Putting away some money is vital, even if you are young and in debt by John Waggoner:
Starting small – If you don’t have a 401(k) available, at least open a Roth IRA. You contribute after-tax money to a Roth, but you pay no taxes on your withdrawals at retirement.
More on Roth IRA’s.
Retirement planning has some pretty straight forward aspects and some difficult to predict aspects. If you don’t save substantial amounts of money over a long period of time there is little hope for a good retirement nest egg (outside of things like winning the lottery or living off an inheritance). So consistent savings over a long period is normally a requirement. You can get decent estimates like saving 8% of your income from age 30 to age 65 (in a 401k, Roth IRA…) but how you investments perform during that period will have a large impact on your success (as will how much risk you want in retirement, the state of health care at that time, inflation, tax rates, your health insurance…).
This is a good article discussing some options as you close in on retirement and the financial picture become clearer: Two More Years for a Better Retirement. From Fidelity: Survey: One-Third of Americans Delaying Retirement.
One alternative to delaying retirement is to start saving more earlier but the overall data shows few are taking that option.
People in the USA make a great deal of money. There are many who make huge amounts of money so many who make a great deal think it is unfair they don’t make more. And many of those just decide to buy what they can’t afford. Then they create their own financial weakness.
Why Living in a Rich Society Makes Us Feel Poor
I guess that would be me. I don’t mind if people spend what they earn, but I do mind when people that are given huge amounts of money and spend beyond their means and then complain that they can’t have their cake and eat it too. I am not saying that people don’t have to make tough choices but there are hundreds of millions of people alive today that have real tough economic lives. People that want to live beyond their means in the USA and then complain that life is not fair need to realize that yes life is not fair. And the biggest truth is that hey have been given the advantage over most everyone else in the world (yes some small number that happen to live near them may be even richer).
If they want to spend more – go earn more first. This option, available to most in the USA, is not available to most people alive today. Most people in the USA should be helping those less fortunate than themselves not complaining that they don’t get to buy enough toys compared to this person they see on TV or that they know…
Charities to consider: Trickle Up – Accumen Fund – Grammen Bank – Habitat for Humanity
The TIAA CREF site has some valuable retirement planning advice (link updated since some pointy haired boss doesn’t know that web pages must live forever – when are we going to get competent people running web sites?). Take some time to read one of their articles (or read more), for example: Retirement Strategies, a 48 page overview. Yes it requires some time to read but the money involved in retirement is huge. Making the wrong decisions can cost you not $2-5,000 but $100,000, and more, easily. Don’t avoid the steps you need to take to learn cost you.
The key is to get started. If you are relatively young you are lucky, you have decades to learn more and improve your plan. Don’t wait until you are only 10-15 years from retirement. The early you get started the better for you and the more money you will make by choosing wisely. The documents TIAA CREF puts together make it much easier to succeed. We will continue to point out resource to aid your continual quest for financial literacy. It is a long term project.
Skip the Coffee? What’s Money for, Anyway?:
My crime: buying morning coffee from Starbucks for my wife and me.
Avoiding the regular cup of overpriced coffee has become an easy cliché for financial advisers, a symbol of money frittered away.
The author is right. There is nothing wrong with spending some of your money on the luxuries you choose. The problem is too many people spend more than all their money on the luxuries they choose (going into debt to support their lifestyle). The author states:
In previous post: saving for retirement, we discuss the options for planning for your future economic security. Cutting back on luxuries is only necessary if you are living beyond your means (looking at your whole financial life). If you have incorporated the luxuries you want into a good overall plan, great, good job, keep up the good work. If not, figure our which luxuries you want to cut (or how you are going to earn more money).
Britain becomes ‘never, never land’ as personal debt runs out of control
Britain seems to be taking after the USA. Debt is not necessarily bad for the economy or individual. Too much debt is. When it becomes “too much” is one of the issues we will discuss, and link to articles discussing, in this blog.
People will benefit from understanding how debt effects their future economic life. To do this they need to gain financial literacy. To help people gain financial literacy is one of the aims of this blog. We believe that gaining financial literacy will lead people to make better economic decisions. Such as not taking on too much debt.
Our Financial Failings by Neil Irwin, Washington Post:
It has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can’t manage to pay off a $2,200 credit card balance.
That is the portrait of the median American household as painted by the Federal Reserve Board’s Survey of Consumer Finances.
Saving for retirement is not complicated, it is just a matter of priorities. Most people care more about a Starbucks coffee each day (or season tickets, or new shoes, or a new car every couple of years or…) today than saving money for retirement. In a capitalist society we believe in letting people make their economic choices. The choices most of us make (in the USA) lead to the results above.
Read more
Our only hope: retiring later by Jim Jubak
Jim Jubak is definitely worth reading for anyone interested in investing. This column touches on the economic problem of the aging population.
That pretty much has to be part of the solution. While the United States is rich even we are not rich enough to have people work for 40 years and not work for 40 years. Retirement at 65 was set when most people died before or soon after that date. It just is not realistic to think we can live at the standards of living we expect and only work from 25-65.
If people want to cut the standard of living during the 80 years they live that would be one tradeoff they could make. I don’t believe his contention that savings is not a reasonable significant part of the solution (if that is what he means by “The whole world is getting old pretty much all at once, so saving more and investing at higher returns won’t do the trick.”
- The Impact of Aging on Financial Markets and the Economy: A Survey by Barry P. Bosworth, Ralph C. Bryant and Gary Burtless. The Brookings Institution, July 2004
- Aging population makes this deficit scarier, Sue Kirchhoff, USA Today.
The issue of how to deal with the economic consequences of aging population is an important issue to consider today. It is something I need to continue to study. But we also need to be taking action now on things like increasing the full retirement age for Social Security, increasing the saving rate, decreasing the current yearly federal deficit (and private pension liabilities), providing ways for those in their 60’s and 70’s to participate in the economy that work well (probably part time, more flexible work arrangements, etc.).