Can you retire on 190 USD a month?

[bignateyk]

I'm just curious why that figure is always used in every financial article.

I think because that is the average historical return of the stock market over a long period of time?

 

[vi edit]

I read that article the other day and cringed at the thought. A whole lot of people are setting themselves up for a really rough time. The $30,000 @ 50 figure was freaking scary.

I want to have my house paid off by the time I'm 50. 45 would be even better because then it'd be a couple years before my first kid hit's college...but we'll see how that goes. But even with a house payment gone I'm looking at $1000 a month just to rent it from the government in the way of taxes.

Throw in food. Utilities. The other huge whammy of health insurance (think $500+ a month per person possibly) and I'd need an income of at least $30,000 a year for my wife and I just to make bills.

We're really hoping to have around 3 million saved up by the time I'm 50. We'll see how that goes. I have 17 years to get there. Retirement accts are around 135k and I've got another $75k in home equity. Another kid hitting daycare next year will slow things down again. Once both get out of daycare freeing up that $1500 a month will help.

 

[dank69]

If you have 10 years to leave it alone, the stock market will almost 100% certainly give you at least that.
Play around with some dates with this handy little calculator
http://www.moneychimp.com/features/market_cagr.htm

Even the 1998 to 2008 period went up (albeit at around 1% and it didn't beat inflation, but still, better than if it were under you mattress). Things start looking really good if you can wait 15 years. 1993 to 2008 gives you 6.67% average rate of return per yet, waiting to 2009 boosts that to 7.78%. And those are about the worst 15 year periods on record, many other ones are 10-13%

Basically day to day the stock market could do just about anything, but if you get some good mutual funds, historically (and with very few exceptions), if you keep it around for 10 years you are "guaranteed" a decent to very good rate of return.

What if I wanted to retire in 2009? This is why I added the risk free part. All these articles say 5% like it's just a given.

I think because that is the average historical return of the stock market over a long period of time?

Yes I am sure that is the case, I just think it is misleading.

 

[blinblue]

What if I wanted to retire in 2009? This is why I added the risk free part. All these articles say 5% like it's just a given.

Well you are out of luck in that case. That's why you plan for retirement far in advance, so you can take advantage of long term investments. Personally I'd think its a little silly to put investments into the stock market for less than 5 years or so, just no telling what its going to do on the short term.

Well, actually, there is a credit union nearby that will do 4.09% interest in their checking for balances up to 10k if you do direct deposit

 

[bignateyk]

Well you are out of luck in that case. That's why you plan for retirement far in advance, so you can take advantage of long term investments. Personally I'd think its a little silly to put investments into the stock market for less than 5 years or so, just no telling what its going to do on the short term.

Well, actually, there is a credit union nearby that will do 4.09% interest in their checking for balances up to 10k if you do direct deposit

I just signed up for a rewards checking account that does 4% up to $25K. That works out well as a place to keep our emergency fund since it allows for easy and quick access to the money, and still gives better interest rates than CD's, or anything like that.

I've seen those reward accounts go as high as 5.5%.

 

[Zedtom]

There are large numbers of elderly people living on SSI, (Supplemental Security Income). They are not living on the street and most have no savings.

How is this possible? Our generous government takes pity on elderly visitors from foreign countries who come here to visit their grandchildren and decide to stay. There are many people from Eastern Europe and Russia who have never paid into the social security fund who are living off of it for free. If you have a nursing home in your area, take a visit and you will be stunned to see who lives there for free.

We all bitch and whine about people from south of the border ripping the system, but there are obscene amounts of money being lavished on elderly immigrants from Europe.

 

[rcpratt]

I'm just curious why that figure is always used in every financial article.

The historic average rate of return on the market is much higher. It's a conservative assumption.

 

[bhanson]

Dave Ramsey is well intentioned but I know too many intelligent people who follows his rules to the letter and it's actually hurting them. Not their finances but their way of life. Following everything he says (absolutely 0 credit cards, 0 debt) is really only for irresponsible spenders in my opinion.

I completely agree that a lot of his advice is not optimal.

However, I'd imagine the majority of people would fall into that irresponsible category. Living paycheck-to-paycheck is awful, and I would estimate in almost every case is the result of poor life decisions.

If the average person followed his advice they would be significantly better off than having $29k in savings at 50.

 

[Mark R]

The historic average rate of return on the market is much higher. It's a conservative assumption.

But not necessarily one that is likely to be repeated in the future. Note the warning that previous performance is not a guide to future performance. It also did not apply worldwide. For example, in Japan, market returns (fully compounded and reinvested) since 1987 are negative.

In fact, given the changes we are seeing in the economy (increasing debt, aging population, outsourcing, etc.) which are reshaping the economy in similar ways in which Japan's economy reshaped over the last 20 years - I would say it is unlikely that rates of return as high as 5% annualised will be achievable over the next 10 years or so. Or, if such high rates are achieved, it may be at the cost of significant monetary inflation - hence spending power is likely to fall over that time period.

For this reason, I would suggest choosing a more conservative estimate of investment growth over the next few years - probably 2-3%.

 

[bhanson]

I just signed up for a rewards checking account that does 4% up to $25K. That works out well as a place to keep our emergency fund since it allows for easy and quick access to the money, and still gives better interest rates than CD's, or anything like that.

I've seen those reward accounts go as high as 5.5%.

I actually have one of these and it isn't worth it for me. The account started off at 3% but has since dropped to 2.25%. Yes, that is more than twice what most savings accounts are giving right now but they also force you to actually use the account daily.

I think the terms of use for my account is I have to:

• Have direct deposit
• Do 12 debit-card transactions
• Login to the online system once a month

They refund your ATM fees up to $25 but only if you meet the above requirements. 12 transactions is very easy for me, but it forces me to use their card instead of credit. Their online system also happens to be terrible, as with every credit union I have used. The software looks 20 years old.

At first I thought the account was a perfect fit but for some reason it ended up turning into a PITB.

 

[rcpratt]

We're really hoping to have around 3 million saved up by the time I'm 50. We'll see how that goes. I have 17 years to get there. Retirement accts are around 135k and I've got another $75k in home equity. Another kid hitting daycare next year will slow things down again. Once both get out of daycare freeing up that $1500 a month will help.

$3M total or in retirement? 135k is a great place to be but getting to $3M by 50 in that would be pretty tough. Granted I have no idea what your situation is. Even if you contribute $20k/year and 7% return you're looking at something like just over $1M at 50.

 

[EagleKeeper]

Most people raise a family of 4 on <40k a year and have nothing left over. Its simple math. cost of living continually increases. Wages stay the same or decrease.

yeah I guess. I keep telling my wife that. She is always worried about our finances, and I keep telling her that if a woman in a trailer park can raise 8 kids on $15K/ year, I think we might make do raising 2 kids on two white collar salaries. (We are in the process of deciding if/when we want to start having kids, which I'm sure will cut into our savings rate)

Government assistance is big on the trailer park example. And they are not socking anything away.

40K with 2 kids also is not going to be able to sock anything away.

80K with two in college does not allow anything to be socked away (no matter what the Fed FASFA formula states).

You may be able to put aside 5K-10K or so per year via a 401K and that would be it. (15&#37; of gross single income)

The problem with that is you have worked 15-20 years to get to that point.

Moral of story
While young, save it up; for when hormones kick in, the savings will go down hill for most.

 

[IceBergSLiM]

I completely agree that a lot of his advice is not optimal.

However, I'd imagine the majority of people would fall into that irresponsible category. Living paycheck-to-paycheck is awful, and I would estimate in almost every case is the result of poor life decisions.

If the average person followed his advice they would be significantly better off than having $29k in savings at 50.

It would seem that way wouldn't it? But look at the world today....there are 300+ million people in this country. There are no where near 300 million high paying jobs.

 

[Herr Kutz]

Why save when the government is printing so much money your savings will be worthless by the time you get around to using it?

 

[EagleKeeper]

I read that article the other day and cringed at the thought. A whole lot of people are setting themselves up for a really rough time. The $30,000 @ 50 figure was freaking scary.

I want to have my house paid off by the time I'm 50. 45 would be even better because then it'd be a couple years before my first kid hit's college...but we'll see how that goes. But even with a house payment gone I'm looking at $1000 a month just to rent it from the government in the way of taxes.

Throw in food. Utilities. The other huge whammy of health insurance (think $500+ a month per person possibly) and I'd need an income of at least $30,000 a year for my wife and I just to make bills.

We're really hoping to have around 3 million saved up by the time I'm 50. We'll see how that goes. I have 17 years to get there. Retirement accts are around 135k and I've got another $75k in home equity. Another kid hitting daycare next year will slow things down again. Once both get out of daycare freeing up that $1500 a month will help.

You get a 10-15 year window from the end of daycare until college to boost savings. However, that window oscillates based on kids needs.

 

[tfinch2]

29k? What the hell?

From mid-2009 to mid-2010, we spent about 100k of our savings on getting married, buying a house, buying a car, and paying off both of our student loan debt. We still have more than double that amount and contributing to it fast. 10&#37; goes to 401k, 10% goes to ESPP, and about $1500 a month into savings. I want to have my house paid off by the time I am 30.

 

[bhanson]

It would seem that way wouldn't it? But look at the world today....there are 300+ million people in this country. There are no where near 300 million high paying jobs.

You don't need to have a high income to save money, you just have to live within your means. Most people are simply not willing to do what it takes.

I concede, in some areas of the country it is a lot harder to do this but that's really isolated to only a few of the major cities. Everywhere else there is no excuse.

$400/month truck payment making $40k a year in a $100k house with 3 kids eating out every day? This is probably more typical than you might think. One person can live VERY WELL in most areas of the country on a $40k income. You won't be living it up, but you can afford a nice house and pay cash for a nice car, as well as save up enough money for retirement. You can do the same on much less.

The problem is people spend too much money. They buy things they don't need when they can't afford them. They buy new cars when a used car would suffice. They eat out when they could eat at home. They buy too large of a house. They have kids before it is financially viable to have kids, and then they keep having them.

It's really a matter of personal responsibility.

 

[vi edit]

$3M total or in retirement? 135k is a great place to be but getting to $3M by 50 in that would be pretty tough. Granted I have no idea what your situation is. Even if you contribute $20k/year and 7% return you're looking at something like just over $1M at 50.

It's closer to $40k a year we're shoveling into long term retirement accts.

 

[Modular]

Lots of people have had their hands held through the start of their lives and are not in touch with reality here.

Starting off with any form of debt is difficult to make up. Add in the facts that 1) many people don't make as much money as you would think and 2) even those who do spend it on stupid things and you can see just by looking at the very basics why many people don't have huge retirement accounts.

Take into account the fact that most of the people posting here about having 5 million dollars are assuming fixed market increases (haven't the past 10 years taught you anything?) as well as the fact that they are living at home/parents own their car/etc and you have a recipe for ignorant disaster.

It's great that some of you are able to save that much, don't get me wrong, but you don't have homes/kids/college loans and haven't experienced the market wiping out 10 years of your investments.

It's a tough world and we all need to save more, but many won't, sadly. I'm 28, have about 30k in my 401 and my wife has an account as well as a pension, so I'm not against saving, I'm just trying to be a voice of reason amongst what appears to be a few saying that they're going to own the world in 30 years.

 

[IceBergSLiM]

You don't need to have a high income to save money, you just have to live within your means. Most people are simply not willing to do what it takes.

I concede, in some areas of the country it is a lot harder to do this but that's really isolated to only a few of the major cities. Everywhere else there is no excuse.

$400/month truck payment making $40k a year in a $100k house with 3 kids eating out every day? This is probably more typical than you might think. One person can live VERY WELL in most areas of the country on a $40k income. You won't be living it up, but you can afford a nice house and pay cash for a nice car, as well as save up enough money for retirement. You can do the same on much less.

The problem is people spend too much money. They buy things they don't need when they can't afford them. They buy new cars when a used car would suffice. They eat out when they could eat at home. They buy too large of a house. They have kids before it is financially viable to have kids, and then they keep having them.

It's really a matter of personal responsibility.

1 person 40k a year is lot different than 4 people 40k a year. Try comparing apples to apples

 

[bhanson]

1 person 40k a year is lot different than 4 people 40k a year. Try comparing apples to apples

That 1 person on 40k a year likely was still making 40k or less when they decided to have kids.

It is apples to apples.

 

[BurnItDwn]

wow < 30K savings at 50 .... OUCH.... That said, it would be fun to spend the money that I save instead of save it ..

 

[vi edit]

Cars are the crux of the middle class. Instead of putting $400 a month into a Roth most people are putting that into a car payment. Even splitting the difference between a $200 a month car payment and $200 a month into a Roth would leave them in halfway decent shape in 30 years.

My sister and brother in law are in that situation. Neither are college educated, they probably make $50k a year combined, rent an apartment but have $600 or more in car payments. No savings other than what he'll get for a modest military pension (he's low end grunt level coast guard). They want kids now and will never make it over the hump.

When I was fresh out of college I was in that same mentality...slowly came back around. Now my wife and I have two cars worth a combined total of probably $15,000 and have another 5 years of low cost use out of one and 3-4 out of the other.

 

[IceBergSLiM]

That 1 person on 40k a year likely was still making 40k or less when they decided to have kids.

It is apples to apples.

I'm glad your world happens to be perfect where life never hands you anything unexpected. :thumbsup:

Continue to ignore the fact that a household 40-50 years ago could easily be sustained on a single income. Today it just cannot.

Lets just assume also in your perfect world anyone earning less than 40k couldn't have kids.(china style) What would that do to our population/economy and everything else?

 

[vi edit]

Continue to ignore the fact that a household 40-50 years ago could easily be sustained on a single income. Today it just cannot.

You most certainly can. You just aren't going to have a bedroom for every kid, two shiny new cars in the driveway, cell phones for everyone with dataplans, name brand clothing and the ultra deluxe 400 channel satellite package.

We've been bombarded with services, subscriptions, and designer products. Yes...you can live without those. And many people can and do...and with a family on a reasonably modest income.