Thoughts on retirement savings in the US

[Wolf359]

I tend to agree. Not an advocate of debt by any means. However I lean toward investing earlier rather than paying off debt faster. Neither is wrong so long as you eventually do both.

It depends what the interest rate is. Basically paying off debt early is locking in a fixed rate of return. Doesn't make sense for a mortgage if you can average 10-15% in the S&P 500. Should definitely invest in a 401k if there's an employer match as a 1 for 1 match is basically a 100% return on investment. They should at least do whatever amount gets you the match.

The last few years, the S&P 500 has been on a tear, 2019 had 31.47%, 2020 was 18.40% and so far in 2021, 27.58%. Of course 2018 was a dud at -4.4%. Was well worth it to invest in the last few years than paying off any debt.

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[doublebase]

That's actually not too bad of a mix. My only advice would be to dump the Vanguard Wellington and just go with a pure S&P 500 index fund or maybe a Nasdaq or total stock market fund. Compared to the S&P 500, it has lagged badly even looking at the 5-10 year return. I do remember hearing about that fund and it was probably great in its day but it doesn't seem to be that good anymore.

I would also dump the bond fund, I gave up on them years ago, they never did what they claimed to do and all you were really doing was locking in a lower rate of return. But if you're close to retirement, there's probably no point getting rid of it. Basically they're supposed to do better when the market was down but the bond funds I had pretty much did the same thing and tracked the stock market only the returns were lower and when the market was down, they were also down so I got rid of bond funds as that seemed to just lock in a low rate of return.

I agree. And feel the same way about the bond fund. Why do I (and people) do this!? it never helps much in a down market anyway and it drags you down when the market is up. Yet I still do it because it’s “safe”. But I only do a small amount...yet that small amount has hurt me longterm, it really has.

 

[JeffKeryk]

I have stated my public education pet peeve numerous times. No one should get out of grade school without an understanding of banking, credit cards, checking accounts, etc.
No one should get out of high school without a basic understanding of markets, time value of money, good debt vs bad debt, etc.
I have used Calculus exactly 1 time in my work life. And that was more of a proof of concept conversation than anything I really produced.
Time spent working through all those derivitives would have been better spend understanding the Dow Jones, S&P 500 and bonds.
Heck, a nice S&P Index fund over time is a no brainer, right?

Heck, it is only arithmetic. Give people a fighting chance! Arm them with knowledge!
If you are lucky enough to be in a good financial place, fight the good fight and yell at your friends and family members who are living for today.

My Dad (a mean man) told me, "If you die early your problems are over. The problem is if you get old."

 

[Wolf359]

I agree. And feel the same way about the bond fund. Why do I (and people) do this!? it never helps much in a down market anyway and it drags you down when the market is up. Yet I still do it because it’s “safe”. But I only do a small amount...yet that small amount has hurt me longterm, it really has.

I don't remember how long I owned them. I had Harbor Bond which was a top ranked bond fund. I just looked up the return, over 10 years, up 3.85%, year to date, it's down for the year. If you had invested 10k in the fund 10 years ago, it'd be worth around 14.5k today vs about 45k in an S&P 500 index fund. I got sick and tired of that performance curve years ago and dumped it all.

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[IveBeenRued]

That sounds like an excuse to keep spending and building more debt.

Haha. Sure, to those with no self control.

 

[Wrenchturner44]

Timely article to read for this discussion.

How to Become Wealthy with Low Earnings - ESI Money

As long as I’ve been blogging (which is over 15 years at this point), people have always been very interested in how to become wealthy while earning a low (or lower) level of income. I think this is because of a couple reasons. First, not everyone can be a doctor, lawyer, executive, etc. I get […]

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[Astro14]

Discussions from another thread on retirement accounts got me thinking about the retirement savings data in the US. It’s a pretty sad state of affairs looking at the available data. Anecdotally conversations with friends and family of various ages and incomes support the data. I thought growing up poor it was only lower income people not saving. However as my wife and I have climbed up the socioeconomic ladder we’ve learned middle and upper middle class people aren’t much different. Across the board every generation and demographic, on average, is not doing well in this area. I figure most are investing very little and/or cash it out regularly.

Not looking for financial advice just curious on folks’ thoughts?

People who save tend to move up the ladder. They tend to understand and use debt wisely.

People who don’t save tend to move down the ladder. They tend to make rationalizations and use debt stupidly.

Debt isn’t intrinsically good or bad, it’s all in how it is used.

7 year loan on a used car that you can’t afford? Foolish

You‘re charting a course for a lifetime of dependency and debt. Failure, in other words.

10 year, six-figure loan for medical school, and a future career as a surgeon? Best return on debt, ever.

That debt was an investment that will pay off a hundredfold.

 

[Creekside]

My company 401k isn’t doing very well this year but was exploding prior to certain events in early 2021. My company match is 3% and I currently contribute 6%. Overall I wish things were better in the economy but I think it will bounce back. I’m 39 years from 65 so I have time. I also have some investments through Edward Jones that are doing slightly better.

 

[ATex7239]

It depends what the interest rate is. Basically paying off debt early is locking in a fixed rate of return. Doesn't make sense for a mortgage if you can average 10-15% in the S&P 500. Should definitely invest in a 401k if there's an employer match as a 1 for 1 match is basically a 100% return on investment. They should at least do whatever amount gets you the match.

The last few years, the S&P 500 has been on a tear, 2019 had 31.47%, 2020 was 18.40% and so far in 2021, 27.58%. Of course 2018 was a dud at -4.4%. Was well worth it to invest in the last few years than paying off any debt.

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I advocate investing over debt pay off in all but the most extremely detrimental financial situations... Even in a down market I’d recommend investing first and foremost. You’re buying stocks when they’re on fire sale. That’s the best time. Just my opinion.

 

[wpod]

People who save tend to move up the ladder. They tend to understand and use debt wisely.

People who don’t save tend to move down the ladder. They tend to make rationalizations and use debt stupidly.

Debt isn’t intrinsically good or bad, it’s all in how it is used.

7 year loan on a used car that you can’t afford? Foolish

You‘re charting a course for a lifetime of dependency and debt. Failure, in other words.

10 year, six-figure loan for medical school, and a future career as a surgeon? Best return on debt, ever.

That debt was an investment that will pay off a hundredfold.

Well put and most people that are better off, get there step by step.

 

[Astro14]

I think that financial literacy is the purview of parents, not schools. Unfortunately, the majority of parents are ill-equipped to teach it.

Learning calculus is not a prerequisite for life, neither is physics, but the principles in both are a key to understanding the world. Scientific and mathematical literacy are in short supply across society. So is actual literacy, but that’s another topic, and I am responding to @JeffKeryk about the relevance of calculus.

I would worry about the subversion of teaching financial literacy in schools because, to be quite honest, so many teachers are already bad at the subject. Who would define the curriculum? The objectives? The tests?

 

[wpod]

I advocate investing over debt pay off in all but the most extremely detrimental financial situations... Even in a down market I’d recommend investing first and foremost. You’re buying stocks when they’re on fire sale. That’s the best time. Just my opinion.

I own 2, 4 plexes and 6 rental homes fee simple , But if I took half the money and bought more properties I would have made more in appreciation but I wouldn't have the income for my retirement wildness.

 

[Astro14]

I don't remember how long I owned them. I had Harbor Bond which was a top ranked bond fund. I just looked up the return, over 10 years, up 3.85%, year to date, it's down for the year. If you had invested 10k in the fund 10 years ago, it'd be worth around 14.5k today vs about 45k in an S&P 500 index fund. I got sick and tired of that performance curve years ago and dumped it all.

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Analyze the Fund Harbor Core Plus Fund Institutional Class having Symbol HABDX for type mutual-funds and perform research on other mutual funds. Learn more about mutual funds at fidelity.com.

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With interest rates at historic lows, I just can’t see putting new money into bonds, or bond funds. They have nowhere to go but down.

It’s my contention that the huge influxes of money into the market (which have driven the market return of the past few years) are, in part, because there is simply nowhere else to put that money. Cash has no return. Bonds have no hope.

This would also explain the money chasing crypto…which is another topic…

 

[wpod]

The only reason I have what I have and where I am in life is because my parents, grand parents my aunties and uncles and my best friends parents taught me about money. If I really listened to them I would be able to afford a 14 karat gold plated Lear Jet.

 

[wpod]

I invest similarly...use vanguard index funds (s&p 500, health care, energy, total stock market, bond fund). Low fees and it’s tough to beat the market for even professionals. It’s turned in an impressive 25% return the last few years, can’t complain about that. I just do 10% of my salary. On top of that I have a pension coming that should pay me 65% of my salary. I also have a federal pension coming that will pay me (not much), maybe $7,000 grand a year. And I’ll have something coming in from social security. I have rental property too, but I’m not loving that life. Can’t stand the stress of worrying about things breaking, etc.

Where I screwed up is I bought a mini mansion last year. The thing is 20 years old and it’s killing me. Big mistake. $24,000 dollar roof last summer. Looks like I have some sort of chimney/heating problem now. Need two new AC units this spring, that’ll run at least $15,000 grand. Taxes are over a $1,000 a month. Heat is costing somewhere around $500 a month. Big mistake. The only saving grace is it’s a hot town and in the past year I’ve owned it the value has increased $200,000...but how long is that going to last?

In the end I guess it doesn’t really matter. Man plans, god laughs.

1) Owning a home is not for the weak.
2) Ferrari uses a Horse for its logo because they cost about the same to own.

 

[JeffKeryk]

Debt isn’t intrinsically good or bad, it’s all in how it is used.

Well said.
Good debt is using other people's money to purchase an appreciating asset.
Bad debt is buying that shiny BMW or Tesla (depreciating asset) on credit while paying rent or living with your parents.

 

[wpod]

CD’s are at a pathetically low rate….0.7% is losing money for you but the banks are licking their chops. They give you .7%, inflation is 6% off the bat your down 5%. Banks turn around and lend it out a 3-4%. There are funds that target your retirement year. The drawback to them is the high management fee. I used their example and invested in funds that mimic the target funds and only change the portfolio every 5 yrs. I have had great success this way.

Money in the bank is either for an emergency fund or waiting to find an investment to put it in.

 

[Astro14]

Money in the bank is either for an emergency fund or waiting to find an investment to put it in.

Agreed. It’s idle. While the liquidity is important, it is not doing anything else for you.

 

[xgmad]

Some folks impulsively buy crap they really don’t need and budget very little towards retirement. Always have the latest and greatest Apple iPhone but don’t consider where they will be and their financial picture in 35 years.

I do feel sorry for people with an illness , family member with illness or unexpected disaster like tornadoes in Kentucky, fires in California, etc... that was beyond their control and can easily wipe out their retirement savings.

Here in Florida I see lots of fancy trucks pulling fancy boats, I wonder how their retirement situation looks ?

Wife and I have:
2 company pensions
2 company 401Ks
2 IRAs
2 brokerage accounts
2 Social Securities down the road
1 military pension
.

this man is STACKED in cash, lol.

Me:

50 piggy banks filled with 100's

 

[wpod]

Discussions from another thread on retirement accounts got me thinking about the retirement savings data in the US. It’s a pretty sad state of affairs looking at the available data. Anecdotally conversations with friends and family of various ages and incomes support the data. I thought growing up poor it was only lower income people not saving. However as my wife and I have climbed up the socioeconomic ladder we’ve learned middle and upper middle class people aren’t much different. Across the board every generation and demographic, on average, is not doing well in this area. I figure most are investing very little and/or cash it out regularly.

[eople usNot looking for financial advice just curious on folks’ thoughts?

People who save tend to move up the ladder. They tend to understand and use debt wisely.

People who don’t save tend to move down the ladder. They tend to make rationalizations and use debt stupidly.

Debt isn’t intrinsically good or bad, it’s all in how it is used.

7 year loan on a used car that you can’t afford? Foolish

You‘re charting a course for a lifetime of dependency and debt. Failure, in other words.

10 year, six-figure loan for medical school, and a future career as a surgeon? Best return on debt, ever.

That debt was an investment that will pay off a hundredfold.

My best friends are physicians, 2 surgeons and 1 in family practice and the other is an Airline Pilot and another a A&P at UAL also 1 is an attorney all are retired now as we are old and I will say I am the dodo in the group. Having smart friends is much better that having not to smart friends.