Are 20 somethings handicapped bc of inflation and little SS?

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TurtleInvestor
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Are 20 somethings handicapped bc of inflation and little SS?

Post by TurtleInvestor »

So it never occurred for me to account for inflation when I retire so I plugged some numbers in an excel chart.

First thing I did was find the average yearly inflation rate and a quick google search revealed it to be on average 3.38% per year since 1914 (first year they recorded it).

So that means when a 25 year old turns 65, $3.86 then is the equivalent of $1 for him now.

Let's say total expenses of living for that very frugal 25 year old now are $28,200/year.

That means when he turns 65, to enjoy that SAME lifestyle, he would need $108,790/year in inflation adjusted dollars.

Now to get that $108,790 by withdrawing 4%, he would need a lump sum of $2,719,755!

And I don't think 20 something's today are counting on full social security benefits or even reduced benefits to be available to them by 65, so all he's stuck with is the money in his hopefully tax advantaged accounts. (I'm not assuming he has rental income, pension, etc., just tax advantaged retirement accounts).

To get that enormous lump sum, the 25 year old would have to invest $1,036/month for 40 years at 7% interest.

And that's only if all that is in a Roth IRA so his distributions are tax free. If it was in a IRA, he would have to invest even more because he would get taxed on withdrawals.

Are these numbers right?

If so, this is very, very scary...
Sidney
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Re: Are 20 something's screwed bc of inflation and little/no

Post by Sidney »

That looks about right. It pays to start early. If you get lucky and get a big win (big bonus, inheritance ....), avoid the temptation to blow it all on consumption.
I always wanted to be a procrastinator.
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

Sidney wrote:That looks about right. It pays to start early. If you get lucky and get a big win (big bonus, inheritance ....), avoid the temptation to blow it all on consumption.
Holy smokes. I got chills when I read this.

I'm looking at my projected nest egg and it's off by $1.6 million....

This is a splash of cold water on my face for sure. I'm cutting down on everything and throwing everything I can into my retirement accounts.

Is the average 20 something even aware of these numbers?

Why are all the retirement articles NOT accounting for this inflation? They all seem to say a 20 something today just needs to save $1,000,000...
Last edited by TurtleInvestor on Sat May 05, 2012 3:02 pm, edited 1 time in total.
sscritic
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Re: Are 20 something's screwed bc of inflation and little/no

Post by sscritic »

TurtleInvestor wrote: To get that enormous lump sum, the 25 year old would have to invest $1,036/month for 40 years at 7% interest.

Are these numbers right?
Yes and no. My first job paid $10,000 a year; my last $100,000 a year (numbers changed to protect the innocent). Could I have saved $1000 a month when I started? Obviously not; that was more than my gross. Could I have saved it at the end? Easily.

By your own numbers, even if you don't get a pay raise for the next 40 years other than an inflationary one, a $40,000 salary (guessed at from $28k of living expenses) today will be 40k x 3.86 = $154,400 at age 65. My guess is that you will get a promotion somewhere along the line, so a more realistic final salary is $200,000. So what does a young person do? Save the pay raise; don't spend it.

P.S. On my calculator, 1.0338 ^ 40 = 3.78, not 3.86.
Harold
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Re: Are 20 something's screwed bc of inflation and little/no

Post by Harold »

Given the assumptions you've made, you have it about right. And since you brought up Social Security, one piece you didn't mention is that your Social Security taxes are likely to go up.

Have fun saving!
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

sscritic wrote:
TurtleInvestor wrote: To get that enormous lump sum, the 25 year old would have to invest $1,036/month for 40 years at 7% interest.

Are these numbers right?
Yes and no. My first job paid $10,000 a year; my last $100,000 a year (numbers changed to protect the innocent). Could I have saved $1000 a month when I started? Obviously not; that was more than my gross. Could I have saved it at the end? Easily.

By your own numbers, even if you don't get a pay raise for the next 40 years other than an inflationary one, a $40,000 salary (guessed at from $28k of living expenses) today will be 40k x 3.86 = $154,400 at age 65. My guess is that you will get a promotion somewhere along the line, so a more realistic final salary is $200,000. So what does a young person do? Save the pay raise; don't spend it.

P.S. On my calculator, 1.0338 ^ 40 = 3.78, not 3.86.
Ah I see. That makes sense. Gives me a little hope and a great reminder not to spend the raises.

Regarding the calc - I just used the FV function in Excel. Maybe I screwed up the formula? I got $3.86.
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

Harold wrote:Given the assumptions you've made, you have it about right. And since you brought up Social Security, one piece you didn't mention is that your Social Security taxes are likely to go up.

Have fun saving!
Oh crap...

My heart just sank to my feet...
livesoft
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Re: Are 20 something's screwed bc of inflation and little/no

Post by livesoft »

Don't worry, when I was in my twenties I was screwed, too. It has turned out just fine.
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

livesoft wrote:Don't worry, when I was in my twenties I was screwed, too. It has turned out just fine.
That's reassuring to hear but isn't it a different world for twenty somethings now than when it was when you were 20?

Right now, they have 20k+ student loans, cc debt, car debt, little/no job prospects, crappy economy...

I shudder to think what my generation will look like at retirement. I predict cat food sales will go up... :(
Sidney
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Re: Are 20 something's screwed bc of inflation and little/no

Post by Sidney »

I was going to say the same thing. Plus, inflation outlook was a lot more than 3.7% so the nominal numbers were beyond belief.
I always wanted to be a procrastinator.
tomas123
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Re: Are 20 something's screwed bc of inflation and little/no

Post by tomas123 »

"To get that enormous lump sum, the 25 year old would have to invest $1,036/month for 40 years at 7% interest."

You've adjusted your future spending and $ needed for retirement for inflation, but not done so for your monthly contributions. Is this intentional?
sscritic
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Re: Are 20 something's screwed bc of inflation and little/no

Post by sscritic »

TurtleInvestor wrote: Ah I see. That makes sense. Gives me a little hope and a great reminder not to spend the raises.
When doing calculations like this, you should either do everything in real dollars leaving inflation out of everything, so your goal is the same as someone already 65 and your salary only goes up by promotion and your investments only have real earnings, not nominal ones, and your retirement costs are constant (no inflation, remember); or you do everything in nominal dollars: goal, salary, investment earnings, retirement costs, etc. What you started with was nominal, but kept your salary real; you gave yourself no inflationary increases. I think it is easier to do things in real dollars myself, so your investment won't earn 7%, but something more like 3%, but what you need at 65 is 28,200 / 0.04 = $705,000 of today's dollars.
dbr
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Re: Are 20 something's screwed bc of inflation and little/no

Post by dbr »

TurtleInvestor wrote: To get that enormous lump sum, the 25 year old would have to invest $1,036/month for 40 years at 7% interest.
It's good that you understand the effect of inflation on financial planning. But note that people that go through a career of earning and saving also see increases in pay roughly similar to inflation and increases in pay much greater than inflation due to career advancement.

But then, you could have lived through the 70's and 80's:

http://inflationdata.com/inflation/imag ... lation.jpg
livesoft
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Re: Are 20 something's screwed bc of inflation and little/no

Post by livesoft »

TurtleInvestor wrote:
livesoft wrote:Don't worry, when I was in my twenties I was screwed, too. It has turned out just fine.
That's reassuring to hear but isn't it a different world for twenty somethings now than when it was when you were 20?

Right now, they have 20k+ student loans, cc debt, car debt, little/no job prospects, crappy economy...

I shudder to think what my generation will look like at retirement. I predict cat food sales will go up... :(
No, the world is the same. I am not sure why you think it is different. Perhaps you have not studied any history past WWII?

And cat food is soooo 1960's. Nowadays, you go to Costco or other grocery store for the free munchies. Let's stop the hints that we will all be eating cat or dog food in our old age. We won't be. Instead we will be sampling the fine wines, crackers, cheeses, olives, sushi, and other free goodies at the grocery store.
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bigred77
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Re: Are 20 something's screwed bc of inflation and little/no

Post by bigred77 »

As a fellow 20 something I can tell you the sticker shock will start to wear off as you think through it more and more.

It's hard to imagine but there will one day be a time when minimum wage is $25 hr, entry level engineers start at 150k/yr, and paying 3k per month in rent on a one bedroom apartment will not be reserved for those on the coastal cities anymore. Gas will be $10 a gallon and a toyota camry will run you about 50k.

All we can do is save as much as we can, invest as best we can, and let the chips fall where they may. You may not want to live a retirement lifestyle of 28k per yr (in todays dollars) when you reach that age so maybe plan for an even higher "number"...
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ofcmetz
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Re: Are 20 something's screwed bc of inflation and little/no

Post by ofcmetz »

Use this knowledge as motivation to save. Remember your income may increase along the way and you may find yourself with more disposable income in your 30's and 40's. Start now by saving a decent portion of your income. Then commit part of your raises to savings. Be motivated because your retirement is on you.
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Muchtolearn
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Re: Are 20 something's screwed bc of inflation and little/no

Post by Muchtolearn »

As a 59 1/2 year old with kids 23 and 25, I must tell you that I am horrified as to what will happen to your generation. We must not be political on this board of course. That said, the debt will be paid by you, MY generation's social security will be paid by you and there will be no more pension plans from companies (those are disappearing every day). The gravy train is over. I do not know if there is a solution but I do hope that you youngsters do stand up for yourselves and push back on my generation which is the greediest group of people I have seen.
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

tomas123 wrote:"To get that enormous lump sum, the 25 year old would have to invest $1,036/month for 40 years at 7% interest."

You've adjusted your future spending and $ needed for retirement for inflation, but not done so for your monthly contributions. Is this intentional?
I think I see what you're saying and I didn't adjust for my monthly contributions. Other posters have been saying as you grow older, wages increase with inflation so there is that factor. Perhaps a savings percentage of a yearly salary now would be more of a better rule to follow as it will take into account increased wages because of inflation?

So for example, if the 25 year old in my first post was making $45k AFTER taxes and needed to invest $1,036 every month to get his nest egg, he would have to save about 28% of his income.

So would it be mathematically correct to extend that 28% rule for the rest of his life to ensure he has the nest egg he needs? (Sorry I am horrible at math)

But wait, if he makes more, then obviously if he sticks to 28%, the nest egg will be bigger, so it's sort of a sliding scale right as his income rises? He can afford to invest less as his income rises? But that's not a good habit to have. So maybe the percentage saving rule can be decreased a bit from 28% to account for future rise in income?

Damn, I really need to take some math classes...
Last edited by TurtleInvestor on Sat May 05, 2012 3:31 pm, edited 1 time in total.
rayout
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Re: Are 20 something's screwed bc of inflation and little/no

Post by rayout »

The question is whether or not that inflation will materially affect your lifestyle. The basket of goods encompassed by the CPI may or may not apply to you. If you are retired do you drive as much or need a nice new car? Do you need to pay education expenses? The health aspect can be mitigated by eating a good diet and getting some exercise (or perhaps I am too naive about this aspect given my youth!). Food is such a small part of the typical budget. Housing isn't going to explode in the next 20 years (well, I won't complain if it does given my stake in an investment property).

I am 26 and I feel quite fortunate to be young during this economic climate. I was able to get an amazing deal on my first home/investment property. I was able to experience the gut wrenching drop in the stock market with only one year's worth of IRA contributions in individual securities (half of which are worthless to this day but it was an extremely cheap lesson). This subsequently led me to this forum and the great wealth of information and advice I've been provided has been invaluable. I am one of the lucky ones and have had steady employment through this mess (was furloughed for 3 months through the worst of it).

In the book "Die Broke" Stephen Pollan and Mark Levine claim that retirement is a modern invention and that it is worth it to plan on doing part time work throughout retirement. This is a sentiment I share - if only to stay active and to keep on meeting people and growing. A part time job would make up for the loss of social security and pay for decent lifestyle if social security is still around.
Last edited by rayout on Sat May 05, 2012 5:02 pm, edited 2 times in total.
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

sscritic wrote:
TurtleInvestor wrote: Ah I see. That makes sense. Gives me a little hope and a great reminder not to spend the raises.
When doing calculations like this, you should either do everything in real dollars leaving inflation out of everything, so your goal is the same as someone already 65 and your salary only goes up by promotion and your investments only have real earnings, not nominal ones, and your retirement costs are constant (no inflation, remember); or you do everything in nominal dollars: goal, salary, investment earnings, retirement costs, etc. What you started with was nominal, but kept your salary real; you gave yourself no inflationary increases. I think it is easier to do things in real dollars myself, so your investment won't earn 7%, but something more like 3%, but what you need at 65 is 28,200 / 0.04 = $705,000 of today's dollars.
Ah I see. I think I understand. Then maybe it isn't so bad as I imagined?

So a 20 something would have to only save $762/month for 40 years assuming 3% interest to get the 705k and if you adjust all that to inflation dollars, it'll be OK? He'll be able to live the same lifestyle then that he's living now?

I'm so sorry if I'm messing this up.
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

livesoft wrote:
TurtleInvestor wrote:
livesoft wrote:Don't worry, when I was in my twenties I was screwed, too. It has turned out just fine.
That's reassuring to hear but isn't it a different world for twenty somethings now than when it was when you were 20?

Right now, they have 20k+ student loans, cc debt, car debt, little/no job prospects, crappy economy...

I shudder to think what my generation will look like at retirement. I predict cat food sales will go up... :(
No, the world is the same. I am not sure why you think it is different. Perhaps you have not studied any history past WWII?

And cat food is soooo 1960's. Nowadays, you go to Costco or other grocery store for the free munchies. Let's stop the hints that we will all be eating cat or dog food in our old age. We won't be. Instead we will be sampling the fine wines, crackers, cheeses, olives, sushi, and other free goodies at the grocery store.
I just meant economic/personal financial conditions are different for 20 somethings now.

I do like that free sample strategy at Costco though! Help cut down on my food bill :)
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

bigred77 wrote:As a fellow 20 something I can tell you the sticker shock will start to wear off as you think through it more and more.

It's hard to imagine but there will one day be a time when minimum wage is $25 hr, entry level engineers start at 150k/yr, and paying 3k per month in rent on a one bedroom apartment will not be reserved for those on the coastal cities anymore. Gas will be $10 a gallon and a toyota camry will run you about 50k.

All we can do is save as much as we can, invest as best we can, and let the chips fall where they may. You may not want to live a retirement lifestyle of 28k per yr (in todays dollars) when you reach that age so maybe plan for an even higher "number"...
Man, it is crazy to imagine all that. I remember my mom saying gas was $0.80/gallon when I was born, then they were so shocked to see it go to 2, then 3, then 4, now almost 5.

And you're right on your last sentence. A retirement lifestyle of 28k per year in today's dollar is not that much...which means we need more...
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

ofcmetz wrote:Use this knowledge as motivation to save. Remember your income may increase along the way and you may find yourself with more disposable income in your 30's and 40's. Start now by saving a decent portion of your income. Then commit part of your raises to savings. Be motivated because your retirement is on you.
You said it chief. This was really a slap in the face for me. I was naively confident I'd be able to save adequately for retirement but these numbers scare the crap out of me. Now I won't feel so bad being so frugal and having my friends make fun of me for it. I will have the last laugh...
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Medicare is the bigger problem

Post by bobcat2 »

And I don't think 20 something's today are counting on full social security benefits or even reduced benefits to be available to them by 65, so all he's stuck with is the money in his hopefully tax advantaged accounts.
I disagree with the premise that SS will not be around when today's 20 somethings retire many years from now. However, if you accept that premise, then to be consistent, you must also believe that there will be no Medicare when 20 somethings retire many decades from now. Medicare is in much worse financial shape than SS, and, given recent price increases in health costs, Medicare spending will be greater than SS spending in the not too distant future. So in today's dollars a 20 something couple in 2012 will have to come up with over $1 million in retirement to replace health care costs now covered by Medicare. Of course in nominal dollars we are talking about $3 million or more they will need to come up with to cover health care costs in retirement that are now covered by Medicare. :(

BobK
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Puakinekine
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Re: Are 20 something's screwed bc of inflation and little/no

Post by Puakinekine »

Things were just as bad or worse in the 70's, when I was starting out. Inflation was far worse, hiring freezes, "malaise". But, we did not have this constant doom and gloom media bombardment. The media was gloomy, but it only came on at 6pm and 11pm, and newspapers in the morning. If you chose to (I did) you could ignore it all easily. It was OK to not have so much stuff, and no shame in being poor. In my circles the kids who did have money were a bit ashamed to have it. You just put one foot after another, carried on, and enjoyed life as it came.

If you don't make stupid decisions, don't have health issues and marry a sensible person who you love and like, it should all come together.
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

Muchtolearn wrote:As a 59 1/2 year old with kids 23 and 25, I must tell you that I am horrified as to what will happen to your generation. We must not be political on this board of course. That said, the debt will be paid by you, MY generation's social security will be paid by you and there will be no more pension plans from companies (those are disappearing every day). The gravy train is over. I do not know if there is a solution but I do hope that you youngsters do stand up for yourselves and push back on my generation which is the greediest group of people I have seen.
It's nice to hear some empathy from your generation! It means a lot seriously.

I don't know if there's much we can do to stand up for ourselves and our future...any ideas anyone?
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

rayout wrote:The question is whether or not that inflation will materially affect your lifestyle. The basket of goods encompassed by the CPI may or may not apply to you. If you are retired do you drive as much or need a nice new car? Do you need to pay education expenses? The health aspect can be mitigated by eating a good diet and getting some exercise (or perhaps I am too naive about this aspect given my youth!). Food is such a small part of the typical budget. Housing isn't going to explode in the next 20 years (well, I won't complain if it does given my stake in an investment property).

I am 26 and I feel quite fortunate to be young during this economic climate. I was able to get an amazing deal on my first home/investment property. I was able to experience the gut wrenching drop in the stock market with only one year's worth of IRA contributions in individual securities (half of which are worthless to this day but it was an extremely cheap lesson). This subsequently led me to this forum and the great wealth of information and advice I've been provided has been invaluable. I am one of the lucky ones and have head steady employment through this mess (was furloughed for 3 months through the worst of it).

In the book "Die Broke" Stephen Pollan and Mark Levine claim that retirement is a modern invention and that it is worth it to plan on doing part time work throughout retirement. This is a sentiment I share - if only to stay active and to keep on meeting people and growing. A part time job would make up for the loss of social security and pay for decent lifestyle if social security is still around.
I see. You make a good point about how expenses will be more reduced in retirement so perhaps I can shave the numbers down a bit.

Congrats on your real estate investment and for learning your lesson during the crash! I'm sure it will serve you well.

Part time job does sound like a good idea. That gives me a bit of hope.
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TurtleInvestor
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Re: Medicare is the bigger problem

Post by TurtleInvestor »

bobcat2 wrote:
And I don't think 20 something's today are counting on full social security benefits or even reduced benefits to be available to them by 65, so all he's stuck with is the money in his hopefully tax advantaged accounts.
I disagree with the premise that SS will not be around when today's 20 somethings retire many years from now. However, if you accept that premise, then to be consistent, you must also believe that there will be no Medicare when 20 somethings retire many decades from now. Medicare is in much worse financial shape than SS, and, given recent price increases in health costs, Medicare spending will be greater than SS spending in the not too distant future. So in today's dollars a 20 something couple in 2012 will have to come up with over $1 million in retirement to replace health care costs now covered by Medicare. Of course in nominal dollars we are talking about $3 million or more they will need to come up with to cover health care costs in retirement that are now covered by Medicare. :(

BobK
Damn, you're right about that. How could I have missed that big Medicare chunk? I guess I don't really think of health issues now so it didn't cross my mind.

This has evolved from a slap in the face to a Mike Tyson right hand hook to the jaw...Boglehead forums are needed now more than ever before...
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

Puakinekine wrote:Things were just as bad or worse in the 70's, when I was starting out. Inflation was far worse, hiring freezes, "malaise". But, we did not have this constant doom and gloom media bombardment. The media was gloomy, but it only came on at 6pm and 11pm, and newspapers in the morning. If you chose to (I did) you could ignore it all easily. It was OK to not have so much stuff, and no shame in being poor. In my circles the kids who did have money were a bit ashamed to have it. You just put one foot after another, carried on, and enjoyed life as it came.

If you don't make stupid decisions, don't have health issues and marry a sensible person who you love and like, it should all come together.
That's so encouraging to hear! Thank you for sharing. It does seem like you guys had it just as bad if not worse back then. Will try not to listen to CNBC or Fox or Mad Money. Just need to stay the course, and invest as much as I can.
drs85
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Re: Are 20 something's screwed bc of inflation and little/no

Post by drs85 »

I'm 26 years old and I've realized this retirement concern many years ago and have been focusing on it ever since. There are a few other things you're not considering. Do keep in mind that your $1,036 savings per month is $1,036 FV more per month when you retire that you won't need (since you don't have it now anyways). So really, unless you already calculated that in, you wont need as much in retirement as you think. Usually you'll hear people say that you need about 70-80% of your income at retirement. The 20-30% accounts for the amount you were saving for that retirement, and perhaps the mortgage you should be paying off by retirement. Also keep in mind that once you retire you'll still be collecting (usually a much more conservative) amount of interest on your existing principal every year. And lastly (DISCLAIMER: speculation) if Social Security does end years down the road before we retire, that's $X more per paycheck you should be able to keep, in which you could just turn around yourself and invest the same way you're doing now.

I too am worried about other people in our generation who haven't realized this, or refuse to react to it. Personally I'm not too worried about myself as I'm saving as much as I can, and doing everything that's in my power to have a fruitful retirement. I'm already farther ahead than my peers and they have no concept of how difficult (or impossible) it will be for them to catch up if they continue to wait. It's honestly good you realized this now, as you have a chance to react at a young age. Good luck. :)
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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

drs85 wrote:I'm 26 years old and I've realized this retirement concern many years ago and have been focusing on it ever since. There are a few other things you're not considering. Do keep in mind that your $1,036 savings per month is $1,036 FV more per month when you retire that you won't need (since you don't have it now anyways). So really, unless you already calculated that in, you wont need as much in retirement as you think. Usually you'll hear people say that you need about 70-80% of your income at retirement. The 20-30% accounts for the amount you were saving for that retirement, and perhaps the mortgage you should be paying off by retirement. Also keep in mind that once you retire you'll still be collecting (usually a much more conservative) amount of interest on your existing principal every year. And lastly (DISCLAIMER: speculation) if Social Security does end years down the road before we retire, that's $X more per paycheck you should be able to keep, in which you could just turn around yourself and invest the same way you're doing now.

I too am worried about other people in our generation who haven't realized this, or refuse to react to it. Personally I'm not too worried about myself as I'm saving as much as I can, and doing everything that's in my power to have a fruitful retirement. I'm already farther ahead than my peers and they have no concept of how difficult (or impossible) it will be for them to catch up if they continue to wait. It's honestly good you realized this now, as you have a chance to react at a young age. Good luck. :)
I see. Some of the other posters alluded to some of the mistakes in my calculations so it looks like I won't need that big of a nest egg, but it'll still be big nonetheless. Interesting twist on the SS thing! You're right. That never even crossed my mind.

Good to know you and I caught it young! And congrats for being so proactive in your future too! I seriously need to have a sit down with my friends and explain this to them because they just don't get it. Every time I explain to them why I can't go out and eat sushi every weekend or why I'm not buying a new car like them, they just roll their eyes at me...
Puakinekine
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Re: Are 20 something's screwed bc of inflation and little/no

Post by Puakinekine »

TurtleInvestor wrote:
Muchtolearn wrote:As a 59 1/2 year old with kids 23 and 25, I must tell you that I am horrified as to what will happen to your generation. We must not be political on this board of course. That said, the debt will be paid by you, MY generation's social security will be paid by you and there will be no more pension plans from companies (those are disappearing every day). The gravy train is over. I do not know if there is a solution but I do hope that you youngsters do stand up for yourselves and push back on my generation which is the greediest group of people I have seen.
It's nice to hear some empathy from your generation! It means a lot seriously.

I don't know if there's much we can do to stand up for ourselves and our future...any ideas anyone?
This is the message that you are being fed. And you are buying it, hook, line and sinker. Did it ever occur to you, that hopeless and ignorant people are far easier to manipulate? If everyone swallows the lies about the imminent death of SS then it will be easy for those who want to destroy it to do so. Get involved in the solution by educating yourself about health care, about social security, about the environment, education, infrastruture, energy, whatever. You have people in Congress who do in fact pay attention to whether you are going to vote them in or out. Read some real history, not just the history channel, get some perspective. If you are so inclined, start a business that fulfills a need and will be good not only for you but the society. Create some jobs. Have intelligent informed conversations with your contemporaries about real problems and solutions, not rehashes of what some desperate journalism major/talking head spat out today. Sorry for the rant, but there's a lot your generation can and should be doing, but my sense from my own kids and their friends is that they feel they are powerless. You and they will be if you think you are. The future is up to you.
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Re: Are 20 something's screwed bc of inflation and little/no

Post by drs85 »

TurtleInvestor wrote: Good to know you and I caught it young! And congrats for being so proactive in your future too! I seriously need to have a sit down with my friends and explain this to them because they just don't get it. Every time I explain to them why I can't go out and eat sushi every weekend or why I'm not buying a new car like them, they just roll their eyes at me...
I've attempted to get my friends, coworkers, and even siblings to invest towards their retirement and I've found it is very hard convincing people of something that's so far away. I've heard every argument from "I'll just invest more later" to "the government wont let that happen." It's also hard convincing people to stop their current spending and save money for the future when they could just spend it now. Take Standford's Marshmallow Experiment, for example: http://en.wikipedia.org/wiki/Stanford_m ... experiment
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Re: Are 20 something's screwed bc of inflation and little/no

Post by nisiprius »

Relax a bit. I lived through the double-digit inflation of the late 70's and early 80's and have an image of a (matured, alas) bank CD paying 13% to prove it.

The key to thinking about investing and retirement is not to guess at inflation, but to do your best to assess everything in real dollars. One of the reasons why almost any conceivable investment can be sold as "a hedge against inflation" is that most investments sorta-kinda tend to track inflation, and salary sorta-kinda tends to track inflation, and Social Security sorta-kinda tends to track inflation. "Sorta-kinda" isn't perfect, and it was pretty scary when inflation was going up... but my salary did go up (in lurches, with stick-slip friction). Bank CD's were unpleasant while inflation was going up but great when inflation was going down. My oh-so-sophisticated daughter at one point looked at my mom in shock when she said her college money had been mostly invested in bank CDs, until my wife pointed out that they were 10%-interest-paying CDs as inflation was on the way down. And probably the luckiest investment we ever made was to buy a house on a fixed-rate mortgage in the mid-seventies.

Be careful about inflation. Every economic event has winners and losers, and inflation is no exception. It's simple, really: inflation, or at least rising inflation or unexpected inflation, is bad for creditors and good for debtors. Naturally, the creditors of the world want everyone to believe that all inflation is always bad for everybody all the time. Well, it's not. Of course hyperinflation is bad for everyone, like any other disruptive economic shock. But short of that, it's a question of public policy and politics. William Jennings Bryan's famous "Cross of Gold" speech was, in fact, a speech in favor of inflation; his constituents were Western farmers in debt to Eastern banking interests.

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TurtleInvestor
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

drs85 wrote:
TurtleInvestor wrote: Good to know you and I caught it young! And congrats for being so proactive in your future too! I seriously need to have a sit down with my friends and explain this to them because they just don't get it. Every time I explain to them why I can't go out and eat sushi every weekend or why I'm not buying a new car like them, they just roll their eyes at me...
I've attempted to get my friends, coworkers, and even siblings to invest towards their retirement and I've found it is very hard convincing people of something that's so far away. I've heard every argument from "I'll just invest more later" to "the government wont let that happen." It's also hard convincing people to stop their current spending and save money for the future when they could just spend it now. Take Standford's Marshmallow Experiment, for example: http://en.wikipedia.org/wiki/Stanford_m ... experiment
I've heard the "gov. won't let that happen" argument a lot too as well as the "Who knows I might die in 5 years in a car accident so might as well live live to the fullest now".

Interesting experiment. Makes sense.
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No, They're Not!

Post by lawman3966 »

TurtleInvestor wrote: To get that enormous lump sum, the 25 year old would have to invest $1,036/month for 40 years at 7% interest.
As a starting point, I don't believe that entire generations at at time are "screwed" in the way you describe. If anything, the generation that was hit by the shocks of India and China entering the international economy for the first time may have gotten the worst of it. Once things normalize between these countries, I would expect that there would be fewer shocks in the future. Some African countries will come online in the coming years, but that will be gradual, due to political and other problems

Your use of the term "enormous" is telling. You are using a number that comes from the future, but a dollar valuation from the present to reach the conclusion that an enormous sum will be needed to retire 40 years from now. $ 2 million in today's dollars may seem like an enormous sum (though many middle class retirees with DB pensions and health benefits have this much in benefits, but sometimes don't know it). However, $ 2 million in the dollars of 2052 likely isn't enormous at all. I'm 52 now. When I was a kid, I didn't know anyone who had one million dollars. Anyone who did possess such a sum, was considered independently wealthy, bought new cadillacs each year, etc.

Today, having one million in net worth (not counting SS or pensions) is just one milestone of middle to upper middle class life. If managed carefully, starting at a suitable age, it can be enough to provide survival, though not luxury, in retirement.

I suspect that your reference number of $2.7 million will undergo a similar reduction in status from "enormous" to "reasonable" over the next 40 years. My calculator tells me that 40 years of inflation at 3% annually leads to a multiple of 3.2 (i.e. about 220% inflation). Thus, truth be known, if retiring 40 years from now (which won't be my concern), I'd want considerably more than $ 2.7 million in the bank.
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Re: Are 20 something's screwed bc of inflation and little/no

Post by Muchtolearn »

TurtleInvestor wrote:
Muchtolearn wrote:As a 59 1/2 year old with kids 23 and 25, I must tell you that I am horrified as to what will happen to your generation. We must not be political on this board of course. That said, the debt will be paid by you, MY generation's social security will be paid by you and there will be no more pension plans from companies (those are disappearing every day). The gravy train is over. I do not know if there is a solution but I do hope that you youngsters do stand up for yourselves and push back on my generation which is the greediest group of people I have seen.
It's nice to hear some empathy from your generation! It means a lot seriously.

I don't know if there's much we can do to stand up for ourselves and our future...any ideas anyone?
We have to keep this non-political. That said, if this is allowed, I believe the only hope is for young people to start getting involved and start electing young people who have a future vision past the next election. Everything is decided by people one and 2 generations ahead of you as we now stand.
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Re: Are 20 something's screwed bc of inflation and little/no

Post by rdmayo21 »

TurtleInvestor wrote:Let's say total expenses of living for that very frugal 25 year old now are $28,200/year.
I wouldn't exactly consider $28,200/year to be very frugal for a 25 year-old.
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Re: Are 20 something's screwed bc of inflation and little/no

Post by lawman3966 »

Muchtolearn wrote:MY generation's social security will be paid by you . . .
And, . . . . your children's generation's benefits will be paid by their children's generation. Where is the problem?

Working-age people have been paying, one way or another, for the upbringing of the young, and the care of the old, for as long as there have been people. Why would this particular version of inter-generational support become obsolete after this generation? My answer is that there is no reason why the support would stop, though there may well be adjustments to the taxation level and to benefits from time to time.
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Re: Are 20 something's screwed bc of inflation and little/no

Post by Muchtolearn »

lawman3966 wrote:
Muchtolearn wrote:MY generation's social security will be paid by you . . .
And, . . . . your children's generation's benefits will be paid by their children's generation. Where is the problem?

Working-age people have been paying, one way or another, for the upbringing of the young, and the care of the old, for as long as there have been people. Why would this particular version of inter-generational support become obsolete after this generation? My answer is that there is no reason why the support would stop, though there may well be adjustments to the taxation level and to benefits from time to time.
Good. Problem solved. I still worry.
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Re: Are 20 something's screwed bc of inflation and little/no

Post by RadAudit »

Keep plugging along doing the best you can and - as they say in the theater - suddeningly a miracle occurs
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.
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Re: Are 20 something's screwed bc of inflation and little/no

Post by supersharpie »

I think people are failing to take the long view and are getting caught up in the hysterics of the time. SS isn't going anywhere. Will our SS payments be reduced? Probably. However, the program would be funded for 100+ years beyond the current breaking point if the SS tax cap was lifted but weathly individual's benefits were limited. There are more solutions than simply cutting or eliminating SS for young people. I do feel that certain elements are trying to condition young professionals to believe that SS being eliminated is a forgone conclusion.
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Re: Are 20 something's screwed bc of inflation and little/no

Post by clevername »

TurtleInvestor wrote:
livesoft wrote:Don't worry, when I was in my twenties I was screwed, too. It has turned out just fine.
That's reassuring to hear but isn't it a different world for twenty somethings now than when it was when you were 20?

Right now, they have 20k+ student loans, cc debt, car debt, little/no job prospects, crappy economy...

I shudder to think what my generation will look like at retirement. I predict cat food sales will go up... :(
I try not to worry or predict the future too much, especially 40+ years down the road. For all you know we'll have Star Trek style replicators by then. We have no idea what kind of incredible technologies are right around the corner: nanotech, biotech, artificial hearts and bionic limbs, renewable ("free" ish) energy, those Google Glasses I just saw on youtube the other day, not to mention robotics/automation, commercial space flight, asteroid mining, "the singularity" I keep hearing about, etc.

I save as much as I can, keep costs low, invest wisely, and try to stay healthy. What else can you do?
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Re: Are 20 something's screwed bc of inflation and little/no

Post by TurtleInvestor »

clevername wrote:
TurtleInvestor wrote:
livesoft wrote:Don't worry, when I was in my twenties I was screwed, too. It has turned out just fine.
That's reassuring to hear but isn't it a different world for twenty somethings now than when it was when you were 20?

Right now, they have 20k+ student loans, cc debt, car debt, little/no job prospects, crappy economy...

I shudder to think what my generation will look like at retirement. I predict cat food sales will go up... :(
I try not to worry or predict the future too much, especially 40+ years down the road. For all you know we'll have Star Trek style replicators by then. We have no idea what kind of incredible technologies are right around the corner: nanotech, biotech, artificial hearts and bionic limbs, renewable ("free" ish) energy, those Google Glasses I just saw on youtube the other day, not to mention robotics/automation, commercial space flight, asteroid mining, "the singularity" I keep hearing about, etc.

I save as much as I can, keep costs low, invest wisely, and try to stay healthy. What else can you do?
That's a great way of thinking. I guess I've always been a pessimistic/always prepare for the worst kind of guy. I grew up really, really poor so maybe that has something to do with it.

I like your last line. I should only focus what I can control and do it to the best of my ability.
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Re: Are 20 something's screwed bc of inflation and little/no

Post by wingnutty »

Every generation had problems to overcome and ours is no different. We can all whine and complain, but maybe we should take a step back and think about our grandparents generation having to fight in a world war when at times it probably seemed like the end of the world was near. I do think our parents generation had it fairly easy in comparison to some of the other struggles that have been waged, but they certainly had their fair share of difficulty and fear of the unknown as well.

Or, maybe worse yet, our great grandparents generation when the midwest was blowing away in the dust bowl and unemployment was above 20%!

Or our great, great, great grandparents when brothers fought brothers in a civil war!

Naw, we have it pretty good. We just need to bring our nation together under a more moderate system of government without all of these needless political fractions that seem to be tearing the good people of our nation apart (sorry, not political because the politics in this country are non-functional since both parties are working against the best interest of our country and only thinking of maintaining and improving their own political power:sharebeer ). Hopefully our generation will figure out a way to realize that the political parties in our country are not working in their best interests and will instead begin to elect more moderate politicians willing to cut through the BS.
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Re: Are 20 something's screwed bc of inflation and little/no

Post by blaugranamd »

While that seems like a lot in today's dollars, we won't be investing today dollars 10, 20, and 30 years from now. As such, isn't it fair to assume that with decreases in value of the dollar due to inflation that a person's average salary will be inflation adjusted to an extent over the years? So, in essence, by maintaining a steady percentage, rather than fixed amount, of your total income investment over time should end up compensating somewhat for the effects of inflation.
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Re: Are 20 something's screwed bc of inflation and little/no

Post by hq38sq43 »

Perhaps the most important guidance of this and similar forums (if any) is that the past and present are uncertain guides to the future. Or as my dear departed mother would say, don't cry before you're hurt.

Anything can happen between now and 2042, when our mortgage will be paid off as I turn 104. In the meantime, my sweetheart of 50+ years and I will continue to look after each other and others as best we can, live below our means, make prudent arrangements for the future, and enjoy life. Hope you do the same.

"And the night shall be filled with music, and the cares that infest the day, shall fold their tents like the Arabs, and as silently steal away.'

--Henry Wadsworth Longfellow
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Re: Are 20 something's screwed bc of inflation and little/no

Post by Epsilon Delta »

TurtleInvestor wrote:
sscritic wrote: P.S. On my calculator, 1.0338 ^ 40 = 3.78, not 3.86.

Regarding the calc - I just used the FV function in Excel. Maybe I screwed up the formula? I got $3.86.
The formula should be FV(3.38%,40,0,-1) , which LibreOffice calc evaluates to $3.78. I can't say what answer Excel gets, but 3.86 would not surprise me. :twisted:
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Re: Are 20 something's screwed bc of inflation and little/no

Post by steve roy »

TurtleInvestor wrote:So it never occurred for me to account for inflation when I retire so I plugged some numbers in an excel chart.
...
Attempting to project 30 or more years out is good fun, but a goofy errand.

If you're in your fifties or older, try this thought experiment: It's Spring, 1981. Inflation is way up there. President Reagan has just been shot. The unemployment rate isn't good, and the future looks grim.

You've just come back from lunch (or afternoon tea, whatever) and you and your office-mates are huddled around a portable set, listening to reports of the shooting, wondering what's going to happen next, thinking of Robert Kennedy, John Kennedy, etc.

Now. At that moment, what do you imagine the inflation rate ... and deficit ... will be in far-off 2012? What the unemployment rate will be, and the growth of the nation's GDP.

Whatever your calculations are, they are probably far, far off the mark, because there is thirty-one years of history ahead of you, lots of wars, lots of elections, lots of ups and downs. And so you really have no freaking idea.
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Re: Are 20 something's screwed bc of inflation and little/no

Post by hq38sq43 »

steve roy wrote:
TurtleInvestor wrote:So it never occurred for me to account for inflation when I retire so I plugged some numbers in an excel chart.
...
Attempting to project 30 or more years out is good fun, but a goofy errand.

If you're in your fifties or older, try this thought experiment: It's Spring, 1981. Inflation is way up there. President Reagan has just been shot. The unemployment rate isn't good, and the future looks grim.

You've just come back from lunch (or afternoon tea, whatever) and you and your office-mates are huddled around a portable set, listening to reports of the shooting, wondering what's going to happen next, thinking of Robert Kennedy, John Kennedy, etc.

Now. At that moment, what do you imagine the inflation rate ... and deficit ... will be in far-off 2012? What the unemployment rate will be, and the growth of the nation's GDP.

Whatever your calculations are, they are probably far, far off the mark, because there is thirty-one years of history ahead of you, lots of wars, lots of elections, lots of ups and downs. And so you really have no freaking idea.
Or November 22, l963, and you've just come back from lunch.
Harry at Bradenton
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