Thoughts on retirement savings in the US

[Dave Hess]

Sometimes in life you are at the Right Place at the Right Time and a door of opportunity opens up. Ive seen it many times over the past 40 years. Sometimes people marry into success.

A person will get help and pushed along when there were lots of better qualified persons.

 

[ATex7239]

Ugh. Don't say classes.

There are people down on their luck who get better by understanding how the game is rigged, and breaking the patterns that got them where they are.

There are those born into privilege who suck, haven't understood what their ancestor did to get them that privilege, and will coast/spend down to poverty.

To invest for a comfortable retirement, just have more than average, so you'll be able to hire help to keep you comfortable. Get long term care insurance if you can. Whatever "average" is is your mark to beat. Look at the good and labor shortages now and assume the same may happen later. And don't piss off your friends or kids, "the poors" are better at social networking because they evolved that way. You may need favors that aren't quantifiable with money.

You keep referring to the luck of situation and encounters, which does play a role without a doubt. However choices do play a hand as well. Denying either is disingenuous to the truth. An example of personal choice is your advice about being good to your people. This is great advise and it’s a personal choice. It’s a good choice which leads to good outcomes. The advise is one of choice not being lucky. As far as classes you can call it what you will, the semantics are irrelevant. What is relevant are the tendencies which lead to poverty and the tendencies which lead to wealth. Understanding or failing to understand them is how one can change their life. Life is like a game of Craps, luck is needed, but choices matter. You have to learn the rules of game and work the odds in order to win.

 

[JeffKeryk]

Sometimes in life you are at the Right Place at the Right Time and a door of opportunity opens up. Ive seen it many times over the past 40 years. Sometimes people marry into success.

A person will get help and pushed along when there were lots of better qualified persons.

There is no such thing as fair.

 

[wwillson]

There is no such thing as fair.

I frequently told my kids that when they were growing up. "What is fair to you, by definition, is unfair to someone else, so don't use the word "fair""

 

[Slow Car Sport Mode]

I max out the 401k contribution I am able to. I am happy to be given this benefit.

 

[Slow Car Sport Mode]

Sometimes in life you are at the Right Place at the Right Time and a door of opportunity opens up. Ive seen it many times over the past 40 years. Sometimes people marry into success.

A person will get help and pushed along when there were lots of better qualified persons.

Or, you could just join a company at a really, really good time.

Even then, people will talk trash. "Oh, that's $25 an hour when you do the math." "Oh, you're not pushing yourself enough. Company X makes $28 for their workers, Company Y $40, you're happy with $20." "Your company's products are not good."

Meanwhile, they can't keep up with demand at maximum output while they plan new lines.... just sayin'.

Perhaps we should say.. It's all relative.

 

[ATex7239]

To me, these threads take on a "holier than thou" attitude that says "look, if I can rise from bottom ladder rung, everyone can through hard work and correct choices". I think that many don't appreciate the opportunity and choices we have, which explains my chest thumping comments. My point is that many in this conversation probably have had "more" opportunity than many in the world and we should acknowledge that and be grateful.

“Whether you can observe a thing or not depends on the theory which you use.
It is the theory which decides what can be observed."
--Albert Einstein

Focusing on one aspect vs another indeed creates a myopic view of data. I choose to analyze and measure choice, which is what I am able to control. I recognize chance exists but due to being random and uncontrollable I choose not to weight it too heavily towards making decisions

 

[JHZR2]

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?

TL;DR - this is at page 10, and flipping through I saw a bunch about luck.

I am generally curious about how some folks "do it".

We save a lot. A lot. And we are pretty frugal. Between our two salaries, we are decently high earners. But again, we save heavily for retirement, for a beach house, HSA, for all of the kids' college... And we do indeed do a lot. Beach day trips most weekends, islands to visit family a few times a year, etc. But see again that we are decently high earners. So to cash flow that means compromising in another area.

So then I go and see folks that live in more expensive areas of the state, have much fancier cars, show the "facebook life" of trips and luxurious things... Makes me wonder how they do it. I know some friends get a lot of help from their parents. Like they never need to buy their kids clothes because the grandparents spend so much. Others I just dont know. They arent all doctors and lawyers. Yet they own expensive homes and cars.

The delta has to be not saving. You can not do certain things (as much eating out, as many activities, etc.), and limit your debt load so the rest just cash flows... And then get a 30 year mortgage, refinance on another 30 yr mortgage when the getting is good (I know a few who have done that), and not save.

I have to assume that even "well to-do" people quite often have very little saved.

One example came to mind, and made me think about this thread... National Lampoon's Christmas Vacation...

Seems like a decently talented engineer of some sort, corporate job in downtown Chicago, big house, etc. Puts a deposit on the pool, and didnt have enough money to pay it. Needed the bonus to keep his check from bouncing.

Huh? No savings? Nothing to tap? You have two teenage kids and not enough savings to avoid your deposit on an expensive item from bouncing? I get it that it is a movie... And isnt necessarily factually correct to anything, but I suspect it is more real than some might make it out to be.

I think that FB and instagram really skew our observations of reality too...

Ill say that the one "benefit" we have is a stable relationsion (working as a team with mutual respect), and that came from having parents, grandparents, etc. with zero divorce on either side. I lucked out - my parents cashflowed what I couldn't support in college with scholarships. That helps... But both of us were frugal and careful with school/grad school, to avoid burdens of massive debt with no way out.

Ive been saving since I was very young. I had passbook savings for as long as I can remember. Ive been fortunate to not have been hit with high medical bills, some callamity, and that Ive had stable employment and we have made good decisions. I cant say that Ive faced as many issues as others. Ive been "lucky" if you want to call it that. But we have done without, lived below our means, etc. And have been very fortunate.

 

[Wolf359]

TL;DR - this is at page 10, and flipping through I saw a bunch about luck.

I am generally curious about how some folks "do it".

We save a lot. A lot. And we are pretty frugal. Between our two salaries, we are decently high earners. But again, we save for retirement, for a beach house, for all of the kids' college... We do indeed do a lot. Beach most weekends, islands a few times a year, etc. But see again that we are decently high earners.

So then I go and see folks that live in more expensive areas of the state, have much fancier cars, show the "facebook life" of trips and luxurious things... Makes me wonder how they do it. I know some friends get a lot of help from their parents. Like they never need to buy their kids clothes because the grandparents spend so much. Others I just dont know. They arent all doctors and lawyers. Yet they own expensive homes and cars.

The delta has to be not saving. You can not do certain things (as much eating out, as many activities, etc.), and limit your debt load so the rest just cash flows... And then get a 30 year mortgage, refinance on another 30 yr mortgage when the getting is good (I know a few who have done that), and not save.

I have to assume that even "well to-do" people quite often have very little saved.

I think it also depends on what you have it invested in. I've talked to several people who have no idea what's in their 401k or they say they've gotten like a 10% return this year and have no clue that the S&P 500 is up 27.58% year to date and think that the 10% rate is good.

Or maybe those people bought Telsa before the big pop and are swimming in it. I remember meeting one guy who had 100 bitcoins he bought years ago. At the time, they were around 8k and had fallen from 20k. I guess if he held on he'd be in the 5 million range now. I think he only paid a few dollars per bitcoin as he bought them way before they started to go up.

 

[PimTac]

I think it also depends on what you have it invested in. I've talked to several people who have no idea what's in their 401k or they say they've gotten like a 10% return this year and have no clue that the S&P 500 is up 27.58% year to date and think that the 10% rate is good.

This is a kind of non productive competition with investors. One guy will be happy that he got 15-20% on his portfolio but someone else will tell him that they got 30%.

It doesn’t matter what the other guy got. Concentrate on your own portfolio. If you are invested as you wish to be then compare your portfolio apples to apples. If it is underperforming then find out why.


We always here the ones who got big gains in the year but when the markets go down you never hear from them.

 

[JHZR2]

I think it also depends on what you have it invested in. I've talked to several people who have no idea what's in their 401k or they say they've gotten like a 10% return this year and have no clue that the S&P 500 is up 27.58% year to date and think that the 10% rate is good.

Or maybe those people bought Telsa before the big pop and are swimming in it. I remember meeting one guy who had 100 bitcoins he bought years ago. At the time, they were around 8k and had fallen from 20k. I guess if he held on he'd be in the 5 million range now. I think he only paid a few dollars per bitcoin as he bought them way before they started to go up.

Maybe.

Thing is, most investments that most "normal" people I encounter have, are tied up in some form of retirement plan. They arent buying their luxury goods and new fancy cars and whatnot with the result of a 27.58% S&P runup.

And, reality is that much of these increases is bound to fall again. Lots of sidelined money has chased returns. There is no better place to put it right now. At what point does that change? For one reason or another... Sooner or later the 25, 50, 75% drop will occur again. The COVID drop was artificial - rapid removal of risk from an already hot market. People who are hitting retirement age when those drops occur will feel some pain if they are reliant on making distributions.

 

[Wolf359]

I bought a gorgeous 3600s/f new high quality construction house in a beautiful neighborhood. Bad property management, bad tenants who cost me money, bad government policies for which I had no control, and macro-economic forces where builders over-built the area meant an 8 year investment led to a break even situation... Plus bad luck in business, cost me capital, which forced my hand on the house I had to sell or lose in foreclosure after 8 years of a stagnant market and long periods of vacancy because builders overbuilt the area.

Was that a bad investment, or bad luck?

You, apparently, had a lot of good luck and not the bad luck I experienced. L.U.C.K. has more to do with it than "hard work."

You made a lot of rookie mistakes. You always want the worse house in a nice neighborhood. The nicest house doesn't really go up in value but you can fix up the bad house and add value to it. New construction is also premium priced and you typically make more money in multifamily rentals than single families, but I guess that depends on the area. Many areas didn't see price appreciations so it's also due to location. Property management is also very bad in general. I know many landlords that self manage and I also self manage. It's very hard to find good property management and even if they are good, they will eat into your profits. Also rookie mistake to be under capitalized, that's really where most business fail, they run into cash flow problems. I bought properties that cash flowed and occasionally when I had a bad tenant, managed to squeak by and was never forced to sell. I never considered luck in my situation, the key is to analyze the market and get into the one you want to be in. Mine was somewhat safe, I do see other investments similar to mine that have paid out much better, but I think they took on more risk. As the saying goes, the greater the risk, the greater the reward. I also never had long periods of vacancy. Vacancies just means that it's overpriced. When you do the rentals yourself, you can always ask prospective tenants, what do you want to pay or what do you think it's worth and you get feedback that way. When I list a property for rent and I get crickets, I lower the rent $50-$100. When I get 20-30 people calling me when I first list it, then I know it's too low, did that once and then jacked the rent up $100 and still had 6 people interested. Basically I know very few real estate investors that have single families, they're very hard to make money on, the cap rates are usually too low. Did you even know what the cap rate of the property was when you bought it? Anyway, as you can tell, my answer is that it was a bad investment, not bad luck.

 

[Wolf359]

This is a kind of non productive competition with investors. One guy will be happy that he got 15-20% on his portfolio but someone else will tell him that they got 30%.

It doesn’t matter what the other guy got. Concentrate on your own portfolio. If you are invested as you wish to be then compare your portfolio apples to apples. If it is underperforming then find out why.


We always here the ones who got big gains in the year but when the markets go down you never hear from them.

Yeah, I was just answering the question of where some of the money comes from, some just did pretty well in their investments. People like to talk about how poor they are, but those that are doing well keep quiet so no one really knows.

 

[PimTac]

Yeah, I was just answering the question of where some of the money comes from, some just did pretty well in their investments. People like to talk about how poor they are, but those that are doing well keep quiet so no one really knows.

And that is prudent advice. Talk like that attracts the wrong kind of people.

 

[Wolf359]

Maybe.

Thing is, most investments that most "normal" people I encounter have, are tied up in some form of retirement plan. They arent buying their luxury goods and new fancy cars and whatnot with the result of a 27.58% S&P runup.

And, reality is that much of these increases is bound to fall again. Lots of sidelined money has chased returns. There is no better place to put it right now. At what point does that change? For one reason or another... Sooner or later the 25, 50, 75% drop will occur again. The COVID drop was artificial - rapid removal of risk from an already hot market. People who are hitting retirement age when those drops occur will feel some pain if they are reliant on making distributions.

Yeah, I don't predict the future. Like you said, maybe it falls 25-75%. Maybe it doesn't. If I knew, I'd know what I'd be doing. There are other possibilities beside a drop. Maybe it just goes sideways like 2018. Can't really explain the 27.58% run up this year. I thought last year was decent enough, would have been happy with just a 5-10% year after a 31.47% year followed by an 18.4% year.

This is like quantum mechanics. If you think you understand quantum mechanics, you don't understand quantum mechanics.

If you think you understand the stock market, you don't understand the stock market.

I don't understand the stock market.

 

[JHZR2]

Yeah, I don't predict the future. Like you said, maybe it falls 25-75%. Maybe it doesn't. If I knew, I'd know what I'd be doing. There are other possibilities beside a drop. Maybe it just goes sideways like 2018. Can't really explain the 27.58% run up this year. I thought last year was decent enough, would have been happy with just a 5-10% year after a 31.47% year followed by an 18.4% year.

This is like quantum mechanics. If you think you understand quantum mechanics, you don't understand quantum mechanics.

If you think you understand the stock market, you don't understand the stock market.

I don't understand the stock market.

Very much agree.

Question becomes how is it truly the case that the market grows at these double digit percentages perpetually? The last 60 years is IMO the exception. There are more competitions, more people already “modernized”. We don’t make much here.

Best country on earth, yes, but that doesn’t mean that our market can survive artificial bolstering forever. That’s the scary part. Exist and have certain needs at the wrong part of that cycle, and one can be in for a world of hurt.

 

[CharlesInCharge]

You made a lot of rookie mistakes. You always want the worse house in a nice neighborhood. The nicest house doesn't really go up in value but you can fix up the bad house and add value to it. New construction is also premium priced and you typically make more money in multifamily rentals than single families, but I guess that depends on the area. Many areas didn't see price appreciations so it's also due to location. Property management is also very bad in general. I know many landlords that self manage and I also self manage. It's very hard to find good property management and even if they are good, they will eat into your profits. Also rookie mistake to be under capitalized, that's really where most business fail, they run into cash flow problems. I bought properties that cash flowed and occasionally when I had a bad tenant, managed to squeak by and was never forced to sell. I never considered luck in my situation, the key is to analyze the market and get into the one you want to be in. Mine was somewhat safe, I do see other investments similar to mine that have paid out much better, but I think they took on more risk. As the saying goes, the greater the risk, the greater the reward. I also never had long periods of vacancy. Vacancies just means that it's overpriced. When you do the rentals yourself, you can always ask prospective tenants, what do you want to pay or what do you think it's worth and you get feedback that way. When I list a property for rent and I get crickets, I lower the rent $50-$100. When I get 20-30 people calling me when I first list it, then I know it's too low, did that once and then jacked the rent up $100 and still had 6 people interested. Basically I know very few real estate investors that have single families, they're very hard to make money on, the cap rates are usually too low. Did you even know what the cap rate of the property was when you bought it? Anyway, as you can tell, my answer is that it was a bad investment, not bad luck.

I purchased the new construction at rock bottom price in 2009 from a high quality builder, in a major military town, during a 2 front war, with presumably significant growth outlook. And I got a the $8000 direct tax break (one of the few breaks I've gotten, but it was wiped out). I lived in it for 2 years, a roommate paid my mortgage for much of that 2 years while I was gone, and I then rented it out for 7.

Oh, and it was a very low interest VA loan. My renters were paying off my mortgage, insurance, property management, and I was making a little on top every month. It was on paper a brilliant long term investment.

But this is where bad luck comes in.

Morons running the government. Morons over-building the area. Terrible tenants that were screened and seemed reliable, but were not, and that cost me a year worth of losses between their 5 months of non-payments, and the subsequent vacancy off-season. In 10 years from 2009-2019 that house did not appreciate $1. Because of the idiots in government and the idiot builders. In the 2 years since I've sold it it's probably doubled in price, again due to the macro economic effects I cannot control. I cannot control the macro-economics of other idiots decisions that nearly bankrupted me. Or that made the new owners rich due to my bad timing and their great timing. Other than a longer time-line, there's no way to have known or predicted or profited from this, other than just being the lucky (versus unlucky) parties.

I did everything as best I could. BAD LUCK intervened. One example, yes, but just proving a point that some of you who never seem to have BAD LUCK just do not understand what it is like when no matter how hard you try, how smart you try to plan, the best decisions you can make, and BAD LUCK laughs and you land on Boardwalk with hotels and are wiped out.

 

[Wolf359]

I purchased the new construction at rock bottom price in 2009 from a high quality builder, in a major military town, during a 2 front war, with presumably significant growth outlook. And I got a the $8000 direct tax break (one of the few breaks I've gotten, but it was wiped out). I lived in it for 2 years, a roommate paid my mortgage for much of that 2 years while I was gone, and I then rented it out for 7. It was on paper a brilliant long term investment.

But this is where bad luck comes in.

Morons running the government. Morons over-building the area. Terrible tenants that were screened and seemed reliable, but were not, and that cost me a year worth of losses between their 5 months of non-payments, and the subsequent vacancy off-season. In 10 years from 2009-2019 that house did not appreciate $1. Because of the idiots in government and the idiot builders. In the 2 years since I've sold it it's probably doubled in price, again due to the macro economic effects I cannot control. I cannot control the macro-economics of other idiots decisions that nearly bankrupted me. Or that made the new owners rich due to my bad timing and their great timing. Other than a longer time-line, there's no way to have known or predicted or profited from this, other than just being the lucky (versus unlucky) parties.

I did everything as best I could. BAD LUCK intervened. One example, yes, but just proving a point that some of you who never seem to have BAD LUCK just do not understand what it is like when no matter how hard you try, how smart you try to plan, the best decisions you can make, and BAD LUCK laughs and you land on Boardwalk with hotels and are wiped out.

Sorry, I'm going to say it's all your fault, not bad luck. I see it all the time as a real estate broker, people who sold too soon. Even real estate investors that don't need the money do it, sometimes they think it's a good deal to get a small return after 10 years only to see it double like you did a few years after they sell it. The ones that always make a killing are the ones that hold for 20-30 years. The ones that only hold for around 5-10 years never really make a killing, only if they get super lucky. It wasn't bad luck or bad timing, enough research into holding real estate tells you that you only make money holding for the long term.

Also your real estate was super risky. You had one unit and one bad tenant really kills your cash flow. I did multifamily properties. One bad tenant doesn't tank me, I'd have to have 3-4 bad ones to get into trouble. Usually I didn't have more than 1 or 2 at the same time. Screening is more of an art, been doing it a long time and I've finally figured out that the key is probably a good credit score and a good amount of assets in the bank. Those were always my best tenants. But screening only works for a couple of years, then life happens and things can go south. Having only one investment property is basically have all your eggs in one basket. I've gotten more horrible tenants from brokers than from my own screenings, property management just eats up a chunk of profits. You probably should have just sold instead of making it a rental property. It doesn't always make sense to rent out a property especially when you're not there. You basically didn't have enough reserves to keep it going and hold on until the market improved. That's more like poor planning or not realizing what a risky business you were in. There are good investments and bad investments. I wouldn't invest in new construction for investment property. Those never seem to make any money, probably takes at least 10-15 years before they start to make money if you're lucky. The main problem is that after 5 years, it's no longer new and someone can always build something newer. Like buying a new car, you get sacked with the depreciation in those early 10 years.

So while you think it's all about luck, you were never in a good position to begin with.

 

[Dave Hess]

JHZR2,

Great post about the Facebook, Instagram fake and wonderful life people portray online.

Lots of people try to ‘one up’ their friends, family, coworkers, acquaintances posting constant updates on their doings and unique wonderful life. How many of these people have miserable marriages because they are up to their eyeballs in debt and causing problems not seen on social media ?

I have a 25 year old nephew thats soooooo obsessed with posting photos of him living the great life, him at an NFL or college football game and bar & grill after the game. Needs to update his cyber friends of his whereabouts and doings. People like him are the reasons why social media have people hooked on Facebook and checking it 20 times a day for comments and updates.

As for success doctors and lawyers, once they start making the big bucks *many* will want to live the lifestyle they feel is a reward for their hard work. Example: sending kids to private school that costs $40K (per child) a year and not send to public school, which I can definitely understand with today’s terrible dysfunctional public school systems.

Some feel the good times never end and their career will never face a downturn.

 

[ATex7239]

So while you think it's all about luck, you were never in a good position to begin with.

When luck is the conclusion then all critical analysis as to what happened has stopped.