit running your gators and get your hands on some money and buy large caps that pay dividends and are off their high, like WMT. I aint sellin.

By: TFF Wed, 29 Sep 2010 01:46:47 +0000 “How long are you going to live?”

Forever. Or close enough so as to make no difference. Financially there isn’t much distinction between living 30 years into retirement (certainly plausible) and living forever. So you might as well plan for the latter.

“How much will it cost to live that long?”

Start with what you THINK it will cost, then add a 50% safety margin to account for what you didn’t expect. And hope that is enough.

How is this different from any engineering project? You think they try to figure out EXACTLY how many girders are needed to hold up that bridge for fifty years (not having any clue what conditions the bridge will actually face over that fifty year span)? Or do they make their best calculation and then bump the number by 50%?

By: willid3 Wed, 29 Sep 2010 00:19:04 +0000 not sure that saving for retirement is really possible without a answers to a few simple questions. how long are you going live. how much will it cost to live that long. since we can’t predict the future, you can’t determine how long you will live. and you can’t predict the cost to live that long. you are missing a few pieces to even attempt to. you don’t know what living expenses you will, whether you will have good health and for how long. 401k/IRAs are just pensions managed by non-professionals who can only do it only part time. sounds like a real winning combination. if pensions are having trouble then the others are too. we just aren’t able to really tell