26 responses so far ↓

• 1 Grace // Jun 12, 2008 at 2:55 pm

  While there is a large difference in lifestyles when one makes $100K as opposed to $40K per year, it is not as apparent when one compares $40K to $70K per year, especially, as you point out, if one is rearing a family on the $70K. In spite of all the rhetoric about needing 80% of current income in retirement, I expect to live on considerably less. My health costs and insurance costs (for long-term care) will be up. But my housing costs, debts, and monthly savings will (please, God!) be down.

• 2 Kristy // Jun 12, 2008 at 3:36 pm

  I don’t think that $1 million will be enough for most people. People in their 30’s and 40’s will need quite a bit more than that to be able to retire comfortably, especially after factoring in inflation.

  Personally, I am not counting on social security to be around and with medical costs increasing DH and I plan on retiring with $7.5 million.

• 3 Meg // Jun 12, 2008 at 4:21 pm

  Tax rates usually lower once you retire, since taxable income goes down. A person earning $40K/yr before taxes might only need $30K before taxes from investments to end up with the same net income.

  Also, you don’t consider social security. That average working American will currently end up with around $20K in SS each year – meaning they only need about $10K per year from investments ($30K from above less $20K in SS) to maintain their income at pre-retirement levels.

  Despite the barrage of media scare tactics, SS is viable at current levels through appx 2050, and even slight tax increases or benefit cuts will make it last well beyond that. Besides, there’s very little chance congress will ever allow SS to “go broke.” In fact it’s more likely that the whole program will be drastically expanded in the coming years/decades. (After all, Americans arent’ saving, but we’re not going to just sit idly by and watch our elders starve homeless in the streets – even if that IS the best capitalist response).

• 4 Jim ~ mydebtblog.com // Jun 12, 2008 at 9:46 pm

  I think 1M is plenty to retire on and be able to live quite comfortable. Whenever that day comes I plan to have an empty nest, no debt, no mortgage, and actually choosing not to work. It also depends on how much of your income you set aside for retirement that determines what you’ll need to live. Saving too little is going to create a challenge later on. If you save a lot then it will typically grow to be a lot more. Other expenses should be considered too like health care. As we age things will break down, somebody has to pay for that. I personally would love to travel the world when I retire.

  I also don’t plan to see a dime from Social Insecurity because it’s a failed program. Let people invest their own money, not let the government get their hands on it. It will be a good day when this program goes away. I get tired of government punishing success and rewarding failure.

• 5 Livingalmostlarge // Jun 12, 2008 at 10:43 pm

  Also Meg, regarding SS, because it will be means based in the future, people making $48k will definitely be eligible to receive SS. Someone who made $100k should not expect to be getting any. And yes it will be available in 40 years, just not to high wage earners!

  Kristy what you fail to realize is that most people NOW even in their 20s and 30s, live on $35-45k/year! And they are raising families. This is typical for many families with one working parent (dad), stay at home mom, and 2 kids. So these people are used to living on less. And in 30 years their salaries won’t be much higher, maybe $60k, but by then the median salary will be $60k so they will be the national average. Hence the $1m probably would be enough.

  Jim, I like SS. It pays for people who can’t afford to retire. Right now I’m paying for my grandma. So I’m not going to worry about it.

• 6 Kristy // Jun 13, 2008 at 12:04 am

  Actually I do realize it, as I am 29. But those same people who make $45K a year don’t save anything. I know many couples who live way beyond their means and have no idea how to save anything. Plus, I just don’t think that $40,000 a year in 30 year is going to be alot of money. The way inflation keeps rising people are going to need ALOT more than that in order to pay for all of the medical costs plus retirement.

• 7 frugal zeitgeist // Jun 13, 2008 at 12:25 am

  A million dollars may be enough today. At 3% inflation, it’ll take $1.8 million to achieve the same standard of living that a million bucks will provide right now.

• 8 frugal zeitgeist // Jun 13, 2008 at 12:26 am

  Er, that would be in twenty years.

• 9 Kristy // Jun 13, 2008 at 12:40 pm

  And in 30 years with 3% inflation that $1 million in todays dollars will be a little more than $2.4 million.

• 10 Clair Schwan // Jun 13, 2008 at 2:08 pm

  Hello everyone:

  I will try to boil down what otherwise would be a long story in response to the comments. It seems like most of us are guessing and calculating, and assuming that in retirement we will need and want to live our current lifestyle. Perhaps a look at some practical experience would be helpful.

  We need to consider what retirement means. I assume it is different for everyone. For me, it means working when, where, for whom, at what, and for how much I choose.

  I am 51, and I retired at age 49. My retirement is possible because I made it happen through hard work in my own enterprise, and savings and investments in my future and me. My decision to retire early was based on a desire to get out of the rat race and do some real living while I still have lots of life.

  I deliberately planned to retire early. I worked my plan, and now I am debt free. No home, car or credit card payments. I also have no source of income to speak of. I receive no money from the government or any pension, and I don’t count on that at all. And, I don’t have anywhere near a million dollars.

  My lifestyle is simple and focused on continuing to make investments to be more self-sufficient, especially with respect to utilities and food. The investments cost thousands each year and lots of hard work but they are paying rewards now and will continue to pay larger rewards over the next couple of years.

  The money “battery” is being discharged, so I’ll have to generate meaningful income again. Fortunately, I never considered not working as an option for retirement. It just doesn’t fit me. I have to be busy and involved in something productive. Challenge and achievement need to be mixed with my leisure activities.

  I will focus on writing and part time consulting to provide limited revenue streams for that “battery” recharge. I estimate working a couple months a year will be more than sufficient to stay in the black without touching my savings. For now, I’m not interested in working, so I don’t.

  All of this is coupled with a frugal lifestyle that includes auctions, garage sales and trading. I can perform most work around my estate with a little help from friends and neighbors. I own a wide range of tools, equipment and machinery necessary to make things happen.

  The bottom line – some of us never had a fixation on a big pile of money. After all, the money is only useful if it is invested to provide you something in return, besides just more money.

  Clair

• 11 Livingalmostlarge // Jun 13, 2008 at 2:58 pm

  $2.4M will generate the same lifestyle as someone who has $1M saved now for retirement. But do they really need that much?

  I think in 30 years no. I am not sure people’s income will go up that much. It might mean lesser lifestyles. It might also mean changes to SS, health insurance, etc.

  But will the average income really go from $48k to $115k in 30 years? And realize that $48k is a median amount now, so if you are in your 20s and you are earning $20k you might not be making $115k in 30 years.

  And most people aren’t making $48k at 25, because otherwise at 48k they should be making A LOT more. Which isn’t true (can’t happen logically) because otherwise the median US income would be much higher.

• 12 Kristy // Jun 13, 2008 at 3:05 pm

  I am not saying that the average income will go up to $115K in 30 years….incomes have not kept pace with inflation. I am saying that it is going to cost more to live and based $1 million today and a 3% inflation rate that a person will need $2.4 million to retire and still withdraw 4% a year. Plus you are talking about people who are retiring at what 70 years of age? How long are we going to live in 30 years? If that person needs that income to last another 30 years then yes, I think that they will need the money…even if they drastically change their lifestyle.

  And yes, I think in 30 years people will need that much to retire…do I think that most Americans will have that, hell no. Most of the people I know and this is anecdotal evidence, don’t save a dime and spend more than they make.

  I think this completely depends on what you plan for retirement as well. Even though we will not have a mortgage payment, I expect our health care costs to increase significantly and I would like to travel alot and DH wants to play more golf. We will need a lot of money to retire in the lifestyle we want to have in retirement.

• 13 Livingalmostlarge // Jun 13, 2008 at 3:21 pm

  Kristy you are thinking as someone who probably earns way more than $48k. Reading message boards I’ve realized that most people don’t earn that much.

  Many, many people (read WIR, YM, etc) earn in the $20k and are supporting families on that. Many people have $60k homes.

  You wonder why the median income is $48k? Well maybe at the peak of earning in your 40s people are earning that, but how many people do you know working retail, waiting tables, administrative/office work really earn that much?

  Not in large cities, but in midsize cities in the middle of the country? Consider that $48k is median/average income.

  Because of that people don’t have the lifestyle of travelling or playing golf. And I pointed out in my post that most people who earn more will need to save more.

  But the majority won’t. They won’t be making more than the median. And while pensions are on the way out, there still are many who have them and are counting on them. Is this wrong? I have no idea, but many people are military and earn SIGNIFICANTLY less than median as enlisted. But they have benefits like cheap medical, cheaper housing, food, less taxes, etc.

  And if they stay 20 years they get pensions for life and medical for life. So not everyone who doesn’t make much is struggling.

• 14 Barb1954 // Jun 13, 2008 at 3:30 pm

  Some of you are making assumptions about future incomes that are just not true. $115,000 is only 2.39 times more than $48,000. When we got married in our twenties, our joint income was about $30,000. Thirty years later, our income is approximately $170,000 – about 5.7 times higher. People don’t stay in the same jobs for decades anymore, getting paltry 3-4% salary increases each year. Instead, they get promotions, change careers, move to new companies for big increases, get bonuses, etc. etc. It’s very possible to be earning a lot more in the future. I know, because my husband and I have done it.

• 15 Kristy // Jun 13, 2008 at 4:24 pm

  Your right, I have the thought mentality of someone that makes more than the average person. However, because of my relatively young age, I know tons of people who make at or below the median income in today’s society. I come from a very poor family so I know what its like to struggle. What I am trying to say here is that while these families may not be “struggling” as you put it, they are also not saving. In fact, many of them live better than I do, have more toys than DH and I, eat out more, etc. It is about priorities and the people that I know do not and never will save enough money to retire. It won’t matter how much money they make, they spend it.

  DH and I have saved at least 15% of our income and this is prior to us making as much as we do today. Even back when we were first married and DH made $14,000 a year, we were saving it. Most people do not….it’s just a fact. Our savings rate is -1% in our country.

  If you include inflation, I don’t think that $1million will be enough to retire on in 30-40 years….no matter what your income is today.

• 16 Livingalmostlarge // Jun 13, 2008 at 6:42 pm

  Barb, that’s assuming the person makes the median $48k now at 25 and at 55 is making $115k. Not sure if this is realistic. Realize that you are in the top 5% of earners in the US at $170k, and even when you started were you median or above average for the time? What was the median salary when you quoted that $30k?

  According to this http://www.census.gov/hhes/www/income/histinc/h05.html, the census the MEDIAN SALARY in 1977 (30 years ago) was $13k. So even then Barb, your salary was double the median salary. So you weren’t exactly normal back then either to put it into perspective! Good job by the way!

  Anyway to Kristy, I’m not sure what you make but it’s obviously not $48k. Maybe in your family they don’t save much. What I’ve found from reading surveys, is that part of the skewing of the savings rate is that people 45 and older didn’t NEED to save because of pensions. Thus they draw the savings rate WAY down. Look at my mom. Pretty much nothing saved for retirement $150k, because she has a SUPER generous for life pension.

  Now according to you she should not be retired at 55 with only $150k between a Roth IRA and 401k. BUT she can afford it. She brings home $4k/month in a pension and has free medical premiums for life.

  But her $150k retirement savings is probably what you already have, I’m closing in fast on what she has and I’m 25 years younger! But how can she afford to retire with less than 15% of $1M necessary?

  Well she has a pension. Which many people her age and older have. At 55, I think she’s nearing the tail end of people getting pensions, but anyone 10-20 years old FOR SURE has very generous pensions for life.

  So why can’t she make it on only $150k retirement savings? My aunt and uncle have $0 saved in a 401k/Roth IRA. They were both school teachers for life and retired with SS, and 2 state pensions. They bring home about $8k/month and spend it all! They are 59 and 60 and retired at 54 and 55. They have nothing in retirement accounts, they told me and their children. But you can’t be like them they said. Pensions no longer exist like that!

  So how is $1M not going to be enough? Still about 1/3 of people have pensions. And many who do make less than the median salary. So they’ll get SS. I won’t.

  But the reality is that their lifestyles will not change and not be luxurious. But the same.

• 17 Barb1954 // Jun 13, 2008 at 7:01 pm

  Keep in mind that I was talking about our joint household income, not individual salaries which I think you are quoting. What does it matter what the median household income is in the U.S.? The only thing each of us needs to care about is our own household income and expenses, because it’s the only thing that we have any control over.

  I hate to tell you this, but you have no clue what the next 30 years of your life will be like. You can make all the predictions you want and life will turn out completely different. That was a big eye-opener for us. You seem like the kind of person who wants to have all the answers and have her entire life planned out. When I was in my 20’s, I thought I knew exactly the trajectory my life would take. But that just isn’t realistic, although perhaps idealistic. Life is full of surprises, not all of them pleasant. The only thing we can do is focus on making the best decisions we can at each moment in time based on the information we have. I honestly don’t mean to sound patronizing but I learned in our 30’s that we didn’t know shit in our 20’s. When we were in our 40’s, we realized that we didn’t know shit when we were in our 30’s, and so on and so on. Wisdom is the benefit of aging, and most people would love to go back and do things differently if they knew then what they know now.

  So much of life cannot be measured and quantified. Just work hard, balance your finances between enjoying today and planning for tomorrow, and take the time to enjoy life. It goes by in the blink of an eye and can end or change in a second.

• 18 Livingalmostlarge // Jun 13, 2008 at 9:31 pm

  Median salary is family salary and $48k is median family salary for today. So $13k is median salary for a family at that time. NOTHING wrong with earning a lot. Good for you.

  I definitely agree with age comes wisdom. But with youth comes the glass is half full exuberance! It wouldn’t be fun if we just moved through life without making mistakes. And boy have I made a lot already.

• 19 Kristy // Jun 13, 2008 at 11:23 pm

  That is not what I am saying…..today is completely different than what it will be like 30 years from now. Your right, people have pensions TODAY….however, in 30 years I suspect that they will be obsolete. We are talking about two different things….I think that our generation needs to save more than what other generations have saved…for three reasons. 1) Most of us are not going to have pensions.
  2) I dont’ think Social Security will be around
  3.) I think that medical costs are going to ridiculous.

  If that is not the case, then great, I can travel more and retire sooner. I personally would rather save more than I need instead of less.

  Plus don’t you think location and COL has something to do with income? So what if a house in Iowa cost $60K and the income is $40K? I live in an area where the median home is $300K? Don’t you think people here should earn more ?

• 20 Livingalmostlarge // Jun 14, 2008 at 2:24 am

  Nope salaries don’t compare, I live in an area where homes are $750k median price and salaries are not high enough to compare. Why? Because it’s a desirable area to live.

  Our friends in the same field but cheaper cost of living in PA, IN, etc make a little less like $10k but certainly not enough to make up the difference.

  You pay a tax for living in sunshine or in a “fun” city.

• 21 Kristy // Jun 14, 2008 at 6:49 pm

  Still most people who choose to live in a “fun” city make more money than someone in the same field in a state in the midwest or in rural parts of PA. The cost of living is different and much cheaper in those places, therefore those people make less money. Just because I make a decent living doesn’t mean that we are able to save more than the average person. We still make choices in our lives which allow us to save more….again it made no difference when we were younger and didn’t make a good living, we still saved 15% of our income.

  Most people have choices to save or not to save and it is my opinion that most people in our country spend their money instead of saving it. How much one makes hardly makes a difference unless you are considered poor. It’s all about choices.

• 22 Livingalmostlarge // Jun 14, 2008 at 10:52 pm

  Once you leave an expensive area it’s tough to go back. The problem mainly is house prices.

  I never saved really when we were first together and we made very little money. Unfortunately we struggled to make sure not to get in debt and were fortunate to make ends meet.

  Currently I had coffee with a friend today who made $27k/year gross when he first arrived. I am fortunate to make that much but be married and cared for by someone much more well off. But it’s not uncommon to make that much where we live and be well very well educated. We’re talking 12+ years post-secondary education. So it can be tough to live. And I know this person, no debt. So it’s living very frugally to make ends meet.

• 26 Assetologist // Jun 21, 2008 at 9:09 pm

  Great dialogue.
  Everyone is different and many people could live quite well today on the net proceeds of 1 million dollars. For others, that is not enough to make the lap around the block the way they want.

  Broad sweeping assumptions are dangerous but helpful in these esoteric conversations so… I think most of us spend far too much money on wants that do little to enhance our lives. Some of this ‘want money’ should be used to plant hundreds of little seeds many of which will grow into mature money trees. This takes discipline, delayed gratification and persistence but will pay off in the end.

  The idea of a perfectly healthy (mind and body) person leaving control of their future financial health in the hands of someone else is crazy. Take control, read, ask questions.

  Sure our education system fails miserably in teaching sound financial principles but so what, take control. Spend some time on your Core Values then your Core Goals and achieve them.

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