Author Topic: Millennials have a "FU" attitude toward retirement  (Read 13428 times)

zolotiyeruki

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Millennials have a "FU" attitude toward retirement
« on: April 08, 2015, 08:31:54 AM »
Ok, I'm not quite sure what to make of this one:
http://gawker.com/theres-only-one-flaw-in-millennials-financial-plan-1696268877

Short version:  only about 30% of millennials have consulted a financial advisor.  70% feel confident in their finances.  They're also terrible with money.



In any case, what caught my eye was this complainy-pants comment (and gawker is a veritable treasure trove of these):
Quote
Plainly-put, even the most aggressive of stocks I could get into would not be worth investing into as opposed to paying off my wife and I's debt. We are in an incredibly aggressive payment schedule for it, and yet at this rate it will take roughly 15-20 years before we can fully pay it off (Barring unforseen windfalls like a massive promotion, or expenses beyond things like our eventual plan to have kids).

Keep in mind we're both professionals, earning around $75K/year, and yet we still are barely managing to pay $1-2K per year off of the damn debt. Saving for a down payment on a house is something we're trying to do as well so our rent doesn't continue to bleed us dry, and that further chips away at our abilities to not find ourselves with college debt when out kids enter college themselves.

I cannot wait for the student loan bubble to pop like a goddamn firecracker and for actual fucking reform to fall into place instead of the apologetic financial black hole that most colleges are nowadays.
Let's see what we can find wrong here:
1) earning a combined $150k, but only able to pay down $1-2k/year
2) thinking that student loan reform will result in an improvement.  The problem is government policy that encourages college attendance (via subsidized student loans), rather than encouraging an education in a marketable field.  Who's gonna be the one to stick out their neck for reducing government-subsidized loans?

mtn

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Re: Millennials have a "FU" attitude toward retirement
« Reply #1 on: April 08, 2015, 08:38:11 AM »
Just to play devils advocate: It is possible, however unlikely, that they are making $75k a year total combined, and they are only hitting $1-2k worth of the principal on their loans.

Also, I laugh sadly at the "aggressive" repayment plan for the student loan debt, because they probably think it is aggressive, and the company probably told them it is as well. We're paying off my fiance's at what the company thinks is aggressive--a 10 year repayment plan for $30,000. It is the most that they will let you pay on an automatic withdrawal. You can pay as much as you want in one-offs, but I'd really like it if we could just pay more monthly instead of paying an extra 1-2k every few months when we run into money. The worst part? After we do that, it reduces the automatic withdrawals! (Yes, we could just do monthly "one-offs", but we just throw that money to 401k/IRA/Downpayment savings instead)

EDIT: Not to take this off topic, but it is infuriating that when we do pay extra, it is automatically set to go to future payments rather than reducing the principal.
« Last Edit: April 08, 2015, 08:42:13 AM by mtn »

r3dt4rget

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Re: Millennials have a "FU" attitude toward retirement
« Reply #2 on: April 08, 2015, 09:41:41 AM »
In any case, what caught my eye was this complainy-pants comment (and gawker is a veritable treasure trove of these):
Quote
Plainly-put, even the most aggressive of stocks I could get into would not be worth investing into as opposed to paying off my wife and I's debt. We are in an incredibly aggressive payment schedule for it, and yet at this rate it will take roughly 15-20 years before we can fully pay it off (Barring unforseen windfalls like a massive promotion, or expenses beyond things like our eventual plan to have kids).

Keep in mind we're both professionals, earning around $75K/year, and yet we still are barely managing to pay $1-2K per year off of the damn debt. Saving for a down payment on a house is something we're trying to do as well so our rent doesn't continue to bleed us dry, and that further chips away at our abilities to not find ourselves with college debt when out kids enter college themselves.

I cannot wait for the student loan bubble to pop like a goddamn firecracker and for actual fucking reform to fall into place instead of the apologetic financial black hole that most colleges are nowadays.
Let's see what we can find wrong here:
1) earning a combined $150k, but only able to pay down $1-2k/year
2) thinking that student loan reform will result in an improvement.  The problem is government policy that encourages college attendance (via subsidized student loans), rather than encouraging an education in a marketable field.  Who's gonna be the one to stick out their neck for reducing government-subsidized loans?

I don't buy that. I graduated with $60k in loans. I started my job making $40k a year. I make $50k a few years later. I am able to pay $1000-$1500 PER MONTH on my student loans, roughly 50% of my salary. My minimum payments are around $500/month on $60k so I don't understand how their principle only goes down $1-2k a year.

mtn

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Re: Millennials have a "FU" attitude toward retirement
« Reply #3 on: April 08, 2015, 09:48:15 AM »
I don't buy that. I graduated with $60k in loans. I started my job making $40k a year. I make $50k a few years later. I am able to pay $1000-$1500 PER MONTH on my student loans, roughly 50% of my salary. My minimum payments are around $500/month on $60k so I don't understand how their principle only goes down $1-2k a year.

Again, playing devils advocate, because I really do agree with you:

Lets say that they each went to a private school, out of state, no scholarships, all on student loans. That could easily be $250,000.

boyerbt

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Re: Millennials have a "FU" attitude toward retirement
« Reply #4 on: April 08, 2015, 09:55:15 AM »

EDIT: Not to take this off topic, but it is infuriating that when we do pay extra, it is automatically set to go to future payments rather than reducing the principal.

Are you sure that you aren't missing a box that needs to be clicked? My first loan that I paid off I could select an option to pay only towards the principle similar to my mortgage.

MgoSam

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Re: Millennials have a "FU" attitude toward retirement
« Reply #5 on: April 08, 2015, 09:59:32 AM »

EDIT: Not to take this off topic, but it is infuriating that when we do pay extra, it is automatically set to go to future payments rather than reducing the principal.

Are you sure that you aren't missing a box that needs to be clicked? My first loan that I paid off I could select an option to pay only towards the principle similar to my mortgage.

I know some people that will send in two payments, one for the minimum and another to go against principle and on the second they specify on it. Don't know if this is feasible, but yeah.

mtn

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Re: Millennials have a "FU" attitude toward retirement
« Reply #6 on: April 08, 2015, 10:02:54 AM »

EDIT: Not to take this off topic, but it is infuriating that when we do pay extra, it is automatically set to go to future payments rather than reducing the principal.

Are you sure that you aren't missing a box that needs to be clicked? My first loan that I paid off I could select an option to pay only towards the principle similar to my mortgage.

I know some people that will send in two payments, one for the minimum and another to go against principle and on the second they specify on it. Don't know if this is feasible, but yeah.

No, we are clicking the box. I just find it annoying that it is automatically set up to go against future payments rather than the principal.

I'd never thought about doing two monthly payments, one for the minimum, and one against interest principal. In theory, that would reduce the principal much faster since I believe that our current plan (not paying the minimum) is paying on interest. I will have to look into that to see if it would work and crunch the numbers to see how much it would save, it would likely be worth the 5 minutes a month to do so.
« Last Edit: April 08, 2015, 10:05:04 AM by mtn »

mm1970

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Re: Millennials have a "FU" attitude toward retirement
« Reply #7 on: April 08, 2015, 10:32:07 AM »
In any case, what caught my eye was this complainy-pants comment (and gawker is a veritable treasure trove of these):
Quote
Plainly-put, even the most aggressive of stocks I could get into would not be worth investing into as opposed to paying off my wife and I's debt. We are in an incredibly aggressive payment schedule for it, and yet at this rate it will take roughly 15-20 years before we can fully pay it off (Barring unforseen windfalls like a massive promotion, or expenses beyond things like our eventual plan to have kids).

Keep in mind we're both professionals, earning around $75K/year, and yet we still are barely managing to pay $1-2K per year off of the damn debt. Saving for a down payment on a house is something we're trying to do as well so our rent doesn't continue to bleed us dry, and that further chips away at our abilities to not find ourselves with college debt when out kids enter college themselves.

I cannot wait for the student loan bubble to pop like a goddamn firecracker and for actual fucking reform to fall into place instead of the apologetic financial black hole that most colleges are nowadays.
Let's see what we can find wrong here:
1) earning a combined $150k, but only able to pay down $1-2k/year
2) thinking that student loan reform will result in an improvement.  The problem is government policy that encourages college attendance (via subsidized student loans), rather than encouraging an education in a marketable field.  Who's gonna be the one to stick out their neck for reducing government-subsidized loans?

I don't buy that. I graduated with $60k in loans. I started my job making $40k a year. I make $50k a few years later. I am able to pay $1000-$1500 PER MONTH on my student loans, roughly 50% of my salary. My minimum payments are around $500/month on $60k so I don't understand how their principle only goes down $1-2k a year.
I know that this was in the dark ages, but I graduated in 1992 with $11k in debt.
I paid it off in 2.5 years.
I was making $20-$25k a year during most of those 2.5 years (I was an ensign in the Navy).
I didn't live on a ship
I didn't live on base
I didn't shop at the commissary because I was stupid
I did live in the DC area INSIDE THE BELTWAY

What I did do is rent a drafty cold room in the basement of a house.
I took the metro to work
I packed my lunch and ate dinner at home
My "gym membership" for the first 2 years was the local middle school turned rec center, which was $45 a year.  It's now $195 a year (but has also been upgraded to include showers, saunas, and more equipment!)  Not bad for 23 years later.
I slept on a mattress on the floor that the previous renter left there.  And put my clothing on the shelves that were attached to the wall.

KCM5

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Re: Millennials have a "FU" attitude toward retirement
« Reply #8 on: April 08, 2015, 10:32:20 AM »

EDIT: Not to take this off topic, but it is infuriating that when we do pay extra, it is automatically set to go to future payments rather than reducing the principal.

Are you sure that you aren't missing a box that needs to be clicked? My first loan that I paid off I could select an option to pay only towards the principle similar to my mortgage.

I know some people that will send in two payments, one for the minimum and another to go against principle and on the second they specify on it. Don't know if this is feasible, but yeah.

No, we are clicking the box. I just find it annoying that it is automatically set up to go against future payments rather than the principal.

I'd never thought about doing two monthly payments, one for the minimum, and one against interest principal. In theory, that would reduce the principal much faster since I believe that our current plan (not paying the minimum) is paying on interest. I will have to look into that to see if it would work and crunch the numbers to see how much it would save, it would likely be worth the 5 minutes a month to do so.

We always ended up having to call the loan company to get the extra applied to principal. But really, its worth it to call.

PencilThinStash

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Re: Millennials have a "FU" attitude toward retirement
« Reply #9 on: April 08, 2015, 10:38:30 AM »
As a millennial myself, I know I have a very "FU" attitude about retirement and finances...

Except mine was taught to me by jlcollinsnh.

arebelspy

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Re: Millennials have a "FU" attitude toward retirement
« Reply #10 on: April 08, 2015, 10:58:37 AM »
As a millennial myself, I know I have a very "FU" attitude about retirement and finances...

Except mine was taught to me by jlcollinsnh.

I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Jack

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Re: Millennials have a "FU" attitude toward retirement
« Reply #11 on: April 08, 2015, 11:12:27 AM »

EDIT: Not to take this off topic, but it is infuriating that when we do pay extra, it is automatically set to go to future payments rather than reducing the principal.

Are you sure that you aren't missing a box that needs to be clicked? My first loan that I paid off I could select an option to pay only towards the principle similar to my mortgage.

I know some people that will send in two payments, one for the minimum and another to go against principle and on the second they specify on it. Don't know if this is feasible, but yeah.

No, we are clicking the box. I just find it annoying that it is automatically set up to go against future payments rather than the principal.

I'd never thought about doing two monthly payments, one for the minimum, and one against interest principal. In theory, that would reduce the principal much faster since I believe that our current plan (not paying the minimum) is paying on interest. I will have to look into that to see if it would work and crunch the numbers to see how much it would save, it would likely be worth the 5 minutes a month to do so.

We always ended up having to call the loan company to get the extra applied to principal. But really, its worth it to call.

IMO, the fact that payments above the minimum are not applied to principal by default is both deliberate and evil. The CFPB ought to make a rule disallowing it.

How many millions of dollars in extra, unnecessary interest has Sallie Mae made off of people who are trying to pay down their loan faster but who didn't realize they needed to check the checkbox?

SisterX

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Re: Millennials have a "FU" attitude toward retirement
« Reply #12 on: April 08, 2015, 11:18:21 AM »
Why are we discussing clickbait drivel as if it's reasonable, again?

I'm so sick of these "Millenials suck and here's why!" type articles.  Because as we know, all people in a large age group such as this one are homogeneous. Right?  Right? 

Also loved that the author's link to "prove" that this generation is terrible with money was...wait for it...also written by him.  Could it be that he's just a tad biased and is ignoring all of the Millenials who are good with money?  Because there are a fair number of Millenials on this website, myself included, who clearly have their shit together when it comes to money.  Perhaps, and this is just a crazy idea here, this group of people has those who are good with money and those who are bad with money, just like all the generations before it?

thd7t

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Re: Millennials have a "FU" attitude toward retirement
« Reply #13 on: April 08, 2015, 11:26:27 AM »
One major problem with this article (and most articles on any generation) is that it places them in a vacuum and doesn't talk about rates of savings, investment, or use of financial professionals by previous generations when they were a similar age.  The article also cites a Bloomberg article that pretty much claims the opposite of what the gawker author is trying to get across.

hernandz

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Re: Millennials have a "FU" attitude toward retirement
« Reply #14 on: April 08, 2015, 01:28:47 PM »
Quote
IMO, the fact that payments above the minimum are not applied to principal by default is both deliberate and evil. The CFPB ought to make a rule disallowing it.

Amen, amen. 
I am exceedingly grateful (although a bit surprised) that my mortgage is set up with extra money defaulting to principal. They do send me junk mail about setting up a bi-weekly plan, so maybe it's just my state (New York) that requires the extra to go to principal? 

zolotiyeruki

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Re: Millennials have a "FU" attitude toward retirement
« Reply #15 on: April 08, 2015, 01:40:20 PM »

IMO, the fact that payments above the minimum are not applied to principal by default is both deliberate and evil. The CFPB ought to make a rule disallowing it.

I'm having trouble understanding this. Under these conditions, does the lender just take the extra and stick it in a virtual lock box to be redeemed when the next payment is due?  Yeah, that seems to be a bit slimy.

Philociraptor

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Re: Millennials have a "FU" attitude toward retirement
« Reply #16 on: April 08, 2015, 01:44:20 PM »

IMO, the fact that payments above the minimum are not applied to principal by default is both deliberate and evil. The CFPB ought to make a rule disallowing it.

I'm having trouble understanding this. Under these conditions, does the lender just take the extra and stick it in a virtual lock box to be redeemed when the next payment is due?  Yeah, that seems to be a bit slimy.

Basically. Your loan becomes "paid ahead". I noticed this when I paid off my wife's student loans. She had an automatic payment setup, but she had sent extra in the past, so she didn't need to make a payment for something like 2 years. I believe you still pay interest as if those payments had not been made yet.

mtn

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Re: Millennials have a "FU" attitude toward retirement
« Reply #17 on: April 08, 2015, 02:08:14 PM »

IMO, the fact that payments above the minimum are not applied to principal by default is both deliberate and evil. The CFPB ought to make a rule disallowing it.

I'm having trouble understanding this. Under these conditions, does the lender just take the extra and stick it in a virtual lock box to be redeemed when the next payment is due?  Yeah, that seems to be a bit slimy.

Basically. Your loan becomes "paid ahead". I noticed this when I paid off my wife's student loans. She had an automatic payment setup, but she had sent extra in the past, so she didn't need to make a payment for something like 2 years. I believe you still pay interest as if those payments had not been made yet.

Yes, you're paying extra interest this way. It is an alright system if your income is EXTREMELY sporadic and unknown. Otherwise, it is thievery.

Indexer

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Re: Millennials have a "FU" attitude toward retirement
« Reply #18 on: April 08, 2015, 07:27:45 PM »

IMO, the fact that payments above the minimum are not applied to principal by default is both deliberate and evil. The CFPB ought to make a rule disallowing it.

I'm having trouble understanding this. Under these conditions, does the lender just take the extra and stick it in a virtual lock box to be redeemed when the next payment is due?  Yeah, that seems to be a bit slimy.


Basically. Your loan becomes "paid ahead". I noticed this when I paid off my wife's student loans. She had an automatic payment setup, but she had sent extra in the past, so she didn't need to make a payment for something like 2 years. I believe you still pay interest as if those payments had not been made yet.

I can't say for 100% sure without looking at the statement, but I can say with 99% probability this is probably not what is happening.  You are paid ahead, but it still went to principal.  I've had a car loan(in the past) and student loans that both worked this way.  I also use to work in a bank and I had to explain this to a few clients... and even a few other bankers [facepalm].

Lets say the min payment is $300.  I pay $500.  Next month my bill says I only owe $100.  However if I look at the principal it in fact did go down an extra $200.

What they are doing is looking at your amortization schedule and saying "Based on X years left what do they need to pay to stay 'current' on this amortization schedule?"  If the schedule says you should owe 24000 26 months into the loan and you actually only owe 23000 when you are 26 months in then the required payment becomes zero.  You might even get a bill that says the payment is $XXX.XX, but the DUE date is far out in the future.

Trust me I looked into this a lot.  My car payment at one point said I owed $104 as my next payment... and the due date was almost 2 years away.  This was right before I paid it off 2 years early.  I watched that principal like a hawk and it was going down and the interest being charged on the principal was also going down.  Interest charged my final month before I paid it off was in cents.  They were only charging interest on what was still left in principal, not principal + 2 years worth of deferred payments.

midweststache

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Re: Millennials have a "FU" attitude toward retirement
« Reply #19 on: April 08, 2015, 07:34:07 PM »
The initial comment on rate of investment return re: investing vs. paying off debt could be legitimate. My BF's student loans, taken out from 2010-2012, are at 7.125%. That's not private loans; those are federal loans, and they were the most competitive rates at the time. So technically, it's a safer rate of return to pay off the debt than to invest in the market, which may only make a 5-6% return.

But we have a similar income and average $1,000/month in payments, not $1-2K/year...

tofuchampion

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Re: Millennials have a "FU" attitude toward retirement
« Reply #20 on: April 08, 2015, 08:44:37 PM »
Quote
my wife and I's debt.

Quote
my wife and I's

Quote
I's

Clearly, whatever his education cost, it was too damn much.

Kris

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Re: Millennials have a "FU" attitude toward retirement
« Reply #21 on: April 08, 2015, 08:45:47 PM »
Quote
my wife and I's debt.

Quote
my wife and I's

Quote
I's

Clearly, whatever his education cost, it was too damn much.

Heh.

thd7t

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Re: Millennials have a "FU" attitude toward retirement
« Reply #22 on: April 09, 2015, 06:38:15 AM »
Quote
my wife and I's debt.

Quote
my wife and I's

Quote
I's

Clearly, whatever his education cost, it was too damn much.
Far too many teachers teach use of objects wrong.  It's ridiculous.

JR

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Re: Millennials have a "FU" attitude toward retirement
« Reply #23 on: April 09, 2015, 08:25:15 AM »
Ok, I'm not quite sure what to make of this one:
http://gawker.com/theres-only-one-flaw-in-millennials-financial-plan-1696268877

Short version:  only about 30% of millennials have consulted a financial advisor.  70% feel confident in their finances.  They're also terrible with money.



In any case, what caught my eye was this complainy-pants comment (and gawker is a veritable treasure trove of these):
Quote
Plainly-put, even the most aggressive of stocks I could get into would not be worth investing into as opposed to paying off my wife and I's debt. We are in an incredibly aggressive payment schedule for it, and yet at this rate it will take roughly 15-20 years before we can fully pay it off (Barring unforseen windfalls like a massive promotion, or expenses beyond things like our eventual plan to have kids).

Keep in mind we're both professionals, earning around $75K/year, and yet we still are barely managing to pay $1-2K per year off of the damn debt. Saving for a down payment on a house is something we're trying to do as well so our rent doesn't continue to bleed us dry, and that further chips away at our abilities to not find ourselves with college debt when out kids enter college themselves.

I cannot wait for the student loan bubble to pop like a goddamn firecracker and for actual fucking reform to fall into place instead of the apologetic financial black hole that most colleges are nowadays.
Let's see what we can find wrong here:
1) earning a combined $150k, but only able to pay down $1-2k/year
2) thinking that student loan reform will result in an improvement.  The problem is government policy that encourages college attendance (via subsidized student loans), rather than encouraging an education in a marketable field.  Who's gonna be the one to stick out their neck for reducing government-subsidized loans?

I saw this article and comment as well. Further down the comment chain the poster does clarify that their HH income is $75k. He also says that they both graduated their undergrads debt free and their total student loans that will supposedly take them 15-20 years to pay off only amounts to $30-$35k.

zolotiyeruki

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Re: Millennials have a "FU" attitude toward retirement
« Reply #24 on: April 09, 2015, 12:42:30 PM »
I saw this article and comment as well. Further down the comment chain the poster does clarify that their HH income is $75k. He also says that they both graduated their undergrads debt free and their total student loans that will supposedly take them 15-20 years to pay off only amounts to $30-$35k.
Still, on a $75k income they can only pay $1-2k?  With no kids?

thd7t

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Re: Millennials have a "FU" attitude toward retirement
« Reply #25 on: April 09, 2015, 12:49:34 PM »
We don't know their debt level or their interest rates.  I have student loans from grad school 10 years ago at 3.5% (and I write off the interest).  I pay down about $2k/year.  It's not a priority.  It sounds bad, but if people prioritize investing, it really isn't.

arebelspy

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Re: Millennials have a "FU" attitude toward retirement
« Reply #26 on: April 09, 2015, 01:01:32 PM »
We don't know their debt level or their interest rates.  I have student loans from grad school 10 years ago at 3.5% (and I write off the interest).  I pay down about $2k/year.  It's not a priority.  It sounds bad, but if people prioritize investing, it really isn't.

Ah, but that's not the case here, they said they couldn't invest because of debt, and had to pay it all off first (aside from saving for a down payment), which would take 15-20 years at 1-2k/yr.

That's very different than not prioritizing it for investments.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Jack

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Re: Millennials have a "FU" attitude toward retirement
« Reply #27 on: April 09, 2015, 02:11:37 PM »
We don't know their debt level or their interest rates.  I have student loans from grad school 10 years ago at 3.5% (and I write off the interest).  I pay down about $2k/year.  It's not a priority.  It sounds bad, but if people prioritize investing, it really isn't.

Ah, but that's not the case here, they said they couldn't invest because of debt, and had to pay it all off first (aside from saving for a down payment), which would take 15-20 years at 1-2k/yr.

That's very different than not prioritizing it for investments.

We don't know their debt level of interest rates, but it's easy to construct a plausible set of assumptions that could result in them only paying off $2k in principal per year while not having "enough" money (in a mainstream, not mustachian sense) to invest.

Let's assume they borrowed $62,500 each, for a total of $125K. Let's also assume their interest rate is 6.8%. Let's further assume that their loans are set on a 25-year amortization schedule to keep the payments "affordable" (again, in a mainstream sense).

These are all completely realistic (mainstream) assumptions!

In that case, their total monthly payment would be $867.59. In the first month, $708.33 of that would go to interest, and only $159.26 would go to principal. After the first year, they would have paid $8439.30 in interest and $1971.78 in principal.

On $75K annual gross income, their take-home pay is probably somewhere around $4K/month (wildly guessing because I'm not about to calculate their taxes right now). Remember, their taxes are going to be pretty high because they don't have a large mortgage interest deduction and they're not contributing much of their income to tax-deferred accounts. Really, the only tax deduction they're probably getting beyond the standard deduction is the student loan interest deduction, and that's capped to only reduce AGI by $5000.

They're probably going by the "standard rule of thumb" of paying 30% of their income on housing (and worse, might even be thinking of the rule as 30% of gross income), which means their rent might be anywhere between $1200/month and $1875/month.

So, $4K - $1200 (being optimistic here) - $867.59 = $1932.41 left, with all expenses sans housing yet to be paid for. Let's assume they have two relatively new financed cars ($300/month each, all in? -- again, optimistic), spend $200/month on assorted telecommunications (cellphone service, internet, cable TV -- still optimistic), $200/month on electricity and other utilities, and $600 on food (groceries plus eating out). That reduces their "discretionary income" to $332.41/month -- and that's the optimistic scenario! If I had made pessimistic assumptions, they'd have been in the negative before I even got to the food part of the budget.

And "of course" once you add in things like clothes, entertainment, and "little indulgences" even that $332.41 is gone before you have a chance to even think about investing it.

Speaking as a Millennial myself, all of that above is what middle class, college-educated Millennials have been trained to believe is "reasonable." Isn't that scary?

I'm not saying it's smart or (in a mustachian sense) reasonable, but it's entirely plausible that these people genuinely think they can't afford to invest even though they're only paying $2K in student loan principal per year.
« Last Edit: April 09, 2015, 02:48:50 PM by Jack »

arebelspy

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Re: Millennials have a "FU" attitude toward retirement
« Reply #28 on: April 09, 2015, 02:30:08 PM »
Thanks for the math breakdown, Jack.  You're very likely right.  It's quite a sad situation, in general.

If they realized their hair was on fire, and took a few facepunches to their budget, they could buckle down and knock it out.  But alas, what is expected and normal is to carry debt and save little.
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Re: Millennials have a "FU" attitude toward retirement
« Reply #29 on: April 10, 2015, 05:37:44 AM »
We don't know their debt level or their interest rates.  I have student loans from grad school 10 years ago at 3.5% (and I write off the interest).  I pay down about $2k/year.  It's not a priority.  It sounds bad, but if people prioritize investing, it really isn't.

Ah, but that's not the case here, they said they couldn't invest because of debt, and had to pay it all off first (aside from saving for a down payment), which would take 15-20 years at 1-2k/yr.

That's very different than not prioritizing it for investments.

We don't know their debt level of interest rates, but it's easy to construct a plausible set of assumptions that could result in them only paying off $2k in principal per year while not having "enough" money (in a mainstream, not mustachian sense) to invest.

Let's assume they borrowed $62,500 each, for a total of $125K. Let's also assume their interest rate is 6.8%. Let's further assume that their loans are set on a 25-year amortization schedule to keep the payments "affordable" (again, in a mainstream sense).

These are all completely realistic (mainstream) assumptions!

In that case, their total monthly payment would be $867.59. In the first month, $708.33 of that would go to interest, and only $159.26 would go to principal. After the first year, they would have paid $8439.30 in interest and $1971.78 in principal.

On $75K annual gross income, their take-home pay is probably somewhere around $4K/month (wildly guessing because I'm not about to calculate their taxes right now). Remember, their taxes are going to be pretty high because they don't have a large mortgage interest deduction and they're not contributing much of their income to tax-deferred accounts. Really, the only tax deduction they're probably getting beyond the standard deduction is the student loan interest deduction, and that's capped to only reduce AGI by $5000.

They're probably going by the "standard rule of thumb" of paying 30% of their income on housing (and worse, might even be thinking of the rule as 30% of gross income), which means their rent might be anywhere between $1200/month and $1875/month.

So, $4K - $1200 (being optimistic here) - $867.59 = $1932.41 left, with all expenses sans housing yet to be paid for. Let's assume they have two relatively new financed cars ($300/month each, all in? -- again, optimistic), spend $200/month on assorted telecommunications (cellphone service, internet, cable TV -- still optimistic), $200/month on electricity and other utilities, and $600 on food (groceries plus eating out). That reduces their "discretionary income" to $332.41/month -- and that's the optimistic scenario! If I had made pessimistic assumptions, they'd have been in the negative before I even got to the food part of the budget.

And "of course" once you add in things like clothes, entertainment, and "little indulgences" even that $332.41 is gone before you have a chance to even think about investing it.

Speaking as a Millennial myself, all of that above is what middle class, college-educated Millennials have been trained to believe is "reasonable." Isn't that scary?

I'm not saying it's smart or (in a mustachian sense) reasonable, but it's entirely plausible that these people genuinely think they can't afford to invest even though they're only paying $2K in student loan principal per year.

Jack,
They clarify further down the comments that their total debt is only $35k. Even before my wife and I thought of early retirement or knew of MMM we could have paid off that debt in less than two years when our HH income was $75k.
« Last Edit: April 10, 2015, 05:40:26 AM by JR »

Jack

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Re: Millennials have a "FU" attitude toward retirement
« Reply #30 on: April 10, 2015, 07:27:04 AM »
Jack,
They clarify further down the comments that their total debt is only $35k. Even before my wife and I thought of early retirement or knew of MMM we could have paid off that debt in less than two years when our HH income was $75k.

Well, damn. In that case, I have no sympathy for them at all -- for that little debt (still assuming 6.8% interest), a standard 10-year repayment plan is only $402.78/month, and pays off $2531.30 in principal in the first year. (A 25-year repayment plan only pays off $552.10 in principal in the first year, but has a silly-low $242.92 payment.)

I should also note that at $75K HH income and $35K of HH student loan debt, they have both more income and less debt than me! But do you see me complaining? No (except in a general sense, in that other thread).

arebelspy

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Re: Millennials have a "FU" attitude toward retirement
« Reply #31 on: April 10, 2015, 09:01:55 AM »
Jack,
They clarify further down the comments that their total debt is only $35k. Even before my wife and I thought of early retirement or knew of MMM we could have paid off that debt in less than two years when our HH income was $75k.

Well, damn. In that case, I have no sympathy for them at all -- for that little debt (still assuming 6.8% interest), a standard 10-year repayment plan is only $402.78/month, and pays off $2531.30 in principal in the first year. (A 25-year repayment plan only pays off $552.10 in principal in the first year, but has a silly-low $242.92 payment.)

I should also note that at $75K HH income and $35K of HH student loan debt, they have both more income and less debt than me! But do you see me complaining? No (except in a general sense, in that other thread).

I'm betting you pay off more than 1-2k of principal/yr though.

They probbaly have a 25-year repayment plan and throw a little extra at the principal to get to the between 1-2k number, and think they're doing everything they can.
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Jack

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Re: Millennials have a "FU" attitude toward retirement
« Reply #32 on: April 10, 2015, 09:17:05 AM »
I should also note that at $75K HH income and $35K of HH student loan debt, they have both more income and less debt than me! But do you see me complaining? No (except in a general sense, in that other thread).

I'm betting you pay off more than 1-2k of principal/yr though.

Well, I paid off one of my loans as a $3100 lump sum a few months ago, so yes. (I left them unconsolidated so I can preferentially pay off the higher-interest ones first.)

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Re: Millennials have a "FU" attitude toward retirement
« Reply #33 on: April 10, 2015, 11:47:57 AM »
I should also note that at $75K HH income and $35K of HH student loan debt, they have both more income and less debt than me! But do you see me complaining? No (except in a general sense, in that other thread).

I'm betting you pay off more than 1-2k of principal/yr though.

Well, I paid off one of my loans as a $3100 lump sum a few months ago, so yes. (I left them unconsolidated so I can preferentially pay off the higher-interest ones first.)

And that is the right way to do it.

MrsPete

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Re: Millennials have a "FU" attitude toward retirement
« Reply #34 on: April 10, 2015, 03:36:30 PM »
Ok, I'm not quite sure what to make of this one:
http://gawker.com/theres-only-one-flaw-in-millennials-financial-plan-1696268877

Short version:  only about 30% of millennials have consulted a financial advisor.  70% feel confident in their finances.  They're also terrible with money.



In any case, what caught my eye was this complainy-pants comment (and gawker is a veritable treasure trove of these):
Quote
Plainly-put, even the most aggressive of stocks I could get into would not be worth investing into as opposed to paying off my wife and I's debt. We are in an incredibly aggressive payment schedule for it, and yet at this rate it will take roughly 15-20 years before we can fully pay it off (Barring unforseen windfalls like a massive promotion, or expenses beyond things like our eventual plan to have kids).

Keep in mind we're both professionals, earning around $75K/year, and yet we still are barely managing to pay $1-2K per year off of the damn debt. Saving for a down payment on a house is something we're trying to do as well so our rent doesn't continue to bleed us dry, and that further chips away at our abilities to not find ourselves with college debt when out kids enter college themselves.

I cannot wait for the student loan bubble to pop like a goddamn firecracker and for actual fucking reform to fall into place instead of the apologetic financial black hole that most colleges are nowadays.
Let's see what we can find wrong here:
1) earning a combined $150k, but only able to pay down $1-2k/year
2) thinking that student loan reform will result in an improvement.  The problem is government policy that encourages college attendance (via subsidized student loans), rather than encouraging an education in a marketable field.  Who's gonna be the one to stick out their neck for reducing government-subsidized loans?
Could it be that the majority of not-yet-30-somethings just aren't old enough yet to realize that they will grow older and retirement is a real concern?  I mean, this board is a self-selected subgroup of people who've figured it out, but within every age cohort LOTS of people don't become serious about retirement until they reach 30, 40, 50, even 60. 

As for the idiots mentioned above, I wonder if they meant they earn 75K COMBINED or 75K EACH?  Big difference.  Regardless, they should be able to pay more than 1-2K/year (even if they mean principle alone), and the fact that they seem to be "guestimating" 1-2K (a 100% difference) is a hint that they're not particularly watching their finances carefully. 

justajane

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Re: Millennials have a "FU" attitude toward retirement
« Reply #35 on: April 10, 2015, 03:55:55 PM »
Regarding millenial student loans and such, what the hell is going to happen in 25 years when the first batch of IBR recipients get their loans forgiven? Will IBR tax bills derail what retirement money people have managed to save? I.e. Oh, shit, I owe 100K now and have to take it from our 401K?

clarkfan1979

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Re: Millennials have a "FU" attitude toward retirement
« Reply #36 on: April 14, 2015, 05:43:28 AM »
Ok, I'm not quite sure what to make of this one:
http://gawker.com/theres-only-one-flaw-in-millennials-financial-plan-1696268877

Short version:  only about 30% of millennials have consulted a financial advisor.  70% feel confident in their finances.  They're also terrible with money.



In any case, what caught my eye was this complainy-pants comment (and gawker is a veritable treasure trove of these):
Quote
Plainly-put, even the most aggressive of stocks I could get into would not be worth investing into as opposed to paying off my wife and I's debt. We are in an incredibly aggressive payment schedule for it, and yet at this rate it will take roughly 15-20 years before we can fully pay it off (Barring unforseen windfalls like a massive promotion, or expenses beyond things like our eventual plan to have kids).

Keep in mind we're both professionals, earning around $75K/year, and yet we still are barely managing to pay $1-2K per year off of the damn debt. Saving for a down payment on a house is something we're trying to do as well so our rent doesn't continue to bleed us dry, and that further chips away at our abilities to not find ourselves with college debt when out kids enter college themselves.

I cannot wait for the student loan bubble to pop like a goddamn firecracker and for actual fucking reform to fall into place instead of the apologetic financial black hole that most colleges are nowadays.
Let's see what we can find wrong here:
1) earning a combined $150k, but only able to pay down $1-2k/year
2) thinking that student loan reform will result in an improvement.  The problem is government policy that encourages college attendance (via subsidized student loans), rather than encouraging an education in a marketable field.  Who's gonna be the one to stick out their neck for reducing government-subsidized loans?

The majority of people who are in student loan debt trouble went to for-profit colleges. The regular not-for-profit college dream is still a great option for many people. Over the last 10 years the rate for a car loan has been cheaper than government student loans. 

thd7t

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Re: Millennials have a "FU" attitude toward retirement
« Reply #37 on: April 14, 2015, 06:47:21 AM »
Regarding millenial student loans and such, what the hell is going to happen in 25 years when the first batch of IBR recipients get their loans forgiven? Will IBR tax bills derail what retirement money people have managed to save? I.e. Oh, shit, I owe 100K now and have to take it from our 401K?
Well, to owe $100k, you'd have to be forgiven $400k in the 25% tax bracket.  That could hit some people, but with the average student loan debt at $30k, even if it's forgiven without having anything paid back in 20 years at 7%, it would be $120k (and this doesn't take inflation into account, which lessens the blow).  This would lead to a $30k tax hit, which would be very rough on people, but seems like more of a worst case scenario than is realistic.

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Re: Millennials have a "FU" attitude toward retirement
« Reply #38 on: April 14, 2015, 10:53:34 AM »
Why are we discussing clickbait drivel as if it's reasonable, again?

I'm so sick of these "Millenials suck and here's why!" type articles.  Because as we know, all people in a large age group such as this one are homogeneous. Right?  Right? 

Also loved that the author's link to "prove" that this generation is terrible with money was...wait for it...also written by him.  Could it be that he's just a tad biased and is ignoring all of the Millenials who are good with money?  Because there are a fair number of Millenials on this website, myself included, who clearly have their shit together when it comes to money.  Perhaps, and this is just a crazy idea here, this group of people has those who are good with money and those who are bad with money, just like all the generations before it?
HEAR HEAR.
I'm not even a Millennial, and I have an "FU" attitude toward anyone who spews this mindless oversimplified horseshit about Millennials.

SisterX

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Re: Millennials have a "FU" attitude toward retirement
« Reply #39 on: April 14, 2015, 01:24:32 PM »
Why are we discussing clickbait drivel as if it's reasonable, again?

I'm so sick of these "Millenials suck and here's why!" type articles.  Because as we know, all people in a large age group such as this one are homogeneous. Right?  Right? 

Also loved that the author's link to "prove" that this generation is terrible with money was...wait for it...also written by him.  Could it be that he's just a tad biased and is ignoring all of the Millenials who are good with money?  Because there are a fair number of Millenials on this website, myself included, who clearly have their shit together when it comes to money.  Perhaps, and this is just a crazy idea here, this group of people has those who are good with money and those who are bad with money, just like all the generations before it?
HEAR HEAR.
I'm not even a Millennial, and I have an "FU" attitude toward anyone who spews this mindless oversimplified horseshit about Millennials.

I should have added that I'm equally sick of all similar articles of this type: "Baby Boomers will NEVER be able to retire, even after the impending Apocalypse!"  "Generation X is going to need to have their corpses reanimated so that they can keep working until AT LEAST 130, just so their families can stay afloat!"  It's all clickbait, doomer horseshit.

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Re: Millennials have a "FU" attitude toward retirement
« Reply #40 on: April 14, 2015, 03:26:47 PM »
This attitude probably is pervasive through all generations.  Most generations don't save enough for retirement. The difference is older generations tend to spend less by habit.

MMM might be the first unique generation to really think retirement.

MgoSam

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Re: Millennials have a "FU" attitude toward retirement
« Reply #41 on: April 14, 2015, 03:41:10 PM »
This attitude probably is pervasive through all generations.  Most generations don't save enough for retirement. The difference is older generations tend to spend less by habit.

MMM might be the first unique generation to really think retirement.

We are also the first generation that has been warned about the lack of pensions, stagnant wages, long-term unemployment, and risks to SS. This, at least in me, has made me realize that I need to protect myself and save up at a young age. It also helps that I saw my father waste a lot of money and worry about money even though he is about to turn 65 and doesn't have a significantly high cost of living.

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Re: Millennials have a "FU" attitude toward retirement
« Reply #42 on: April 15, 2015, 12:47:18 PM »
We are also the first generation that has been warned about the lack of pensions, stagnant wages, long-term unemployment, and risks to SS.
I'm pretty sure MMM transcends generations and ages.
Regardless, the line I quoted here really resonates with me. A big part of why I started planning so early was hearing all the concerns about SS and national debt. Not all of it was legit, but it was enough to make me realize nobody would do more for my future than I myself would.