Why save so much for when you're old?

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cbr shadow
Posts: 175
Joined: Wed Jul 10, 2013 2:12 pm

Re: Why save so much for when you're old?

Post by cbr shadow » Thu May 11, 2017 6:29 pm

imperio wrote:
cbr shadow wrote:
imperio wrote:
stoptothink wrote:
flamesabers wrote:
I was thinking the same thing.


+2. FWIW, my wife and I maxed out both our tax-deferred retirement accounts when we first married (4yrs ago) and our income was about half of $160k, and we had an infant and we aren't misers (well, she isn't).

My SO and I work in the Bay Area and gross approx $190-$200K before ESPP/RSUs. We pay $2k monthly rent for a 1br/1ba for a location 50 miles south of San Francisco and don't feel like we would be able to afford a house here any time in the near future. I honestly don't know how this compares to other states or areas since we've only been here a short while, but we feel like maybe we're around the median household income or slightly below... Is combined gross income of $160K considered a lot? Is the COL in SFBA blown way out of proportion?


I also live in the SFBA and agree that it's crazy expensive to live here. In many situations salaries make up for that though. If you're grossing $200k and spend $24k/yr on rent then why do you think you are below the median household income? You must be saving (or spending) huge amounts of money somewhere. Most people don't have that option.
Our household income is a big higher than yours, but our rent is also significantly higher. Still, we save a ton of money and spend money on lots of things we don't "need" like travel and hobbies.
I'm confused as to why you would think you're below the median household income.

I guess it's because we would rather pay for a mortgage than rent, but can't afford home ownership. And when you walk down a street of houses, every single one of them has to have a owner! That and at work a lot of people seem to have luxury cars, and they're only slightly senior to us in terms of work hierarchy. How do these people afford these things? :confused

Stoptothink posted a link above showing that the median household income in this area is $80K... I find it a little hard to believe.


I had a hard time understanding the house ownership situation when I moved to SF too. How is it that so many people can afford these $1M homes? Why are some of the $1M homes (according to Zillow) run down? How do my neighbors who manage a walgreens afford a $950k home? In many situations the owners of those homes have owned the home for a very long time. They or their families bought the home when they were worth $200k. Check out the homes in your area and how quickly they've gone up in value. It's unbelievable. My point is that the average person who lives in your area also can't buy a home in your area.
If your coworkers are more senior than you and making more than your $200k, I'd say it's not a surprise that they're driving luxury cars.

If you moved nearly anywhere else in the US (and keep similar pay) you would find that you can very easily afford a house.

MnD
Posts: 3026
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Re: Why save so much for when you're old?

Post by MnD » Thu May 11, 2017 6:37 pm

imperio wrote:I guess it's because we would rather pay for a mortgage than rent, but can't afford home ownership. And when you walk down a street of houses, every single one of them has to have a owner! That and at work a lot of people seem to have luxury cars, and they're only slightly senior to us in terms of work hierarchy. How do these people afford these things? :confused


I noticed something similiar in 2005-2008. How did my neighbors, many whom I'm pretty sure made the same or less than me afford the houses they were in, multiple new high end vehicles, constantly remodeling, kids in college, nice vacations and didn't miss a beat. In 2008/10 they did miss a beat because their lifestyle was funded in significant part by living paycheck to paycheck and by growing a mountain of debt.

About 1/2 of the homes on my block was involved in a foreclosure or distress sale. The luxury cars disappeared and were replaced with used beaters. One couple pulled their kids out of school mid-semester and had to move in with her parents in the rural Ozarks. Another moved from a 4000 SF home to a small basic condo with a chicken-wire 6X6 foot storage area in the building basement. Another I found out had lost half the family very large inheritance in 2000, they kept spending and then lost the other half in 2008/09 and went from large home and large yard to a dumpy apartment. So even spenders with big inheritances can and do lose it all.

imperio
Posts: 83
Joined: Mon May 08, 2017 4:48 pm

Re: Why save so much for when you're old?

Post by imperio » Thu May 11, 2017 6:39 pm

cbr shadow wrote:
imperio wrote:
cbr shadow wrote:
imperio wrote:
stoptothink wrote:
+2. FWIW, my wife and I maxed out both our tax-deferred retirement accounts when we first married (4yrs ago) and our income was about half of $160k, and we had an infant and we aren't misers (well, she isn't).

My SO and I work in the Bay Area and gross approx $190-$200K before ESPP/RSUs. We pay $2k monthly rent for a 1br/1ba for a location 50 miles south of San Francisco and don't feel like we would be able to afford a house here any time in the near future. I honestly don't know how this compares to other states or areas since we've only been here a short while, but we feel like maybe we're around the median household income or slightly below... Is combined gross income of $160K considered a lot? Is the COL in SFBA blown way out of proportion?


I also live in the SFBA and agree that it's crazy expensive to live here. In many situations salaries make up for that though. If you're grossing $200k and spend $24k/yr on rent then why do you think you are below the median household income? You must be saving (or spending) huge amounts of money somewhere. Most people don't have that option.
Our household income is a big higher than yours, but our rent is also significantly higher. Still, we save a ton of money and spend money on lots of things we don't "need" like travel and hobbies.
I'm confused as to why you would think you're below the median household income.

I guess it's because we would rather pay for a mortgage than rent, but can't afford home ownership. And when you walk down a street of houses, every single one of them has to have a owner! That and at work a lot of people seem to have luxury cars, and they're only slightly senior to us in terms of work hierarchy. How do these people afford these things? :confused

Stoptothink posted a link above showing that the median household income in this area is $80K... I find it a little hard to believe.


I had a hard time understanding the house ownership situation when I moved to SF too. How is it that so many people can afford these $1M homes? Why are some of the $1M homes (according to Zillow) run down? How do my neighbors who manage a walgreens afford a $950k home? In many situations the owners of those homes have owned the home for a very long time. They or their families bought the home when they were worth $200k. Check out the homes in your area and how quickly they've gone up in value. It's unbelievable. My point is that the average person who lives in your area also can't buy a home in your area.
If your coworkers are more senior than you and making more than your $200k, I'd say it's not a surprise that they're driving luxury cars.

If you moved nearly anywhere else in the US (and keep similar pay) you would find that you can very easily afford a house.

I hear you on the rise in values in homes.

200K is combined gross. Individual take home is approx 60+K. Individual rent would be about 12K/year.

Mr.BB
Posts: 255
Joined: Sun May 08, 2016 10:10 am

Re: Why save so much for when you're old?

Post by Mr.BB » Thu May 11, 2017 6:40 pm

Because you're young you really don't see the other end of the equation. yes you do have to sacrifice a little bit but the earlier start the less you have to sacrifice; that is the power of compounding interest.

I think it will be well worth your time to read and research materials on the cost of when you get older.
At age 24 you could probably assume you may not even get Social Security, when you retire. How much do you think you're going to need for living in retirement ( adjusted for inflation) where do you want to live? The lifestyle you want is not free.

Go on YouTube and spent an hour watching the "The Retirement Gamble" it was on PBS Frontline. I think that may also answer a lot of questions for you.
Last edited by Mr.BB on Thu May 11, 2017 6:51 pm, edited 1 time in total.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

Mr.BB
Posts: 255
Joined: Sun May 08, 2016 10:10 am

Re: Why save so much for when you're old?

Post by Mr.BB » Thu May 11, 2017 6:44 pm

One final note. I would guarantee you if you polled all the people on this board 98% of them would tell you if they could go back and do one thing in their life to help with their retirement future savings most of them would say they wish they had started saving earlier.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

imperio
Posts: 83
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Re: Why save so much for when you're old?

Post by imperio » Thu May 11, 2017 6:53 pm

Mr.BB wrote:One final note. I would guarantee you if you polled all the people on this board 98% of them would tell you if they could go back and do one thing in their life to help with their retirement future savings most of them would say they wish they had starter saving earlier.


I'm in my late 20s, started saving when I was in college and bought my first stock at 26. And I too wish I had started earlier!!

However that said, I also don't regret buying a sports car in my final year of college which put a 30% or so ding in my then savings when I finally sold it.

lazydavid
Posts: 1029
Joined: Wed Apr 06, 2016 1:37 pm

Re: Why save so much for when you're old?

Post by lazydavid » Fri May 12, 2017 5:16 am

imperio wrote:Stoptothink posted a link above showing that the median household income in this area is $80K... I find it a little hard to believe.


Yeah, I was reading an article the other day about the definition of "low income" in various parts of the country. In SFBA, "low income" was a household income under $106,000 for a family of four. :shock:

chinto
Posts: 297
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Re: Why save so much for when you're old?

Post by chinto » Sat May 13, 2017 2:31 am

wrongfunds wrote:I would have thought being able to start college at 14 puts your son in a the top 0.000001 % of the students in the universe :-) To put it another way, it is impossible for OP to emulate your son or for that matter almost any body else to emulate your son.


I never suggested he emulate my son. The OP commented on my son's achievement and I was simply explaining how a 22 year old became an FCAS.

My advice to the OP was based on the OP situation and not my son.

stoptothink
Posts: 3642
Joined: Fri Dec 31, 2010 9:53 am

Re: Why save so much for when you're old?

Post by stoptothink » Sat May 13, 2017 9:40 am

imperio wrote: I guess it's because we would rather pay for a mortgage than rent, but can't afford home ownership. And when you walk down a street of houses, every single one of them has to have a owner! That and at work a lot of people seem to have luxury cars, and they're only slightly senior to us in terms of work hierarchy. How do these people afford these things? :confused

Stoptothink posted a link above showing that the median household income in this area is $80K... I find it a little hard to believe.


You have to realize that the average person on Bogleheads is an outlier in the real world. If I walked around my neighborhood I would personally assume that every family has a 6-figure household income. It's a nice neighborhood and there are nice vehicles parked in every driveway. Accept that I know most of my neighbors, that our household income is 2x-4x most of theirs and that the median household income in my zip is actually ~$66k/yr. My neighbors are public school teachers (with SAHM wife and 4 kids) and even someone who has a near entry-level position at my wife's employer and whose wife stays home with their 6 kids. I simply don't know how most of them do it financially.

Levett
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Joined: Fri Feb 23, 2007 2:10 pm
Location: upper Midwest

Re: Why save so much for when you're old?

Post by Levett » Fri May 19, 2017 12:08 pm

PJW nailed it!

"I am grateful to my younger self for making a set of financial decisions that have rendered my life easier, although not more luxurious, today. It's almost like receiving an inheritance, but nobody had to die in order for it to happen."

God bless. :D

Lev

mak1277
Posts: 379
Joined: Fri Jan 09, 2015 4:26 pm

Re: Why save so much for when you're old?

Post by mak1277 » Fri May 19, 2017 12:26 pm

Mr.BB wrote:One final note. I would guarantee you if you polled all the people on this board 98% of them would tell you if they could go back and do one thing in their life to help with their retirement future savings most of them would say they wish they had started saving earlier.


I'm happily one of the 2%. I didn't save anything until I was 30...not a dime into 401k even, and I don't regret it one bit. People always talk about how you don't want to be "house poor"...but I know many many people who were "401k poor". Contributing so much that they had to live with their parents, not do anything fun. It was depressing to me.

The fact is, whatever I would have saved back in my early 20s is paltry compared to what I can save in a single year now. I once tallied it up and if I had taken 6% of my salary, plus employer match, for each of the years I didn't contribute, using a 5% growth rate, my current net worth would only be about 2% higher than it is now. Not enough to move the needle.

I don't regret not saving when I was in my 20s.

Mr.BB
Posts: 255
Joined: Sun May 08, 2016 10:10 am

Re: Why save so much for when you're old?

Post by Mr.BB » Fri May 19, 2017 12:40 pm

mak1277 wrote:
Mr.BB wrote:One final note. I would guarantee you if you polled all the people on this board 98% of them would tell you if they could go back and do one thing in their life to help with their retirement future savings most of them would say they wish they had started saving earlier.


I'm happily one of the 2%. I didn't save anything until I was 30...not a dime into 401k even, and I don't regret it one bit. People always talk about how you don't want to be "house poor"...but I know many many people who were "401k poor". Contributing so much that they had to live with their parents, not do anything fun. It was depressing to me.

The fact is, whatever I would have saved back in my early 20s is paltry compared to what I can save in a single year now. I once tallied it up and if I had taken 6% of my salary, plus employer match, for each of the years I didn't contribute, using a 5% growth rate, my current net worth would only be about 2% higher than it is now. Not enough to move the needle.

I don't regret not saving when I was in my 20s.


I'm glad it worked out for you.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

imareal1
Posts: 9
Joined: Fri May 05, 2017 1:22 pm

Re: Why save so much for when you're old?

Post by imareal1 » Fri May 19, 2017 2:35 pm

mak1277 wrote:
Mr.BB wrote:One final note. I would guarantee you if you polled all the people on this board 98% of them would tell you if they could go back and do one thing in their life to help with their retirement future savings most of them would say they wish they had started saving earlier.


I'm happily one of the 2%. I didn't save anything until I was 30...not a dime into 401k even, and I don't regret it one bit. People always talk about how you don't want to be "house poor"...but I know many many people who were "401k poor". Contributing so much that they had to live with their parents, not do anything fun. It was depressing to me.

The fact is, whatever I would have saved back in my early 20s is paltry compared to what I can save in a single year now. I once tallied it up and if I had taken 6% of my salary, plus employer match, for each of the years I didn't contribute, using a 5% growth rate, my current net worth would only be about 2% higher than it is now. Not enough to move the needle.

I don't regret not saving when I was in my 20s.


Does this have anything to do with not earning anything material compared to what you earned when you started saving at 30?

mak1277
Posts: 379
Joined: Fri Jan 09, 2015 4:26 pm

Re: Why save so much for when you're old?

Post by mak1277 » Fri May 19, 2017 3:00 pm

imareal1 wrote:
mak1277 wrote:
Mr.BB wrote:One final note. I would guarantee you if you polled all the people on this board 98% of them would tell you if they could go back and do one thing in their life to help with their retirement future savings most of them would say they wish they had started saving earlier.


I'm happily one of the 2%. I didn't save anything until I was 30...not a dime into 401k even, and I don't regret it one bit. People always talk about how you don't want to be "house poor"...but I know many many people who were "401k poor". Contributing so much that they had to live with their parents, not do anything fun. It was depressing to me.

The fact is, whatever I would have saved back in my early 20s is paltry compared to what I can save in a single year now. I once tallied it up and if I had taken 6% of my salary, plus employer match, for each of the years I didn't contribute, using a 5% growth rate, my current net worth would only be about 2% higher than it is now. Not enough to move the needle.

I don't regret not saving when I was in my 20s.


Does this have anything to do with not earning anything material compared to what you earned when you started saving at 30?


I came out of college working as a Big 4 accountant. So yes, my income has risen substantially over the course of my career.

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