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This is something I've been thinking about in the good old USA too. Throughout most of history elderly relied on family to take care of them, but modern society

by chadcf 14y ago

This is something I've been thinking about in the good old USA too. Throughout most of history elderly relied on family to take care of them, but modern society often has families spread out over great distances and children not prepared or expecting to have to care for their parents, and with people living longer than ever it becomes much more of a job to care for your parents. Combine that with the fact that pensions are becoming increasingly rare and social security benefits are likely to be cut at some point in the future, and you have the potential for a massive increase in elderly living below the poverty line with no one to care for them. Even if you prepare and save, that's no guarantee as the recent economic troubles demonstrated, with many people nearing retirement seeing massive decreases in their investments. Not to mention, with the skyrocketing costs of college tuition and wages that have not kept up with inflation, adequately saving for retirement has become increasingly difficult as well. I'm not sure what's going to happen but I don't see the future as being that promising as we age and quite frankly, I can see a lot of seniors turning to suicide when whatever meager savings they have run out. I hope I'm wrong, but it looks quite bleak...

pmorici 14y ago
"adequately saving for retirement has become increasingly difficult" Is that true or is it just a shift in culture where people blow all their money on crap they don't need, disposable convenience, and live a more "up-scale" life style instead of saving for retirement? I was reading a few blogs about early retirement the other day such as, http://www.mrmoneymustache.com/2011/04/06/meet-mr-money-mustache/ http://www.mrmoneymustache.com/2011/04/06/meet-mr-money-must... The financial situations vary widely but the common theme is they save a lot more of their income % wise than a typical person. The guy that writes the above blog retired at 30. Those are extreme examples but surely if that is possible then retiring after working until 60+ isn't particularly out of reach.
- svachalek 14y ago
  Suppose you're going to live until 90. That's 60 years of retirement. Suppose you're given up on the whole materialism treadmill and are willing to live close to the poverty line, say $25000 per year. That still works out to $1.5M. How many people even make $1.5M by the time they're 30, even before taxes? And that's to live more or less in poverty.
  - lutusp 14y ago
    > ... That still works out to $1.5M. How many people even make $1.5M by the time they're 30, even before taxes? And that's to live more or less in poverty. The above analysis misses something important -- compound interest. Without compound interest, yes, if you need $1.5 million to retire, then you need $1.5 million in advance. But if you create and then invest your nest egg, the math changes completely. Consider an average return on investment of 12% per annum. That means if you only need $12,000 per year to live in decent poverty, you only need a nest egg of $100,000. In this scenario, to account for inflation, you must withdraw less than $12K per year and let the nest egg grow faster than inflation can erode it. But let's say that stock market won't deliver 12% per year -- it hasn't been doing that for a while. Let's say a more realistic return is 8% from various investments. Let's also say we want an income of $50K per year for life. So we need a nest egg of: 50 / 0.08 = $625K That doesn't seem too bad, or unrealistic. It requires discipline and a lot of advance planning. But it's entirely practical. Now back to your original example: > ... That still works out to $1.5M. How many people even make $1.5M by the time they're 30, even before taxes? And that's to live more or less in poverty. Let's say we have that nest egg -- $1.5M. Assuming an 8% return, what does that give us per year? 1.5M * 0.08 = $120K And guess what? You aren't under any responsibility to die when your money runs out, because it isn't going to run out -- at the end of your life, you still have $1.5M in the bank to give to your children.
    - chadcf 14y ago
      > The above analysis misses something important -- compound interest. You are making the assumption that getting an 8% return is something that is easy and safe to do. What happens to the people who retire in a year like, say, 2007. Their first year of retirement, expecting to withdrawal $50k to live on and instead watch their $625k dwindle down to $460,000. The next year maybe they get lucky and only lose 2%, minus the $50k they withdrew. Now they're down to around $400k. Ok the market picks up and they get a 3% average the next year but took out another $50k. Now they've got $360k. After a mere 3 years of retirement they've used up half their savings. Even if they manage to get 8% a year for the next 30 years, they now only have $28,000 a year to live on. Whoops. The assumption that your money won't run out is not a given. This is the reason it's important to have a LARGE nest egg. While $625k might do it if you could invest it at 8%, you can't count on that and the market could quickly leave you living with your children. To really be safe you're going to need significantly more money than you think you will. You also aren't accounting for inflation, which means as you age either you're going to have to cut your expenses ~3% a year or you're going to have to increase your withdrawls ~3% a year. I don't know what the story is with these retired by 30 people, but I would be willing to bet a fair number of them will find themselves broke and returning to work at some point in their lives.
- OGinparadise 14y ago
  Is that true or is it just a shift in culture where people blow all their money on crap they don't need, disposable convenience, and live a more "up-scale" life style instead of saving for retirement? Yep! Maybe a $25K car and a smaller house is better.
- chadcf 14y ago
  Anyone can retire comfortably and even early, sure. Retiring at 30 takes commitment most people aren't interested in making, however. And of course you have people like me who have no interest in retiring until I have to because I'm crazy enough to love what I do. But regardless you can't deny the fact that with wages decreasing over the past 20+ years in comparison to inflation, it is absolutely more difficult to save for retirement. Regardless of your financial choices, if you have less money after spending the minimum require to sustain yourself, you will have less to save for retirement. That doesn't mean it's impossible to retire, just more difficult. Perhaps you used to be able to have a pretty nice house and car and still be safe in retirement, and now you have to drive a cheap used car and live in a more modest home to do it. There are more sacrifices to make... I think the current working generation is going to have a difficult time too because a lot of us have seen our parents grow up and retire with ease thanks to pensions. When you witness retirement as being a pretty simple thing with no real money concerns it makes it unlikely you're going to sit down and really think about how screwed you might be. After all it was no problem for your parents. Yet when it's your turn and there is no pension and your social security payout has been cut to 70%, well, things are going to be rough.
- MrFoof 14y ago
  There are a good number of people which aren't fiscally responsible, only taking action when it reaches a level of crisis. BankRate.com did a survey a while back... http://articles.chicagotribune.com/2012-06-25/business/chi-28-of-americans-have-no-emergency-savings-20120625_1_emergency-savings-expenses-nest-egg http://articles.chicagotribune.com/2012-06-25/business/chi-2... ... that showed some interesting numbers in terms of emergency funds (28% having none, only about 25% having the recommended 6 months). Half of the respondents indicating their net worth had no change year over year? I can cite far too many anecdotes that could corroborate that, across the age spectrum. Personally I've stuck to the 50/30/20 rule of Needs/Wants/Savings for about 6 years. Now that's shifting more to 30/30/40 as my income has significantly increased while my "monthly nut" hasn't really budged. I have about 2 years of living expenses in my emergency fund, only because I watched my father go for 2 years and 3 months without work between 2003 and 2005.

by chadcf 14y ago

pmorici 14y ago

"adequately saving for retirement has become increasingly difficult" Is that true or is it just a shift in culture where people blow all their money on crap they don't need, disposable convenience, and live a more "up-scale" life style instead of saving for retirement? I was reading a few blogs about early retirement the other day such as, http://www.mrmoneymustache.com/2011/04/06/meet-mr-money-mustache/ http://www.mrmoneymustache.com/2011/04/06/meet-mr-money-must... The financial situations vary widely but the common theme is they save a lot more of their income % wise than a typical person. The guy that writes the above blog retired at 30. Those are extreme examples but surely if that is possible then retiring after working until 60+ isn't particularly out of reach.

svachalek 14y ago
Suppose you're going to live until 90. That's 60 years of retirement. Suppose you're given up on the whole materialism treadmill and are willing to live close to the poverty line, say $25000 per year. That still works out to $1.5M. How many people even make $1.5M by the time they're 30, even before taxes? And that's to live more or less in poverty.
- lutusp 14y ago
  > ... That still works out to $1.5M. How many people even make $1.5M by the time they're 30, even before taxes? And that's to live more or less in poverty. The above analysis misses something important -- compound interest. Without compound interest, yes, if you need $1.5 million to retire, then you need $1.5 million in advance. But if you create and then invest your nest egg, the math changes completely. Consider an average return on investment of 12% per annum. That means if you only need $12,000 per year to live in decent poverty, you only need a nest egg of $100,000. In this scenario, to account for inflation, you must withdraw less than $12K per year and let the nest egg grow faster than inflation can erode it. But let's say that stock market won't deliver 12% per year -- it hasn't been doing that for a while. Let's say a more realistic return is 8% from various investments. Let's also say we want an income of $50K per year for life. So we need a nest egg of: 50 / 0.08 = $625K That doesn't seem too bad, or unrealistic. It requires discipline and a lot of advance planning. But it's entirely practical. Now back to your original example: > ... That still works out to $1.5M. How many people even make $1.5M by the time they're 30, even before taxes? And that's to live more or less in poverty. Let's say we have that nest egg -- $1.5M. Assuming an 8% return, what does that give us per year? 1.5M * 0.08 = $120K And guess what? You aren't under any responsibility to die when your money runs out, because it isn't going to run out -- at the end of your life, you still have $1.5M in the bank to give to your children.
  - chadcf 14y ago
    > The above analysis misses something important -- compound interest. You are making the assumption that getting an 8% return is something that is easy and safe to do. What happens to the people who retire in a year like, say, 2007. Their first year of retirement, expecting to withdrawal $50k to live on and instead watch their $625k dwindle down to $460,000. The next year maybe they get lucky and only lose 2%, minus the $50k they withdrew. Now they're down to around $400k. Ok the market picks up and they get a 3% average the next year but took out another $50k. Now they've got $360k. After a mere 3 years of retirement they've used up half their savings. Even if they manage to get 8% a year for the next 30 years, they now only have $28,000 a year to live on. Whoops. The assumption that your money won't run out is not a given. This is the reason it's important to have a LARGE nest egg. While $625k might do it if you could invest it at 8%, you can't count on that and the market could quickly leave you living with your children. To really be safe you're going to need significantly more money than you think you will. You also aren't accounting for inflation, which means as you age either you're going to have to cut your expenses ~3% a year or you're going to have to increase your withdrawls ~3% a year. I don't know what the story is with these retired by 30 people, but I would be willing to bet a fair number of them will find themselves broke and returning to work at some point in their lives.
OGinparadise 14y ago
Is that true or is it just a shift in culture where people blow all their money on crap they don't need, disposable convenience, and live a more "up-scale" life style instead of saving for retirement? Yep! Maybe a $25K car and a smaller house is better.
chadcf 14y ago
Anyone can retire comfortably and even early, sure. Retiring at 30 takes commitment most people aren't interested in making, however. And of course you have people like me who have no interest in retiring until I have to because I'm crazy enough to love what I do. But regardless you can't deny the fact that with wages decreasing over the past 20+ years in comparison to inflation, it is absolutely more difficult to save for retirement. Regardless of your financial choices, if you have less money after spending the minimum require to sustain yourself, you will have less to save for retirement. That doesn't mean it's impossible to retire, just more difficult. Perhaps you used to be able to have a pretty nice house and car and still be safe in retirement, and now you have to drive a cheap used car and live in a more modest home to do it. There are more sacrifices to make... I think the current working generation is going to have a difficult time too because a lot of us have seen our parents grow up and retire with ease thanks to pensions. When you witness retirement as being a pretty simple thing with no real money concerns it makes it unlikely you're going to sit down and really think about how screwed you might be. After all it was no problem for your parents. Yet when it's your turn and there is no pension and your social security payout has been cut to 70%, well, things are going to be rough.
MrFoof 14y ago
There are a good number of people which aren't fiscally responsible, only taking action when it reaches a level of crisis. BankRate.com did a survey a while back... http://articles.chicagotribune.com/2012-06-25/business/chi-28-of-americans-have-no-emergency-savings-20120625_1_emergency-savings-expenses-nest-egg http://articles.chicagotribune.com/2012-06-25/business/chi-2... ... that showed some interesting numbers in terms of emergency funds (28% having none, only about 25% having the recommended 6 months). Half of the respondents indicating their net worth had no change year over year? I can cite far too many anecdotes that could corroborate that, across the age spectrum. Personally I've stuck to the 50/30/20 rule of Needs/Wants/Savings for about 6 years. Now that's shifting more to 30/30/40 as my income has significantly increased while my "monthly nut" hasn't really budged. I have about 2 years of living expenses in my emergency fund, only because I watched my father go for 2 years and 3 months without work between 2003 and 2005.