6 reasons why young people must save much more vol. retirement

How much money are you saving each paycheck for retirement?

  • 0%, I'll just work until I die or sell my old sneakers

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  • 0-5%

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  • 5-10%

    Votes: 0 0.0%
  • 10-15%

    Votes: 0 0.0%
  • More than 15%

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6 reasons why young people must save much more

Young people are saving far too little. They can either spend or save, but they can't do both with the same dollar. Spending more is fine for business growth and the government which collects more taxes when consumption is high, but not for retirement. Here are 6 major reasons why they must save more or otherwise face retirement in poverty and financial stress. If tax rates go down, saving more is easier.

1. Current savings rates are less than half of previous generations.
Historical savings rates were 11.2% of disposable income from 1952 through 1984. That was enough for reasonable retirement support in the past. Starting in 1985, consumption started to replace savings until we save only about 5% now. The amount of lost savings for each year since 1984 is the amount of each year's disposable income times the difference between 11.2% and the actual savings rate. The sum of the savings losses from 1985 through 2015 is larger than $16 trillion in today's dollars —in the same ballpark as the national debt.

2. Savings plans have replaced pensions.
Pensions have all but disappeared from the commercial workplace. Except for most government jobs, pensions have been replaced by 401(k)s and 403(b)s. Savings rates for those without pensions should be closer to 15%, far from the current 5%. If 15% should have been the norm, the sum of savings losses from 1985 through 2014 exceeds $27 trillion in today's dollars, 38% more than the national debt.

3. They will face massive debts.
College costs also have grown exponentially, leaving graduates with huge burdens before they even get to think about financing homes. Even the elderly are going into retirement with large mortgages and often unpaid credit obligations. One in five households struggle to pay medical debts, 42% of homeowners ages 65-75 still have mortgages in their retirement, an alarming situation for those living from one Social Security check to the next. Worse, emergency reserves are so low, that over 60% of households will have to borrow money to pay a $500 care repair bill.

4. Their adult children and elderly parents will need help.
Boomers and millennials will need additional support either from their children or in the form of more welfare because they have saved far too little and are prematurely drawing down their retirement savings. Most have hardly enough to cover emergencies and will have a poverty-stricken retirement. More elderly moms and dads will be selling their homes and moving back to live with their children, just the opposite of what those young people are doing today.

5. They will live longer.
When Social Security began about 80 years ago, few people lived much past 65. According to the Social Security Administration, life expectancy for a 65-year-old man is over 84 and almost 87 for a woman. Further 25% of these will live past 90 and 10% past 95. Those with a younger spouse will have to stretch savings longer. Improved medical care and scientific discoveries will continue to push life expectancies higher. Hence, younger people will have to save more to support a longer retirement life and ever increasing long-term-care costs.

6. They have not done a retirement analysis.
This is rather remarkable considering the many retirement programs available free on the internet. In many cases, their savings habits are so bad that they simply do not want to face their problem. I've had emails from people with annual incomes of over $300,000 who never saved. One professional planner told me that he has clients with savings over $10 million that are at risk of exhausting savings because of the lifestyle they want to maintain. On the other hand, I've had emails from many people with very modest incomes who have done some planning, saved more than I would have expected, and will be mortgage free when retired.

The conclusion?

Start planning for retirement. Workers need to know how much to save each week or month, and retirees need to know how much they can spend. Plans will never be perfect and must be redone periodically. Periodic updates provide the feedback that corrects our past assumptions for returns, inflation and life expectancies.

Just curious how much you save each paycheck? An alarming amount of my friends do not have any retirement savings. This blows my mind.
 
I hope to retire the way my parents did: at 40yo with nice passive income.

That being said, I have 6 figures in savings, which is earning absolutely no return.
 
Although I have a pension, I still opened up a 457(b) and Roth IRA. I contribute about 8% into my 457(b) and 7% into my Roth IRA. I also contribute a fixed amount into my 457(b) right before each year end for the tax benefits. My retirement goal is to not work past 55.
 
Got a 401k but that's about it.

I try to be as frugal as I can.

My advice to my generation: Make more money.
 
Good read. Luckily, I've been living pretty frugally for the past year or so.
On average I can save 25%-30% of my monthly income.

It's definitely an increasing burden on our generation. Tuition, mortgages, rent, cost of living have all gone up (compared to older generations). Wages, for the most part, have been stagnant.
 
That's crazy. I'm pretty good a my saving if I try hard enough. I put money aside and try all my might not to touch unless I absolutely have to.
 
50% matching 401k but other then that :lol:

I really don't even look that far ahead.
 
Why don't you guys with money saved in the bank open Roth iras and max them out?
 
Glad this isn't another compounding interest article that says 8% return is typical.

( I believe strongly in compounding interest; but 8% returns isn't as typical as they make it seem)
 
I have a pension but also have a 403 b through my job...not contributing a whole lot into at the moment but hope to be at least 7% by this time next year plus the job matches up to 4%...
 
Company profit sharing

I buy off the market stocks from my company.

401k.

Ill still be behind.

To be honest global warming is only 24 years away though.
 
 
I hope to retire the way my parents did: at 40yo with nice passive income.

That being said, I have 6 figures in savings, which is earning absolutely no return.
Shout out to you cause that is a huge accomplishment, especially in these times.
 
22, have an IRA account I max out.

Still got 20k in student loans I haven't touched tho, praying to Jesus that **** is forgiven for my generation or something so I dont have to pay it 
laugh.gif
 
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at 28, I wager society in its current form will not be around long enough to necessitate retirement planning and instead employ a financial strategy optimized for the foreseeable future.
 
at 28, I wager society in its current form will not be around long enough to necessitate retirement planning and instead employ a financial strategy optimized for the foreseeable future.

Are you saving for retirement? What will happen to you if society doesn't collapse before you retire? Big risk to take.
 
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Are you saving for retirement? What will happen to you if society doesn't collapse before you retire? Big risk to take.
well, negating the possibility of good ole WW3, there will be either a universal basic income instituted at some point in response to mass automation making most jobs obsolete within 20 years or devastating upheavals due to unsustainable income inequality, in which case my nest egg is the least of my worries.

it's a gamble, no doubt...but I get to have my youth, freedom and money at the same time, and there are xillionares who wish they could afford that.
 
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