1/3 of Baby Boomers have no retirement savings...

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Spirit Rider
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by Spirit Rider » Wed Nov 07, 2018 8:15 pm

smitcat wrote:
Wed Nov 07, 2018 12:40 pm
The chart on multiple saved by income level is very misleading at best.

Carefully evaluating your real retirement (or FIRE) costs and using a suitable multiple is a much better approach.
A lot of Bogleheads like to harp on the mantra "its all about expenses in retirement". That may be all well and good for BHs that are closer to retirement and OCD on these issues. However, like most BH mantras, e.g. "everyone must max all tax-advantaged retirement accounts." It is irrelevant on a practical level for the vast majority of Americans. This chart is far more useful yardstick to measure their progress.
jharkin wrote:
Wed Nov 07, 2018 1:10 pm
I'm not following the logic of the chart.. why do the higher incomes need higher multiple of income saved? Are they discounting for the SS bend points offsetting more expenses for the lower income cohort? or something else?
I'm guessing it is more like the progressive nature of the PIA calculation and the relative average expenses in retirement.

This is the first time I have seen such a useful chart. Usually, they just have one set of numbers with the fine print stating that it is for someone with a likely certain income. A lot of higher income non-BHs are clueless of how relatively low their SS benefit will be and the fact that the higher your income (and likely lifestyle) the higher your savings rate should be. Which has a beneficial effect on lowering their lifestyle

Here is a useful table to illustrate the declining percentage of SS benefits, the higher your income is:
  1. Somebody with their AIME at the 1st bend point (2019 = $11,112/yr) will receive 90% of their AIME as a PIA.
  2. Somebody with their AIME at the 2nd bend point (2019 = $66,996/yr) will receive ~42% of their AIME as a PIA.
  3. Somebody with their AIME at the max wage base (2019 = $132,900/yr) will receive ~28% of their AIME as a PIA.
  4. Somebody with their AIME at 2X the max wage base (2019 = $265,800/yr) will receive ~14% of their AIME as a PIA.
  5. And so on.
Generally the higher your income the higher your replacement retirement income and multiple needs to be. Yes, Yes, Yes I know expenses are what matters.

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CyclingDuo
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by CyclingDuo » Wed Nov 07, 2018 8:48 pm

smitcat wrote:
Wed Nov 07, 2018 2:28 pm
The chart ony comes close if each category saves 10% of gross each year - no matter if they make 60K or 300K.
It only works if they need about 80% of their gross salary for expenses after retirement.
It only works if their investment retuirn is 6% annually.
It only works if their Fed and State taxes are "average".
It is misleading at best and potentially detrimnetal as a planning tool.
If the chart is so misleading at best and is potentially detrimental as a planning tool to determine a 4% withdrawal rate based on a nest egg to cover the required income to cover expenses or gap from SS/Pension and other sources of income, what do you propose is a better method?
"Everywhere is within walking distance if you have the time." ~ Steven Wright

dknightd
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by dknightd » Wed Nov 07, 2018 8:57 pm

1/3 of baby boomers probably do not need to save for retirement

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CyclingDuo
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by CyclingDuo » Wed Nov 07, 2018 9:02 pm

Mr.BB wrote:
Wed Nov 07, 2018 3:51 pm
I work with some very successful people who are in their seventies and in their mid-sixties and they love what they do, they're good at what they do, and they make a crapload of money. they still enjoy going to work (even if they don't have to work) and they do things that most other people can't afford to do. Not everyone wants to retire early.
Bingo!

Although we have those who prefer to retire early, those who choose FRA, those who cannot choose and end up being downsized early, there are those you mention that work well beyond all of that in some shape or form. Warren Buffett and Jack Bogle being two keen examples.

Our parents all worked into their late 70's or early 80's at some capacity because they loved what they did, enjoyed the identity of contributing on the professional front and did indeed all pass away very content having lived full, and rich lives. There are no set hard rules. Retire early. Retire because you are forced to based on downsizing or health issues. Retire at FRA. Retire much later. Never retire. There are a variety of recipes and desires.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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MP123
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by MP123 » Wed Nov 07, 2018 9:24 pm

dknightd wrote:
Wed Nov 07, 2018 8:57 pm
1/3 of baby boomers probably do not need to save for retirement
This recent thread suggests that's not far from the truth.

viewtopic.php?t=260050

Of course you might be in the other 2/3...

Sam1
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by Sam1 » Wed Nov 07, 2018 10:08 pm

CyclingDuo wrote:
Wed Nov 07, 2018 7:31 pm
Sam1 wrote:
Wed Nov 07, 2018 3:09 pm
CyclingDuo wrote:
Wed Nov 07, 2018 1:57 pm
jharkin wrote:
Wed Nov 07, 2018 1:10 pm
I'm not following the logic of the chart.. why do the higher incomes need higher multiple of income saved? Are they discounting for the SS bend points offsetting more expenses for the lower income cohort? or something else?
I would assume it has to do with lifestyle creep and the thought that the cash flow for a higher income household may have overall higher expenses (larger home, higher utility bills, higher property taxes, more travel, more taxes, etc...). Example - retiring in San Francisco vs. retiring in say South Dakota.

This chart shows if you want a certain level of income from your risk portfolio in retirement, then such a target amount is needed....

Image
I disagree with this premise. If anything, I need less to retire on since so much of my current income is dedicated to retirement savings, college savings (no financial aid available), mortgage in a HCOL and childcare.

For example, when a second child arrives the childcare and 529 will eventually total 6k a month for 2 kids. We won’t have that expense in retirement.

Our home is small and utilities aren’t any more than a large house in a LCOL area.

I calculated we save, spend on expenses we won’t have in retirement (mortgage, childcare) or pay out in taxes over 80 percent of our 400k plus HHI. I think around 40 percent of our income goes to retirement savings and our brokerage account. So there’s 40 percent we do NOT need in retirement.
Wow! Tough crowd...

Sam, I'm not sure I understand your disagreement. :?

Things we do know....

Exact amount of our current annual expenses in today's dollars (includes: wants/needs/variables). The amount does not include current savings, any expenses related to work, or any items/expenses that we will no longer need in retirement. We do anticipate - in today's dollars - a continued need for our utilities, our property tax, our health insurance in some shape or form, our love of food/wine/dining, our travel, our auto insurance, our maintenance/repairs, our charitable donations, our connectivity for radio/music/internet/cell service, our clothing, our entertainment and so on and so forth as what we are currently paying in today's dollars. With the advent of grandchildren at some point, we expect our expenses to actually increase!!!!
:dollar
:mrgreen:
:sharebeer

We can plug things into FIRECalc, i-ORP, Fidelity, Personal Capital, etc... in terms of the amount of our pension and when taken, the amount of our SS and when taken, the amount of other income streams to show exactly in today's dollars any gap that will need to be filled to cover our expenses. If that gap is a certain dollar amount in today's $$$$$, then the above chart shows how much money one would need to have saved that can handle a 4% withdrawal rate to cover the gap. The chart says for $40K of desired annual income, you need $1M. For $50K of desired income, you need $1.25M and so on and so forth. It's not a bad guide/starting point at all in our opinion. The scenarios that we plug into our calculators show us what size pot of :moneybag we need to provide the annual income needed.

What do you feel is incorrect with such a premise?

Should we all ignore the study that showed only higher income earners spend less in retirement compared to lower and middle income earners spending more?

ICI Analysis Shows Americans Maintain or Increase Spendable Income After Claiming Social Security

https://money.cnn.com/2017/07/28/retire ... index.html

https://www.ici.org/research/retirement ... ent_income

For us, we feel that it was not until after our children had left the house and finished their college educations that we were able to finally settle into the latter portion of our working careers where we could get a truer picture of what our actual annual expenses as a couple are so that we could begin to hone in on our final decade of work, and what retirement would look like expense wise. I think it is a given that the expenses of child rearing and sending them through college is done and over with - so obviously not a part of your expenses for retirement planning and the income needed.

Anyway, we know exactly what our annual expenses are. We know exactly what our pension is projected to be no matter what year we take it.. We know exactly what our projected SS will be no matter what year we take it. And based on that, we know exactly what would be required to cover any gap in our annual expenses if need be. Fortunately we currently are in a good position - although being conservative we always want to plan for and consider the "what ifs".
We are talking about different charts. The one I was referring to was based on annual income NOW.

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Re: 1/3 of Baby Boomers have no retirement savings...

Post by Grt2bOutdoors » Wed Nov 07, 2018 10:25 pm

CyclingDuo wrote:
Wed Nov 07, 2018 1:57 pm
jharkin wrote:
Wed Nov 07, 2018 1:10 pm
I'm not following the logic of the chart.. why do the higher incomes need higher multiple of income saved? Are they discounting for the SS bend points offsetting more expenses for the lower income cohort? or something else?
I would assume it has to do with lifestyle creep and the thought that the cash flow for a higher income household may have overall higher expenses (larger home, higher utility bills, higher property taxes, more travel, more taxes, etc...). Example - retiring in San Francisco vs. retiring in say South Dakota.

This chart shows if you want a certain level of income from your risk portfolio in retirement, then such a target amount is needed....

Image
The chart is waaay off base. Someone making $250k a year does not need $6.25 million. That assumes they will need 100% of previously earned gross income and that the market gives a real return of zero. Who put that chart together- a broker or someone who hasn’t read enough history?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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CyclingDuo
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by CyclingDuo » Wed Nov 07, 2018 10:56 pm

Grt2bOutdoors wrote:
Wed Nov 07, 2018 10:25 pm
Image


The chart is waaay off base. Someone making $250k a year does not need $6.25 million. That assumes they will need 100% of previously earned gross income and that the market gives a real return of zero. Who put that chart together- a broker or someone who hasn’t read enough history?
Desired annual retirement income being the operative based on 4% withdrawal rate. Nothing about salary per annum leading up to it. Not sure how you drew the conclusion that it was based on annual salary leading up to it?

Looks like Andy Kiersz is the author and it was based on producing a set amount of income in retirement (based on returns of at least 5% after taxes and inflation).

Comes from Business Insider at these links:

https://www.businessinsider.com/how-to- ... -40-2017-6
https://www.businessinsider.com/how-to- ... ome-2017-6
https://finance.yahoo.com/news/theres-s ... 00952.html
https://www.businessinsider.com.au/comp ... ent-2014-3
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willthrill81
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by willthrill81 » Wed Nov 07, 2018 11:33 pm

Grt2bOutdoors wrote:
Wed Nov 07, 2018 10:25 pm
CyclingDuo wrote:
Wed Nov 07, 2018 1:57 pm
jharkin wrote:
Wed Nov 07, 2018 1:10 pm
I'm not following the logic of the chart.. why do the higher incomes need higher multiple of income saved? Are they discounting for the SS bend points offsetting more expenses for the lower income cohort? or something else?
I would assume it has to do with lifestyle creep and the thought that the cash flow for a higher income household may have overall higher expenses (larger home, higher utility bills, higher property taxes, more travel, more taxes, etc...). Example - retiring in San Francisco vs. retiring in say South Dakota.

This chart shows if you want a certain level of income from your risk portfolio in retirement, then such a target amount is needed....

Image
The chart is waaay off base. Someone making $250k a year does not need $6.25 million. That assumes they will need 100% of previously earned gross income and that the market gives a real return of zero. Who put that chart together- a broker or someone who hasn’t read enough history?
If you want retirement income (what the graph says) of $250k, then 25X (a la 4% rule) is $6.25 million.
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Gibby45
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by Gibby45 » Thu Nov 08, 2018 12:15 am

Articles like this are a bit misleading. It only counts money in dedicated retirement accounts. I know now from helping my parents navigate retirement that most Baby Boomers started working at a young age and most of them started working before 401ks and Roth IRAs even existed. If you were lucky, you worked for a company that provided a pension and you worked until you could collect social security. That was the entire retirement framework. This was especially true if you had a union job. The concept of individuals saving for their own retirements in 401ks and IRAs is relatively new. A lot of Boomers weren't prepared for the switch from defined benefit plans to self-funding retirement. I'm not surprised that 1/3 of Boomers have no retirement savings. I just hope most of those Boomers receive pensions and/or SS that cover their retirement expenses.

Spirit Rider
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by Spirit Rider » Thu Nov 08, 2018 7:44 am

It has become increasingly clear to me in discussions like this that many Bogleheads like many Americans lack perspective. They can not look at anything except through their narrow prism. They can not possibly accept that while this simple table may not be useful for them. It can provide useful information for others.

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Re: 1/3 of Baby Boomers have no retirement savings...

Post by tennisplyr » Thu Nov 08, 2018 8:09 am

KyleAAA wrote:
Wed Nov 07, 2018 12:20 pm
How many of them have pensions or taxable accounts? These studies don't take a holistic view of the population's personal finances, so I'm not sure we can draw any conclusions from them. It seems unlikely 1/3 of boomers will be eating cat food in retirement, though.
Agree, having been retired for almost 8 years, things are not so bleek for the average joe. You can cut expenses, get a part time job, downsize, use credit more...as a few examples. Live your life.
Those who move forward with a happy spirit will find that things always work out.

DC3509
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by DC3509 » Thu Nov 08, 2018 8:10 am

Gibby45 wrote:
Thu Nov 08, 2018 12:15 am
Articles like this are a bit misleading. It only counts money in dedicated retirement accounts. I know now from helping my parents navigate retirement that most Baby Boomers started working at a young age and most of them started working before 401ks and Roth IRAs even existed. If you were lucky, you worked for a company that provided a pension and you worked until you could collect social security. That was the entire retirement framework. This was especially true if you had a union job. The concept of individuals saving for their own retirements in 401ks and IRAs is relatively new. A lot of Boomers weren't prepared for the switch from defined benefit plans to self-funding retirement. I'm not surprised that 1/3 of Boomers have no retirement savings. I just hope most of those Boomers receive pensions and/or SS that cover their retirement expenses.
This is very true as well. And also should make most of us consider -- for all of the hundreds, if not thousands, of threads on here about 401ks, IRAs, savings rates, etc. -- what if in the next 10-20 years there is some change again in the way that people save for retirement and all of this discussion is replaced by something else?

Bacchus01
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by Bacchus01 » Thu Nov 08, 2018 8:26 am

KyleAAA wrote:
Wed Nov 07, 2018 12:20 pm
How many of them have pensions or taxable accounts? These studies don't take a holistic view of the population's personal finances, so I'm not sure we can draw any conclusions from them. It seems unlikely 1/3 of boomers will be eating cat food in retirement, though.
This.

When my parents retired 10 years ago I don’t think they had much saved at all. But they both draw railroad retirement and my mom has a small state pension. Plus he gets some military disability and had/has free healthcare.

They are better off now financially than when working

smitcat
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by smitcat » Thu Nov 08, 2018 8:53 am

CyclingDuo wrote:
Wed Nov 07, 2018 8:48 pm
smitcat wrote:
Wed Nov 07, 2018 2:28 pm
The chart ony comes close if each category saves 10% of gross each year - no matter if they make 60K or 300K.
It only works if they need about 80% of their gross salary for expenses after retirement.
It only works if their investment retuirn is 6% annually.
It only works if their Fed and State taxes are "average".
It is misleading at best and potentially detrimnetal as a planning tool.
If the chart is so misleading at best and is potentially detrimental as a planning tool to determine a 4% withdrawal rate based on a nest egg to cover the required income to cover expenses or gap from SS/Pension and other sources of income, what do you propose is a better method?
I prefer to use a % of expenses but a % of net income would even be better than gross - rather than using a chart that takes gross income and spans many different income levels.

Why the chart is misleading...
Lets say I work as a nurse at a DR office and compare me to the Dr I work for.
Say we are typical in that we are both married and say I make $60K gross per year and he makes $1 million gross.
So we each save 50% of grosss as a working example.

Me at $60K gross per year:
I save $30K per year
My taxes are maybe $5K per year
My imputed expenses are then 25K per year (60-5-30=25)
Results are that I save 1.2 times my expenses each year - without any gains I reach 25X expenses in about 21 years

The Doctor has 1.0 Million gross per year:
- He saves $500K per year
- His taxes are maybe $400K per year (might be a little less)
- His imputed expenses per year are then $100K (1000K - 500- 400= 100)
- Results for him are that he saves 5 times his expenses each year - without any gains he reaches 25X expenses in 5 years

The chart may work for some due to many reasons but is is misleading for many if your retirement sucess is based upon expenses.

smitcat
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by smitcat » Thu Nov 08, 2018 8:56 am

willthrill81 wrote:
Wed Nov 07, 2018 11:33 pm
Grt2bOutdoors wrote:
Wed Nov 07, 2018 10:25 pm
CyclingDuo wrote:
Wed Nov 07, 2018 1:57 pm
jharkin wrote:
Wed Nov 07, 2018 1:10 pm
I'm not following the logic of the chart.. why do the higher incomes need higher multiple of income saved? Are they discounting for the SS bend points offsetting more expenses for the lower income cohort? or something else?
I would assume it has to do with lifestyle creep and the thought that the cash flow for a higher income household may have overall higher expenses (larger home, higher utility bills, higher property taxes, more travel, more taxes, etc...). Example - retiring in San Francisco vs. retiring in say South Dakota.

This chart shows if you want a certain level of income from your risk portfolio in retirement, then such a target amount is needed....

Image
The chart is waaay off base. Someone making $250k a year does not need $6.25 million. That assumes they will need 100% of previously earned gross income and that the market gives a real return of zero. Who put that chart together- a broker or someone who hasn’t read enough history?
If you want retirement income (what the graph says) of $250k, then 25X (a la 4% rule) is $6.25 million.
IMHO - this chart is fine to use as a tool.

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CyclingDuo
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by CyclingDuo » Thu Nov 08, 2018 10:15 am

smitcat wrote:
Thu Nov 08, 2018 8:53 am
CyclingDuo wrote:
Wed Nov 07, 2018 8:48 pm
smitcat wrote:
Wed Nov 07, 2018 2:28 pm
The chart ony comes close if each category saves 10% of gross each year - no matter if they make 60K or 300K.
It only works if they need about 80% of their gross salary for expenses after retirement.
It only works if their investment retuirn is 6% annually.
It only works if their Fed and State taxes are "average".
It is misleading at best and potentially detrimnetal as a planning tool.
If the chart is so misleading at best and is potentially detrimental as a planning tool to determine a 4% withdrawal rate based on a nest egg to cover the required income to cover expenses or gap from SS/Pension and other sources of income, what do you propose is a better method?
I prefer to use a % of expenses but a % of net income would even be better than gross - rather than using a chart that takes gross income and spans many different income levels.

Why the chart is misleading...
Lets say I work as a nurse at a DR office and compare me to the Dr I work for.
Say we are typical in that we are both married and say I make $60K gross per year and he makes $1 million gross.
So we each save 50% of grosss as a working example.

Me at $60K gross per year:
I save $30K per year
My taxes are maybe $5K per year
My imputed expenses are then 25K per year (60-5-30=25)
Results are that I save 1.2 times my expenses each year - without any gains I reach 25X expenses in about 21 years

The Doctor has 1.0 Million gross per year:
- He saves $500K per year
- His taxes are maybe $400K per year (might be a little less)
- His imputed expenses per year are then $100K (1000K - 500- 400= 100)
- Results for him are that he saves 5 times his expenses each year - without any gains he reaches 25X expenses in 5 years

The chart may work for some due to many reasons but is is misleading for many if your retirement sucess is based upon expenses.
Let's call the Doctor a bonafide outlier! Anyone making $1M per year is a special very small subset of the 1% of top earners in the US. In other words, wouldn't even register on any chart or graph designed to target 99.x% of the population.

We live in a LCOL area with what we consider fairly average expenses (mortgage, connectivity, insurance, food, pets, utilities, garbage, hair care, charitable giving, home maintenance, auto maintenance, travel, entertainment, clothing, etc...) which at age 57 & 60, we expect to continue being very similar going forward. Basing our success in retirement absolutely revolves around meeting those expenses going forward once our human capital of producing income is no longer able to contribute to the household cashflow. Why do you feel that a retirement income stream to meet expenses in retirement is misleading?

No doubt that the struggle of the financial planning community to come up with a one size fits all savings rate with regard to what percentage of income one should save for retirement throughout their working careers will continue. 10%? 15%? 20%? 25%? Save as much as you can percent?

Likewise, the struggle to point out that a one size fits all percentage of income savings rate does not apply to everyone will most likely continue. Perhaps that is why such charts, graphs, multiples, etc.... are developed to show a starting point before considering all the outliers.

Even one of the studies linked in my original post mentions this.

http://longevity.stanford.edu/sightline ... rt-mobile/

Why is retirement financial success based on an income stream that is high enough to meet your expenses? Because for most, the income stream from their human capital of producing a regular paycheck is no longer one of the legs of the income stream(s) multi-legged stool that can be relied upon once the working years are completed to meet monthly/annual expenses. Even the traditional stool is devoid of the human capital portion of producing a regular paycheck in retirement:

Image

The original post and data concerning a third of the baby boomer generation who did not have any retirement savings in 2014 at age 58 may indeed lead to a compromise of several things to finance the latter years. Social Security, pension, part-time work for longer years than originally planned, altered expenditures that may not be as ideal as during the full-time working years, etc... .

For all of us, the Stanford study said:

The following assumptions need to be made to calculate an accurate retirement savings target:

•Rate of return on savings
•Inflation rate
•Salary growth rate
•Retirement age
•Life expectancy at retirement
•Whether retiree continues working part time for a period of years after retirement from full-time work
•Household structure: single, married, presence of dependent children or parents
•Amount of expected Social Security benefits
•Amount of existing savings in retirement and non-retirement accounts
•Existence of traditional pension benefits
•Whether the retiree will tap home equity to help fund their retirement
•Expected living expenses at retirement, the largest of which will most likely be housing costs and medical costs
•Income tax rates at retirement

Reasonable differences in these assumptions can produce significantly different conclusions about adequate retirement savings targets. And the farther away that future retirement is, the more likely it is that the assumptions will diverge from reality over time.


Whether one is in their 20's, 30's, 40's, 50's, or 60's - we don't have the exact answers to all of those bullet points along the way. Yes, some of them get clearer along the way as we hone in our focus on them and age, but we have to be content on knowing that we will not ever know the answer to every single one of them.

Regardless, one has to plan whether they rely on suggested charts, graphs, multiples, what the financial community says, etc... even if the one size fits all style may be misleading for some of the outliers.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

smitcat
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by smitcat » Thu Nov 08, 2018 10:24 am

CyclingDuo wrote:
Thu Nov 08, 2018 10:15 am
smitcat wrote:
Thu Nov 08, 2018 8:53 am
CyclingDuo wrote:
Wed Nov 07, 2018 8:48 pm
smitcat wrote:
Wed Nov 07, 2018 2:28 pm
The chart ony comes close if each category saves 10% of gross each year - no matter if they make 60K or 300K.
It only works if they need about 80% of their gross salary for expenses after retirement.
It only works if their investment retuirn is 6% annually.
It only works if their Fed and State taxes are "average".
It is misleading at best and potentially detrimnetal as a planning tool.
If the chart is so misleading at best and is potentially detrimental as a planning tool to determine a 4% withdrawal rate based on a nest egg to cover the required income to cover expenses or gap from SS/Pension and other sources of income, what do you propose is a better method?
I prefer to use a % of expenses but a % of net income would even be better than gross - rather than using a chart that takes gross income and spans many different income levels.

Why the chart is misleading...
Lets say I work as a nurse at a DR office and compare me to the Dr I work for.
Say we are typical in that we are both married and say I make $60K gross per year and he makes $1 million gross.
So we each save 50% of grosss as a working example.

Me at $60K gross per year:
I save $30K per year
My taxes are maybe $5K per year
My imputed expenses are then 25K per year (60-5-30=25)
Results are that I save 1.2 times my expenses each year - without any gains I reach 25X expenses in about 21 years

The Doctor has 1.0 Million gross per year:
- He saves $500K per year
- His taxes are maybe $400K per year (might be a little less)
- His imputed expenses per year are then $100K (1000K - 500- 400= 100)
- Results for him are that he saves 5 times his expenses each year - without any gains he reaches 25X expenses in 5 years

The chart may work for some due to many reasons but is is misleading for many if your retirement sucess is based upon expenses.
Anyone making $1M per year is a special very small subset of the 1% of top earners in the US. In other words, wouldn't even register on any chart or graph designed to target 99.x% of the population.

We live in a LCOL area with what we consider fairly average expenses (mortgage, connectivity, insurance, food, pets, utilities, garbage, hair care, charitable giving, home maintenance, auto maintenance, travel, entertainment, clothing, etc...) which at age 57 & 60, we expect to continue being very similar going forward. Basing our success in retirement absolutely revolves around meeting those expenses going forward once our human capital of producing income is no longer able to contribute to the household cashflow. Why do you feel that a retirement income stream to meet expenses in retirement is misleading?

No doubt that the struggle of the financial planning community to come up with a one size fits all savings rate with regard to what percentage of income one should save for retirement throughout their working careers will continue. 10%? 15%? 20%? 25%? Save as much as you can percent?

Likewise, the struggle to point out that a one size fits all percentage of income savings rate does not apply to everyone will most likely continue. Perhaps that is why such charts, graphs, multiples, etc.... are developed to show a starting point before considering all the outliers.

Even one of the studies linked in my original post mentions this.

http://longevity.stanford.edu/sightline ... rt-mobile/

Why is retirement financial success based on an income stream that is high enough to meet your expenses? Because for most, the income stream from their human capital of producing a regular paycheck is no longer one of the legs of the income stream(s) multi-legged stool that can be relied upon once the working years are completed to meet monthly/annual expenses. Even the traditional stool is devoid of the human capital portion of producing a regular paycheck in retirement:

Image

The original post and data concerning a third of the baby boomer generation who did not have any retirement savings in 2014 at age 58 may indeed lead to a compromise of several things to finance the latter years. Social Security, pension, part-time work for longer years than originally planned, altered expenditures that may not be as ideal as during the full-time working years, etc... .

For all of us, the Stanford study said:

The following assumptions need to be made to calculate an accurate retirement savings target:

•Rate of return on savings
•Inflation rate
•Salary growth rate
•Retirement age
•Life expectancy at retirement
•Whether retiree continues working part time for a period of years after retirement from full-time work
•Household structure: single, married, presence of dependent children or parents
•Amount of expected Social Security benefits
•Amount of existing savings in retirement and non-retirement accounts
•Existence of traditional pension benefits
•Whether the retiree will tap home equity to help fund their retirement
•Expected living expenses at retirement, the largest of which will most likely be housing costs and medical costs
•Income tax rates at retirement

Reasonable differences in these assumptions can produce significantly different conclusions about adequate retirement savings targets. And the farther away that future retirement is, the more likely it is that the assumptions will diverge from reality over time.


Whether one is in their 20's, 30's, 40's, 50's, or 60's - we don't have the exact answers to all of those bullet points along the way. Yes, some of them get clearer along the way as we hone in our focus on them and age, but we have to be content on knowing that we will not ever know the answer to every single one of them.

Regardless, one has to plan whether they rely on suggested charts, graphs, what the financial community says even if the one size fits all style may be misleading for some of the outliers.
That chart represents a range of 50K to 300K - it actually increases savings rate as the numbers go up when often it will go down as my example explains.
The example can be run with 50K and 300K if you choose to do so and compare to the charts required needs.

smitcat
Posts: 1981
Joined: Mon Nov 07, 2016 10:51 am

Re: 1/3 of Baby Boomers have no retirement savings...

Post by smitcat » Thu Nov 08, 2018 10:45 am

smitcat wrote:
Thu Nov 08, 2018 10:24 am
CyclingDuo wrote:
Thu Nov 08, 2018 10:15 am
smitcat wrote:
Thu Nov 08, 2018 8:53 am
CyclingDuo wrote:
Wed Nov 07, 2018 8:48 pm
smitcat wrote:
Wed Nov 07, 2018 2:28 pm
The chart ony comes close if each category saves 10% of gross each year - no matter if they make 60K or 300K.
It only works if they need about 80% of their gross salary for expenses after retirement.
It only works if their investment retuirn is 6% annually.
It only works if their Fed and State taxes are "average".
It is misleading at best and potentially detrimnetal as a planning tool.
If the chart is so misleading at best and is potentially detrimental as a planning tool to determine a 4% withdrawal rate based on a nest egg to cover the required income to cover expenses or gap from SS/Pension and other sources of income, what do you propose is a better method?
I prefer to use a % of expenses but a % of net income would even be better than gross - rather than using a chart that takes gross income and spans many different income levels.

Why the chart is misleading...
Lets say I work as a nurse at a DR office and compare me to the Dr I work for.
Say we are typical in that we are both married and say I make $60K gross per year and he makes $1 million gross.
So we each save 50% of grosss as a working example.

Me at $60K gross per year:
I save $30K per year
My taxes are maybe $5K per year
My imputed expenses are then 25K per year (60-5-30=25)
Results are that I save 1.2 times my expenses each year - without any gains I reach 25X expenses in about 21 years

The Doctor has 1.0 Million gross per year:
- He saves $500K per year
- His taxes are maybe $400K per year (might be a little less)
- His imputed expenses per year are then $100K (1000K - 500- 400= 100)
- Results for him are that he saves 5 times his expenses each year - without any gains he reaches 25X expenses in 5 years

The chart may work for some due to many reasons but is is misleading for many if your retirement sucess is based upon expenses.
Anyone making $1M per year is a special very small subset of the 1% of top earners in the US. In other words, wouldn't even register on any chart or graph designed to target 99.x% of the population.

We live in a LCOL area with what we consider fairly average expenses (mortgage, connectivity, insurance, food, pets, utilities, garbage, hair care, charitable giving, home maintenance, auto maintenance, travel, entertainment, clothing, etc...) which at age 57 & 60, we expect to continue being very similar going forward. Basing our success in retirement absolutely revolves around meeting those expenses going forward once our human capital of producing income is no longer able to contribute to the household cashflow. Why do you feel that a retirement income stream to meet expenses in retirement is misleading?

No doubt that the struggle of the financial planning community to come up with a one size fits all savings rate with regard to what percentage of income one should save for retirement throughout their working careers will continue. 10%? 15%? 20%? 25%? Save as much as you can percent?

Likewise, the struggle to point out that a one size fits all percentage of income savings rate does not apply to everyone will most likely continue. Perhaps that is why such charts, graphs, multiples, etc.... are developed to show a starting point before considering all the outliers.

Even one of the studies linked in my original post mentions this.

http://longevity.stanford.edu/sightline ... rt-mobile/

Why is retirement financial success based on an income stream that is high enough to meet your expenses? Because for most, the income stream from their human capital of producing a regular paycheck is no longer one of the legs of the income stream(s) multi-legged stool that can be relied upon once the working years are completed to meet monthly/annual expenses. Even the traditional stool is devoid of the human capital portion of producing a regular paycheck in retirement:

Image

The original post and data concerning a third of the baby boomer generation who did not have any retirement savings in 2014 at age 58 may indeed lead to a compromise of several things to finance the latter years. Social Security, pension, part-time work for longer years than originally planned, altered expenditures that may not be as ideal as during the full-time working years, etc... .

For all of us, the Stanford study said:

The following assumptions need to be made to calculate an accurate retirement savings target:

•Rate of return on savings
•Inflation rate
•Salary growth rate
•Retirement age
•Life expectancy at retirement
•Whether retiree continues working part time for a period of years after retirement from full-time work
•Household structure: single, married, presence of dependent children or parents
•Amount of expected Social Security benefits
•Amount of existing savings in retirement and non-retirement accounts
•Existence of traditional pension benefits
•Whether the retiree will tap home equity to help fund their retirement
•Expected living expenses at retirement, the largest of which will most likely be housing costs and medical costs
•Income tax rates at retirement

Reasonable differences in these assumptions can produce significantly different conclusions about adequate retirement savings targets. And the farther away that future retirement is, the more likely it is that the assumptions will diverge from reality over time.


Whether one is in their 20's, 30's, 40's, 50's, or 60's - we don't have the exact answers to all of those bullet points along the way. Yes, some of them get clearer along the way as we hone in our focus on them and age, but we have to be content on knowing that we will not ever know the answer to every single one of them.

Regardless, one has to plan whether they rely on suggested charts, graphs, what the financial community says even if the one size fits all style may be misleading for some of the outliers.
That chart represents a range of 50K to 300K - it actually increases savings rate as the numbers go up when often it will go down as my example explains.
The example can be run with 50K and 300K if you choose to do so and compare to the charts required needs.

I have changed the nurse and Dr salaries to equal the charts numbers...

Nurse makes 50K per year gross
Nurse saves 25K
Taxes 4K
imputed expense are 21K per year
25X expenses would yield 525K Saved
Chart says nurse needs 305K
Chart multiple of expense is 14.5

Doctor now makes 300K gross
saves 150K
taxes 100K
imputed expenses are 50K
25X expenses would yield 1,250K
Chart says Dr needs 4,440
Chart multiple of expenses is 89

User avatar
CyclingDuo
Posts: 1779
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by CyclingDuo » Thu Nov 08, 2018 1:49 pm

smitcat wrote:
Thu Nov 08, 2018 10:24 am
That chart represents a range of 50K to 300K - it actually increases savings rate as the numbers go up when often it will go down as my example explains. The example can be run with 50K and 300K if you choose to do so and compare to the charts required needs.
The chart you are referring to came from the 46 page JPMorgan document 2016 Guide to Retirement and appears on page 15 of that document (PDF link below).

https://am.jpmorgan.com/blob-gim/138328 ... JP-GTR.pdf

https://www.investors.com/etfs-and-fund ... nd-income/

In the JPMorgan document, this is included with regard to the chart you are referencing:

This chart is for illustrative purposes only and must not be relied upon to make investment decisions. J.P. Morgan’s model is based on J.P. Morgan Asset Management’s (JPMAM) proprietary long-term capital market assumptions (10-15 years). Household income replacement rates are derived from an inflation-adjusted analysis of: Consumer Expenditure Survey (BLS) data (2011-2014); Social Security benefits using modified scaled earnings in 2016 for a single wage earner at age 65 and a spousal benefit at age 62 reduced by Medicare Part B premiums; and 2016 OASDI and FICA taxes. Households earning $30,000 will need to replace at least 16% of their preretirement income; $50,000 23%; $75,000 34%; $100,000 38%; $150,000 45%; $200,000 51%; $250,000 55%; $300,000 57%. The income replacement needs may be lower for households in which both spouses are working and the second spouse’s individual benefits are greater than their spousal benefit. Single household income replacement needs may vary as spending is typically less than a two-spouse household; however, the loss of the Social Security spousal benefit may offset the spending reduction. Consult with a Financial Advisor for a more personalized assessment. Allocations, assumptions and expected returns are not meant to represent JPMAM performance. Given the complex risk/reward tradeoffs involved, we advise clients to rely on judgment as well as quantitative optimization approaches in setting strategic allocations. References to future returns for either asset allocation strategies or asset classes are not promises or even estimates of actual returns a client portfolio may achieve.

Much like Fidelity's chart using multiples of salary one should have saved along the journey, the chart includes assumptions which you can read about:

https://www.fidelity.com/viewpoints/ret ... -to-retire

Image

In both scenarios of the JPMorgan and the Fidelity chart, investors read statements such as: This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Personally, we don't mind using them as starting points before factoring in other parts of the equation. JPMorgan's study and analysis of data came up with the conclusion that somebody making $300K per year, would need to replace 57% of their salaried income for the retirement. Fidelity would claim that the same person making $300K would need the multiple of 10X that at age 67 for retirement, so a figure of only $3M compared to JPMorgan's projection of $4.26M.

Using Fidelity's chart, we would need $665K at retirement for a 25x expenses multiple based on our current expenses. Using JPMorgan's, we would need $1.58M. Neither account for the option that our expenses will be more than 100% covered by SS and a Pension if we take them at the time we plan to and based on the projections of what they will be in today's dollars if both are still around at that time. Yet, we have plans beyond our expenses with regard to legacy that extends well beyond our wants and needs as well as preparing our own individual scenario for possibilities that may not go according to plan (SS, Medicare, Pension, need for LTC, poor investment performance, etc...).

I certainly can see why you might have an objection with a single chart that may or may not take into account everything that covers all investors and every unique situation. The entire 46 page document from JPMorgan might be more to your liking.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

smitcat
Posts: 1981
Joined: Mon Nov 07, 2016 10:51 am

Re: 1/3 of Baby Boomers have no retirement savings...

Post by smitcat » Thu Nov 08, 2018 2:03 pm

CyclingDuo wrote:
Thu Nov 08, 2018 1:49 pm
smitcat wrote:
Thu Nov 08, 2018 10:24 am
That chart represents a range of 50K to 300K - it actually increases savings rate as the numbers go up when often it will go down as my example explains. The example can be run with 50K and 300K if you choose to do so and compare to the charts required needs.
The chart you are referring to came from the 46 page JPMorgan document 2016 Guide to Retirement and appears on page 15 of that document (PDF link below).

https://am.jpmorgan.com/blob-gim/138328 ... JP-GTR.pdf

https://www.investors.com/etfs-and-fund ... nd-income/

In the JPMorgan document, this is included with regard to the chart you are referencing:

This chart is for illustrative purposes only and must not be relied upon to make investment decisions. J.P. Morgan’s model is based on J.P. Morgan Asset Management’s (JPMAM) proprietary long-term capital market assumptions (10-15 years). Household income replacement rates are derived from an inflation-adjusted analysis of: Consumer Expenditure Survey (BLS) data (2011-2014); Social Security benefits using modified scaled earnings in 2016 for a single wage earner at age 65 and a spousal benefit at age 62 reduced by Medicare Part B premiums; and 2016 OASDI and FICA taxes. Households earning $30,000 will need to replace at least 16% of their preretirement income; $50,000 23%; $75,000 34%; $100,000 38%; $150,000 45%; $200,000 51%; $250,000 55%; $300,000 57%. The income replacement needs may be lower for households in which both spouses are working and the second spouse’s individual benefits are greater than their spousal benefit. Single household income replacement needs may vary as spending is typically less than a two-spouse household; however, the loss of the Social Security spousal benefit may offset the spending reduction. Consult with a Financial Advisor for a more personalized assessment. Allocations, assumptions and expected returns are not meant to represent JPMAM performance. Given the complex risk/reward tradeoffs involved, we advise clients to rely on judgment as well as quantitative optimization approaches in setting strategic allocations. References to future returns for either asset allocation strategies or asset classes are not promises or even estimates of actual returns a client portfolio may achieve.

Much like Fidelity's chart using multiples of salary one should have saved along the journey, the chart includes assumptions which you can read about:

https://www.fidelity.com/viewpoints/ret ... -to-retire

Image

In both scenarios of the JPMorgan and the Fidelity chart, investors read statements such as: This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Personally, we don't mind using them as starting points before factoring in other parts of the equation. JPMorgan's study and analysis of data came up with the conclusion that somebody making $300K per year, would need to replace 57% of their salaried income for the retirement. Fidelity would claim that the same person making $300K would need the multiple of 10X that at age 67 for retirement, so a figure of only $3M compared to JPMorgan's projection of $4.26M.

Using Fidelity's chart, we would need $665K at retirement for a 25x expenses multiple based on our current expenses. Using JPMorgan's, we would need $1.58M. Neither account for the option that our expenses will be more than 100% covered by SS and a Pension if we take them at the time we plan to and based on the projections of what they will be in today's dollars if both are still around at that time. Yet, we have plans beyond our expenses with regard to legacy that extends well beyond our wants and needs as well as preparing our own individual scenario for possibilities that may not go according to plan (SS, Medicare, Pension, need for LTC, poor investment performance, etc...).

I certainly can see why you might have an objection with a single chart that may or may not take into account everything that covers all investors and every unique situation. The entire 46 page document from JPMorgan might be more to your liking.
CyclingDuo
You had asked me this question...
"what do you propose is a better method?"
I gave you my sincere answer along with a detailed reason why the chart in question is misleading at best for most people.
I do not require a 46 page document as you can likely see from my answers to your questions.
Based upon your post above you do not use the chart in question either - you figure your expenses and then use your income and a multiple of your portfolio.

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Jazztonight
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Location: Lake Merritt

Re: 1/3 of Baby Boomers have no retirement savings...

Post by Jazztonight » Thu Nov 08, 2018 2:13 pm

GerryL wrote:
Wed Nov 07, 2018 3:35 pm
BigMoneyNoWhammies wrote:
Wed Nov 07, 2018 3:17 pm

Considering the fact that the Baby Boomer generation is collectively the wealthiest generation of people that have ever lived on planet earth, I'm not sweating their chances at decent retirements too much.
Key word here is "collectively." The wealth is not evenly distributed. I saved ferociously and am doing just fine. It's not my fault if someone didn't save as diligently as I did or if they were not as lucky as I was. But even so, having a significant portion of the population struggling in retirement is worrisome.
All you have to do is attend your 50th high school reunion to see how some of your baby boomer peers are doing. Decisions we made when we were 18 or 22 or 30 are probably more important than a decision to take SS at 62, 66, or 70.

Don’t we all know a really smart person from our graduating class who made terrible choices along the way and is now struggling to stay afloat instead of worrying about asset allocation?
"What does not destroy me, makes me stronger." Nietzsche

PatrickA5
Posts: 321
Joined: Mon Jul 28, 2014 1:55 pm

Re: 1/3 of Baby Boomers have no retirement savings...

Post by PatrickA5 » Thu Nov 08, 2018 2:47 pm

smitcat wrote:
Thu Nov 08, 2018 8:56 am
willthrill81 wrote:
Wed Nov 07, 2018 11:33 pm
Grt2bOutdoors wrote:
Wed Nov 07, 2018 10:25 pm
CyclingDuo wrote:
Wed Nov 07, 2018 1:57 pm
jharkin wrote:
Wed Nov 07, 2018 1:10 pm
I'm not following the logic of the chart.. why do the higher incomes need higher multiple of income saved? Are they discounting for the SS bend points offsetting more expenses for the lower income cohort? or something else?
I would assume it has to do with lifestyle creep and the thought that the cash flow for a higher income household may have overall higher expenses (larger home, higher utility bills, higher property taxes, more travel, more taxes, etc...). Example - retiring in San Francisco vs. retiring in say South Dakota.

This chart shows if you want a certain level of income from your risk portfolio in retirement, then such a target amount is needed....

Image
The chart is waaay off base. Someone making $250k a year does not need $6.25 million. That assumes they will need 100% of previously earned gross income and that the market gives a real return of zero. Who put that chart together- a broker or someone who hasn’t read enough history?
If you want retirement income (what the graph says) of $250k, then 25X (a la 4% rule) is $6.25 million.
IMHO - this chart is fine to use as a tool.
This chart assumes "desired annual income" is in addition to other sources of income - such as SS. My projected retirement expense of $100K does NOT require $2.5 million, since we'll be getting a good $40K+ of that amount in SS.

shell921
Posts: 142
Joined: Fri Jul 06, 2018 5:13 pm

Re: 1/3 of Baby Boomers have no retirement savings...

Post by shell921 » Thu Nov 08, 2018 4:08 pm

Jazztonight wrote:
Thu Nov 08, 2018 2:13 pm
GerryL wrote:
Wed Nov 07, 2018 3:35 pm
BigMoneyNoWhammies wrote:
Wed Nov 07, 2018 3:17 pm

Considering the fact that the Baby Boomer generation is collectively the wealthiest generation of people that have ever lived on planet earth, I'm not sweating their chances at decent retirements too much.
Key word here is "collectively." The wealth is not evenly distributed. I saved ferociously and am doing just fine. It's not my fault if someone didn't save as diligently as I did or if they were not as lucky as I was. But even so, having a significant portion of the population struggling in retirement is worrisome.
All you have to do is attend your 50th high school reunion to see how some of your baby boomer peers are doing. Decisions we made when we were 18 or 22 or 30 are probably more important than a decision to take SS at 62, 66, or 70.

Don’t we all know a really smart person from our graduating class who made terrible choices along the way and is now struggling to stay afloat instead of worrying about asset allocation?
Heck YES! Actually I could see a lot of people heading for disaster when I attended my 20th HS reunion.
But yes the 50th was VERY telling.
:confused

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Yuba
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Re: 1/3 of Baby Boomers have no retirement savings...

Post by Yuba » Thu Nov 08, 2018 5:32 pm

jharkin wrote:
Wed Nov 07, 2018 1:10 pm


I'm not following the logic of the chart.. why do the higher incomes need higher multiple of income saved? Are they discounting for the SS bend points offsetting more expenses for the lower income cohort? or something else?
One issue you noted was replacement rate of SS income. (higher for lower income) along with the accompanying taxes on portions of the SS income.
The second (and bigger) issue is the basic assumption of higher marginal tax rates on income which requires higher savings amounts at higher incomes to net the spending money.

Rick dba Yuba

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Re: 1/3 of Baby Boomers have no retirement savings...

Post by Grt2bOutdoors » Thu Nov 08, 2018 5:53 pm

Jazztonight wrote:
Thu Nov 08, 2018 2:13 pm
GerryL wrote:
Wed Nov 07, 2018 3:35 pm
BigMoneyNoWhammies wrote:
Wed Nov 07, 2018 3:17 pm

Considering the fact that the Baby Boomer generation is collectively the wealthiest generation of people that have ever lived on planet earth, I'm not sweating their chances at decent retirements too much.
Key word here is "collectively." The wealth is not evenly distributed. I saved ferociously and am doing just fine. It's not my fault if someone didn't save as diligently as I did or if they were not as lucky as I was. But even so, having a significant portion of the population struggling in retirement is worrisome.
All you have to do is attend your 50th high school reunion to see how some of your baby boomer peers are doing. Decisions we made when we were 18 or 22 or 30 are probably more important than a decision to take SS at 62, 66, or 70.

Don’t we all know a really smart person from our graduating class who made terrible choices along the way and is now struggling to stay afloat instead of worrying about asset allocation?
Life is unpredictable. One can make all the “right” moves and still end up holding the short end of the stick. I don’t judge based on ones net worth or lack there of, there are those who did well in the financial department but in morals/ethics are bankrupt, always have been.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Jazztonight
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Location: Lake Merritt

Re: 1/3 of Baby Boomers have no retirement savings...

Post by Jazztonight » Thu Nov 08, 2018 7:02 pm

Grt2bOutdoors wrote:
Thu Nov 08, 2018 5:53 pm
Jazztonight wrote:
Thu Nov 08, 2018 2:13 pm
GerryL wrote:
Wed Nov 07, 2018 3:35 pm
BigMoneyNoWhammies wrote:
Wed Nov 07, 2018 3:17 pm

Considering the fact that the Baby Boomer generation is collectively the wealthiest generation of people that have ever lived on planet earth, I'm not sweating their chances at decent retirements too much.
Key word here is "collectively." The wealth is not evenly distributed. I saved ferociously and am doing just fine. It's not my fault if someone didn't save as diligently as I did or if they were not as lucky as I was. But even so, having a significant portion of the population struggling in retirement is worrisome.
All you have to do is attend your 50th high school reunion to see how some of your baby boomer peers are doing. Decisions we made when we were 18 or 22 or 30 are probably more important than a decision to take SS at 62, 66, or 70.

Don’t we all know a really smart person from our graduating class who made terrible choices along the way and is now struggling to stay afloat instead of worrying about asset allocation?
Life is unpredictable. One can make all the “right” moves and still end up holding the short end of the stick. I don’t judge based on ones net worth or lack there of, there are those who did well in the financial department but in morals/ethics are bankrupt, always have been.
I won't argue with anything you've said. Life certainly is unpredictable. I'd also note that observation (which is what I was referring to) is different than judgement.
"What does not destroy me, makes me stronger." Nietzsche

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Re: 1/3 of Baby Boomers have no retirement savings...

Post by LadyGeek » Thu Nov 08, 2018 7:31 pm

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