Decent Read on Retirement Saving versus Spending Now

[nosuchreality]

Clearly we've never met.  We're not bad with money; while I'm not saying we couldn't do better, for the most part we don't indulge in most of what you listed on even a monthly basis, unless you consider a $5 rotisserie chicken or food court meal from Costco once a week to be a real splurge.  Ok, you got me at Amazon, but it's worth it to only have to make it to Costco once a week for the perishables.   
We know our finances today inside and out and better than most, and we've stayed on top of it for 15 years. But I'm completely stymied by the challenge of planning for a retirement when there's a huge range of completely plausible outcomes between now and then.  What will the market do?  Will we actually get the social security we've been promised?  Will health care cost us $1000 a month or $4000?  I can envision a future where we struggle to get by and a future where we die with millions in the bank, and everything in between, and none of it would be far-fetched through the lens of history.

Well Dae, you're doing better than 80% of the people who literally don't have control of their finances and your burn rate is clearly under control.  It's the future hypothetical burn you're sweating. 

Surprisingly quite a few high earners in that boat.  While we all should think about increasing our income streams, most of those require a financial nest egg to do so and 50% literally have none and 80% effectively have little outside of their 401ks or houses.  They're struggling to make ends meet today.

Your future issue sounds like that is primarily one boogie man, health care.  I struggled with it for a long time in our planning.  Then I chilled out.  I realized my future scenarios, while in line with historical reality would require a future Great Depression or the continued health care increases would effectively leave the 99% without healthcare insurance.  Simply not going to happen.  We will ignore it as long as possible, but healthcare has a ugly price reckoning coming.

There's other future scenarios to plan for too, you can insure against them now, but nnot later, i.e. senior assisted living care, dementia care, etc.  Dementia care today can easily run $8000-$9000/month or more for a decent place.


You can work until you can't trying to cover the scenarios, or look at them, insure if possible and then just recognize that certain things are essentially just having lost a dice roll.  End of life care presently, IMHO, seems designed to drain all assets from the estate.  Sad to say, but if you want to pass wealth to the next generation, do it early, do it often, and pray you die quickly.

The other option is to configure a passive business that will provide health care.  That'll take money to start, but go for self sustaining eventually.

 

[paydawg]

wow this thread is becoming morbid.  LOL. 

  Sad to say, but if you want to pass wealth to the next generation, do it early, do it often, and pray you die quickly.

 

[Jantoven]

It's impossible to safeguard against every possible situation out there.  All we can really do is have a reasonable plan and hope it pans out.  Try to save a reasonable percentage of your income over a period of time (20%?), allocate some money for entertainment/pleasure, and go from there.

 

[momopi]

We don't have working crystal balls so we can't accurately predict the future.  But I have a dystopian view that automation and AI will result in unemployment/underemployment.  Those who think technology will always provide a solution to job loss are overly optimistic.  I think we may have universal basic income along with new/additional types of currency/credit:

1.  For now  U.S./EU currency is legal tender no matter when it was issued.  In future I believe they will issue new currency and impose expiration date to exchange old cash currency.  Like 6th series Swiss Franc issued from 1976 to late 90's is set to expire in May 2020, afterwards they are no longer legal tender.

2.  For universal basic income I think they may issue a mix % of currency/credit with no expiry date and another type that has shorter expiry date.  For example if you receive $2000/month, $1000 might be the type of currency/credit that will expire in 90 days if unspent.

3.  Tax deductions on mortgage interest, $250K/$500K tax exemption from sale of primary residence, 401(k), IRA, etc. will have their tax benefits reduced or removed as the trend is to view them as unfair and only benefiting the wealthy.

4.  There will be a sharp divide between high-density urban cities vs those who prefer more self reliant rural lifestyle.  They will view each other like space aliens.

5.  When there are unforeseen (?) disruptions to the automated or semi-automated production and distribution system we may experience socio-economic crisis and bread lines.

 

[eyephone]

It's impossible to safeguard against every possible situation out there.  All we can really do is have a reasonable plan and hope it pans out.  Try to save a reasonable percentage of your income over a period of time (20%?), allocate some money for entertainment/pleasure, and go from there.

Or flush your money DOWn the toilet, and spend like mobey ain?t a thang. 

 

[irvinehomeowner]

It's impossible to safeguard against every possible situation out there.  All we can really do is have a reasonable plan and hope it pans out.  Try to save a reasonable percentage of your income over a period of time (20%?), allocate some money for entertainment/pleasure, and go from there.

Or flush your money DOWn the toilet, and spend like mobey ain?t a thang. 

Finally... you are understanding the Irvine lifestyle.

 

[Liar Loan]

Personally, I do not favor automated payments.  I use that hour of bill-paying to scrutinize our expenses and look for billing mistakes/fraud/etc.

This is exactly what I do as well.  I think the automation argument is geared towards those that are lacking in financial discipline (which is most people).  Since we never carry a card balance anyway, this is when I analyze what we are spending money on, and also to look for expenses that have recently increased.  For instance, our T-mobile bill just increased after my wife upgraded her phone, so we need to follow up on that and find out what's going on.

Once in awhile I also find fraudulent billings or "free trials" that my wife forgot to cancel in time.  I guess I'm mainly looking for things that my wife spent money on that can be cut out of the budget... LOL.

 

[fortune11]

One way to also avoid "leakage" is set up those text alerts on your cellphone whenever when credit cards are charged above a certain amount.  It can be annoying at times , but it makes you evaluate each transaction and then pare back as needed .  Also prevents fraud. 

On a separate topic, the point about increasing one's income is the one most often overlooked especially as we may value safety of current employment more than any change.  Human instinct and baseline is risk aversion.  And this can be a huge detriment to increasing one's lifetime earnings. 

Wage gains, unless you are strictly a commissions based sales person (or someone like it), do not occur at a rapid pace within the same organization.  Jumping ship (or getting a "bid back" from your company) is often is the best way to lock in a step function change in income.  It does require increasing your "personal volatility" in the short term for longer term gain. 

This article in Barron's this weekend was a good one. Labor bargaining power , and it applies to levels of low to middle management too, is a rare thing to come by and when it does - one needs to seize it.
https://www.barrons.com/articles/the-great-labor-crunch-1520655014

 

[Jantoven]

Back in the day, when most companies offered pension plans, workers were rewarded for staying with the same company for 30+ years.  They may not see as significant of a wage rate increase, but they at least had the reassurance that they'd have a comfortable salary waiting for them in retirement.  The onus was on the employer to maintain and ensure those pension plans.

Fast forward a few decades later, and unless you work for the state or one of the few private companies that still offer a pension, then you're on your own.  So if you work for a company with a pension, then I'd say stay put.  If not, then pursue as much wage growth as possible.

 

[momopi]

In 1998 approx. 60% of Fortune 500 companies offered pension or hybrid pension plans, and 66% offered health coverage after retirement.  This number declined to 25%-28% in 2011-2013 and has continued to decline further, as many large companies removed pension benefits from new hires.

By converting pension plans to 401(k) companies unload the risk of boom-bust market cycles onto the employees.  Joe Average graduates from college with large student debt, gets a job with decreased retirement benefits & increased market risk to retirement, gets even deeper in debt when he buys a ridiculously expensive house with lengthy mortgage and struggles to marry and have a family.  The crushing financial burden contributes to 40-50% divorce rate, breakup of families and further financial burden in single parenthood/child support.  Joe Average ends up working long past what should be normal retirement age in his 50's, instead of mentoring the younger generation to take over his position, he treats them as threat and competition while desperately clinging to his job.  At some point in his life he clings to work for the purpose of clinging and no longer work to live, instead he lives to work and consume junk food, garbage TV programming, reality TV show like politics, and facebook as his bread and circus.

If Joe average thinks life is screwy now, just wait until majority of people are unemployed or underemployed from AI and automation.  Instead of feeding us Soylent Green chips I think we'll need something stronger to keep people sedated, like cheap soju by the case.


p.s.  NLY has DRIP starting at $250/month:http://www.annaly.com/~/media/Files/A/Annaly-V2/documents/enrollment-formasp.pdf

 

[daedalus]

The company I used to work for froze our pensions some years back.  I made sure to mention my disapproval during my exit interview when I quit, after nearly 20 years there.

I was pretty upset when the news broke, and I remember whining to my mother about it shortly after.  My mother, doing her duty, told me it probably wasn't such a big deal.  I told her, "mom, my pension when I turn 65 will be less than half what dad gets now".  (My dad has been retired since the early '80s).  She paused for a moment and then blurted out "oh, yeah, that DOES suck".  LOL  Thanks mom!

 

[eyephone]

The company I used to work for froze our pensions some years back.  I made sure to mention my disapproval during my exit interview when I quit, after nearly 20 years there.

I was pretty upset when the news broke, and I remember whining to my mother about it shortly after.  My mother, doing her duty, told me it probably wasn't such a big deal.  I told her, "mom, my pension when I turn 65 will be less than half what dad gets now".  (My dad has been retired since the early '80s).  She paused for a moment and then blurted out "oh, yeah, that DOES suck".  LOL  Thanks mom!

So did you get another pension job?

 

[daedalus]

So did you get another pension job?

No.  In my industry the current norm is no pensions for any new hires.  My current company is still accruing pension benefits to those hired before a certain date.  I had a job offer here, years ago, but turned it down.  I would be in the pension plan now had I accepted then.  But I did get a bump in pay when I hired in and so far there is more work and less stress than at my old job.  Makes me wonder how much longer they'll keep the pension plan going, and if they'll freeze it here too.