Listening to others talk about retirement plans (and all the mistakes made)

[DaveSimmons]

Yeah when stocks shit the bed during the "Great Recession" or whatever it was, during 2008-2009, my dad was just a few years from retiring. He said he lost A LOT of frickin money (and my parents have had a financial advisor and I assume his portfolio was somewhat spread out and not all aggressive), after contributing all of his life. He managed to get some back but he did lose quite a bit (I don't know details). But I'd guarantee if you asked him "do you regret contributing to a 401(k)?" he's say "no", it was still better than not doing so.

It was a temporary loss on paper. If you stayed calm, ignored it, and did not sell your stock funds then you did just fine in the recovery.

And if you kept buying stock index funds during the recession you did very well, like 25% gains in one year.

If you were already retired and making mandatory withdrawals from an IRA then that can be painful, but there you could at least choose to do it by selling bonds or bond funds instead of stock funds.

 

[MaxDepth]

Wow, that's nice that you get to choose your investment firm. I had Vanguard and then my company was acquired and they forced us to roll over to Fidelity.

I had the good fortune to have additional capital come my way and I was able to match somewhat closely to the Russell 1000 Index through Vanguard.

But I have come to realize that I am in much better shape than most of my friends. And that's what concerns me is that we already have a wealth gap of working people. What happens when we start dumping the rest of the baby boomers and then the generation after out of the workforce in the next 20 years? Will there be only 10% of that cohort able to afford living in retirement?

 

[dullard]

A huge part of the problem is the institutions themselves. They don't provide easy to understand numbers and have as many different plans as there are employers

While that is certainly a big part of the problem, you missed the biggest part of the problem: fees. For years there was no reason to disclose the fees. Now that more fees are being disclosed, it is a lot easier to choose the better investments.

Suppose you bought a mutual fund that returned 8% per year, every year. Suppose that mutual fund had a 2% fee per year, every year. Suppose the institution took that 2% fee and invested it in the exact same mutual fund as you did. Suppose you waited 40 years until retirement to sell this fund. Who has more money?

It isn't a trick question, the institution wins. Your money is now 10.3x what you started with. But the 2% cumulative fees gives the institution 11.4x what you started with. The institution gets more money in the end and you took all the risk with YOUR money. That is how devastating those fees are. Without a fiduciary duty rule, there is no reason for institutions to steer you away from the high fee funds.

 

[Kaido]

These will be the people who are going to complain about not being able to retire or having enough saved for retirement, though it's entirely their own fault. Best to just smile and nod. Mention it can look complicated but after doing some research you saw how easy it really is and you were able to get a solid grasp on everything, and maybe one or two of them will ask you for some advice. Half of those may actually follow through and take it.

(Personal) Finance is such an unnecessarily taboo topic in this country. It's not hard to understand at all, but nobody wants to talk about it. I think it has to do with pride. Everyone wants to show off their wealth but never discuss it.

That's it right there man. We're a nation of crazy debt. We really need to start the education at a younger age - like teach kids in high school about predatory student loans, how 29.99% APR credit cards work, how compounding interest works, how 401K's work & why they're important to you in the future, why it's important to have a financial safety net, etc. You're going to live until you die & you don't want to be strapped with unnecessary debt that you could have avoided with better decisions. Sometimes crap happens, especially unexpected medical expenses, but a lot of other things can be avoided if you know what the traps are.

And you're right about people who complain without wanting to work on solving their problems - I mean, this is 2018. Literally everything you could ever want to know, the entire sum of human knowledge, is available for free on the Internet thanks sites like Google, Youtube, and Pinterest. There's no excuse for a motivated person to not get out there & watch some videos or find a forum or subreddit or facebook group or use twitter to ask questions on. Doors open like magic when you try!

 

[boomerang]

It isn't for the average person and it always makes me laugh when people condemn others for not jumping on the boat. 401k's sound amazing on the surface, unless the market tanks at the time of your retirement, which has happened multiple times in history, but no one likes to talk about that.

If the bolded happens and you end up a big loser, it's because you weren't bright enough to have your money in investments appropriate for the stage of one's life.

What's appropriate for a 25 year old is not appropriate for a 65 year old.

 

[DaveSimmons]

If the bolded happens and you end up a big loser, it's because you weren't bright enough to have your money in investments appropriate for the stage of one's life.

What's appropriate for a 25 year old is not appropriate for a 65 year old.

Also, if you've been saving properly for much of your life then:
- You're still much better enduring a temporary 25% paper loss in value than staying away. 75% of $2 million is a lot better than 100% of $20,000.
- If you have a decent emergency fund and are living within your means then you can just take out the minimum required distributions during the recession. You lose on the 5-15% you're forced to take out, but the other 85% can sit there until the recovery.

 

[fleshconsumed]

There were a couple of teachers there complaining about the pension system. They said they contributed 10% (its actually between 3.6% and 7% depending on employment date, selection and compensation), no one else contributed anything (the school kicks in a large chunk) and that they just got a refund of the money the state took to pay for other's retirement (the state started requiring contributions towards retirement health care which was found to be unconstitutional. That was what was refunded). Oddly enough the biggest reason to complain - unfunded liabilities - didn't come up at all.

If the school kicks in money on teachers' behalf to the retirement fund, then it's part of their compensation. It would be entirely accurate to say that they contribute 10% of their compensation package towards retirement.

 

[brianmanahan]

Ultimately it doesn't really matter. Anyone under 40 is not going to be able to retire.

that's a pretty big claim.

i don't expect as high of returns in any asset class over the next 50 years as we had in the previous 50.

but even if returns are small, i expect saving/investing %60 of my income for 25 years should let me retire by age 50 if i want to.

 

[Exterous]

If the school kicks in money on teachers' behalf to the retirement fund, then it's part of their compensation. It would be entirely accurate to say that they contribute 10% of their compensation package towards retirement.

No it would not. Baring the colloquial avoidance of counting an employer's match as your own (and participation in the plan is now optional with no effect on other compensation) your statement would be completely inaccurate for MI schools for another reason. The amount the schools contribute is variable per year and is decided by an actuary. It has not been 3% in the last 8 years.

 

[Dr. Detroit]

I just thought everyone played the lottery as that is there only hope for retirement.............

Talking to people about finances is a losing proposition, they came off as idiots and you come off as someone who isn't feeling their struggles over maxed out credit cards, expensive cars, $500 purses, $200 jeans and $4 lattes on the daily. Majority of Americans have "savings" equivalent to whatever home equity they have. Sure hope it just keeps going up and up!

I plan on retiring in a few years at around 45-47yo. May do an extra year to help the kid out with a big downpayment.

 

[fleshconsumed]

No it would not. Baring the colloquial avoidance of counting an employer's match as your own (and participation in the plan is now optional with no effect on other compensation) your statement would be completely inaccurate for MI schools for another reason. The amount the schools contribute is variable per year and is decided by an actuary. It has not been 3% in the last 8 years.

I do not know exactly how much money MI schools "match". Point being whatever money the school district matches goes directly into the pension fund. You cannot discount that. It's contributions to the pension fund on behalf of the teachers whether it shows up on teacher W2 or it goes into the pension fund before W2 gets issued, it makes no difference.

 

[brianmanahan]

expensive cars, $500 purses, $200 jeans

madoka, Tommy2000GT and JMapleton + casiotech got us covered on those fronts

 

[MaxDepth]

This. I just don't get it either. People are buying overpriced houses where I live because they think they can then turn a big profit on a flip or that the prices will be twice as much as they were 10 years ago.

The best advice I can give anyone who asks nowadays is to do their very best and be credit card debt free.

I just thought everyone played the lottery as that is there only hope for retirement.............

Talking to people about finances is a losing proposition, they came off as idiots and you come off as someone who isn't feeling their struggles over maxed out credit cards, expensive cars, $500 purses, $200 jeans and $4 lattes on the daily. Majority of Americans have "savings" equivalent to whatever home equity they have. Sure hope it just keeps going up and up!

I plan on retiring in a few years at around 45-47yo. May do an extra year to help the kid out with a big downpayment.