Author Topic: "You'll never save enough to retire!"  (Read 2634 times)

MrOnyx

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"You'll never save enough to retire!"
« on: August 17, 2018, 09:07:55 AM »
Just had an interesting chat with someone at work. Being quite young, they thought it would be a fun thing to frighten me with (in a joking way).

So, they were talking about retiring, the various pension schemes in this country (UK) and saving up a private pension, all that stuff. I thought I'd share the numbers they threw out. I've no idea where they came from, but this is where it went.

So, you retire at 65 currently, right? *Snickers* Anyway, life expectancy is now 95, so you have 30 years of retirement.

You need £20,000 per year to live off of in retirement, apparently (again, I have no source for this). So, they grabbed a calculator, and after a brief pause pulled out the retirement figure of £600,000 (~$763,600~).

They then did some more calculations, assuming a 45 year career, and said that this means you'll need to save £15,000 per year in order to retire when you hit 65. It was as though A) this figure is impossible to attain and B) you've better things to spend your money on anyway.

I mean, sure, the maths works out. If you save in cash. So I thought I'd play the Devil's Advocate a little and suggested "well, that's assuming you keep the money in your bank account" (i.e. cash), then they remarked that that was generally how you'd do it, to which I responded "what about keeping it somewhere where it at least keeps up with inflation?" They paused before throwing that aside too, assuming I was just making the inflation obfuscation argument.

After this came a few horror stories about partners and other people having had their savings taken off them for this that and the other, not actually making it to the age of 65, etc. etc.

I, a young person in a newly started career, was then advised by them to "just spend your money. Fuck it, just enjoy it." Honestly, the most sensible thing they said was that they're keeping their savings in premium bonds. Thought it might be worth sharing for a laugh, anyway!

dogboyslim

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Re: "You'll never save enough to retire!"
« Reply #1 on: August 17, 2018, 11:22:37 AM »
I was speaking to one of my relatives recently.  She had some health problems and got a very late start in her career, but right now is doing quite well.  We had two components of the conversation.  In the first part, she talked about how she still lives the same lifestyle she did when she made $40k, but now makes $150k.  We talked about some of the crazy spending we see with some of our peers.  Then she pulls out that its unfortunate that she'll never be able to retire.  I looked at her strangely, then said: "If you are living off of a 40k salary but making 50k, even with the higher taxes you should be able to save 50k a year.  If you put the 50k in the market today and keep going at 50k per year, you will have well over a million by the time you are 65. (1.7ish @6% return).  She just looked back at me jaw on floor like I was mocking her.

Then "but losses" or "but insolvencies" or "need cash for emergencies."  I dropped the issue.  I suspect that the real situation was that she does have lifestyle inflation, and couldn't really put away 50k, but it served to me as evidence that many people want you to feel sorry for them, not help solve their problem.  In the future, after the "I'll never retire" comment, I will simply say..."Yeah, that sucks."

Davnasty

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Re: "You'll never save enough to retire!"
« Reply #2 on: August 17, 2018, 11:30:01 AM »
I was speaking to one of my relatives recently.  She had some health problems and got a very late start in her career, but right now is doing quite well.  We had two components of the conversation.  In the first part, she talked about how she still lives the same lifestyle she did when she made $40k, but now makes $150k.  We talked about some of the crazy spending we see with some of our peers.  Then she pulls out that its unfortunate that she'll never be able to retire.  I looked at her strangely, then said: "If you are living off of a 40k salary but making 50k, even with the higher taxes you should be able to save 50k a year.  If you put the 50k in the market today and keep going at 50k per year, you will have well over a million by the time you are 65. (1.7ish @6% return).  She just looked back at me jaw on floor like I was mocking her.

Then "but losses" or "but insolvencies" or "need cash for emergencies."  I dropped the issue.  I suspect that the real situation was that she does have lifestyle inflation, and couldn't really put away 50k, but it served to me as evidence that many people want you to feel sorry for them, not help solve their problem.  In the future, after the "I'll never retire" comment, I will simply say..."Yeah, that sucks."

Maybe she was living beyond her means while earning $40k and now is paying off the debt of that mistake?

frugledoc

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Re: "You'll never save enough to retire!"
« Reply #3 on: August 17, 2018, 02:48:30 PM »
Just had an interesting chat with someone at work. Being quite young, they thought it would be a fun thing to frighten me with (in a joking way).

So, they were talking about retiring, the various pension schemes in this country (UK) and saving up a private pension, all that stuff. I thought I'd share the numbers they threw out. I've no idea where they came from, but this is where it went.

So, you retire at 65 currently, right? *Snickers* Anyway, life expectancy is now 95, so you have 30 years of retirement.

You need £20,000 per year to live off of in retirement, apparently (again, I have no source for this). So, they grabbed a calculator, and after a brief pause pulled out the retirement figure of £600,000 (~$763,600~).

They then did some more calculations, assuming a 45 year career, and said that this means you'll need to save £15,000 per year in order to retire when you hit 65. It was as though A) this figure is impossible to attain and B) you've better things to spend your money on anyway.

I mean, sure, the maths works out. If you save in cash. So I thought I'd play the Devil's Advocate a little and suggested "well, that's assuming you keep the money in your bank account" (i.e. cash), then they remarked that that was generally how you'd do it, to which I responded "what about keeping it somewhere where it at least keeps up with inflation?" They paused before throwing that aside too, assuming I was just making the inflation obfuscation argument.

After this came a few horror stories about partners and other people having had their savings taken off them for this that and the other, not actually making it to the age of 65, etc. etc.

I, a young person in a newly started career, was then advised by them to "just spend your money. Fuck it, just enjoy it." Honestly, the most sensible thing they said was that they're keeping their savings in premium bonds. Thought it might be worth sharing for a laugh, anyway!


What about:
- tax relief on pension contributions
- the free money from employer matches. 
- The awesome compounding that occurs and towards the later years of saving
- using your tax free ISA allowance on which you never have to pay any tax again

 

Rife

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Re: "You'll never save enough to retire!"
« Reply #4 on: August 18, 2018, 08:27:08 AM »
I was speaking to one of my relatives recently.  She had some health problems and got a very late start in her career, but right now is doing quite well.  We had two components of the conversation.  In the first part, she talked about how she still lives the same lifestyle she did when she made $40k, but now makes $150k.  We talked about some of the crazy spending we see with some of our peers.  Then she pulls out that its unfortunate that she'll never be able to retire.  I looked at her strangely, then said: "If you are living off of a 40k salary but making 50k, even with the higher taxes you should be able to save 50k a year.  If you put the 50k in the market today and keep going at 50k per year, you will have well over a million by the time you are 65. (1.7ish @6% return).  She just looked back at me jaw on floor like I was mocking her.

Then "but losses" or "but insolvencies" or "need cash for emergencies."  I dropped the issue.  I suspect that the real situation was that she does have lifestyle inflation, and couldn't really put away 50k, but it served to me as evidence that many people want you to feel sorry for them, not help solve their problem.  In the future, after the "I'll never retire" comment, I will simply say..."Yeah, that sucks."

Sadly, it really is that easy. We got to over 50% savings rate just by not spending more as we grew in our careers (though we started as ‘pretty good’ savers). Could be how she is defining lifestyle. I remember a conversation at work where everyone agreed as they made more money they got more, bigger and better stuff but their lifestyle never really changed. They didn’t use the insight to convert to Mustachianism but just all agreed that is how life goes. More a way to get nostalgic for their “simpler days” than any real admission that they could spend less.

Same people like to mock younger workers with “you guys won’t be able to retire” since we lost the pension starting next year. Never mind that the average salary is well over 100k, and our company still contributes 9% to our 401. Since even the youngest workers save the match at 8% that makes 17%  total and lack of retirement a near mathematical impossibility assuming they keep their job. I have no idea how much they think people need to live on.

MrOnyx

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Re: "You'll never save enough to retire!"
« Reply #5 on: August 20, 2018, 02:14:38 AM »
In the future, after the "I'll never retire" comment, I will simply say..."Yeah, that sucks."

LOL! Take the easy road, buddy!

If someone is making $10k-$110k more than they're spending (if I read your comment right, I noticed a typo where her salary changed, so I'm not sure which is correct), then there is no excuse not to save it. It's totally plausible to not invest it, because (in my neck of the woods, at least) investing is basically unheard of amongst 'normal' earners, but there's no excuse to not at least have a savings account where all that money can be stored. I just can't think of an explanation for "I live off of $40k, but earn [x amount more]", without the excess being saved. Where is it going?

What about:
- tax relief on pension contributions
- the free money from employer matches. 
- The awesome compounding that occurs and towards the later years of saving
- using your tax free ISA allowance on which you never have to pay any tax again 

I'm sure you realise that you're preaching to the choir, but I didn't want to push too much. I'd prefer it if my coworkers (especially in the managerial ranks) thought I was just another financially illiterate youth. Don't want to let on that I know too much! I mentioned the LISA in passing, and even that was enough to get an analytical glance from them. Either they were sizing up how much I really know and was holding back, or they were racking their brains to try and remember what a LISA was.

I have no idea how much they think people need to live on.

This is the crux of the wider issue. People mistake luxury for necessity - especially after they've introduced it to their lives. It's harder to take something away than it is to have the foresight to not introduce it in the first place. Also, because people make  financial decisions based on emotions rather than facts, they tend to let the "muh luxuries" argument win, rather than using their noggin and figuring out how to live with less and enjoy it.
« Last Edit: August 20, 2018, 02:16:35 AM by MrOnyx »

Linea_Norway

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Re: "You'll never save enough to retire!"
« Reply #6 on: August 20, 2018, 07:44:11 AM »

They then did some more calculations, assuming a 45 year career, and said that this means you'll need to save £15,000 per year in order to retire when you hit 65.

We have been saving more than that per year since I was 25...

ender

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Re: "You'll never save enough to retire!"
« Reply #7 on: August 20, 2018, 07:59:55 AM »
I have always felt there are two demographics when it comes to the woes and retirement.

People earning basically minimum wage and living in poverty? I have sympathy.

People earning decent incomes who actively deny things related to money? Minimal if any sympathy (and mainly because many people have never had someone tell them it's possible to retire).

Sounds like these are the later of those though..

MrOnyx

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Re: "You'll never save enough to retire!"
« Reply #8 on: August 20, 2018, 08:11:15 AM »

They then did some more calculations, assuming a 45 year career, and said that this means you'll need to save £15,000 per year in order to retire when you hit 65.

We have been saving more than that per year since I was 25...

Salaries are much lower in the UK than they are in the US on average, so doing the £-$ conversion isn't enough if you're looking for relative terms.

Straight out of college in the US, from what I've read, you can expect to see your first salary be about $40k (£31k~), right? In the UK, you'd generally be lucky if it was £20k ($15.7~) outside of London maybe, or unless you're in a highly lucrative field. It's not unheard of, is what I'm saying, but it is unlikely.

That said, I don't disagree that it is certainly doable to save that much money per year. I probably couldn't do it on just my salary if I lived alone, but to average £15k/year saved between ages 20 and 60 is highly achievable assuming raises and promotions during your career.

But again, back to your point, yeah. To the antimustachian, £15k per year is simply unachievable amounts of money to 'find', as it's all mysteriously found itself tied up in other things.

I have always felt there are two demographics when it comes to the woes and retirement.

People earning basically minimum wage and living in poverty? I have sympathy.

People earning decent incomes who actively deny things related to money? Minimal if any sympathy (and mainly because many people have never had someone tell them it's possible to retire).

Sounds like these are the later of those though..

Hear, hear. In this country it is entirely possible to work a full time job but still require food banks to keep your family fed. Seems like a fair society /s

Yeah, that meme comes to mind - the one with the guy riding a bike, who then rams a stick into the spokes, falls to the ground while blaming something or someone else for what happened. In this case, the stick can be substituted for voluntary debt, loans, and unnecessary luxuries.