Budget shock

[ERCougar]

I've spent the morning going through business expenses for taxes and putting together our home budget for next year. Every time I do this, it makes me a little sick to see the yearly totals we spend on everything--and outside of our house, I've always considered us pretty frugal. (Really, our house payment is about 10% of our monthly income, so I don't think we're being crazy there either.)

To retire on time, we have to be pretty strict with a budget and go without quite a few things that we might want, and that's with an above-average income and a pretty reasonable house payment (and no car payments). How do people afford all the toys I see around?

Anyway, I'd be ashamed to show our budget to 95% of the world. And then complain about going without.

[happyone]

I've always thought the same thing - I look at what some of the people I work with drive and where they live and wonder where the money is coming from.

[creekster]

My guess is that you would be shocked if you saw the paltry sums most people have saved for retirement.

[ERCougar]

My guess is that you would be shocked if you saw the paltry sums most people have saved for retirement.

That's really scary, if true. Especially with people having fewer kids and the future of social security in doubt.

[kccougar]

I wonder the same thing. I know I have above average income though my wife doesn't work so it probably evens out. I can't afford half the things many of the people around me have/do.

[ERCougar]

I've always thought the same thing - I look at what some of the people I work with drive and where they live and wonder where the money is coming from.

Exactly! Or even clothes...clothes really aren't a priority to us at all, and when I told my wife the total clothing expenditures for theyear, she didn't believe it. little things add up surprisingly fast.

[UteStar]

My guess is that you would be shocked if you saw the paltry sums most people have saved for retirement.

I agree with that quite a bit. I also think debt runs high. I also think that a lot of these 30's-ish families get a lot of help from their family to live their lifestyles.

[NorthwestUteFan]

How do people afford all the toys I see around?
.

HELOC/HECL. Enuff said. It is a HUGE issue in Utah. Luckily for them the home prices have not yet normalized. YET.

If/when China cuts off the river of cash they send us to keep us afloat we will be in an enormously bad situation.

A day of reckoning will come, and it will not be pretty.

[Moliere]

My guess is that you would be shocked if you saw the paltry sums most people have saved for retirement.

Very true. Most people would be shocked to learn the amount they would need saved today to live for 20 years without an income. Expenses don't always go down when you get old, especially medical/prescription expenses.

In 2003 I was asked to do a presentation on saving for retirement for our EQ. For the presentation I did a calculation to determine how much I would have to save every month to be able to retire at 65 and live to 85 without an income. I estimated I would need $40K a year in 2003 dollars to have a decent standard of living. The calculation showed that I would need to save $500 per month for 40 years. Obviously that amount may need to change as I probably used some pretty aggressive asset return percentages since we hadn't hit the housing bubble yet.

[Paperback Writer]

I agree with that quite a bit. I also think debt runs high. I also think that a lot of these 30's-ish families get a lot of help from their family to live their lifestyles.

Really? In the LDS culture? That would be news to me. Now for non-LDS, I've seen this on a few occasions especially if the person is single or young married with kids. But my perception of LDS, is that young families don't get much help. Children of LDS are lucky if their folks pay for the majority of their college. My perception comes from talking with a group of non-LDS that I graduated HS with who have run into other LDS families. A couple of these friends expressed sadness that they sometimes got help from family while their LDS associates had more kids and didn't get any help. They were also surprised to learn that while their folks pretty much funded their college educations, that this was not the case with most of their LDS associates.

[old_gregg]

Very true. Most people would be shocked to learn the amount they would need saved today to live for 20 years without an income. Expenses don't always go down when you get old, especially medical/prescription expenses.

In 2003 I was asked to do a presentation on saving for retirement for our EQ. For the presentation I did a calculation to determine how much I would have to save every month to be able to retire at 65 and live to 85 without an income. I estimated I would need $40K a year in 2003 dollars to have a decent standard of living. The calculation showed that I would need to save $500 per month for 40 years. Obviously that amount may need to change as I probably used some pretty aggressive asset return percentages since we hadn't hit the housing bubble yet.

that number/month also gets significantly smaller when one considers matched retirement contributions and simply getting started earlier. i am blown away by how many people do not at least max their matched 401k contributions to take advantage of immediate 100% roi (not to mention compound interest of those dollars combined with an increase in the value of the assets in which the money is invested).

[NorthwestUteFan]

I remember having a math teacher in high school run through numbers, explaining the time value of money.

Person A puts away a certain amount of money into a simple fixed interest account beginning on his 20th birthday, up until his 30th birthday. Then he leaves the money until his 60th b-day.

Person B starts putting the same amount of money into a similar account on his 30th b-day, and continues to do this every month until turning 60.

At age 60 Person A and Person B have a similar amount of money in their accounts, although Person A put away 1/3 as many actual dollars as Person B.

That lesson always stuck with me. I wish I had been smart enough to follow that advice. If I am a wise, prudent, and effective parent I will convince my kids to start saving for retirement as early as possible.

[Uncle Ted]

My guess is that you would be shocked if you saw the paltry sums most people have saved for retirement.

Boomers Going Bust

I've been gathering some data about what I'll call, with the usual boomer understatement, the "retirement crisis." My mentors have been Eugene Ludwig, the head of the consulting firm Promontory Financial Group, and his colleague Michael Foot. The numbers show a genuinely frightening gap between what people have saved for retirement and what they will need. And many of these studies don't take into account last year's stock market crash, which will make the problem worse.

Let's start with the basic fact that only about half of Americans have any employer-sponsored retirement plan at all. The other folks will have to depend on Social Security. For a typical boomer worker, that would mean a monthly benefit of about $2,400 at a retirement age of 66 in 2020. On that, you won't be able to afford many Starbucks lattes.

But let's assume that our average worker is one of the lucky ones with an employer-sponsored pension. Not so long ago, that usually would have meant a "defined benefit" pension at retirement. About 80 percent of employees in medium-size and large companies had such plans in 1985, according to the Labor Department. By 2000, defined-benefit recipients totaled just 36 percent.

[...]
How bad are baby boomers at financial planning? Extremely bad, according to Annamaria Lusardi and Olivia Mitchell of the National Bureau of Economic Research. They found that more than one-quarter of boomer households thought "hardly at all" about retirement and that financial literacy among boomers was "alarmingly low." Half could not do a simple math calculation (divide $2 million by five) and fewer than 20 percent could calculate compound interest. The NBER researchers also found that, as of 2004, the typical boomer household was holding nearly half its wealth in the form of housing equity. Uh-oh.

For a closer look at the retirement squeeze, consider a study released last month by the Congressional Research Service. Patrick Purcell analyzed the most recent data on consumer finances gathered by the Federal Reserve. He found that for the 53 percent of households that hold at least one retirement account, the median combined balance was a mere $45,000.

[...]

And here's an extra bit of bad news: The Fed data used in Purcell's study were gathered in 2007. With stock market declines since then, the median account balances are probably even lower now.

I don't think there are enough greeter jobs at all the wal-marts for the baby boomers that don't have enough saved for retirement.

[Moliere]

Boomers Going Bust



I don't think there are enough greeter jobs at all the wal-marts for the baby boomers that don't have enough saved for retirement.

Many won't retire, or will retire and then come back. We call them boomerangs. They retire, find out they need a lot more money and try to come back and work. And honestly, retirement is not a right. If you don't save for it then you should work to support yourself if you want to live above the means provided by SS.

I have a nice employer provided pension plan and it is likely to stay given the nature of the company I work for, however I do all my retirement planning fully expecting SS and the pension to not exist when I retire. Both will probably be there (at reduced rates than what is currently projected) but anything I get form them will be gravy.

71 needs to chime in on this thread and offer some advice.

[DrumNFeather]

Living on a budget is like going on a diet. It is something that you really have to be aware of at all times. I've gotten to the point where I know everything that goes in and everything that goes out at all times and have a spredsheet that I update daily if need be. It's the only way I can keep everything straight.