Comments on: Why You Don't Save For Retirement http://www.erica.biz/2009/why-you-dont-save-for-retirement/ Erica Douglass, "temporarily retired" after selling a successful business at age 26, writes thought-provoking blog entries challenging you to change your life and daring you to become more successful. Mon, 15 Mar 2010 05:01:30 -0700 http://wordpress.org/?v=2.8.6 hourly 1 By: $$ http://www.erica.biz/2009/why-you-dont-save-for-retirement/comment-page-1/#comment-3091 $$ Fri, 12 Mar 2010 02:43:39 +0000 http://www.erica.biz/?p=808#comment-3091 As a lot of people have pointed out in this article the coffee point isn't going to cut it for retirement. Still, I have analyzed exactly how much not spending money on coffee and saving for retirement will net you taking into account inflation (also including the cost of the coffee itself going up) and a decrease in risk tolerance for investments as we get older. This will provide a much more accurate number than the 228k mentioned about which is beyond realistic. http://livinginvol.com/?p=6 As a lot of people have pointed out in this article the coffee point isn’t going to cut it for retirement. Still, I have analyzed exactly how much not spending money on coffee and saving for retirement will net you taking into account inflation (also including the cost of the coffee itself going up) and a decrease in risk tolerance for investments as we get older. This will provide a much more accurate number than the 228k mentioned about which is beyond realistic.

http://livinginvol.com/?p=6

]]> By: Chris http://www.erica.biz/2009/why-you-dont-save-for-retirement/comment-page-1/#comment-1667 Chris Mon, 09 Nov 2009 18:38:22 +0000 http://www.erica.biz/?p=808#comment-1667 Where, on this earth, can an average person be able to make 8% annually on their savings in a low enough risk environment to guarantee that return for 30 years?? Industry propaganda, pure and simple. It doesn't exist. This is why most retirement advice is total bullshit, and is just used to sell financial products. Perhaps the rare astute investor acan do it, but as advice for society in general, it doesnt wash. Most people will live on rents, or social security, when they retire. Nothing more. Where, on this earth, can an average person be able to make 8% annually on their savings in a low enough risk environment to guarantee that return for 30 years?? Industry propaganda, pure and simple. It doesn’t exist. This is why most retirement advice is total bullshit, and is just used to sell financial products.

Perhaps the rare astute investor acan do it, but as advice for society in general, it doesnt wash. Most people will live on rents, or social security, when they retire. Nothing more.

]]> By: mjukr http://www.erica.biz/2009/why-you-dont-save-for-retirement/comment-page-1/#comment-1666 mjukr Thu, 02 Apr 2009 18:43:16 +0000 http://www.erica.biz/?p=808#comment-1666 I think Douglas and Alison make good points. Reminds me of the Robert Heinlein quote: "$100 placed at 7 percent interest compounded quarterly for 200 years will increase to more than $100,000,000 - by which time it will be worth nothing." I think Douglas and Alison make good points. Reminds me of the Robert Heinlein quote: “$100 placed at 7 percent interest compounded quarterly for 200 years will increase to more than $100,000,000 – by which time it will be worth nothing.”

]]> By: Alison Whittington http://www.erica.biz/2009/why-you-dont-save-for-retirement/comment-page-1/#comment-1665 Alison Whittington Wed, 01 Apr 2009 12:51:38 +0000 http://www.erica.biz/?p=808#comment-1665 While I completely agree that it's amazing that $5 a day can become so much money over time, I also think it is crucial to enjoy life in the moment, and if, for some people, that means a deluxe coffee, while for other people, it means a video game or a weekly movie instead of Netflix, then I don't think those are frivolous indulgences. The key is to actually enjoy those little indulgences, and be aware that you are enjoying them. To live in the moment. (While it's certainly true that many people could be forced to retire much sooner than expected, it's also true that any one of us could die much sooner than expected.) I am not trying to put down saving for retirement in any way, and I don't think "living in the moment" means a complete lack of planning for the future. It means not living for the future at the expense of now (pun only slightly intended). Because time is something you can never get back. While I completely agree that it’s amazing that $5 a day can become so much money over time, I also think it is crucial to enjoy life in the moment, and if, for some people, that means a deluxe coffee, while for other people, it means a video game or a weekly movie instead of Netflix, then I don’t think those are frivolous indulgences. The key is to actually enjoy those little indulgences, and be aware that you are enjoying them. To live in the moment. (While it’s certainly true that many people could be forced to retire much sooner than expected, it’s also true that any one of us could die much sooner than expected.)

I am not trying to put down saving for retirement in any way, and I don’t think “living in the moment” means a complete lack of planning for the future. It means not living for the future at the expense of now (pun only slightly intended). Because time is something you can never get back.

]]> By: Douglas Webb http://www.erica.biz/2009/why-you-dont-save-for-retirement/comment-page-1/#comment-1664 Douglas Webb Wed, 01 Apr 2009 12:41:39 +0000 http://www.erica.biz/?p=808#comment-1664 Erica, in your latte example you're comparing the present value of the cash flow (a tasty latte) against the future value of the cash flow ($228587.59 with daily compounding.) That's a false comparison though; you're not accounting for inflation and the lower value of those dollars 30 years from now. Assuming 5% annual inflation (probably too low) in 30 years your $228587.59 is going to be worth the same as $52890.01 is today: not nearly enough for most people to retire on for very long. So, is it worth giving up nearly 11 thousand tasty lattes just to go broke soon after retiring? Not really. Every little bit helps, of course, but like everything else to do with money, it takes a serious commitment to get serious results. At $22/day, after 30 years at 8% you'll have just over a million dollars in the bank, worth about the same as $224K today. That will go a lot further than the $53K of value you'll have saved at $5/day. If nothing else, it'll buy you a very nice retirement home in most of the country, which you'll need if you've been renting all of your life... Doug. Erica, in your latte example you’re comparing the present value of the cash flow (a tasty latte) against the future value of the cash flow ($228587.59 with daily compounding.) That’s a false comparison though; you’re not accounting for inflation and the lower value of those dollars 30 years from now.

Assuming 5% annual inflation (probably too low) in 30 years your $228587.59 is going to be worth the same as $52890.01 is today: not nearly enough for most people to retire on for very long. So, is it worth giving up nearly 11 thousand tasty lattes just to go broke soon after retiring? Not really.

Every little bit helps, of course, but like everything else to do with money, it takes a serious commitment to get serious results. At $22/day, after 30 years at 8% you’ll have just over a million dollars in the bank, worth about the same as $224K today. That will go a lot further than the $53K of value you’ll have saved at $5/day. If nothing else, it’ll buy you a very nice retirement home in most of the country, which you’ll need if you’ve been renting all of your life…

Doug.

]]> By: Ashley Doran http://www.erica.biz/2009/why-you-dont-save-for-retirement/comment-page-1/#comment-1663 Ashley Doran Wed, 01 Apr 2009 00:26:47 +0000 http://www.erica.biz/?p=808#comment-1663 Erica, Great post (and the first one I've read on your blog -which I've dutifully added to my Google Reader). Reminds me of what my CPA said years ago: "If you actually use the square footage of your home - really use it - and plan on staying put for 5+years, it's worth the plunge." Lots to think about though. Don't mind telling you I have "Daughter Guilt" over a Christmas gift from my parents - the never ending Starbucks gift card. I wonder if they would be willing to finance my retirement as opposed to my caffeine addiction. Erica,
Great post (and the first one I’ve read on your blog -which I’ve dutifully added to my Google Reader).

Reminds me of what my CPA said years ago: “If you actually use the square footage of your home – really use it – and plan on staying put for 5+years, it’s worth the plunge.”

Lots to think about though. Don’t mind telling you I have “Daughter Guilt” over a Christmas gift from my parents – the never ending Starbucks gift card. I wonder if they would be willing to finance my retirement as opposed to my caffeine addiction.

]]> By: Tim Jahn http://www.erica.biz/2009/why-you-dont-save-for-retirement/comment-page-1/#comment-1662 Tim Jahn Tue, 31 Mar 2009 20:49:26 +0000 http://www.erica.biz/?p=808#comment-1662 To me, the idea of retirement implies that you've been wasting 40 years doing something that you can't wait to "retire" from. Retirement is the light at the end of the tunnel. If that's the case, you should probably find a different tunnel. Maybe one with more light. To me, the idea of retirement implies that you’ve been wasting 40 years doing something that you can’t wait to “retire” from. Retirement is the light at the end of the tunnel.

If that’s the case, you should probably find a different tunnel. Maybe one with more light.

]]> By: ericabiz http://www.erica.biz/2009/why-you-dont-save-for-retirement/comment-page-1/#comment-1661 ericabiz Tue, 31 Mar 2009 20:42:16 +0000 http://www.erica.biz/?p=808#comment-1661 Some great comments on this post! Travis, that's definitely a popular option these days -- I just did a mini-retirement -- but I still recommend visualizing and making it concrete. Also, visualizing when you're going to do it is key, so time doesn't get away from you. Discuss this with your spouse, as well. Don't forget, too, that you may be forced to retire early due to an injury or illness. Getting enough life and disability insurance will help, but it's also important to have some money saved in case that happens -- especially in the case of you being the primary breadwinner for a family. Amanda and Graham: I run through the math of renting vs. owning here: http://www.erica.biz/2008/the-real-american-dream-hint-its-not-owning-a-house/ It's only better to own if the total costs, including mortgage, property taxes, insurance AND 1% of the price per year for maintenance, TOTAL, are less than the equivalent rent cost. And even then, only if you plan to stay in the house for at least 5 years. Most homeowners don't come out ahead anyway, as shown in this link: http://www.monthlyreview.org/mrzine/rb260209.html (It's in the post -- the one about renters being more wealthy.) Laura: Interesting point. This post touches on one reason why people don't choose to retire; there are others, such as the reason you point out: it seems overwhelming to most people. Most personal finance experts say putting 10-15% of your income away is the best thing to do. I would say do that AND do this. The thing is, though, with $228,000 saved up, you'll have more than most do in 30 years. Sad but true. -Erica Some great comments on this post! Travis, that’s definitely a popular option these days — I just did a mini-retirement — but I still recommend visualizing and making it concrete. Also, visualizing when you’re going to do it is key, so time doesn’t get away from you. Discuss this with your spouse, as well.

Don’t forget, too, that you may be forced to retire early due to an injury or illness. Getting enough life and disability insurance will help, but it’s also important to have some money saved in case that happens — especially in the case of you being the primary breadwinner for a family.

Amanda and Graham: I run through the math of renting vs. owning here: http://www.erica.biz/2008/the-real-american-dream-hint-its-not-owning-a-house/

It’s only better to own if the total costs, including mortgage, property taxes, insurance AND 1% of the price per year for maintenance, TOTAL, are less than the equivalent rent cost. And even then, only if you plan to stay in the house for at least 5 years.

Most homeowners don’t come out ahead anyway, as shown in this link: http://www.monthlyreview.org/mrzine/rb260209.html (It’s in the post — the one about renters being more wealthy.)

Laura: Interesting point. This post touches on one reason why people don’t choose to retire; there are others, such as the reason you point out: it seems overwhelming to most people.

Most personal finance experts say putting 10-15% of your income away is the best thing to do. I would say do that AND do this. The thing is, though, with $228,000 saved up, you’ll have more than most do in 30 years. Sad but true.

-Erica

]]> By: Laura http://www.erica.biz/2009/why-you-dont-save-for-retirement/comment-page-1/#comment-1660 Laura Tue, 31 Mar 2009 19:56:32 +0000 http://www.erica.biz/?p=808#comment-1660 I think there's a huge flaw in your argument here which actually proves your original point - when I hear $228,000 I immediately think that is nowhere CLOSE to being enough to retire. So the argument backfires - I'd rather have a coffee if that isn't going to be nearly enough to retire anyway. I actually think your premise is right-on BUT it's hard because in reality you do have to put major money away to retire, $5/day ain't gonna cut it. I think there’s a huge flaw in your argument here which actually proves your original point – when I hear $228,000 I immediately think that is nowhere CLOSE to being enough to retire. So the argument backfires – I’d rather have a coffee if that isn’t going to be nearly enough to retire anyway.

I actually think your premise is right-on BUT it’s hard because in reality you do have to put major money away to retire, $5/day ain’t gonna cut it.

]]> By: Graham http://www.erica.biz/2009/why-you-dont-save-for-retirement/comment-page-1/#comment-1659 Graham Tue, 31 Mar 2009 16:53:29 +0000 http://www.erica.biz/?p=808#comment-1659 I am interested to learn more about why you say renting is better then buying. Great article. I am interested to learn more about why you say renting is better then buying. Great article.

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