Author Topic: Why the multimillion retirement is not for the middle class.  (Read 13212 times)

Jags4186

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Why the multimillion retirement is not for the middle class.
« on: December 19, 2014, 12:25:44 PM »
http://www.theguardian.com/money/us-money-blog/2014/feb/03/retirement-saving-study-fantasy-salary-millions

this article really made me chuckle. 

"if you save 20k a year for 110 years you can have a $2.2 million nest egg at retirement and live on $100k/yr!"

Taran Wanderer

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Re: Why the multimillion retirement is not for the middle class.
« Reply #1 on: December 19, 2014, 12:40:22 PM »
The author has apparently never heard of the miracle of compound interest.

Kaspian

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Re: Why the multimillion retirement is not for the middle class.
« Reply #2 on: December 19, 2014, 12:58:53 PM »
Wow, another "you can't win, so don't try" article.  :(  Do these people ever invent working solutions?  Maybe the social blame should start slowly shifting from government, corporations, inflation, and wages to journalists and mass media who've told people that something could never be done.

zataks

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Re: Why the multimillion retirement is not for the middle class.
« Reply #3 on: December 19, 2014, 12:59:23 PM »
I stopped reading at "holy denial". 

It starts off with a complainypants tone and only gets worse. 

shotgunwilly

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Re: Why the multimillion retirement is not for the middle class.
« Reply #4 on: December 19, 2014, 01:00:58 PM »
How the hell do idiots like this get jobs writing articles? Is it because the majority of the population is going "Yea! Yea, that's right!"

arebelspy

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Re: Why the multimillion retirement is not for the middle class.
« Reply #5 on: December 19, 2014, 01:54:40 PM »
The author has apparently never heard of the miracle of compound interest.

Apparently, or they think real returns will be flat over a 110 year period.

That was a real eye roller.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
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irishbear99

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Re: Why the multimillion retirement is not for the middle class.
« Reply #6 on: December 19, 2014, 02:06:38 PM »
This is news to me...

Quote
If you save more than 20% of your salary for retirement, you're giving up enjoying your present life: you're dedicating yourself to living in holy denial of all worldly pleasures like a monk or a nun, in the hopes of a lavish, or at least an exceedingly comfortable, life when you're over 60-years-old.

I think I threw up a little in my mouth when I read this. Anyone have the cliff notes? I can't bring myself to read further.

Leanthree

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Re: Why the multimillion retirement is not for the middle class.
« Reply #7 on: December 19, 2014, 02:25:37 PM »
So let's be constructive. So let's say the 40 year old has no savings or investments and $0 in their 401k or similar accounts and they are able to save $20,000 per year for 27 years until social security and medicare kick in in full @7.5%* then they will have $1.6 million which will provide for a capital gains only taxed income of $64,505 @4% SWR. Supplementing this with $2642** a month in Social Security and they are making $96,209 per year, most of which is taxed at long term cap gains rates or dividend rates. This person didn't do a damn thing until they were 40 and yet they are going to have an exceptionally nice "normal" retirement fulfilling their exact goals.

Personally I'd want to retire earlier by saving more and spending less but the math works even for non-mustachians if they procrastinated a ton, but can save the 20% a year, and are ok with retiring at 67.


The S&P 500 dividends reinvested rate of return in the last 27 years is 7.6%* so knock off .13% for vanguard fees. source: http://dqydj.net/sp-500-return-calculator/

**Fictional person born in January 1974 unmarried making $150k per year. Having a spouse and the $150k as HHI doesn't matter. http://www.aarp.org/work/social-security/social-security-benefits-calculator.html#/step1
« Last Edit: December 19, 2014, 02:32:01 PM by Leanthree »

PowerMustache

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Re: Why the multimillion retirement is not for the middle class.
« Reply #8 on: December 19, 2014, 02:29:34 PM »
The author Heidi Moore really should learn more about investing before writing an article about it. It sounds like her main problem is lack of understanding about the nature of risk. She did actually acknowledge the existence of compound interest, but brushed right past it by setting up a straw man argument that we need to invest in "riskless assets" for retirement. Not sure where she got that idea, she puts "riskless assets" in quotes but doesn't say where it came from. In general she is critiquing a study from the Financial Analysts Journal which sounds relatively sensible. I doubt an article in something called the Financial Analysts Journal would advocate for investing in riskless assets. For all the flaws of investment professionals, they usually don't pretend there is no risk in investing.

slugline

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Re: Why the multimillion retirement is not for the middle class.
« Reply #9 on: December 19, 2014, 02:35:20 PM »
I think we all just bit at a piece of click-bait.

Even with compounding under a pitiful 1% interest rate, $20K annual savings gets you to millionaire status in 40 years. The math is so bad the article must be a dripping piece of bait....
« Last Edit: December 19, 2014, 02:37:45 PM by slugline »

UnleashHell

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Re: Why the multimillion retirement is not for the middle class.
« Reply #10 on: December 19, 2014, 02:35:40 PM »
Its from February.

Its possible that she's become less clueless since. However if she got paid to write that piece of turgid bullshit then I doubt it.


maybe I'll become a part time Journo when I fire. Obviously don't need common sense or fact checking ability.

Runge

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Re: Why the multimillion retirement is not for the middle class.
« Reply #11 on: December 19, 2014, 02:36:58 PM »
My goodness...

Unless the math I've been doing all along is completely broken...if you invested ONLY 20k and simply assumed an average 7% return you'd get to 2.2 mil in 70 years!

Seriously, how can people be this ignorant about compounding interest? And why do people really think that "saving for retirement" means you only put money in a savings account?

The writer is completely right that if you put 20k under your mattress every year, it would take you 110 years to get there, so if that's your plan then you're completely hopeless. Unless you have the bright idea to take one of those years, invest 20k and then blow away the rest of the money you've been stashing under your mattress on whatever you want, because you'll hit your retirement goal 40 years earlier!

But that would require said person to have even a limited knowledge of compounding interest, which would logically lead them to realize..."hey...if I can sock away 20k in investments EVERY YEAR, then I'll reach 2.2 mil in 32 years!" Yet again shaving nearly 40 years off the previous mark.

dragoncar

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Re: Why the multimillion retirement is not for the middle class.
« Reply #12 on: December 19, 2014, 02:45:30 PM »
The author has apparently never heard of the miracle of compound interest.

Apparently, or they think real returns will be flat over a 110 year period.

That was a real eye roller.

In which case the 4.5% withdrawal rate they are planning is probably a bad idea.

Shamantha

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Re: Why the multimillion retirement is not for the middle class.
« Reply #13 on: December 19, 2014, 02:50:08 PM »
What I also don't understand is why according to the author you can live on 80.000 or even 70.000 when working (saving the rest for etirement) but would need 100.000 a year after retirement. With proper planning the mortgage is gone, the costs of commuting to work are gone, you may have downsized your house and got some money out of that. How could you need so much more money than when working?

One Noisy Cat

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Re: Why the multimillion retirement is not for the middle class.
« Reply #14 on: December 19, 2014, 03:00:02 PM »
     In the comments someone mentioned Mr Money Mustache and how to live comfortably on $24,000 a year. The author replied she has read it but since MMM has no mortgage, it's not relevant.
    Don't most retired people have a paid-up mortgage (or should)? And aren't there a lot who downsize with the children moved out?

robotclown

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Re: Why the multimillion retirement is not for the middle class.
« Reply #15 on: December 19, 2014, 05:36:16 PM »
I really need to start writing some of these articles on the side and rake in some extra cash.  Obviously there are no qualifications needed.

dragoncar

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Re: Why the multimillion retirement is not for the middle class.
« Reply #16 on: December 19, 2014, 05:59:41 PM »
     In the comments someone mentioned Mr Money Mustache and how to live comfortably on $24,000 a year. The author replied she has read it but since MMM has no mortgage, it's not relevant.
    Don't most retired people have a paid-up mortgage (or should)? And aren't there a lot who downsize with the children moved out?

I think it's valid to include housing expenses in the comparison.

tofuchampion

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Re: Why the multimillion retirement is not for the middle class.
« Reply #17 on: December 19, 2014, 06:02:58 PM »
Quote
Another 30% goes to lifestyle expenses – the things that make life liveable unless you prefer living in a hut: cable and phone plans, clothes, books, gym fees, childcare and pets, restaurants and entertainment.

Um...

cable: $8/mo for netflix = $96/year
phones:  $30/mo for 2 smartphones = $360/year
clothes:  $50/mo for me, husband, and 2 kids = $600/year
books:  $0 unless I return a library book late = $20/year realistically
gym:  $20/mo for employee gym through work = $240/year
childcare:  $0
pets:  $60/mo for a dog, a cat, and a guinea pig = $720/year
restaurants:  $30/mo = $360/year
entertainment:  $0 because I have Netflix, the library, the gym, and everything else listed above, so what else do I need to spend on?

total annual spending = $2396, which is 5.99% of our (roughly) $40K yearly net income.  That's 1/5 of her 30%, and these aren't super-Mustachian numbers. 

Somehow I don't live in a hut, and my life is way above "livable."

Oh well.
« Last Edit: December 19, 2014, 06:05:55 PM by tofuchampion »

NumberJohnny5

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Re: Why the multimillion retirement is not for the middle class.
« Reply #18 on: December 19, 2014, 06:03:59 PM »
I really need to start writing some of these articles on the side and rake in some extra cash.  Obviously there are no qualifications needed.

Good idea. But how can you pass yourself off as multiple people (for maximum profit)? Don't think you can write under multiple pseudonyms for the same company. Unless...you work for your own company, then contract out work that way...ah ha!

You'll soon be hearing from Holly Witherington and Mark Maloney. Holly's a 25 year old single female who has over $50k in credit card debt and lives at home with her parents. Her savvy financial advice includes such nuggets as "rent a storage unit with a/c so you can store all those great Black Friday deals!" and "How I earned $300 in credit card rewards and only had to pay $1,500 in interest!" Mark is a 45 year old recent divorcee. He lives on a mere $65,000/yr and can't afford child support. His financial advice includes gems such as "buy the most expensive new car right before the child support hearing, that's $650/mo of your income tied up in debt obligations, and less you have to pay your !#%@&* ex!" and "The kids stay with her during the week, so she should be responsible for all expenses incurred during the week (school shoes, school trips, school lunches, etc.)."

LalsConstant

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Re: Why the multimillion retirement is not for the middle class.
« Reply #19 on: December 19, 2014, 07:49:13 PM »
Quote
This is a reasonable budget. If you save more than 20% of your salary for retirement, you're giving up enjoying your present life: you're dedicating yourself to living in holy denial of all worldly pleasures like a monk or a nun, in the hopes of a lavish, or at least an exceedingly comfortable, life when you're over 60-years-old. Twenty percent for retirement is, by the way, an aggressive goal. Most people save much less.

While those last two sentences actually are correct, the first two sentences are so wrong it hurts.

deborah

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Re: Why the multimillion retirement is not for the middle class.
« Reply #20 on: December 19, 2014, 08:09:08 PM »
What happened to their employer match? Why did they only start at 40?

r3dt4rget

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Re: Why the multimillion retirement is not for the middle class.
« Reply #21 on: December 19, 2014, 08:16:49 PM »
"... you're giving up enjoying your present life."

No one that is content in their life is going to write an article this negative. It sounds as if this person realized they are not going to retire, and decided to throw a pity party.

MrsPete

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Re: Why the multimillion retirement is not for the middle class.
« Reply #22 on: December 21, 2014, 09:12:08 PM »
So, if you save more than 20% you're giving up enjoyment in your present life. 

Apparently it makes no difference whether you earn 20K/year or 200K/year.  Saving more than 20% means you're not enjoying life. 

Noted. 

zephyr911

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Re: Why the multimillion retirement is not for the middle class.
« Reply #23 on: December 22, 2014, 08:27:50 AM »
So, if you save more than 20% you're giving up enjoyment in your present life. 

Apparently it makes no difference whether you earn 20K/year or 200K/year.  Saving more than 20% means you're not enjoying life. 

Noted.
By this rationale, getting a raise could actually be a disastrous blow to your happiness, if you can't find a way to instantly increase your spending by at least the same rate. #complainypantslogic

MandyM

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Re: Why the multimillion retirement is not for the middle class.
« Reply #24 on: December 22, 2014, 08:44:58 AM »
My favorite part (even before I read a word) was that one of the links on the right side of the page was for another article titled "Anti-intellectualism is taking over the US". Indeed.

golden1

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Re: Why the multimillion retirement is not for the middle class.
« Reply #25 on: December 22, 2014, 08:50:21 AM »
That article was so bad, it was almost comical.

kib

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Re: Why the multimillion retirement is not for the middle class.
« Reply #26 on: December 22, 2014, 08:57:52 AM »
My favorite part (even before I read a word) was that one of the links on the right side of the page was for another article titled "Anti-intellectualism is taking over the US". Indeed.
Priceless.   



arebelspy

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Re: Why the multimillion retirement is not for the middle class.
« Reply #27 on: December 22, 2014, 09:16:16 AM »

So, if you save more than 20% you're giving up enjoyment in your present life. 

Apparently it makes no difference whether you earn 20K/year or 200K/year.  Saving more than 20% means you're not enjoying life. 

Noted.
By this rationale, getting a raise could actually be a disastrous blow to your happiness, if you can't find a way to instantly increase your spending by at least the same rate. #complainypantslogic

Hah, I love that.

Of course, that would fall on deaf ears, I'm sure, as there's no way they could imagine not being able to spend more money. 

They're barely making it as it is! (Regardless of how much they're bringing home.)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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Leisured

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Re: Why the multimillion retirement is not for the middle class.
« Reply #28 on: December 23, 2014, 02:22:39 AM »
Hard to know if it is worth responding to this fatuous article by Heidi Moore. Why didn’t the editor kill the story?

I was 14 when I became aware of investment. A friend of the family was a widow who lived in retirement on the rents of rental properties. Her late husband, a dentist, had accumulated rental properties, and I remember being surprised at how straightforward real estate investment could be. The properties appreciate in value, offsetting inflation, and the rental income also appreciates in value. Once you have one rental property borrow against it to buy a second, and so on.

Later, I discovered the stock market. People are not going to stop buying food, clothes and building material, so many companies have a bright future. Listed investment companies spread the risk by owning shares in many companies.

Then there are the very rich. Entire generations of the very rich have lived off dividends. If they can, other people can too.

Jags4186

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Elderwood17

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Re: Why the multimillion retirement is not for the middle class.
« Reply #30 on: December 23, 2014, 08:55:14 AM »
That article was so bad, it was almost comical.
It would be comical but it seems to reflect the actual believes of the author and I fear too many other people.

EarlyStart

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Re: Why the multimillion retirement is not for the middle class.
« Reply #31 on: December 30, 2014, 01:57:50 AM »
This is news to me...

Quote
If you save more than 20% of your salary for retirement, you're giving up enjoying your present life: you're dedicating yourself to living in holy denial of all worldly pleasures like a monk or a nun, in the hopes of a lavish, or at least an exceedingly comfortable, life when you're over 60-years-old.

I think I threw up a little in my mouth when I read this. Anyone have the cliff notes? I can't bring myself to read further.


That part was especially sickening. Anyone saving over 20% must be living a dull, unfulfilled life. Give me a break...

EarlyStart

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Re: Why the multimillion retirement is not for the middle class.
« Reply #32 on: December 30, 2014, 02:05:39 AM »
These types of articles are just mindless group think. People reinforce each others' bad habits (socially acceptable ones) so that they feel better about themselves.

One of the comments really nailed it:

"this report sounds like sour grapes from someone who hasn't saved enough."

Jags4186

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Re: Why the multimillion retirement is not for the middle class.
« Reply #33 on: December 30, 2014, 10:12:39 AM »

This is news to me...

Quote
If you save more than 20% of your salary for retirement, you're giving up enjoying your present life: you're dedicating yourself to living in holy denial of all worldly pleasures like a monk or a nun, in the hopes of a lavish, or at least an exceedingly comfortable, life when you're over 60-years-old.

I think I threw up a little in my mouth when I read this. Anyone have the cliff notes? I can't bring myself to read further.


That part was especially sickening. Anyone saving over 20% must be living a dull, unfulfilled life. Give me a break...

What makes me shake my head is that these types of posts always go down from your income instead of up from your expenses.

If you make 100k/yr you make really good money. Save 20%, 20k, and you have 80k to do whatever.  Any less than 80k is deprivation!!!

If you make 80k you make really good money. Save 20%, 16k, and have 64k to do whatever. Any less than 64k is deprivation!

How is less than 80k/yr deprivation but 64k/yr is not??

RFAAOATB

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Re: Why the multimillion retirement is not for the middle class.
« Reply #34 on: December 30, 2014, 10:52:08 AM »
How is less than 80k/yr deprivation but 64k/yr is not??

Because if you make 100k and live in a less than 80k part of town, your kids wont be going to the good school or the right after school activities.

EarlyStart

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Re: Why the multimillion retirement is not for the middle class.
« Reply #35 on: January 03, 2015, 01:48:58 AM »

This is news to me...

Quote
If you save more than 20% of your salary for retirement, you're giving up enjoying your present life: you're dedicating yourself to living in holy denial of all worldly pleasures like a monk or a nun, in the hopes of a lavish, or at least an exceedingly comfortable, life when you're over 60-years-old.

I think I threw up a little in my mouth when I read this. Anyone have the cliff notes? I can't bring myself to read further.


That part was especially sickening. Anyone saving over 20% must be living a dull, unfulfilled life. Give me a break...

What makes me shake my head is that these types of posts always go down from your income instead of up from your expenses.

If you make 100k/yr you make really good money. Save 20%, 20k, and you have 80k to do whatever.  Any less than 80k is deprivation!!!

If you make 80k you make really good money. Save 20%, 16k, and have 64k to do whatever. Any less than 64k is deprivation!

How is less than 80k/yr deprivation but 64k/yr is not??


I agree that it's ridiculous. It's probably because people compare themselves to others in their income bracket, e.g. coworkers, etc.

People don't want to be "deprived" of appearances relative to others.

NumberJohnny5

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Re: Why the multimillion retirement is not for the middle class.
« Reply #36 on: January 03, 2015, 07:55:48 PM »
How is less than 80k/yr deprivation but 64k/yr is not??
I agree that it's ridiculous. It's probably because people compare themselves to others in their income bracket, e.g. coworkers, etc.
People don't want to be "deprived" of appearances relative to others.

The easiest solution is obviously to not care what others think about you. Easier said than done.

If appearances are REALLY that important, it's not that hard to play along.

You can buy an iphone look-alike for a couple hundred bucks or less. It's really a cheap android phone, same look as an iphone (even the icons are ripped from the iphone). For something a bit more convincing, buy a rip-off of a Galaxy S-whatever phone; looks like the real deal PLUS it runs the same Android OS.

You can buy a Starbucks mug and fill it at home (either with cheap Walmart brand coffee, or actual Starbucks brand coffee).

Instead of buying a $30k Toyota, buy a $20k used Mercedes; even after you've had it for three years, it's still a Mercedes.

Buy lots of junk food in bulk. Those chocolate cupcakes may cost >$1 at the vending machine, but are closer to 50˘ bought in bulk.

Buy a pack of name-brand Coke, the ones in plastic bottles. Refill with generic 2 liter soda (heck, refill with actual Coke if you want). Now it looks like you're spending ~$1.25 once or twice a day, when it's more like $1 every few days.

Want a boat or RV? Buy in the fall. When you're done, wait and sell it the next spring. It looks like you're spending lots of dough, but you might actually be making a few bucks!

Buy name-brand clothes at thrift stores. Look up the "retail" price. Brag about how you got it for more than 20% off (so they think you got a $100 pair of jeans for under $80...no need to correct them and say it was more like $5).

Make sure you complain about money a lot. This is best done right after bragging about the great deal you got on your "new" shoes.

Gin1984

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Re: Why the multimillion retirement is not for the middle class.
« Reply #37 on: January 03, 2015, 08:07:56 PM »
What happened to their employer match? Why did they only start at 40?
None of my employers have offered a match, nor have my husband's.  I hate how so many articles assume a match.  A lot of companies offer a match but even within the company, not everyone is entitled to one.  It sucks

dragoncar

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Re: Why the multimillion retirement is not for the middle class.
« Reply #38 on: January 05, 2015, 10:16:41 AM »
What happened to their employer match? Why did they only start at 40?
None of my employers have offered a match, nor have my husband's.  I hate how so many articles assume a match.  A lot of companies offer a match but even within the company, not everyone is entitled to one.  It sucks

Whether you're being shafted depends on all the details of the compensation, not just this one. Consider the following two jobs, which are the same role and involve the same amount of work:

Job A: $100k salary, 100% 401(k) match
Job B: $600k salary, no 401(k) offered

If you're overly fixated on the 401(k), you might turn down Job B because it offers no 401(k) at all, let alone a match! But Job B is still a way better deal.

So you can't tell whether you are being shafted based on the fact that you don't have a 401(k) match.

I'd even wager that companies offering a match are likely to undercompensate normal employees.  The secret reason most companies offer a match is to make sure that their normal employees contribute enough so their "highly compensated employees" don't get dinged.  see:

http://www.401khelpcenter.com/mpower/feature_030702.html#.VKrGsNLF_3Q

SpicyMcHaggus

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Re: Why the multimillion retirement is not for the middle class.
« Reply #39 on: January 05, 2015, 12:09:04 PM »
Article makes me face-palm so hard.


I spend about $14,000 per year on everything except the mortgage. (that's $1100 / mo).  I'm saving about 60-70% of post-tax income, and 11% pre-tax. I don't live a hard life. I have plenty that I don't need but enjoy (motorcycle, car, expensive hobbies, face-punch bar tabs).  I would find it seriously difficult to spend $80,000 in a year.  These people are out of touch with life.

ETA:
I'm doing the fancy used luxury car and Goodwill designer brands plan. Seems to be okay so far.

EarlyStart

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Re: Why the multimillion retirement is not for the middle class.
« Reply #40 on: January 05, 2015, 07:24:44 PM »
How is less than 80k/yr deprivation but 64k/yr is not??
I agree that it's ridiculous. It's probably because people compare themselves to others in their income bracket, e.g. coworkers, etc.
People don't want to be "deprived" of appearances relative to others.

The easiest solution is obviously to not care what others think about you. Easier said than done.

If appearances are REALLY that important, it's not that hard to play along.

You can buy an iphone look-alike for a couple hundred bucks or less. It's really a cheap android phone, same look as an iphone (even the icons are ripped from the iphone). For something a bit more convincing, buy a rip-off of a Galaxy S-whatever phone; looks like the real deal PLUS it runs the same Android OS.

You can buy a Starbucks mug and fill it at home (either with cheap Walmart brand coffee, or actual Starbucks brand coffee).

Instead of buying a $30k Toyota, buy a $20k used Mercedes; even after you've had it for three years, it's still a Mercedes.

Buy lots of junk food in bulk. Those chocolate cupcakes may cost >$1 at the vending machine, but are closer to 50˘ bought in bulk.

Buy a pack of name-brand Coke, the ones in plastic bottles. Refill with generic 2 liter soda (heck, refill with actual Coke if you want). Now it looks like you're spending ~$1.25 once or twice a day, when it's more like $1 every few days.

Want a boat or RV? Buy in the fall. When you're done, wait and sell it the next spring. It looks like you're spending lots of dough, but you might actually be making a few bucks!

Buy name-brand clothes at thrift stores. Look up the "retail" price. Brag about how you got it for more than 20% off (so they think you got a $100 pair of jeans for under $80...no need to correct them and say it was more like $5).

Make sure you complain about money a lot. This is best done right after bragging about the great deal you got on your "new" shoes.


I'm on the "just don't give a shit" boat. I care what (some) people think of me as a person, professionally, as a friend, family member, etc. but not how I spend my time or money.The cohort effect just seems like as reasonable an explanation as any as to why people tend to save based on an arbitrary percentage.