Thoughts on retirement savings in the US

[PimTac]

My experience has been lower classes do not save or invest at all. Believing winning the lottery is the only avenue to wealth which is what I was told growing up. Middle classes do some investing but very little. Typically the employer match only. Most end up cashing out to fund other priorities (I use the term loosely.) So they are saving just not long term.

The thinking that one has to be wealthy is a broken one. That is where younger and those who earn less need to understand. By starting early and developing the discipline to invest every month, you will be better off on your own. A young person who starts right now at age 20 with just $50 a month will be way ahead when he or she is 60. Time is a huge factor and along the way that $50 a month becomes $100 then $200 and so on.

Time and discipline along with diversified investments will win every time.

 

[PandaBear]

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?

Inflation by design is to solve the "cost" problem of too many low cost labor entering middle class and upper class, turning the society's cost structure unsustainable. When everyone makes good money then cost of living goes up, and eventually nobody makes good money (which means nobody has enough to save).

Yes you can say people are wasting money instead of saving for the future, but to be honest a lot of today's cost (and income) is really not something you can control. Mortgage for a place that you can near high income and tolerable commute, education loan for high income jobs, medical cost, tax in high cost of living area (cost of living is non linear to income of the same job), etc. A lot of the expense and income are really not something too many people have control over.

Having said that, people buying Mercedes and $60k SUVs on 84 months financing and low income are financially stupid and deserves what they get. For those who finally save up, bought a starter home, then recession hit, losing job, losing home, can be just bad luck. Saving for retirement (really means investing in the stock market to be honest) can also be luck of draw as well. Many people lose a huge portion of their retirement and didn't have enough capital invested to recover from it (because they need to withdraw to live during downturn).

To be honest the only general advise I can give to young kids these days: 1) have fewer kids, maybe 1-2 max, 2) don't follow dead beat passion, find a passion in a field that actually make good money (it doesn't have to be something you hate, just something you are ok with and make decent money / with high demand), 3) work hard / plan ahead / be discipline in spending and investing, whether it is education, vocational skill, investment research, real estate investment, salesmanship, etc, you will be good if you plan ahead and be discipline, eventually. 4) We all have finite resource, financially and mentally, so choose your spouse, career, investment, entertainment, etc wisely. The biggest investment is to yourself and your spouse / family. Many people spend their lives working very hard and ignore family issues, end up in either divorce or a kid OD and die before maturing into a responsible adult.

 

[Wolf359]

I don't trust the markets at all and every dime I have is in something I can put my hands on..... Everything from precious metals to property to items that can be bartered (in a SHTF situation).

Someone with $2M in their 401k today...... is a lot worse off than someone with massive stores and barter items if the USA and our economy fail.

By the way... news flash.... the USA and our economy is going to fail. Just can't predict if it will happen under the watch of Sniffin Joe or 4 Presidents down the line. But it probably won't be any longer than 10-20 years.

Someone with lots of assets in their 401k can easily convert it to a money market account in 1 or two days. I don't see the economy failing in one or two days. Even the great depression took years to fully kick in.

You should mark this thread and come back to it in 10-20 years, that's if this site is still around I guess. At that point maybe with all the electric cars that don't need an oil change, the site might be gone by then. I don't like to make future predictions, lots of times they just don't pan out. There's just too much randomness in the universe.

 

[PandaBear]

The data suggest otherwise actually. Indexing has historically preformed better than the vast majority of actively managed accounts.

That is a bet I wouldn't make. Low cost index funds like the S&P500 or a total market fund such as VTI are nearly impossible to beat over a long term horizon. Start investing young, invest in no load index funds, and you'll likely retire in comfort.

Without insider info or really deep domain knowledge (i.e. you are the inventor of some fundamental technology in a hot field), you will not be able to out value the market (meaning everyone buying and selling at the time) in your own investment. Most of fund management cost goes into sales and narrowing the market / insider difference, and very often they are so expensive that it is not much value compare to buying index fund with little cost.

How much do you want to pay someone to sit in the casino to keep placing bet for you vs buying all the same bet yourself?

 

[PandaBear]

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…

The big money knows that if you dump a lot of money into existing assets they will just go to the moon. So a huge portion of those new money need to find ways to create new assets, which is why we have so much VC money pumping into new technologies, crypto mining, new business models, etc. Despite only about 10-15% return on average (after all the early series investment casualties) the big money is still chase them.

 

[wpod]

I appreciate the humor, I do!

Look, as many of you know, I majored in physics (Astrophysics) in college.

While I don't directly use either physics or higher-level math in my daily work, that foundation of understating and literacy in concepts is used every day as I read the news, read books, or learn new things and reflect on the principles being discussed.

The world is complex, and fascinating (as Spock was known to say), and being scientifically illiterate would be, to me, like losing all ability to see color.

I just would not see the world in the same way.

So, yes, education for its intrinsic merit, for its unique rewards.

But also, financial literacy, or all that understanding would be pointless because I would be drowning in debt and hopeless about the future.

It is not Humor ! Nor a dis to you brilliance which I appreciate and enjoy all the smart people here.

 

[PandaBear]

The thinking that one has to be wealthy is a broken one. That is where younger and those who earn less need to understand. By starting early and developing the discipline to invest every month, you will be better off on your own. A young person who starts right now at age 20 with just $50 a month will be way ahead when he or she is 60. Time is a huge factor and along the way that $50 a month becomes $100 then $200 and so on.

Time and discipline along with diversified investments will win every time.

I will say this based on people I know around me:

Good parenting helps, regardless of rich or poor. All else being equal, having more resources (like tutoring and coaching in school, less student loan, less you need to work while going to school so you can focus on homework) helps a lot, and people with big financial safety net (i.e. no student loan, parents help them with down payment for their houses) tends to take bigger good calculated risk than not being able to afford such risk (say you have 30k rainy day fund you cannot risk investing in a downturn vs you have no lost of income during downturn and you pour everything into distressed assets, tripling the return a few years later).

Now, there are always overlap between the rich and the poor, so I always believe there will be hard working poor people going into the middle and upper class and there will be spoiled upper class going down to middle class or middle class going into poor broke drug overdose class. It is natural and it is humanity.

 

[wpod]

Well time to input,,, the wife came up to me and thanked me for her Christmas gift. What gift was that? . The new notebook computer I just ordered. You are most welcome dear.

 

[Dave Hess]

this man is STACKED in cash, lol.

Me:

50 piggy banks filled with 100's

Just lining up as many Ducks in a row before we retire.

It takes discipline and planning, not really too difficult.

 

[xgmad]

Just lining up as many Ducks in a row before we retire.

I takes discipline and planning, not really too difficult.

yeah, i just pile cash at my house. maybe not a good idea, but i only spend less than 500 a month on expenses. mortgage been paid off lol.

 

[PimTac]

I will say this based on people I know around me:

Good parenting helps, regardless of rich or poor. All else being equal, having more resources (like tutoring and coaching in school, less student loan, less you need to work while going to school so you can focus on homework) helps a lot, and people with big financial safety net (i.e. no student loan, parents help them with down payment for their houses) tends to take bigger good calculated risk than not being able to afford such risk (say you have 30k rainy day fund you cannot risk investing in a downturn vs you have no lost of income during downturn and you pour everything into distressed assets, tripling the return a few years later).

Now, there are always overlap between the rich and the poor, so I always believe there will be hard working poor people going into the middle and upper class and there will be spoiled upper class going down to middle class or middle class going into poor broke drug overdose class. It is natural and it is humanity.

Good parenting is indeed a huge factor. Unfortunately we have now a generation of parents that have no money sense. Part of that is not having been exposed to hard times.

My parents lived through the Depression and WW2. They taught us early on the value of a hard earned dollar. (Notice that I didn’t just say money. All money was hard earned.). Then, starting in the mid to latter 60’s and into the 70’s Malaise Era that lesson of the value of a hard earned dollar came into play and we experienced it ourselves. Hard times will teach a lesson that can be taught to the next generations.

 

[ATex7239]

Someone with lots of assets in their 401k can easily convert it to a money market account in 1 or two days. I don't see the economy failing in one or two days. Even the great depression took years to fully kick in.

You should mark this thread and come back to it in 10-20 years, that's if this site is still around I guess. At that point maybe with all the electric cars that don't need an oil change, the site might be gone by then. I don't like to make future predictions, lots of times they just don't pan out. There's just too much randomness in the universe.

I’ve spent a bit of time in the SHTF/prepping community and none of its ideals are grounded in historical precedence or reality. Countries and currencies rise and fall, yes. But people have always united together to create new societies and new currencies. Along with it has always come commerce and structure. Societies throughout history have never survived total economic collapse by hunkering down in bunkers, bartering chickens, and shooting each other. It has always been by reestablishing peaceful commerce, currency, and societal structures with rules. Yet that is the very thing the SHTF community doesn’t trust.

 

[Wolf359]

yeah, i just pile cash at my house. maybe not a good idea, but i only spend less than 500 a month on expenses. mortgage been paid off lol.

You really keep cash in a piggy bank at home? You just stick it in a mutual fund if you're not doing anything with it. I'm not sure where people get the notion that banks can't be trusted or that the returns are fake. You should just try it with a few hundred and see where you end up.

https://fundresearch.fidelity.com/mutual-funds/performance-and-risk/315911750

 

[PWMDMD]

I'm not sure where people get the notion that banks can't be trusted or that the returns are fake.

It's just really silly when you look at history and how much money someone is losing by not investing. The only way someone "loses" it all in the market is either doing something really stupid like pulling out in a down market or it's the end of civilization as we know it and then money won't be worth anything anyway.

 

[PimTac]

yeah, i just pile cash at my house. maybe not a good idea, but i only spend less than 500 a month on expenses. mortgage been paid off lol.

If the money gets stolen or burns up in a fire then you have nothing.

I will agree that banks have outlived their usefulness with the exception of getting a loan or keeping valuables secure in a safe deposit box. They pay little interest and in most cases you will end up paying just to have your money there. I keep a minimal amount in a bank just to pay bills.

Investing is not just about stocks. If I have money sitting somewhere I want it working for me. Inflation will eat away the value of money in the attic or under a secret floorboard. That is what investing can do. It will grow your money faster than inflation. Of course you need to watch it.

 

[wwillson]

https://fundresearch.fidelity.com/mutual-funds/performance-and-risk/315911750

Fidelity has a fairly new zero cost/zero expenses total market fund called FZROX that I highly recommend.

https://fundresearch.fidelity.com/mutual-funds/summary/31635T708

 

[MRC01]

While it seems lots of people invest in the stock market, I run into lots of people all the time that seem to just invest in whatever their company offers or just savings account or CDs. ...

Some key points of financial advice that all teenagers should learn:

0. Always invest at least 10% of what you earn (more if possible), and never take on debt other than a mortgage. If that means sharing an apartment with roomates instead of having your own, having an old phone from eBay instead of a shiny new iThingie, driving an old Toyota instead of a new Audi, etc. do it.

1. Risk is a function of time. Equities have a reputation for being volatile and risky, and they are, in the short term. In the long term, it's the opposite - there is no investment that consistently earns more. When you are young, you can safely be 100% invested in equity funds that are index based (thus diversified, like mutual funds or ETFs based on S&P500, Russell 2000 or other broad indexes).

2. Savings accounts, CD and other "safe" cash instruments usually earn less than inflation. Their risk-time profile is the opposite of equities. Short term they are the safest. But long term they are the worst as they guarantee that you will lose all your money (however slowly). They may be a useful tool for occasional use, but they are not a primary investment.

3. Timing or gaming the market is impossible in the long term, no matter how smart, well informed or professional anyone is. So avoid actively managed funds or any other strategy that relies on knowing more than the market. They have higher fees and never beat the market in the long term.

4. As your long-term investment end goal approaches, you have less time to recover from potential short-term losses. This means your risk-time profile has changed. Gradually shift out of equities into less volatile instruments to safely lock in your long-term gains. To make this easy, you can invest in indexed funds that make this shift automatically, based on target retirement or end-goal years.

 

[wwillson]

Some key points of financial advice that all teenagers should learn:

0. Always invest at least 10% of what you earn (more if possible), and never take on debt other than a mortgage. If that means sharing an apartment with roomates instead of having your own, having an old phone from eBay instead of a shiny new iThingie, driving an old Toyota instead of a new Audi, etc. do it.

1. Risk is a function of time. Equities have a reputation for being volatile and risky, and they are, in the short term. In the long term, it's the opposite - there is no investment that consistently earns more. When you are young, you can safely be 100% invested in equity funds that are index based (thus diversified, like mutual funds or ETFs based on S&P500, Russell 2000 or other broad indexes).

2. Savings accounts, CD and other "safe" cash instruments usually earn less than inflation. Their risk-time profile is the opposite of equities. Short term they are the safest. But long term they are the worst as they guarantee that you will lose all your money (however slowly). They may be a useful tool for occasional use, but they are not a primary investment.

3. Timing or gaming the market is impossible in the long term, no matter how smart, well informed or professional anyone is. So avoid actively managed funds or any other strategy that relies on knowing more than the market. They have higher fees and never beat the market in the long term.

4. As your long-term investment end goal approaches, you have less time to recover from potential short-term losses. This means your risk-time profile has changed. Gradually shift out of equities into less volatile instruments to safely lock in your long-term gains. To make this easy, you can invest in indexed funds that make this shift automatically, based on target retirement or end-goal years.

No professional money manager or CFP could ever give better advice than what our own MRC01 just gave here for free.

 

[PWMDMD]

Some key points of financial advice that all teenagers should learn:

0. Always invest at least 10% of what you earn (more if possible), and never take on debt other than a mortgage. If that means sharing an apartment with roomates instead of having your own, having an old phone from eBay instead of a shiny new iThingie, driving an old Toyota instead of a new Audi, etc. do it.

1. Risk is a function of time. Equities have a reputation for being volatile and risky, and they are, in the short term. In the long term, it's the opposite - there is no investment that consistently earns more. When you are young, you can safely be 100% invested in equity funds that are index based (thus diversified, like mutual funds or ETFs based on S&P500, Russell 2000 or other broad indexes).

2. Savings accounts, CD and other "safe" cash instruments usually earn less than inflation. Their risk-time profile is the opposite of equities. Short term they are the safest. But long term they are the worst as they guarantee that you will lose all your money (however slowly). They may be a useful tool for occasional use, but they are not a primary investment.

3. Timing or gaming the market is impossible in the long term, no matter how smart, well informed or professional anyone is. So avoid actively managed funds or any other strategy that relies on knowing more than the market. They have higher fees and never beat the market in the long term.

4. As your long-term investment end goal approaches, you have less time to recover from potential short-term losses. This means your risk-time profile has changed. Gradually shift out of equities into less volatile instruments to safely lock in your long-term gains. To make this easy, you can invest in indexed funds that make this shift automatically, based on target retirement or end-goal years.

This is it in a nutshell. Like I said, not too difficult to understand or implement so long as you can come up with the cash to do it.

 

[CharlesInCharge]

I get very angry reading posts from people who seemingly grew up with every advantage possible, talking about how easy it is to save money and retire wealthy.

Let me tell you, when you grow up poor, single parent, and have to work and borrow to survive like I have for most of my youth, and then carry the burdens of debts for decades and cannot effectively "invest" because you're still focused on repaying loans, it's not that simple.

At least three times in my life, I've had to liquidate all my substantial savings to survive a unexpected job loss, downturn in the markets, or other crummy situations. I've 3 times had to make radical changes and sell homes, once at break even after owning it for 8 years, to avoid foreclosures.

So, what I read here is a lot of people who totally lack perspective. It's a heck of a lot easier to "just save money" or "just invest money" when you have a LOT of luck, and start off way ahead with wealth and good parents.

I've done nearly everything "right." I've worked harder than probably most people I've met in my life. I never had a family vacation; correction. We had exactly 1 short road trip which was ended prematurely because our car broke down. I started work when I was 15 and have had a job every day since then. Every dime I earned went directly to survival until I was probably in my early 30s. Saving? Give me a break. When I've invested in the markets, the timing was almost always against me and I've managed to lose a lot of money. Because market manipulations. I've invested in housing and of the 3 houses, I did great (doubled my money) on one (8 years, great market), marginally beat inflation on another (6 years, minimal return), and lost a bundle on the 3rd after 8 years of ownership. Every government program is geared toward the classes of persons I am not so I have rarely gotten any handouts that everyone else seems to soak up.

You can work your *** off, but you cannot outwork horrible economics, soaring college costs, soaring inflation, government picking winners and losers (if you're a attractive woman, or certain minority or single mom the world is handed to you on a platter and everything is free, basically), horrible government leadership, and market manipulators, and bad life events, and starting way behind... no amount of 1% or 5% ROI is going to make up for the first 2+ decades, formative years of having almost nothing until you're in your late 20s.