Monday, August 04, 2008

Retirement Nightmare

Heather Havrilevsky is 38 and she is NOT saving enough. Basically, no one is, if you believe the numerous online calculators she consulted. Her family should be putting away $100K a year!

(Some folks, like economist Lawrence Kotlikoff, think those retirement calculators tend to exaggerate, because they are sponsored by banks and brokerages that want more of your savings and investment fees. He believes you can do something called consumption smoothing, which essentially means: save less now, spend less, and steadily, all through retirement, die broke.)

However, this essay in Salon is a great read and speaks to many, many people's anxieties.
I was especially interested when she talks about how debt gets gifted from generation to generation, and the diminished value of hard work when debt takes up your earnings.

"And of course I agree that kids should learn the value of hard work. But should they do it while they're in college and ostensibly working hard already to get a good education? And after they graduate, when they're saddled with huge debts and have to spend most of their income just to pay them down, how will they feel about work then? Won't it seem sort of pointless to work so hard when they're still in debt, year after year, despite their best efforts to get rid of it? And how will they afford anything, when they're in enormous debt? By making their debts even bigger with credit cards, that's how. It's true that hard work can be very satisfying. But let's face it, if there were a "hard work calculator" out there somewhere, replete with supporting charts and graphs, it would demonstrate that the value of hard work is diminishing as the costs of food and insurance and college and retirement rise exponentially. "

7 comments:

kg79 said...

for us young folks so much of these calculators come down to what the real rate of return will be. (capital_appretiation - inflation) Since inflation has been running high lately and returns have sucked, all the calculators are now defaulting to 6-7% growth with 4% inflation (2-3% real return). Back in 2000 they were all saying 10-12% appretiation with 2% inflation (8-10% real return). This big difference is magnified for the young who have many years of compounding to look forward to prior to retirement.

poking around the web I found that long term inflation (1931 to now) ran 3.4%, while during the same period the S&P did 8.9% average annual returns(dividends included).

I'd use 4% inflation and 9% growth to get a good guesstimate out of those calculators. good luck!

Anonymous said...

Use 6-8% inflation and a negative 10-12% on your investments. So really you are just pouring your $$ into the market for the rich to steal it from you. Why bother?

Avinash Padhmanabha said...

I grew up in India in a very impoverished environment. I lived in a house with my parents for five years with no electricity and I am sure unclean water. I was lucky enough to go to a very good state-run public university and get a degree in computer science. I took many loans and had family help to come to the US for a master's degree. I had virtually no healthcare insurance while in grad school and remember when I came down with a very sore tooth, I just suffered it. I couldn't afford to go to the doctor.

Now I am a successful engineer and have a comfortable life because I suffered when I was younger. You Americans want everything and you want it now. You are rich, spoiled and unworthy of the benefits your forebears gave to you. You have elected a government that has put you in your position.

You are a democracy and you get the government that you deserve. Neither Barak Obama nor John McCain can dig you out of the hole you have dug for yourselves by electing George W Bush not once but twice! Idiots.

Anonymous said...

You should take your ungrateful brown ass back to the cess pool you came from. You probably work for a car company, and the only reason they keep you is so that you can help set up the call center so that they can save money by hiring your mom for $.25 a day.
You should consider yourself lucky that an american didnt actually hear you talking that crap, or you wouldnt have to worry about having any teeth. Punk.

Avinash Padhmanabha said...

@anonymous coward 1:32PM

No. The reason I am able to work here is because I am competing against idiots such as yourself. When an employer is deciding between me and someone who talks the way you write, I will win every time. Why don't you go back to Europe where you came from?

American trash. You have every benefit and every opportunity in this country and yet you squander it. That is a disgrace.

HS @ Our Debt Blog said...

So many negative comments on this blog! Anya I enjoy reading your articles on Yahoo, keep up the good work and insipirations for all of us.

HS

Anonymous said...

I agree with the Indian. I am from Germany, and sorry to hurt your feelings, but most Americans are very dumb. Now with Globalization most Americans will not be able to compete with the best and brightest from India, China, and Europe. Sorry. Just as German and Japanese cars have taken over the automobile market. They are better cars. German beer will eventually dominate. Then again Americans have such bad taste, ha ha. They may just drink their piss water forever. The time for the lazy American college student to make big money is over. Unless you have family money or are damn lucky your life will get worse. This is global competition, and Americans come in a sorry 8th or 9th place. Most Americans don't know the difference between Austria and Australia. So sad. So dumb. So fat! At least you can all join a gym and stop eating so many big macs, it's disgusting. Enjoy working at Walmart or McShit.