258

When people over 60 reflect back on their life, they generally do not say: I wish I took out more student loans. I wish I bought more expensive cars. I wish I bought fancier clothes. I wish I didn't save so much money for retirement. In fact, it's almost always the opposite. Why? It's because your question is a good one and that same compelling argument ...


206

Why do they need so much money as old people? The future is unexpected. My country has universal healthcare, so medical expenses are not a worry. Will it have UHC in 50 years? Probably... but will the co-payments rise significantly? I'll be living in my own house that is already paid off at that point, so no rent or mortgage payments. Unless ...


176

I'm afraid you have missed a few of the outcomes commonly faced by millions of Americans, so I would like to take a moment to discuss a wider range of outcomes that are common in the United States today. Most importantly, some of these happen before retirement is ever reached, and have grave consequences - yet are often very closely linked to financial ...


138

I am a firm believer in the idea of limiting debt as much as possible. I would not recommend borrowing money for anything other than a reasonably sized mortgage. As a result, my recommendations are going to be geared toward that goal. The top priorities for me, then, would be to make sure, first, that we don't have to go further into debt, and second, ...


102

The reason some people save so much so young is that they understand the growth potential of COMPOUND INTEREST. Every dollar that I put away for my daughter at 2 years old can be worth $1,000 when she retires.* What would anyone do with all of that money? There are plenty of ways to spend wealth that you haven't discussed. Here are a few goals that you ...


78

From a long-term planning point of view, is the bump in salary worth not having a 401(k)? In this case, absolutely. At $30k/year, the 4% company match comes to about $1,200 per year. To get that you need to save $1,200 yourself, so your gross pay after retirement contributions is about $28,800. Now you have an offer making $48,000. If you take the new ...


66

Do they want your help? Many times parents have difficulty taking advice from those whose nose and butt they wiped. Your accomplishments and investments are independent of the fact. What are their needs? They likely have social security and is that meeting their needs now? What happens after dad passes? Coming up with solid numbers is an important step ...


63

No. The compounding is a multiplier, and multiplication is distributive over addition. So 1.1 * (x + y) = (1.1 * x) + (1.1 * y). That is assuming that the accounts are large enough that no individual payment gets lost as a rounding error (three accounts earning 1.4c each will pay you 3c, combined they will pay you 4c). So long as the accounts are at ...


57

For myself, I saved because having accumulated a nice pile of money - enough to live modestly on the income (what I call being "independently poor") is both security and freedom. Take security. What are the odds that sometime between wherever you are now and your 70 year old self, you will find yourself out of a job, with no prospects of finding another ...


52

Where is the risk? The short answer is... Property damage from weather, termites, tenants, whatever. How about tenants who stop paying the rent and you need to go through legal channels to evict them? It doesn't cost a fortune but you had better not need that rent to make the mortgage. How about another GFC (Global Financial Crisis) like 2008 when ...


51

What occurred in 2000 and 2008 is "why this is true". If one were to have retired in 2007, with a major portion of their retirement invested in stocks, their portfolio value dropped significantly, possibly by 50% or more - if one is continuing to invest this is not a problem, you get to take advantage of the average dollar cost over your future investments. ...


49

I'd encourage you to use rules of thumb and back-of-the-envelope. Here are some ideas that could be useful: save at least 10% of your income, but 15% is better. Your savings rate will need to cover everything (retirement, emergencies, houses, cars, kids) and 10% probably isn't good enough for that. you might withdraw 4% per year in retirement, which implies ...


48

I find this very hard to believe Believe it. The bottom quarter of American households have negative net worth, and the bottom three quarters have no more than a tiny amount saved up. https://en.wikipedia.org/wiki/Wealth_in_the_United_States#/media/File:MeanNetWorth2007.png In an emergency, 63% of Americans would not be able to come up with $500 without ...


48

Probably they shouldn't be investing. It's too late for that. And if they aren't investing it's pretty simple: Sell the big property before they urgently need the money because that takes time, then pay off the mortgage on the other house because the mortgage only costs money and they probably can afford to pay it off. In that order so they always have some ...


45

I'll be living in my own house that is already paid off at that point, so no rent or mortgage payments. This very much depends on where you live. In the major cities of the costal USA many folks will be paying on mortgages until the day they die. I wouldn't need (or want) a car, and would probably use a bicycle or maybe some cheap future-scooter... ...


44

People ... are nearly twice as likely to ... feel confident Great, confidence is amazing. That and $5 will buy you a cup of coffee. 44% [who hired a pro] have $100K or more [vs.] 9% of DIYers There's no way to examine these numbers without a link to the source, but it stands to reason that if you have a plan that you're sticking to you'll save more ...


44

The answer to your question will depend on your own preferences and circumstances, but I would argue that generally at your stage of life you do not need nor want term life insurance. Life insurance exists because having someone die when they are critical to the financial well-being of the family is a disaster. This is often true for people with children ...


42

To be clear, a 401K is a vehicle, you make investments WITHIN it, if you choose poorly such as say putting all your money into company stock when working for the next Enron, you can still get hurt badly. So it is important to have diversity and an appropriate risk level based on your age, tolerance for risk, etc. That said, as vehicles go it is outstanding,...


41

There are two parts to the hack you describe. One is moving to a high-cost, high-pay country to work, and the other is moving to a low-cost, low-pay country to retire. As Dilip mentioned in a comment, the first part is not so easy in many cases. You can't just take a plane to the USA and start making big bucks immediately. In the first place, it's ...


39

Your tax bracket is determined by your total taxable income in a given year, where money drawn from a traditional-style deferred-tax 401k or IRA is taxable income. (Money drawn from a Roth account was taxed before deposit and is not taxed when withdrawn after the relevant date.) Your recent salary history has no effect on this, except salary in the same ...


38

401(k) up to matched amount High interest debt Emergency fund 401(k)/Roth 401(k) / IRA/Roth IRA Pay off student loans Pay off mortgage One can generalize on Traditional vs Roth flavors of accounts, I suggest Roth for 15% money and going pretax to avoid 25% tax. If the student loan is much over 4%, it may make sense to put it right after emergency fund. ...


37

My country has universal healthcare, so medical expenses are not a worry. People in their 20s (and 30s) thinking about the future may choose not to gamble that the government in 50 years will look the same as it does today, and prepare for the eventuality of paying for their own medical care.


35

I was at a restaurant in NYC, 1st Avenue and 63rd street. I don't recall how the conversation started, but the woman at the next table remarked how none of her friends from the West side, 9th avenue or thereabout, would visit her. Less than 2 miles away, yet in their minds, too far. Your question isn't likely to be answered with facts, but opinion. In this ...


35

Well, if you worked in the United States you have social security, and medicare and medicaid in most cases as well. So you have a small amount of income to spend every month to cover your most basic living expenses, as well as your basic medical expenses. At least, that's the idea. In reality, it probably isn't anywhere near enough money for most to live ...


34

You give hints, but don't quite answer the key question - At the time you retire, what fraction of your income will be replaced by the benefits you list? If that amount is your 'happy' number, you really have little need to save for retirement. Or to be clear, you are already saving, just not into an individual account like we tend to think of. What's ...


33

You'd need to talk with an attorney familiar with Social Security, or an appropriately qualified SSA representative to be sure - but all signs point to the idea that unfortunately Social Security does not work the way your father was told it would. And if he doesn't file to receive benefits the reality is actually much worse than "throwing away free money"! ...


32

Making the assumption that social programs will have the same conditions in 30-40 years (or even 5 years) as they do now is a very dangerous assumption to make. For example, how do you think the folks in the mid 1920s thought their retirements would be? Many of those folks in the 1960s weren't even in the same country anymore, and nearly all of them had ...


32

I can see several problems with your plan: Retirement exists for a reason. There are various things that may prevent you from working when you are older: You may be less able to work, be it because of physical deterioration of your body or mental exhaustion. And that's just the normal process - if you are unlucky, you might become sick and completely ...


31

4% of 30k ($1,200) is dwarfed by an $18,000 base pay increase. At 48k maxing out IRA will take ~11.5% of gross income, so at current position (30k salary) 401k contributions would likely be limited to the matching portion anyway. The long-term benefit of a deferred tax retirement plan can't fully be known since tax rates can change over time. If rates ...


31

Presume that you are using the safe withdrawal rate of 4%. So if your retirement account is $1,000,000, you are withdrawing $40,000 a year. If there is a market correction, and your retirement account loses 33% of it's value, your options are: Continue drawing $40,000 a year, which is now 6% of your savings Reduce your draw by a third to $26,800 Neither ...


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