Archive for the ‘Questions’ Category

Worried About Retirement

Friday, May 11th, 2012

On the Simple Dollar a reader Jim posted the following question:

I am 62 years old looking at retiring at 85 based on my status and what others say you need. Scared to death and running out of time. I am a teacher(11 years) as is my wife. I have a little savings less than 50K in IRA’s, myself a pension from the school system and penitence from a former employer, wife has a 401 with the private company she works for. Money is tight, we live check to check. Seems like we spend our money trying to still raise our children and not any additional money for savings let alone gas for our vehicles. 150 year old house we live requires maint Lawyers for a custody battle of grandson and bills from our son as he had a bad accident and getting himself established. We need to buy another car soon for my wife as hers has like 200K miles on it.

 

I didn’t plan earlier and I don’t really have a clear plan now. Late 30′s I had a little money, and some starting about 11 years ago. I was busy chasing carrots and didn’t catch any. I am thinking I will need to work past 66 a few years and file for SS to try help save a little more. Thinking I need to find a business but really fishing for ideas. I have some trade skills as a hearing aid specialist that could lead to some employment on the side. I am hoping to sell this house in about 7-10 years for bit of profit and downsize. We are tied to this area for awhile until our grandson gets older(15 more years)

 

I really go from positive to negative about my situation. I feel grateful for what I do have and where I am, but feel so frustrated that I didn’t do things different with regard to my career decisions but can’t go back so I have to work with where I am and what I have.”

I responded to his post but got stuck in moderation (seemingly forever),  so I’m reposting my suggestion here:

Jim,

You can’t change the past, but you can change what you do from today forward.

>I didn’t plan earlier and I don’t really have a clear plan now.

You can change that by making a plan today. Here is what I would do – evaluate the situation realistically.  It may be scary but facing reality today will be easier than putting it off longer. You mention a pension and some savings- that is at least a start.  I would calculate what I would have to live on retiring at different ages.

The social security website http://www.ssa.gov/estimator/ estimates your SS payments and should be fairly accurate given your age.  Call the manager for your pension and find out concrete benefit information.  Total up your current savings- project your total savings using how much you are currently contributing.  Get some quotes on how much income you could get from a single premium immediate annuity with that savings starting at different ages.  This wouldn’t be a perfect calculation of your income at retirement but it should be a good first pass. If that number is bleak you have a few options- reduce expenses so that the amount is workable, save more to bring the income up, or work longer. Most likely some combination of all three will be your best answer.

>Seems like we spend our money trying to still raise our children

Maybe that is the key of your problem, how much of a difference would that money make to your retirement? Your children and grandchildren will eventually have to fend for themselves as you won’t be around forever. It sounds like you are giving to them at the expense of your retirement savings. Wouldn’t it be better for them to start taking care of their own finances sooner rather than later? Wouldn’t it also be better for them if you ease them into independence by decreasing the amount you give them over the next year instead of an abrupt adjustment when you are no longer able to help them out?  Talk to your kids and tell them about your fears for your future, I suspect they will be willing to pull more of their own weight after they are aware of your situation.

-Rick Francis

Is it Harder in America Today?

Friday, April 20th, 2012

A frequent commenter on FMF Old Limey wrote a the following comment on a reader profile of a young engineer PD where he commented how it seemed life is harder for a young engineer today then in was in the 60es.   There was one paragraph that really struck me:

>It seems to me that my journey from being a young engineer, first to retirement, and now after 20 years of retirement has been a lot smoother and easier that comparable couples in current times.

>I thought that in America life kept getting better every year but lately that doesn’t seem to be holding true. What’s happened?

I think you are correct that the path isn’t as smooth today.  There are some concrete reasons- the cost of higher education has been growing at far beyond inflation for many years.  I found the following graph  that shows that the cost of college education grew at 2.5X the inflation rate.   I suspect PD would not have any student loans if his college costs were 50% lower.

Today he is competing with engineers from all over the world- both those that come to the US with a work visa and those companies may outsource to thus depressing his wages.   I haven’t been able to find statistics on engineering salries between the sixties and today but my impression is that it isn’t readically different once you account for inflation.

Additionally our expectations have risen- according to this NPR article  that “small” house PD is living in would have been considered normal size for a family with a few kids in the 60es as the average home size has more than doubled since the 1950s.

>I thought that in America life kept getting better every year but lately that doesn’t seem to be holding true. What’s happened?

I think things are getting better, but not for everyone.  If you own a company the relatively lower wages and increased more competition for jobs is a great benefit.  Companies don’t have to take the risk of provide a pension- they let the employee take the responsibility and risks with their 401K plan.    With the advances in technology companies don’t need as many employees to do the same amount of work and can be more profitable.   If these trends continue – it won’t make economic sense for people to be employees even for previously “good” jobs like engineers. 

 

  -Rick Francis

Are Big Wins Really Rare?

Monday, November 9th, 2009

While reading Large Amounts Matter Too a quote from JD really got me thinking: “You rarely make financial decisions involving tens (or hundreds) of thousands of dollars.”    I agree people generally don’t spend huge amounts every day, but are the big opportunities really that rare?How many opportunities don’t we recognize?  Or just barely miss?  How many start small but turn into big wins over time?  Finally how many big wins are really summations of many small actions?

Unrecognized Opportunities

How can you take advantage of a big win unless you recognize it?  I’m very guilty of missing big opportunities.  I’m sure I missed at several million dollar opportunities.  I used the Mosaic Browser in ’92 and I recognized that it was revolutionary compared with text based Gopher clients… but I didn’t recognize that the company to commercialize it would make a fortune and try to get in early with Netscape.. or even try to get some Netscape stock.

Missed Opportunities

I was at Stanford for most of the 1990es, ground zero for a lot of internet startups.  I knew people in the CS PhD program too.  Did I miss some chance encounter that would have put me as an early employee of either Yahoo or Google?  I wonder how many big opportunities we all just barely miss?

Small Seeming Big Wins

Some big wins seem are very small in the short term, but it the long term become huge.

  • Choosing to Invest Early – When you choose to start investing early it may not feel like a big win, but consider if you invest $1 for forty years it becomes:
    • $21.72 @ 8% interest
    • $31.41 @ 9% interest
    • $45.26 @ 10% interest
  • Investing with Index Funds – Saving a few percent in fees doesn’t seem like a big deal… unless you understand that interest rates really matter, and a 0.75% difference in fees could cost you over a quarter million dollars!  You also won’t waste time trying to outperform the market, especially if you don’t have the half million dollars to make it worth your time… even if you are the next Warren Buffett!
  • Diversification – Instead of chasing after the latest hot sector you can own them all and let rebalancing automate buying low and selling high.

Big Wins that Require Small StepsSome big wins are really the result of a multitude of small steps.

  • Investing – Most people save a bit at a time, small steps but those steps can lead to financial freedom over time.
  • Successful Marriage – The I Do is just the start!  It takes a lot of small (and some large) efforts to really make a marriage work.  That has to be one of the biggest wins in terms of both happiness and finances.
  • Practice – To be a master at anything takes years of practice- and those individual practice sessions are small actions with small effect but the sum is an incredible win.

Maybe the big wins aren’t really that rare, we just have to be more aware so we don’t miss all of them.  What do you think?