MarketWatch: Many young people shouldn’t save for retirement

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enad
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by enad »

AnnetteLouisan wrote: Sat Oct 01, 2022 6:31 am [Moved into a new thread from: In Retirement, You May Not Need to Spend So Much --admin LadyGeek]

MarketWatch has a piece today, the gist of which is that you don’t need to save until you are older. Not sure if it’s a similar argument to what is in the NYT article but it’s quite regrettable.

I’m sure it’s what many people prefer to hear, especially these days with inflation so high, but it’s very far from the truth. I could tell you stories about people I know who didn’t save regularly and consistently throughout their working lives but I don’t want to engage in poverty porn. Suffice it to say, their situations are bleak.
poppycock. Doesn't Marketwatch understand the power of compounding? The best time for young kids to invest is now, since the market is in a decline and in all likelihood will continue to decline, but when it rebounds, look out.
What Goes Up Must come down -- David Clayton-Thomas (1968), BST
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Re: The dumbest article ever written

Post by bobcat2 »

climber2020 wrote: Sat Oct 01, 2022 12:06 pm
bobcat2 wrote: Sat Oct 01, 2022 11:55 amVery early in your working career you will probably need to take on some debt for simple things like furniture and a car. At the same time you need to build an emergency fund for possible unemployment or poor health. Next you need to start trimming debt, both that earlier consumer debt & student loan debt and you also need to begin saving for a home down payment. Retirement saving comes after those goals have been met. If you have the home at age 30 with a 30 year mortgage you are on your way to a good retirement.
Why the emphasis on buying a house?
One can more easily ask why the emphasis on retirement saving when you're 24 and 40 years from retirement. :wink:

I would agree that having the house at thirty to some extent depends whether you are single or married ((partnered) and whether you have started a family or about to start a family.

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Re: The dumbest article ever written

Post by whodidntante »

climber2020 wrote: Sat Oct 01, 2022 12:06 pm
bobcat2 wrote: Sat Oct 01, 2022 11:55 am you also need to begin saving for a home down payment. Retirement saving comes after those goals have been met. If you have the home at age 30 with a 30 year mortgage you are on your way to a good retirement.
Why the emphasis on buying a house? When I was 30, my priority was to be light and mobile in case a better job opportunity came up and I had to move on short notice. This is especially important for a single person; someone that age shouldn't want to intentionally ball and chain themselves to a piece of property when the primary financial goal is to maximize one's income potential.
The majority of people I know live within 50 miles of the spot of their birth, and are not really doing nationwide job searches. It can be career-limiting if you did not happen to be born right in the area with the best opportunities, but some people just aren't career-minded anyway.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by bobcat2 »

enad wrote: Sat Oct 01, 2022 12:24 pm poppycock. Doesn't Marketwatch understand the power of compounding? The best time for young kids to invest is now, since the market is in a decline and in all likelihood will continue to decline, but when it rebounds, look out.
Yes, the authors of the paper understand compounding. From the article -
And second, Scott said, “early saving could have a benefit from the power of compounding, but the power of compounding is certainly irrelevant when after-inflation (nominal) interest rates are 0% (or less) – as they have been for years.”
Your betting on what the stock market will do is not the same thing as the power of compounding.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by smitcat »

Or .... you could just try and live your entire life with some reasonable balance.
It's not that complicated really.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by KlangFool »

OP,

1) A person should not save for retirement. A person should save for Financial Independence.

Saving for retirement assumes that the person could be fully-employed continuously until retirement age. That does not work for many folks facing age discrimination and permanently unemployed and under-employed in their 40s and 50s.

A person has to survive across multiple recessions before retirement is possible. Without adequate savings, the person has to hope to be lucky. Hope is not a strategy.

2) The whole life cycle investing is based on a false assumption that someone's earning potential increasing with their ages. That does not work for many folks when their peak earning plateauing at their 30s and facing age discrimination in their 40s and 50s.

3) A person should not save for the house's down payment. The folks that save for the house's down payment are folks that overspent on their houses. My goal is to be a millionaire. The millionaires bought their first house at 1.49 times of their household income. They do not need to save for the house's down payment.

https://themillionairenextdoor.com/2011 ... rule-1-49/

"The original title of The Millionaire Next Door was That’s Why They’re Wealthy. One of the main reasons that they are wealthy is that they live in an easily affordable home. I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49 [median]. And today they have seven times more wealth [median] than their non millionaire neighbors. "

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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by bobcat2 »

I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49.
KlangFool
So a thirty year old making $50,000/year should buy a house for just under $75,000. Good luck and Godspeed with that strategy. :D
Just the cost of land makes that strategy nearly impossible for most Americans today.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Miguelito »

Aside from managing risk, it's all a numbers game. And pouring more money into a 401k is not always the right move.

Obviously, contributing to get the 1:1 match is a no-brainer. Beyond that, other things come into play.

For example, you may have college loans to pay early on, but if you are a young, high-earning couple, you may want to prioritize maxing pre-tax 401k and shielding that money from a ~30% federal tax rate versus accelerating payments on a 5-6% loan. In that same case, it may even be ok to live a little and take on a car loan if you are cash-strapped versus living like a pauper for 4 years until $100k+ in school loans are paid off and then saving for 2 more years to pay for the car in cash.

If you are in a low tax bracket, by all means stop after the match, and if there is any more money left over max Roth IRA, then move on to highest interest rate loans or perhaps lowest balance loans to free up cash flow, whatever works best in that given situation.

Personally, an extra 1-2k in 401k contributions 20 years ago would have been difficult. Sure, it would have grown a bunch by now. An online calculator estimates about a 400% return (S&P with dividends reinvested). Getting 5-10k out of that 1-2k would be great but in the grand scheme is dwarfed by other contributions in the last 20 years and would amount to noise given the size of net worth by retirement time. I knew and trusted my potential back then and put my 1-2k to better, more urgent, and more accessible use.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by KlangFool »

bobcat2 wrote: Sat Oct 01, 2022 1:15 pm
I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49.
KlangFool
So a thirty year old making $50,000/year should buy a house for just under $75,000. Good luck and Godspeed with that strategy. :D
Just the cost of land makes that strategy nearly impossible for most Americans today.

BobK
bobcat2,

Thank you for the endorsement!

A) Isn't it obvious that most Americans are not millionaires? Only 10% or less of American household has a net worth of 1 million or more.

B) Average American saves less than 5% of their gross income.

A proper strategy should be avoiding living like an average American.

"So a thirty year old making $50,000/year should buy a house for just under $75,000. "

Or, the person should not buy a house at all.

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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by smitcat »

KlangFool wrote: Sat Oct 01, 2022 1:01 pm OP,

1) A person should not save for retirement. A person should save for Financial Independence.

Saving for retirement assumes that the person could be fully-employed continuously until retirement age. That does not work for many folks facing age discrimination and permanently unemployed and under-employed in their 40s and 50s.

A person has to survive across multiple recessions before retirement is possible. Without adequate savings, the person has to hope to be lucky. Hope is not a strategy.

2) The whole life cycle investing is based on a false assumption that someone's earning potential increasing with their ages. That does not work for many folks when their peak earning plateauing at their 30s and facing age discrimination in their 40s and 50s.

3) A person should not save for the house's down payment. The folks that save for the house's down payment are folks that overspent on their houses. My goal is to be a millionaire. The millionaires bought their first house at 1.49 times of their household income. They do not need to save for the house's down payment.

https://themillionairenextdoor.com/2011 ... rule-1-49/

"The original title of The Millionaire Next Door was That’s Why They’re Wealthy. One of the main reasons that they are wealthy is that they live in an easily affordable home. I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49 [median]. And today they have seven times more wealth [median] than their non millionaire neighbors. "

KlangFool
"The original title of The Millionaire Next Door was That’s Why They’re Wealthy. One of the main reasons that they are wealthy is that they live in an easily affordable home. I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49 [median]. And today they have seven times more wealth [median] than their non millionaire neighbors. "

You could read about the author of this and find out how much of a fraud he is, this is just a summary of the volumes of issues .....
https://thecollegeinvestor.com/4726/ult ... ankruptcy/

You could also research the traits and specific methods typified by a self-made millionaire... there will be plenty of hits if you just google "traits of self-made millionaires"
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AnnetteLouisan
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by AnnetteLouisan »

smitcat wrote: Sat Oct 01, 2022 1:41 pm
KlangFool wrote: Sat Oct 01, 2022 1:01 pm OP,

1) A person should not save for retirement. A person should save for Financial Independence.

Saving for retirement assumes that the person could be fully-employed continuously until retirement age. That does not work for many folks facing age discrimination and permanently unemployed and under-employed in their 40s and 50s.

A person has to survive across multiple recessions before retirement is possible. Without adequate savings, the person has to hope to be lucky. Hope is not a strategy.

2) The whole life cycle investing is based on a false assumption that someone's earning potential increasing with their ages. That does not work for many folks when their peak earning plateauing at their 30s and facing age discrimination in their 40s and 50s.

3) A person should not save for the house's down payment. The folks that save for the house's down payment are folks that overspent on their houses. My goal is to be a millionaire. The millionaires bought their first house at 1.49 times of their household income. They do not need to save for the house's down payment.

https://themillionairenextdoor.com/2011 ... rule-1-49/

"The original title of The Millionaire Next Door was That’s Why They’re Wealthy. One of the main reasons that they are wealthy is that they live in an easily affordable home. I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49 [median]. And today they have seven times more wealth [median] than their non millionaire neighbors. "

KlangFool
"The original title of The Millionaire Next Door was That’s Why They’re Wealthy. One of the main reasons that they are wealthy is that they live in an easily affordable home. I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49 [median]. And today they have seven times more wealth [median] than their non millionaire neighbors. "

You could read about the author of this and find out how much of a fraud he is, this is just a summary of the volumes of issues .....
https://thecollegeinvestor.com/4726/ult ... ankruptcy/

You could also research the traits and specific methods typified by a self-made millionaire... there will be plenty of hits if you just google "traits of self-made millionaires"
Kiyosaki did not write millionaire next door. Thomas Stanley and Bill Danko co authored it.
KlangFool
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by KlangFool »

AnnetteLouisan wrote: Sat Oct 01, 2022 1:43 pm
smitcat wrote: Sat Oct 01, 2022 1:41 pm
KlangFool wrote: Sat Oct 01, 2022 1:01 pm OP,

1) A person should not save for retirement. A person should save for Financial Independence.

Saving for retirement assumes that the person could be fully-employed continuously until retirement age. That does not work for many folks facing age discrimination and permanently unemployed and under-employed in their 40s and 50s.

A person has to survive across multiple recessions before retirement is possible. Without adequate savings, the person has to hope to be lucky. Hope is not a strategy.

2) The whole life cycle investing is based on a false assumption that someone's earning potential increasing with their ages. That does not work for many folks when their peak earning plateauing at their 30s and facing age discrimination in their 40s and 50s.

3) A person should not save for the house's down payment. The folks that save for the house's down payment are folks that overspent on their houses. My goal is to be a millionaire. The millionaires bought their first house at 1.49 times of their household income. They do not need to save for the house's down payment.

https://themillionairenextdoor.com/2011 ... rule-1-49/

"The original title of The Millionaire Next Door was That’s Why They’re Wealthy. One of the main reasons that they are wealthy is that they live in an easily affordable home. I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49 [median]. And today they have seven times more wealth [median] than their non millionaire neighbors. "

KlangFool
"The original title of The Millionaire Next Door was That’s Why They’re Wealthy. One of the main reasons that they are wealthy is that they live in an easily affordable home. I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49 [median]. And today they have seven times more wealth [median] than their non millionaire neighbors. "

You could read about the author of this and find out how much of a fraud he is, this is just a summary of the volumes of issues .....
https://thecollegeinvestor.com/4726/ult ... ankruptcy/

You could also research the traits and specific methods typified by a self-made millionaire... there will be plenty of hits if you just google "traits of self-made millionaires"
Kiyosaki did not write millionaire next door. Thomas Stanley and Bill Danko co authored it.
AP,

There is no reason for me to do that when there are many self-made millionaires within my extended family. The common thread among them is

A) Their gross saving rate is 30+% or above

B) They do not overspend on their houses.

KlangFool
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tfunk
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by tfunk »

I am wondering why this tread is getting any responses. Non actionalble.
smitcat
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by smitcat »

KlangFool wrote: Sat Oct 01, 2022 1:46 pm
AnnetteLouisan wrote: Sat Oct 01, 2022 1:43 pm
smitcat wrote: Sat Oct 01, 2022 1:41 pm
KlangFool wrote: Sat Oct 01, 2022 1:01 pm OP,

1) A person should not save for retirement. A person should save for Financial Independence.

Saving for retirement assumes that the person could be fully-employed continuously until retirement age. That does not work for many folks facing age discrimination and permanently unemployed and under-employed in their 40s and 50s.

A person has to survive across multiple recessions before retirement is possible. Without adequate savings, the person has to hope to be lucky. Hope is not a strategy.

2) The whole life cycle investing is based on a false assumption that someone's earning potential increasing with their ages. That does not work for many folks when their peak earning plateauing at their 30s and facing age discrimination in their 40s and 50s.

3) A person should not save for the house's down payment. The folks that save for the house's down payment are folks that overspent on their houses. My goal is to be a millionaire. The millionaires bought their first house at 1.49 times of their household income. They do not need to save for the house's down payment.

https://themillionairenextdoor.com/2011 ... rule-1-49/

"The original title of The Millionaire Next Door was That’s Why They’re Wealthy. One of the main reasons that they are wealthy is that they live in an easily affordable home. I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49 [median]. And today they have seven times more wealth [median] than their non millionaire neighbors. "

KlangFool
"The original title of The Millionaire Next Door was That’s Why They’re Wealthy. One of the main reasons that they are wealthy is that they live in an easily affordable home. I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49 [median]. And today they have seven times more wealth [median] than their non millionaire neighbors. "

You could read about the author of this and find out how much of a fraud he is, this is just a summary of the volumes of issues .....
https://thecollegeinvestor.com/4726/ult ... ankruptcy/

You could also research the traits and specific methods typified by a self-made millionaire... there will be plenty of hits if you just google "traits of self-made millionaires"
Kiyosaki did not write millionaire next door. Thomas Stanley and Bill Danko co authored it.
AP,

There is no reason for me to do that when there are many self-made millionaires within my extended family. The common thread among them is

A) Their gross saving rate is 30+% or above

B) They do not overspend on their houses.

KlangFool

Like this one from a 2020 article in business insider...
"She said that most of the millionaires she studied had never purchased a home that cost more than triple their annual income. The median home value for millionaires in her latest study was $850,000 (3.4 times their current income), with a median original purchase price of $465,000."
Link...
https://www.businessinsider.com/million ... ney-2019-4
PersonalFinanceJam
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by PersonalFinanceJam »

KlangFool wrote: Sat Oct 01, 2022 1:01 pm OP,

1) A person should not save for retirement. A person should save for Financial Independence.

Saving for retirement assumes that the person could be fully-employed continuously until retirement age. That does not work for many folks facing age discrimination and permanently unemployed and under-employed in their 40s and 50s.

A person has to survive across multiple recessions before retirement is possible. Without adequate savings, the person has to hope to be lucky. Hope is not a strategy.
Totally agree with the above. I don't have a login to read the linked research but the abstract had this in it:

"A reasonable benchmark that is often used in the academic literature is the life-cycle model, in which rational individuals allocate resources over their lifetimes with the aim of avoiding sharp changes in their standard of living. We argue that, under realistic assumptions, the life-cycle model implies that most young people should not save for retirement."

Academically, I'm sure the research is correct. However, unless someone has research indicating that the majority of people trying to follow a lifecycle approach will actually match the assumptions in real life and act rationally, I think it neglects the power of human behavior and the desire for near term gratification. It's unfortunate we call 401K accounts and IRAs "retirement" accounts. Here, we often point out all the ways they can be used before retirement. Especially with a Roth IRA and the many uses it can take on in an investing career.

As others have said there does need to be some moderation. I think in many cases the advice given here is that moderation. Build good savings habits early and gradually raise that savings rate over time. Perhaps we should make more of a concerted effort in calling the different account types tax advantaged instead of retirement so people don't fear all their money is locked away never to be seen until a distant old age.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by smitcat »

KlangFool wrote: Sat Oct 01, 2022 1:46 pm
AnnetteLouisan wrote: Sat Oct 01, 2022 1:43 pm
smitcat wrote: Sat Oct 01, 2022 1:41 pm
KlangFool wrote: Sat Oct 01, 2022 1:01 pm OP,

1) A person should not save for retirement. A person should save for Financial Independence.

Saving for retirement assumes that the person could be fully-employed continuously until retirement age. That does not work for many folks facing age discrimination and permanently unemployed and under-employed in their 40s and 50s.

A person has to survive across multiple recessions before retirement is possible. Without adequate savings, the person has to hope to be lucky. Hope is not a strategy.

2) The whole life cycle investing is based on a false assumption that someone's earning potential increasing with their ages. That does not work for many folks when their peak earning plateauing at their 30s and facing age discrimination in their 40s and 50s.

3) A person should not save for the house's down payment. The folks that save for the house's down payment are folks that overspent on their houses. My goal is to be a millionaire. The millionaires bought their first house at 1.49 times of their household income. They do not need to save for the house's down payment.

https://themillionairenextdoor.com/2011 ... rule-1-49/

"The original title of The Millionaire Next Door was That’s Why They’re Wealthy. One of the main reasons that they are wealthy is that they live in an easily affordable home. I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49 [median]. And today they have seven times more wealth [median] than their non millionaire neighbors. "

KlangFool
"The original title of The Millionaire Next Door was That’s Why They’re Wealthy. One of the main reasons that they are wealthy is that they live in an easily affordable home. I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49 [median]. And today they have seven times more wealth [median] than their non millionaire neighbors. "

You could read about the author of this and find out how much of a fraud he is, this is just a summary of the volumes of issues .....
https://thecollegeinvestor.com/4726/ult ... ankruptcy/

You could also research the traits and specific methods typified by a self-made millionaire... there will be plenty of hits if you just google "traits of self-made millionaires"
Kiyosaki did not write millionaire next door. Thomas Stanley and Bill Danko co authored it.
AP,

There is no reason for me to do that when there are many self-made millionaires within my extended family. The common thread among them is

A) Their gross saving rate is 30+% or above

B) They do not overspend on their houses.

KlangFool
"A) Their gross saving rate is 30+% or above"
Focusing on savings rates or even savings at all without consideration for the earnings side is like focusing on savings rather than expenses for FIRE.
As you have pointed out quite accurately the key is multiple of expenses in retirement not the multiples of salary at any one point in time.
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enad
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by enad »

bobcat2 wrote: Sat Oct 01, 2022 12:30 pm
enad wrote: Sat Oct 01, 2022 12:24 pm poppycock. Doesn't Marketwatch understand the power of compounding? The best time for young kids to invest is now, since the market is in a decline and in all likelihood will continue to decline, but when it rebounds, look out.
Yes, the authors of the paper understand compounding. From the article -
And second, Scott said, “early saving could have a benefit from the power of compounding, but the power of compounding is certainly irrelevant when after-inflation (nominal) interest rates are 0% (or less) – as they have been for years.”
Your betting on what the stock market will do is not the same thing as the power of compounding.

BobK
Compounding is the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. One could take a narrower view and assume compounding pertains to interest only, but that would be to their peril.

Best Wishes
What Goes Up Must come down -- David Clayton-Thomas (1968), BST
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enad
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Re: The dumbest article ever written

Post by enad »

bobcat2 wrote: Sat Oct 01, 2022 10:15 am I think the article makes sense for a lot of people including most college graduates. If people age 30 or younger are going to save it makes more sense to save for a house down payment than for retirement that's 35-40 years away. I see no reason for people that young to save more for retirement than the company match.

I remember reading that the great economist Milton Friedman would advise young colleagues at the University of Chicago to avoid saving too much at an early age.

BTW my wife and I are financially doing well in retirement and neither of us began saving for retirement until we were in our early 30s. I think we were implicitly following the life-cycle model without explicitly being aware of it. :happy

BobK
Not all young kids want to do go college (although some may later one) and not all young kids want to save for a house, or possibly by a house before they get married and if their future spouse wants something else? Some kids will go into the trades (nothing wrong with that) and can make a good living and will want to invest and the market beats a bank account. Many here on this forum have started Roth IRA"s for their children as soon as they had a W2.

But we each have our own opinions. Who is to say which is right? It's for the kids to determine their future and I think the best way is to educate them properly so they know how to balance a check book, figure out compound interest, and even how mortgage rates/payments are calculated.

Best Wishes
What Goes Up Must come down -- David Clayton-Thomas (1968), BST
MathWizard
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by MathWizard »

It's behind a paywall, but investing yourself when you are young can before beneficial than investing in the market.

Getting the training for a higher income job was high in my list.
This limited investing for 10 years post grad school to just get the employer match (15% of salary counting the match), but this was of a larger salary than I could have gotten just out of HS or college

After the first 10 yrs, we bought a house next to a good elementary school for our kid's sake, maxing Roth IRAs, and saving for college.

It wasn't until I was 55 that could start investing more of my income, and by 58 I had the house paid off and maxing all tax advantaged space.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by Wanderingwheelz »

vitaflo wrote: Sat Oct 01, 2022 12:19 pm My wife and I did this naturally. When we were young we spent most of our money (we didn't make a ton). We had a middle class house, normal cars, etc. That took up a lot of our income and we didn't put much into 401k because of it. Sure we could have lived like misers to save the typical 15% or whatever but we didn't.

As our careers progressed we made a lot more money, but our standard of living didn't much change. Our standard of living probably went up about 30% in the past 20 years but our income went up over 300% in that time. We started saving the difference. We ran out of tax advantaged room we were saving so much.

Our goal has always been to basically live the same standard of living throughout life, kinda like the article says. But this kind of just happened naturally, we didn't have some theory or model to base it off of.
That’s the point I was trying to make further up the thread. This article that has Bogleheads so bent out of shape isn’t nearly as offensive as it has been perceived.

The really important part is to keep improving your earnings and save more and more money.

Whatever a person saves early on for retirement is definitely helpful, but that’s not where the real action happens. All of us here are better investors at 55 than we were at 25.
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Re: The dumbest article ever written

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bobcat2 wrote: Sat Oct 01, 2022 10:15 am I think the article makes sense for a lot of people including most college graduates. If people age 30 or younger are going to save it makes more sense to save for a house down payment than for retirement that's 35-40 years away. I see no reason for people that young to save more for retirement than the company match.

I remember reading that the great economist Milton Friedman would advise young colleagues at the University of Chicago to avoid saving too much at an early age.

BTW my wife and I are financially doing well in retirement and neither of us began saving for retirement until we were in our early 30s. I think we were implicitly following the life-cycle model without explicitly being aware of it. :happy

BobK
I think "If you are young, don't save" is too simplistic.

I think people need to learn to manage their money so that they can enjoy their entire lives. For some, that means spending more at a young age (to buy a house, furnish it, have children along with their expenses, etc.) For others, they can spend a lot at a young age and still save.

When your income is the highest, it's important to save a lot. It doesn't matter if you have always saved or never saved - now is the time to pump up the savings for retirement. I suspect this is where most folks fund much of their retirement - particularly when they become empty nesters.

"Living below your means" doesn't have to mean "Living far below your means" at a young age when spending is high.

The trouble would come if you learn to be a non-saver when young, and continue that tradition through your life.
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Re: In Retirement, You May Not Need to Spend So Much

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AnnetteLouisan wrote: Sat Oct 01, 2022 9:09 am I have a theory that says you should spend more in crappy times (illness, unemployment, bummer situation of whatever kind) than when things are going well for you, because you need it more in bad times. So in my view it isn’t age related. Sometimes you need a little extra being good to yourself and sometimes you don’t.
Hmm. I understand your theory.

But I worry that being "a little extra good to yourself" becomes a habit that's hard to break. Like "I deserve it" can be hard to overcome. I know lots of folks who have gone down that road and suffered in retirement because of it.
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Re: In Retirement, You May Not Need to Spend So Much

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JoeRetire wrote: Sat Oct 01, 2022 3:23 pm
AnnetteLouisan wrote: Sat Oct 01, 2022 9:09 am I have a theory that says you should spend more in crappy times (illness, unemployment, bummer situation of whatever kind) than when things are going well for you, because you need it more in bad times. So in my view it isn’t age related. Sometimes you need a little extra being good to yourself and sometimes you don’t.
Hmm. I understand your theory.

But I worry that being "a little extra good to yourself" becomes a habit that's hard to break. Like "I deserve it" can be hard to overcome. I know lots of folks who have gone down that road and suffered in retirement because of it.
I've known folks who never made it to "retirement", and some whose retirement was blown by risky investments.
Deferred gratification sometimes pays in the future, enjoying it now always pays now.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by JackoC »

bobcat2 wrote: Sat Oct 01, 2022 1:15 pm
I have found that when millionaires made their first home purchase, the ratio of the purchase price over their annual household income was just 1.49.
KlangFool
So a thirty year old making $50,000/year should buy a house for just under $75,000. Good luck and Godspeed with that strategy. :D
Just the cost of land makes that strategy nearly impossible for most Americans today.

BobK
True, you can't apply a ratio like that from past home valuations relative to income. Incomes have risen on average a little faster than CPI, but still CPI from when we bought our house has only around doubled, the house's nominal $ value is nearly 6 times higher. We spent less than 1.5 as it happens, but somebody with same CPI adjusted income couldn't possibly achieve that now, nor would they be obviously better off overall with a much longer commute (in terms of career impact, see below) or sky high rent around here. As often, a valid general point can be undermined by stubborn insistence on rigid absolutes. :wink:

The valid point you'd probably agree with is that it's important to control owner imputed rent, which is consumption, as a % of income just like you'd control cash rent as a % of income. The most expensive house one can make the payment on can easily end up a mistake. Though OTOH re: the back and forth on higher income eventually panning out, no it's not guaranteed but if you don't attain a high income you're unlikely to become actually rich. Especially without the tailwind of rising valuations 'Millionaires Next Door' of the past enjoyed, not just for houses but assets across the board. It could happen again, but I wouldn't bet on it if I were young now. Making a high income without developing spendthrift habits is the way to wealth generally IMO. Can everybody make a high income? No, but personal finance is personal. Income is what I'd tell young people I care about to put at the top of their priorities and focus of their mental energy. *If* it's important to *them* to be actually rich, not saying that has to be important to any given person, but 1mil of even today's $'s by the time you're old while better than having less is not typically what young people seeking to be 'rich' have in mind IME.
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Re: In Retirement, You May Not Need to Spend So Much

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JoMoney wrote: Sat Oct 01, 2022 3:37 pm
JoeRetire wrote: Sat Oct 01, 2022 3:23 pm
AnnetteLouisan wrote: Sat Oct 01, 2022 9:09 am I have a theory that says you should spend more in crappy times (illness, unemployment, bummer situation of whatever kind) than when things are going well for you, because you need it more in bad times. So in my view it isn’t age related. Sometimes you need a little extra being good to yourself and sometimes you don’t.
Hmm. I understand your theory.

But I worry that being "a little extra good to yourself" becomes a habit that's hard to break. Like "I deserve it" can be hard to overcome. I know lots of folks who have gone down that road and suffered in retirement because of it.
I've known folks who never made it to "retirement", and some whose retirement was blown by risky investments.
Deferred gratification sometimes pays in the future, enjoying it now always pays now.
Sometimes pay me now precludes pay me later. I've know folks who never bothered to save anything for retirement.

Unless you plan to die young, it's best to find a way to still save enough for retirement while enjoying every day.
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Re: In Retirement, You May Not Need to Spend So Much

Post by AnnetteLouisan »

JoeRetire wrote: Sat Oct 01, 2022 3:23 pm
AnnetteLouisan wrote: Sat Oct 01, 2022 9:09 am I have a theory that says you should spend more in crappy times (illness, unemployment, bummer situation of whatever kind) than when things are going well for you, because you need it more in bad times. So in my view it isn’t age related. Sometimes you need a little extra being good to yourself and sometimes you don’t.
Hmm. I understand your theory.

But I worry that being "a little extra good to yourself" becomes a habit that's hard to break. Like "I deserve it" can be hard to overcome. I know lots of folks who have gone down that road and suffered in retirement because of it.
Very true. Downshifting is hard, but it can be a fascinating process to pare down, break habits and discover what you truly need and value, and it can even be fun (as long as it’s optional).

I did it from 2006-2011, first mostly in contemplation of a recession I saw coming, then to be at one with the spirit of the times (although I was doing well but the country wasn’t and it became gauche to overspend), and then continuing on for self mastery (because a smart friend expressed horror at amounts I was dropping at a particular store on a particular kind of item where I tended to overspend). Also because i got feedback that my gifts, good tips and treating others at restaurants came across as showing off. So I said, ok fine!!! I don’t have to then. And then I pared back more to buy a house, and then still more during Covid.

It was actually very empowering, unlike folks who sadly have to do it because they are forced to. There’s a lot of good quality these days at low price points. It’s freeing to liberate yourself from the influence of advertising to a large extent. You can still spend but it’s your choice not a compulsion. Could I have done it if I hadn’t had a little fun overspending first? Maybe not.

Now I have this killer $37-45k budget on a $310k income and spend my money on investments. : D
Last edited by AnnetteLouisan on Sat Oct 01, 2022 4:17 pm, edited 8 times in total.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by nigel_ht »

smitcat wrote: Sat Oct 01, 2022 2:00 pm
KlangFool wrote: Sat Oct 01, 2022 1:46 pm AP,

There is no reason for me to do that when there are many self-made millionaires within my extended family. The common thread among them is

A) Their gross saving rate is 30+% or above

B) They do not overspend on their houses.

KlangFool
"A) Their gross saving rate is 30+% or above"
Focusing on savings rates or even savings at all without consideration for the earnings side is like focusing on savings rather than expenses for FIRE.
As you have pointed out quite accurately the key is multiple of expenses in retirement not the multiples of salary at any one point in time.
I think savings rate is often more indicative of future financial success than absolute numbers…

Someone who makes $50K but saves $15K will probably end up richer and more satisfied than someone who makes $150K and saves $30K a year…

If you’re used to a $35K lifestyle then the portfolio from saving $450K over 30 years probably leads to a better outcome than being used to a $120K lifestyle with a $900K based portfolio…

Same for FIRE. Higher incomes tend to come with higher lifestyle baselines.

I think on the topic of saving for retirement while young what I tell my kids is to at least capture the match while saving as much as reasonable both in and outside of tax exempt.

Unless trying to FIRE. Then they need a very high savings rate regardless of income…30%+ gross is a good target.

I think KF’s family shoots for FI as soon as possible so it’s just like FIRE without necessarily retiring early.
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Re: MarketWatch: Many young people shouldn’t save for retirement

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nigel_ht wrote: Sat Oct 01, 2022 4:02 pm Someone who makes $50K but saves $15K will probably end up richer and more satisfied than someone who makes $150K and saves $30K a year…
Hmm. I'm not seeing it.

"More satisfied" is completely subjective, so there's no way to know in the general case. I wouldn't say "probably end up more satisfied".

But "richer"? How will saving $15k/year for 40 years or so make you richer than saving $30k/year for the same number of years?
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Re: In Retirement, You May Not Need to Spend So Much

Post by JoMoney »

JoeRetire wrote: Sat Oct 01, 2022 3:48 pm
JoMoney wrote: Sat Oct 01, 2022 3:37 pm
JoeRetire wrote: Sat Oct 01, 2022 3:23 pm
AnnetteLouisan wrote: Sat Oct 01, 2022 9:09 am I have a theory that says you should spend more in crappy times (illness, unemployment, bummer situation of whatever kind) than when things are going well for you, because you need it more in bad times. So in my view it isn’t age related. Sometimes you need a little extra being good to yourself and sometimes you don’t.
Hmm. I understand your theory.

But I worry that being "a little extra good to yourself" becomes a habit that's hard to break. Like "I deserve it" can be hard to overcome. I know lots of folks who have gone down that road and suffered in retirement because of it.
I've known folks who never made it to "retirement", and some whose retirement was blown by risky investments.
Deferred gratification sometimes pays in the future, enjoying it now always pays now.
Sometimes pay me now precludes pay me later. I've know folks who never bothered to save anything for retirement.

Unless you plan to die young, it's best to find a way to still save enough for retirement while enjoying every day.
Agreed, best if you can have your cake and eat it too.
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Re: In Retirement, You May Not Need to Spend So Much

Post by JoeRetire »

JoMoney wrote: Sat Oct 01, 2022 5:25 pm
JoeRetire wrote: Sat Oct 01, 2022 3:48 pm
JoMoney wrote: Sat Oct 01, 2022 3:37 pm
JoeRetire wrote: Sat Oct 01, 2022 3:23 pm
AnnetteLouisan wrote: Sat Oct 01, 2022 9:09 am I have a theory that says you should spend more in crappy times (illness, unemployment, bummer situation of whatever kind) than when things are going well for you, because you need it more in bad times. So in my view it isn’t age related. Sometimes you need a little extra being good to yourself and sometimes you don’t.
Hmm. I understand your theory.

But I worry that being "a little extra good to yourself" becomes a habit that's hard to break. Like "I deserve it" can be hard to overcome. I know lots of folks who have gone down that road and suffered in retirement because of it.
I've known folks who never made it to "retirement", and some whose retirement was blown by risky investments.
Deferred gratification sometimes pays in the future, enjoying it now always pays now.
Sometimes pay me now precludes pay me later. I've know folks who never bothered to save anything for retirement.

Unless you plan to die young, it's best to find a way to still save enough for retirement while enjoying every day.
Agreed, best if you can have your cake and eat it too.
It's best to have a small slice of cake now, then more later, rather than stuffing it all down in one sitting.
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Re: The dumbest article ever written

Post by dodecahedron »

bobcat2 wrote: Sat Oct 01, 2022 10:15 am I think the article makes sense for a lot of people including most college graduates. If people age 30 or younger are going to save it makes more sense to save for a house down payment than for retirement that's 35-40 years away. I see no reason for people that young to save more for retirement than the company match.

I remember reading that the great economist Milton Friedman would advise young colleagues at the University of Chicago to avoid saving too much at an early age.

BTW my wife and I are financially doing well in retirement and neither of us began saving for retirement until we were in our early 30s. I think we were implicitly following the life-cycle model without explicitly being aware of it. :happy

BobK
Hmm, I guess my economist husband and I were pretty much doing the same.

With inflation pushing home prices up fast in the early 1980s, and the tax advantages to homeownership at that time, it seemed sensible to focus on saving up for a downpayment in money market funds earning double-digit nominal interest rates rather than starting a taxable brokerage account to invest for retirement. (And buy-and-hold equities in a taxable brokerage account made less sense than today, because dividends were fully taxable and there was even more dividend drag back then than there is today.)

After we bought our first home, and our incomes increased (and we had access to things like employee stock options--which we did not buy and hold but rather exercised as soon as permitted and diversified into other investments), then it made sense to start thinking about retirement.

It worked out well enough in retrospect.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by nigel_ht »

JoeRetire wrote: Sat Oct 01, 2022 4:10 pm
nigel_ht wrote: Sat Oct 01, 2022 4:02 pm Someone who makes $50K but saves $15K will probably end up richer and more satisfied than someone who makes $150K and saves $30K a year…
Hmm. I'm not seeing it.

"More satisfied" is completely subjective, so there's no way to know in the general case. I wouldn't say "probably end up more satisfied".

But "richer"? How will saving $15k/year for 40 years or so make you richer than saving $30k/year for the same number of years?
Yes, more satisfied is subjective.

But using ye olde retirement calculator from vanguard gives us this:

https://investor.vanguard.com/tools-cal ... calculator

If you plug in age 22, retire at 67, $50K/$15K, 5% real and needing 70% of your salary you get this result:

"Based on the information you provided, when you retire at age 67, you may have a retirement savings balance of $1,083,600. Your estimated monthly expenses are $2,917 ($35K) and you could expect a monthly income of $3,612 in retirement."

Change it to $150K/$30K and needing 80% of your salary and you get this:

Based on the information you provided, when you retire at age 67, you may have a retirement savings balance of $2,167,200. Your estimated monthly expenses are $10,000 ($120K) and you could expect a monthly income of $7,224 in retirement.

Now richer...that kinda depends on whether we are looking at starting or terminal portfolio value and whether person number 2 spends $7,224/month or $10,000...

Yeah, we aren't figuring in taxes...but we're doing the same thing across both cases and its all back of the envelope anyway.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by ScoobyDoo »

z3r0c00l wrote: Sat Oct 01, 2022 12:15 pm I could see not saving much until 30 except for a solid emergency fund. Why not use your youth to enjoy life and travel? I work with many older people, a solid number of them save millions that they never get to use due to early illness. They regret not doing more when they were young and healthy, and the money is useless to them. 1 in 10 men won't see 55, one in five won't live to see the common retirement age of 65.
I’d like to see more discussions on this subject. Bogleheads way is very logical (save & live frugal when young) although it assumes an older life to enjoy fruits of your labor. Increase in salary is all but NOT guaranteed, retirement with health & mental acuity is NOT guaranteed, life is NOT guaranteed, etc. I’m not advocating SPEND, Spend, Spend now! But, I do shudder, when I hear stories like this:

A friend retired in 2018. He spent a lifetime (in blue collar work) saving up to one day buy an RV and travel the states hiking, visiting friends, and attending festivals. A few months after retirement he had a stroke. He survived but will never walk or speak again & lives in assisted home.
ScoobyDoo!
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Re: The dumbest article ever written

Post by nigel_ht »

dodecahedron wrote: Sat Oct 01, 2022 5:51 pm
bobcat2 wrote: Sat Oct 01, 2022 10:15 am I think the article makes sense for a lot of people including most college graduates. If people age 30 or younger are going to save it makes more sense to save for a house down payment than for retirement that's 35-40 years away. I see no reason for people that young to save more for retirement than the company match.

I remember reading that the great economist Milton Friedman would advise young colleagues at the University of Chicago to avoid saving too much at an early age.

BTW my wife and I are financially doing well in retirement and neither of us began saving for retirement until we were in our early 30s. I think we were implicitly following the life-cycle model without explicitly being aware of it. :happy

BobK
Hmm, I guess my economist husband and I were pretty much doing the same.

With inflation pushing home prices up fast in the early 1980s, and the tax advantages to homeownership at that time, it seemed sensible to focus on saving up for a downpayment in money market funds earning double-digit nominal interest rates rather than starting a taxable brokerage account to invest for retirement. (And buy-and-hold equities in a taxable brokerage account made less sense than today, because dividends were fully taxable and there was even more dividend drag back then than there is today.)

After we bought our first home, and our incomes increased (and we had access to things like employee stock options--which we did not buy and hold but rather exercised as soon as permitted and diversified into other investments), then it made sense to start thinking about retirement.

It worked out well enough in retrospect.
If you're trying to FIRE then I think skipping the house is probably the better course except for a few real estate markets. If you're going to be in one place for a long time (or happen to be in a hot RE market) then buying your first home relatively young is a good thing.

Or you can do something hybrid like buy a condo and rent out a room or two to cover most of the mortgage.
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Re: In Retirement, You May Not Need to Spend So Much

Post by coachd50 »

AnnetteLouisan wrote: Sat Oct 01, 2022 11:45 am Maybe this is where someone can explain to me the popular saying among young people today, “build the life you want, then save for it.” (Huh?)

Meantime Ramit Sethi, who has many good points and whose podcast I love but often disagree with, is telling impressionable folks to overtip, spend more, quit their jobs and rent. Specifically he tells them to imagine your rich life, and even get specific about fantasy spending in his new IWT Journal available on Amazon. And he says their parents who tell them to cut back and buy a home are woefully out of touch. It’s a popular message. I can’t look away though!
How does this person derive their own income? Is it in their best interest to appeal to a lot of people? Is that appealing message in the best interest of those people? Snicker's bars and kit kats appeal to more people than broccoli or Brussel sprouts
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Re: In Retirement, You May Not Need to Spend So Much

Post by AnnetteLouisan »

coachd50 wrote: Sat Oct 01, 2022 6:37 pm
AnnetteLouisan wrote: Sat Oct 01, 2022 11:45 am Maybe this is where someone can explain to me the popular saying among young people today, “build the life you want, then save for it.” (Huh?)

Meantime Ramit Sethi, who has many good points and whose podcast I love but often disagree with, is telling impressionable folks to overtip, spend more, quit their jobs and rent. Specifically he tells them to imagine your rich life, and even get specific about fantasy spending in his new IWT Journal available on Amazon. And he says their parents who tell them to cut back and buy a home are woefully out of touch. It’s a popular message. I can’t look away though!
How does this person derive their own income? Is it in their best interest to appeal to a lot of people? Is that appealing message in the best interest of those people? Snicker's bars and kit kats appeal to more people than broccoli or Brussel sprouts
He makes money from attracting enough people to buy his book. Journal and seminars. I guess he attracts flies with honey rather than vinegar and then tries to fix their finances once he has their attention. Not the worst strategy actually. His advice (auto invest, make a realistic budget, try to earn more) is a mix of good, bad and so so, but what do I know.

I like it because most of the time (unlike here), I can say to myself, well, I’m doing much better than they are! I don’t buy his products or follow his philosophy, but similar to what was said by a commenter a bit above, I like hearing different points of view.

I’m in a spot where I actually should be spending a little more and so are my family members. We’re trapped in some kind of self denying, fearful, frugality loop that is shortening our lives and is totally avoidable (Sethi’s second to most recent podcast is about that too - couple has 12 M but one has a terminal illness - give it a listen).
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Re: The dumbest article ever written

Post by dodecahedron »

nigel_ht wrote: Sat Oct 01, 2022 6:01 pm
dodecahedron wrote: Sat Oct 01, 2022 5:51 pm
bobcat2 wrote: Sat Oct 01, 2022 10:15 am I think the article makes sense for a lot of people including most college graduates. If people age 30 or younger are going to save it makes more sense to save for a house down payment than for retirement that's 35-40 years away. I see no reason for people that young to save more for retirement than the company match.

I remember reading that the great economist Milton Friedman would advise young colleagues at the University of Chicago to avoid saving too much at an early age.

BTW my wife and I are financially doing well in retirement and neither of us began saving for retirement until we were in our early 30s. I think we were implicitly following the life-cycle model without explicitly being aware of it. :happy

BobK
Hmm, I guess my economist husband and I were pretty much doing the same.

With inflation pushing home prices up fast in the early 1980s, and the tax advantages to homeownership at that time, it seemed sensible to focus on saving up for a downpayment in money market funds earning double-digit nominal interest rates rather than starting a taxable brokerage account to invest for retirement. (And buy-and-hold equities in a taxable brokerage account made less sense than today, because dividends were fully taxable and there was even more dividend drag back then than there is today.)

After we bought our first home, and our incomes increased (and we had access to things like employee stock options--which we did not buy and hold but rather exercised as soon as permitted and diversified into other investments), then it made sense to start thinking about retirement.

It worked out well enough in retrospect.
If you're trying to FIRE then I think skipping the house is probably the better course except for a few real estate markets. If you're going to be in one place for a long time (or happen to be in a hot RE market) then buying your first home relatively young is a good thing.

Or you can do something hybrid like buy a condo and rent out a room or two to cover most of the mortgage.
FIRE was not a concept anyone talked about back in the 1980s when we were saving up for our first home. Your proposed suggestions are so disconnected from the reality of our circumstances when we were young.

We liked our jobs and would have had no interest in FIRE even had we conceived of such a thing. We were living in a place with a severe shortage of rental housing (due to rent control in Cambridge/Boston MA). We had been lucky enough to find a reasonably priced rental that was convenient to our jobs and barely big enough for the two of us, but it was not remotely suitable for raising kids in. (There were literally no kids in the building, noise-proofing was terrible, there were sliding glass doors to a non-kid-proofed balcony on the eighth floor, there was no nearby outdoor place-space, etc.) There was very little prospect that we could have found a rental home convenient to our jobs and suitable for raising kids in. And my biological clock was ticking. (My husband's clock was also ticking--his father had died young, and his family medical history suggested we should not put off kids if he wanted to see them grow up.)

The idea of buying a condo and renting to a roommate to cover the mortgage would raise a whole other set of headaches, especially with young children in the picture.

The mortgage monthly payment on our first home was not the problem, given the tax advantages of home ownership at that time. Accumulating a 20% downpayment (and a sufficient emergency fund adequate to deal with the contingencies homeowners need to be prepared for) was our priority and I think we were right to prioritize it over saving for retirement in a taxable brokerage account at that time.

In retrospect, buying our first home when we did was very smart, even though we moved within 5 years. Interest rates came down and we refinanced. It did out to be a hot market and we sold our first home within five years for double what we had paid for it and (under the tax laws in place at that time) we did a tax-free rollover of the proceeds into our much larger replacement home in a lower cost-of-living city.

Our first home was also large enough to give both of us space for home offices which allowed us to be more productive and enhanced our human capital at the time.
Last edited by dodecahedron on Sat Oct 01, 2022 7:20 pm, edited 6 times in total.
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by KlangFool »

z3r0c00l wrote: Sat Oct 01, 2022 12:15 pm
I could see not saving much until 30 except for a solid emergency fund. Why not use your youth to enjoy life and travel?
z3r0c00l\,

Why can't you do it all?

Saving a lot, enjoy life, and travel?

As per my observation, as long as someone do not overspend on college education, house, and car. They can do all of the above.

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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by z3r0c00l »

KlangFool wrote: Sat Oct 01, 2022 7:11 pm
z3r0c00l wrote: Sat Oct 01, 2022 12:15 pm
I could see not saving much until 30 except for a solid emergency fund. Why not use your youth to enjoy life and travel?
z3r0c00l\,

Why can't you do it all?

Saving a lot, enjoy life, and travel?

As per my observation, as long as someone do not overspend on college education, house, and car. They can do all of the above.

KlangFool
Most people-especially most young people-don't make enough to do it all. If they saved like us, say 35% of gross each year, they probably wouldn't have much left for an education, house, car, travel, restaurants, concerts. Now most people DO live in the moment, they just do it through debt or near zero savings. A real eye opener for me was asking co-workers what percent they contribute to the 401k. Most do the minimum 2%. So if one is lucky enough to make more, they might consider setting a max savings rate. For example I max out the 401k, get $10,000 of I bonds a year, and throw a bit extra into the taxable... but beyond that I promised myself I would spend the rest on enjoying life.
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AnnetteLouisan
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by AnnetteLouisan »

Restaurants were a special treat a few times a month for many Americans back in the 70s. Concerts etc were the radio, free events like Woodstock or music events in parks or watching Sonny and Cher on TV. Getting a mortgage depended on your collateral, your “character” (often a code for excluding based on race and ethnicity) and whom you knew. Fire was a concept but it involved burning buildings in a/c-less summers, not retiring early. A few senior execs had Diners Club but revolving credit wasn’t widely available like today. And Nixon and Johnson were trying to create the concept of the student loan so that not only children of big shots got to go to college. Nixon got into Harvard but absent student loans that didn’t exist then, couldn’t afford to go, something that fundamentally shaped him.
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Re: The dumbest article ever written

Post by nigel_ht »

dodecahedron wrote: Sat Oct 01, 2022 7:08 pm
nigel_ht wrote: Sat Oct 01, 2022 6:01 pm
dodecahedron wrote: Sat Oct 01, 2022 5:51 pm
bobcat2 wrote: Sat Oct 01, 2022 10:15 am I think the article makes sense for a lot of people including most college graduates. If people age 30 or younger are going to save it makes more sense to save for a house down payment than for retirement that's 35-40 years away. I see no reason for people that young to save more for retirement than the company match.

I remember reading that the great economist Milton Friedman would advise young colleagues at the University of Chicago to avoid saving too much at an early age.

BTW my wife and I are financially doing well in retirement and neither of us began saving for retirement until we were in our early 30s. I think we were implicitly following the life-cycle model without explicitly being aware of it. :happy

BobK
Hmm, I guess my economist husband and I were pretty much doing the same.

With inflation pushing home prices up fast in the early 1980s, and the tax advantages to homeownership at that time, it seemed sensible to focus on saving up for a downpayment in money market funds earning double-digit nominal interest rates rather than starting a taxable brokerage account to invest for retirement. (And buy-and-hold equities in a taxable brokerage account made less sense than today, because dividends were fully taxable and there was even more dividend drag back then than there is today.)

After we bought our first home, and our incomes increased (and we had access to things like employee stock options--which we did not buy and hold but rather exercised as soon as permitted and diversified into other investments), then it made sense to start thinking about retirement.

It worked out well enough in retrospect.
If you're trying to FIRE then I think skipping the house is probably the better course except for a few real estate markets. If you're going to be in one place for a long time (or happen to be in a hot RE market) then buying your first home relatively young is a good thing.

Or you can do something hybrid like buy a condo and rent out a room or two to cover most of the mortgage.
FIRE was not a concept anyone talked about back in the 1980s when we were saving up for our first home. Your proposed suggestions are so disconnected from the reality of our circumstances when we were young.
But they are relevant to the reality of today. Although without a huge bull and the inflation tailwind, being able to FIRE is going to be a lot harder for recent grads...
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by nigel_ht »

AnnetteLouisan wrote: Sat Oct 01, 2022 7:50 pm And Nixon and Johnson were trying to create the concept of the student loan so that not only children of big shots got to go to college. Nixon got into Harvard but absent student loans that didn’t exist then, couldn’t afford to go, something that fundamentally shaped him.
Wow that's an interesting tidbit!
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by AnnetteLouisan »

nigel_ht wrote: Sat Oct 01, 2022 8:00 pm
AnnetteLouisan wrote: Sat Oct 01, 2022 7:50 pm And Nixon and Johnson were trying to create the concept of the student loan so that not only children of big shots got to go to college. Nixon got into Harvard but absent student loans that didn’t exist then, couldn’t afford to go, something that fundamentally shaped him.
Wow that's an interesting tidbit!
Yep. Student loans were intended to be, and often were, a step toward equality and away from a thin upper social stratum consisting of those who, meritorious or not, could afford it. That’s a big part of why Nixon resented Kennedy and the Ivy educated folks in govt. there’s a great Nixon biography. Nixon got the ball rolling but I’m told President Johnson enacted them as national policy.

Check out, on the Harvard story, “constitutioncenter.org - ten fascinating facts about Richard Nixon.” They sugarcoat it a little but the truth was there were no federal student loans, Harvard offered some private aid but it was still unaffordable for Nixon’s family of smalltown shopkeepers. So he went to Whittier college near his home so he could help out with the store.
Last edited by AnnetteLouisan on Sat Oct 01, 2022 8:18 pm, edited 3 times in total.
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dodecahedron
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Re: The dumbest article ever written

Post by dodecahedron »

nigel_ht wrote: Sat Oct 01, 2022 7:55 pm
dodecahedron wrote: Sat Oct 01, 2022 7:08 pm FIRE was not a concept anyone talked about back in the 1980s when we were saving up for our first home. Your proposed suggestions are so disconnected from the reality of our circumstances when we were young.
But they are relevant to the reality of today. Although without a huge bull and the inflation tailwind, being able to FIRE is going to be a lot harder for recent grads...
The elephant in the room preventing many recent college grads from starting to save up for FIRE (or a down payment on a first home and having kids, for that matter) is student loan debt.

My husband and I would definitely not have been in a position to buy our first home or have kids when we did if we had student loan debts comparable to those of many of today's recent college grads.
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Re: The dumbest article ever written

Post by KlangFool »

dodecahedron wrote: Sat Oct 01, 2022 8:07 pm
nigel_ht wrote: Sat Oct 01, 2022 7:55 pm
dodecahedron wrote: Sat Oct 01, 2022 7:08 pm FIRE was not a concept anyone talked about back in the 1980s when we were saving up for our first home. Your proposed suggestions are so disconnected from the reality of our circumstances when we were young.
But they are relevant to the reality of today. Although without a huge bull and the inflation tailwind, being able to FIRE is going to be a lot harder for recent grads...
The elephant in the room preventing many recent college grads from starting to save up for FIRE (or a down payment on a first home and having kids, for that matter) is student loan debt.

My husband and I would definitely not have been in a position to buy our first home or have kids when we did if we had student loan debts comparable to those of many of today's recent college grads.
dodecahedron,

And, the reason why the students ended up with student loan debt is because their parents overspent on their houses. That is how it goes for my income peers. So, the cycle continues.

KlangFool
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Re: The dumbest article ever written

Post by Makefile »

KlangFool wrote: Sat Oct 01, 2022 8:21 pm
dodecahedron wrote: Sat Oct 01, 2022 8:07 pm The elephant in the room preventing many recent college grads from starting to save up for FIRE (or a down payment on a first home and having kids, for that matter) is student loan debt.

My husband and I would definitely not have been in a position to buy our first home or have kids when we did if we had student loan debts comparable to those of many of today's recent college grads.
dodecahedron,

And, the reason why the students ended up with student loan debt is because their parents overspent on their houses. That is how it goes for my income peers. So, the cycle continues.

KlangFool
For perspective I think it's important to note that per the Federal Reserve, among those who took out student debt to fund their own education the median balance is less than $25,000, and a quarter of borrowers owe less than $10,000 (https://www.federalreserve.gov/publicat ... -loans.htm).

Unpleasant to have that debt, but manageable.

The media focuses on the sensational stories rather than the typical one. Steer clear of for-profit or unaccredited colleges, and also unnecessary advanced degrees, as those seem the biggest problem areas.
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Re: The dumbest article ever written

Post by KlangFool »

Makefile wrote: Sat Oct 01, 2022 9:14 pm
KlangFool wrote: Sat Oct 01, 2022 8:21 pm
dodecahedron wrote: Sat Oct 01, 2022 8:07 pm The elephant in the room preventing many recent college grads from starting to save up for FIRE (or a down payment on a first home and having kids, for that matter) is student loan debt.

My husband and I would definitely not have been in a position to buy our first home or have kids when we did if we had student loan debts comparable to those of many of today's recent college grads.
dodecahedron,

And, the reason why the students ended up with student loan debt is because their parents overspent on their houses. That is how it goes for my income peers. So, the cycle continues.

KlangFool
For perspective I think it's important to note that per the Federal Reserve, among those who took out student debt to fund their own education the median balance is less than $25,000, and a quarter of borrowers owe less than $10,000 (https://www.federalreserve.gov/publicat ... -loans.htm).

Unpleasant to have that debt, but manageable.

The media focuses on the sensational stories rather than the typical one. Steer clear of for-profit or unaccredited colleges, and also unnecessary advanced degrees, as those seem the biggest problem areas.
Makefile,

I am looking at my affluent neighborhood with a median annual household income of 150K. Many of my kids' high school mates ended up with student loans. Their parents (my peers) save close to nothing. Many parents need an installment plan to pay for a $600 high school sport club fee.

If this affluent neighborhood is not really doing that well, how about the rest of the country?

KlangFool
Last edited by KlangFool on Sat Oct 01, 2022 9:28 pm, edited 1 time in total.
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Re: The dumbest article ever written

Post by dodecahedron »

KlangFool wrote: Sat Oct 01, 2022 8:21 pm
dodecahedron wrote: Sat Oct 01, 2022 8:07 pm
nigel_ht wrote: Sat Oct 01, 2022 7:55 pm
dodecahedron wrote: Sat Oct 01, 2022 7:08 pm FIRE was not a concept anyone talked about back in the 1980s when we were saving up for our first home. Your proposed suggestions are so disconnected from the reality of our circumstances when we were young.
But they are relevant to the reality of today. Although without a huge bull and the inflation tailwind, being able to FIRE is going to be a lot harder for recent grads...
The elephant in the room preventing many recent college grads from starting to save up for FIRE (or a down payment on a first home and having kids, for that matter) is student loan debt.

My husband and I would definitely not have been in a position to buy our first home or have kids when we did if we had student loan debts comparable to those of many of today's recent college grads.
dodecahedron,

And, the reason why the students ended up with student loan debt is because their parents overspent on their houses. That is how it goes for my income peers. So, the cycle continues.

KlangFool
Ahem, I don't know about your income peers, but I do know a number of recent grads with student loan debt whose disabled parents or guardians lived in public housing. It is not all about overspending on homes.
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Re: The dumbest article ever written

Post by KlangFool »

dodecahedron wrote: Sat Oct 01, 2022 9:27 pm
KlangFool wrote: Sat Oct 01, 2022 8:21 pm
dodecahedron wrote: Sat Oct 01, 2022 8:07 pm
nigel_ht wrote: Sat Oct 01, 2022 7:55 pm
dodecahedron wrote: Sat Oct 01, 2022 7:08 pm FIRE was not a concept anyone talked about back in the 1980s when we were saving up for our first home. Your proposed suggestions are so disconnected from the reality of our circumstances when we were young.
But they are relevant to the reality of today. Although without a huge bull and the inflation tailwind, being able to FIRE is going to be a lot harder for recent grads...
The elephant in the room preventing many recent college grads from starting to save up for FIRE (or a down payment on a first home and having kids, for that matter) is student loan debt.

My husband and I would definitely not have been in a position to buy our first home or have kids when we did if we had student loan debts comparable to those of many of today's recent college grads.
dodecahedron,

And, the reason why the students ended up with student loan debt is because their parents overspent on their houses. That is how it goes for my income peers. So, the cycle continues.

KlangFool
Ahem, I don't know about your income peers, but I do know a number of recent grads with student loan debt whose disabled parents or guardians lived in public housing. It is not all about overspending on homes.
dodecahedron,

I am talking about folks with median annual household income of 150K and median house of 600K to 700K. So, higher income does not help.

KlangFool
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Re: MarketWatch: Many young people shouldn’t save for retirement

Post by spth »

I don’t think the article was clickbait, but I also don’t find it very profound.

Isn’t this the point of any debt (student loans, mortgage, car loan)?

I’m guessing most people don’t save much before 35.

People might even take a break from saving when kids are in college or when unemployed.

And SS does cover a large percentage of living expenses.

And if needed, keep working.

And in case you can’t keep working, make sure to have life and disability insurance.

Most on this forum are middle aged, high earners who should be saving. Many of the rest are former middle-aged high earners.
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