Author Topic: 30 with no retirement!  (Read 6792 times)

acc7x3

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30 with no retirement!
« on: July 26, 2013, 09:54:57 AM »
This is more of a rant than "give me face punches", but I was watching NBC morning news and in this segment 2 couples were presented, one that just retired around the age of 70 and on in their 30's. The 70 year old couple started saving massively in thier 40's didn't gain enough in the market, and had to put off retirement (many people have had this happen in the past 5 years, understandable). The second couple was in their 30's had no retirement savings (YIKES!), started saving a massive amount for the past few months. And by massive amount I mean $250/ month. I though "Okay, they are saying something". The wife then said "I guess that we want things when we want it. And get it now." But that was not the part that ticked me off.
The part that made me perk my ears up was the Financial adviser. Her advice was to take the savings out of a savings account and put it in a roth. Ok good advise, but this is without reviewing their taxes and going "Well you could be in a lower bracket if you did this..." Then she showed "If you invest in index funds by the time you retire is this" and showed three different numbers in if then statements on how much they could have by the time they retire.
As I was going okay they are starting to take a right step, I looked at the bottom of the screen and saw the calculation were based on 8%. My thought was 8%! IN A SHORT TERM INDEX FUND! As I was scratching my head pondering this the conversation moved to a 401k, the wife had the opportunity to contribute (with no matching) and the husband had none. The FA then said "I Wouldn't put anything in that yet, until the Roth has been matched." That is when I decided that I should go make another pot of coffee and take a shower.

Rebecca Stapler

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Re: 30 with no retirement!
« Reply #1 on: July 26, 2013, 09:59:58 AM »
What do I not understand about how wrong it is to assume an 8% return over 3 decades* in an index fund?

* assuming that "by the time they retire" was also assumed to be 60 yrs old or older. 

acc7x3

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Re: 30 with no retirement!
« Reply #2 on: July 26, 2013, 10:20:17 AM »
I have always assumed about 5 % in my calculations. But I also tend to be on the conservative side of savings rates, and the high side of spending rates.

Riceman

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Re: 30 with no retirement!
« Reply #3 on: July 26, 2013, 10:20:40 AM »
As I was scratching my head pondering this the conversation moved to a 401k, the wife had the opportunity to contribute (with no matching) and the husband had none. The FA then said "I Wouldn't put anything in that yet, until the Roth has been matched." That is when I decided that I should go make another pot of coffee and take a shower.

This also sounds reasonable.  If there's no matching on 401k contributions, I would definitely recommend maxing the IRAs before adding to the 401k.  You can choose your own options and have more flexibility. 

And what do you mean by short-term index fund?  Was it bunds or treasury notes?  Because index mutual funds do not have terms--any could be held for as long or as short as you want.  Moreso funds held in a roth--since there are no taxes on dispersions, you are not penalized by short term capital gains.

While the FA probably could have given more good advice, the advice she did give seems reasonable.

Jamesqf

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Re: 30 with no retirement!
« Reply #4 on: July 26, 2013, 12:03:00 PM »
I don't think it's all that unreasonable to be in your 30s and not have retirement savings.  I was about that age before I even had anything to save.

Albert

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Re: 30 with no retirement!
« Reply #5 on: July 26, 2013, 12:31:37 PM »
That's true. I was 31 when I obtained my first permanent full time job...

MissMimi

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Re: 30 with no retirement!
« Reply #6 on: July 26, 2013, 03:19:50 PM »
...and I was 33 or so.  *sigh*

BlueMR2

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Re: 30 with no retirement!
« Reply #7 on: July 26, 2013, 05:18:25 PM »
I have always assumed about 5 % in my calculations. But I also tend to be on the conservative side of savings rates, and the high side of spending rates.

It all depends on your timing.  I got lucky on housing timing, but overall the market has hosed me pretty good on my investments.  I've been adding new money all the time, but my effective old money is just now getting up to what it was worth when I put it all in for the 20-10 year ago range, for an effective 0% rate on that portion...  I basically have just the fruits of what I've been able to save, plus some dividends, plus a smidge of interest gains here and there (only gains because I get more shares...  Value has been lost).  :-)

Jamesqf

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Re: 30 with no retirement!
« Reply #8 on: July 26, 2013, 07:28:03 PM »
That's true. I was 31 when I obtained my first permanent full time job...

Oh, I had full-time* jobs, they just paid around minimum wage.

 *And sometimes way more than full-time: there were a good many weeks that went over 100 hours.

MrsPete

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Re: 30 with no retirement!
« Reply #9 on: July 27, 2013, 09:51:40 PM »
While not starting early is considered foolish on this website, I'd bet more than half of all thirty-year olds haven't yet started saving for retirement. 

Borrowing for school is considered unavoidable by many people.  Some of my students have "informed me" that school debt is good debt, and you'd be foolish not to build your credit rating this way (I've told a couple that I don't care about my credit rating at all, and they think I'm stupid).  Then there's the need to save for a house, all while making those student loan payments.  And don't you have to furnish the house?  Don't you want to travel a bit before the kids arrive?  From the general public's perspective, this is all the way it is in the modern world.  Starting to save for retirement before 30 looks impossible to many -- if not most -- people. 

Jamesqf

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Re: 30 with no retirement!
« Reply #10 on: July 27, 2013, 11:54:43 PM »
You know, now that I think on it, I still don't save for retirement, 'cause I ain't planning to retire :-)  Sure, I save money, but that's for the security and independence that having a big stash brings.  And I've put money into 401K & IRA, but that was for the employer match & tax deduction,

AlmostIndependent

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Re: 30 with no retirement!
« Reply #11 on: July 28, 2013, 08:52:54 AM »
There isn't anything wrong with not having retirement savings at 30. It's just that if you start early you come out so much farther ahead. An extra decade of compounding does miracles or your net worth.

jrhampt

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Re: 30 with no retirement!
« Reply #12 on: July 29, 2013, 01:24:47 PM »
I think I had a paltry $6k in retirement funds by the time I was thirty.

acc7x3

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Re: 30 with no retirement!
« Reply #13 on: July 29, 2013, 01:53:12 PM »

And what do you mean by short-term index fund? 

While the FA probably could have given more good advice, the advice she did give seems reasonable.

That was all the advice that the FA gave.

There isn't anything wrong with not having retirement savings at 30. It's just that if you start early you come out so much farther ahead. An extra decade of compounding does miracles or your net worth.

The reason that this bothered me was I was stressed at a young age to save.


It all depends on your timing.  I got lucky on housing timing, but overall the market has hosed me pretty good on my investments.  I've been adding new money all the time, but my effective old money is just now getting up to what it was worth when I put it all in for the 20-10 year ago range, for an effective 0% rate on that portion...  I basically have just the fruits of what I've been able to save, plus some dividends, plus a smidge of interest gains here and there (only gains because I get more shares...  Value has been lost).  :-)

And That is why I was shocked at the 8%. I was looking for an internship in college when the market crashed which translated to "no, we are not even looking at hiring any one." This is why I am a bit pessimistic, and plan at about half that rate.