On the Money... (Financial Advice/Lessons)

[Vkw10]

That said, I am rapidly coming to believe a million dollars ain't what it used to be. 

I occasionally check https://www.immediateannuities.com/information/annuity-rates-step-1.html to get an idea of what it would cost me to buy an annuity that would pay me my monthly gross salary from age 62 until death. It's considerably more than a million dollars.

Why gross salary, when common advice is that you need to replace 70-80% of income in retirement? I expect to pay for health insurance, which my employer provides now. I expect to pay taxes on most of my Social Security, which may decline if means-testing is applied when the trust fund runs low. I expect at least one period of high inflation during a 30 year retirement. I want to maintain my modest standard of living.

I'm not planning to buy an annuity, and definitely not one that large, since I will have pension income. But I find checking the cost of annuity a useful motivator to keep funnel money into 403b, 457b, and Roth IRA.

[Ruralguy]

Yeah, I've been going over similar calculations for my entire career. I think over 20 years ago I calculated that my final TIAA balance would be between 600,000 -3,000,0000!  I think I'm on target to maybe be halfway if I am very lucky. By the way, the 3 mill assumes very very good luck. Low inflation, high stock growth.

I'm not sobbing. I've been lucky to have the salary I have, and the knowledge and will to invest/save well.
But yeah, 1 mill is OK for sustenance in many locations (not all, especially if retiring at 62), but it ain't gunna get you butlers and gold toilets (but that stuff is barely even viable  with 10's of millions).

[polly_mer]

during a 30 year retirement.

This is the part that I can't wrap my head around.  My grandmother was retired for 26 years and active right up until the last six months.  State and military pensions paid enough for a good enough lifestyle all those years.

I don't see any way to invest enough for 30 years or really even 25 in the time left before that retirement would start and still have a life similar to what I have now purely from investment money.

I can see a way to gradually ramp down my active income and draw more from investments/savings over the course of twenty years, which is what my parents are doing so far and what many people do at my employer.

One of the selling points for the types of jobs I've had with my degrees is being able to work well past age 60.

[clean]

I don't see any way to invest enough for 30 years or really even 25 in the time left before that retirement would start and still have a life similar to what I have now purely from investment money.

I try to instill in my students the absolute necessity to begin savings as soon as they graduate and begin working.  The miracle of compounding requires time.  It IS possible to save enough to retire, but it requires a long time horizon. One can not save 30 years worth of retirement income even by saving 100% of the last year or 2 of earnings. 


In economics there are 4 resources.  Land, Labor, Capital and Entrepreneurship.  In the beginning, we have essentially only Labor to rely on, but the plan to enable one to retire is to use that labor to build the other 3 so that labor is not required in the end. 

In the start of my career, though I saved a lot and should be ABLE to retire at a reasonable age (or sooner), I didnt think that I would be Willing to retire before 70 or after. 

Now that my parents are in their mid 70s and I see what 70s look like, I am not willing to delay retirement to try to do what I think that I want to do. 

Fortunately, many in academia find great value in working.  Using Maslow's framework, many find being a full professor and passing on knowledge to be Self Actualizing, so working is a great joy and plan to do so as long as possible.  It certainly pays much better than not working!

[dismalist]

I don't see any way to invest enough for 30 years or really even 25 in the time left before that retirement would start and still have a life similar to what I have now purely from investment money.

I try to instill in my students the absolute necessity to begin savings as soon as they graduate and begin working.  The miracle of compounding requires time.  It IS possible to save enough to retire, but it requires a long time horizon. One can not save 30 years worth of retirement income even by saving 100% of the last year or 2 of earnings. 


In economics there are 4 resources.  Land, Labor, Capital and Entrepreneurship.  In the beginning, we have essentially only Labor to rely on, but the plan to enable one to retire is to use that labor to build the other 3 so that labor is not required in the end. 

In the start of my career, though I saved a lot and should be ABLE to retire at a reasonable age (or sooner), I didnt think that I would be Willing to retire before 70 or after. 

Now that my parents are in their mid 70s and I see what 70s look like, I am not willing to delay retirement to try to do what I think that I want to do. 

Fortunately, many in academia find great value in working.  Using Maslow's framework, many find being a full professor and passing on knowledge to be Self Actualizing, so working is a great joy and plan to do so as long as possible.  It certainly pays much better than not working!

It is not at all clear why someone just starting working, with an income below future income should save, to take care of unexpected opportunities or losses aside, say six months income. Indeed, young people do not save much. Instead, they borrow, to buy a house for example. Net savings starts around the age of 40 or so, on average. Most people do not want to put so much of their lifetime resources into their retirement years. And that is up to them.

[If Maslow were correct, poor people would never spend even a penny to have some fun!]

[ciao_yall]

I don't see any way to invest enough for 30 years or really even 25 in the time left before that retirement would start and still have a life similar to what I have now purely from investment money.

I try to instill in my students the absolute necessity to begin savings as soon as they graduate and begin working.  The miracle of compounding requires time.  It IS possible to save enough to retire, but it requires a long time horizon. One can not save 30 years worth of retirement income even by saving 100% of the last year or 2 of earnings. 


In economics there are 4 resources.  Land, Labor, Capital and Entrepreneurship.  In the beginning, we have essentially only Labor to rely on, but the plan to enable one to retire is to use that labor to build the other 3 so that labor is not required in the end. 

In the start of my career, though I saved a lot and should be ABLE to retire at a reasonable age (or sooner), I didnt think that I would be Willing to retire before 70 or after. 

Now that my parents are in their mid 70s and I see what 70s look like, I am not willing to delay retirement to try to do what I think that I want to do. 

Fortunately, many in academia find great value in working.  Using Maslow's framework, many find being a full professor and passing on knowledge to be Self Actualizing, so working is a great joy and plan to do so as long as possible.  It certainly pays much better than not working!

It is not at all clear why someone just starting working, with an income below future income should save, to take care of unexpected opportunities or losses aside, say six months income. Indeed, young people do not save much. Instead, they borrow, to buy a house for example. Net savings starts around the age of 40 or so, on average. Most people do not want to put so much of their lifetime resources into their retirement years. And that is up to them.

[If Maslow were correct, poor people would never spend even a penny to have some fun!]

Actually research shows that even for the poorest people, the first category they spend money on is Self-Actualizing.

[polly_mer]

That's all great advice, clean.  I hope your students listen to you and somehow earn enough that 6% in the 401(k) is real money for those first 10-15 years of working and the market doesn't tank so severely that they essentially start over multiple times.

We'll have decades of excellent pay (assuming I remain at the current mid-career salary or more) invested and saved by retirement.  However, those early investment years total almost nothing and at times have been a negative return on total investment.

[clean]

for many students, graduating and getting their first job, will allow them to earn more than they ever have.  If they live on 10% less than more than they have ever earned, it is still likely, more than they have ever earned.!

IF you dont get used to spending it, there will be enough! 

Live BELOW your means!  It is good practice for when your means decline at retirement.

It is not at all clear why someone just starting working, with an income below future income should save, to take care of unexpected opportunities or losses aside, say six months income. Indeed, young people do not save much. Instead, they borrow, to buy a house for example. Net savings starts around the age of 40 or so, on average. Most people do not want to put so much of their lifetime resources into their retirement years. And that is up to them.

Most would say the an emergency fund should be 6 months of expenses, not income

And Who wants to Be AVERAGE, especially when it comes to being able to retire!?  "Average" sucks!  The "Average" person has not saved enough to retire! 

not to get on my soap box, but,
Live Below Your Means.
Live on your 9 month salary (you never know when summer will be cancelled or something, and you never want to be Required to work to make ends meet!)
IF you ARE living on your 9 months salary, imagine how quickly you can pay off your student loans, other debt, save for needs (another car for cash), pay off your house and then dump that house payment into retirement as well! 

Let me ask this before I turn over the soap box,
IF you could give advice to your just starting out self, What advice would you give? (What advice do you Wish you had received - or listened to?)

Good luck!!

[Ruralguy]

It does take years to get to that first 100K , for instance. But then, 20 years later, you can double your money in less time if conditions are favorable. That money to double in the late years is much less if you didn't spend the early 10 collecting the first 100.  I'm working off  my experiences with average prof income for my rank.

But, yeah, sure, if you make 20k for ten years and then go to 120k or more (not me!) then the first few years probably aren't going to mean much.

[polly_mer]

But, yeah, sure, if you make 20k for ten years and then go to 120k or more (not me!) then the first few years probably aren't going to mean much.

That's pretty close to our situation.

Live below your means is good advice, but math still rules when somebody goes to grad school in a really poor area where $20k + benefits + an excellent barter network is comfortable instead of taking that $50k + benefits engineering job elsewhere and steadily moving up over the ten years.

At low enough income without family of origin support, there's not enough to save or invest to accumulate quickly.
6% of $20k simply isn't very much, even if one lives somewhere that $20 k is sufficient to live comfortably with six months of expenses in the bank and putting 6% in the 401(k).

That perspective is why the argument on the Doomed Humanities thread that people make $36k ten years out is not at all compelling.  Yeah, one won't starve, but those lost years of income and no way to suddenly jump to triple or more income does not bode well for late middle age and later.  Low income traps one in places they can live comfortably.

[Ruralguy]

If you really don't have any means, and there isn't much fat to trim, then living below your means, if even possible, isn't going to do much for your savings.

However, it does get you into the habit of saving, which is especially important if you feel there is potential for your earnings to go up with time. So, even if you have to start by contributing some very small amount to your 401k, maybe not even enough to trigger matching, its still probably worth it just to get it going even if financially it hardly means much. If there's hardly any chance for your income to go up with time, then it might not really be worth it other than to say "some money at retirement is probably better than no money"

[polly_mer]

My point was more "do the math and make good choices on the overall situation" than "it's hopeless to save".  This is an academic board with early career people who need some blunt realities.

I've been spending a lot time lately immersed in social science literature where the conclusions are:

* Many people get stuck in poverty or other bad situation by following rules that won't work out. For example, saving 10% of practically nothing instead of putting that same amount into a one-year credential or a new job that pays much better, is more stable, and has more humane working conditions.  Yep, saving is a good habit, but a handful of pennies later is not as good as a fistful of dollars later.

* Believing that hard work at anything is valuable without aligning that hard work with desired goals.  All the minimum wage jobs I've had were hard work.  I may work longer hours now, but it's for much better pay and more personal satisfaction.  Money isn't everything, but below a certain comfort level, more money for honest work is always better.  Having a career ladder to climb for regular pay bumps as well as raises is a better path than just treading water.

* Having little money is romantic and a great narrative if the years of lean living pay off in achieving personal goals and a comfortable life after early adulthood.  That narrative wears thin when comfortable never comes and yet the physical demands and aging bodies start catching up.  Staying too long in the romantic notion without having the savings and investments pile up may lead to non-productive, coping mechanisms that guarantee staying stuck.

[Ruralguy]

Got it. I agree.

[Vkw10]

during a 30 year retirement.

This is the part that I can't wrap my head around.  My grandmother was retired for 26 years and active right up until the last six months. 
One of the selling points for the types of jobs I've had with my degrees is being able to work well past age 60.

I've watched too many people struggle to continue working at the same pace, even in knowledge-oriented fields, while caring for a partner or dealing with serous illness, to assume that I'll be able and willing to work at my current level forever. My goal is to be financially independent by 62, so I have the freedom to scale back or stop paid work if I want. I probably won't, since I like my work most days, but I'll be able.

Avoiding lifestyle creep has been a big part of my financial plan since I was thirty. I'm cautious about fixed expenses, like housing and cars. I figured out that a small apartment in an older complex and a ten year old Chevy sedan was enough, so a big chunk of my income is free for saving and discretionary expenses. Your choices will differ; personal finance is personal.

My point was more "do the math and make good choices on the overall situation" than "it's hopeless to save".  This is an academic board with early career people who need some blunt realities.

I agree. "When you choose an action, you choose the consequences of that action. And if you desire a consequence, you'd damn well better choose the actions that lead to that consequence."¹ The career path and lifestyle and partner I chose in my late twenties have led me to a modest but comfortable home, stable employment, work I enjoy most days, and the prospect of being able to retire in my early sixties if I wish. My passion was for early medieval public finance, but I didn't want the likely consequences of following my passion as a career. I did the math and chose to make my passion a hobby.

¹ Cordelia Naismith, as recalled by her son, in Memory by Lois McMaster Bujold.

[polly_mer]

Yes.  I don't expect to be able to work full-time forever, but I'd rather plan to step down gradually as I need/want to.

I know too many people who retired too early into nothing to want to do that, especially knowing that women on both sides of my family tend to be healthy into their 90s.

I've known far fewer people who regretted having to retire after some part-time years than people who retired early and then ran out of money to be in bad shape when they really couldn't easily work for health/family reasons.