Never getting ahead - in terms of money

[CCrox24]

Does anyone ever feel that way? My elders tell me that it will take me 20 years to get ahead but I get to differ. There has to be an easier way. I feel like money is deposited into my account and that money never grows. The only place that it IS growing is in my 401K, so I guess that is a plus.

[redav]

My elders tell me that it will take me 20 years to get ahead but I get to differ.
What do they mean 'get ahead?' Ahead of what? And do they give a reason for the 20 yr time frame, maybe some life event or something? It just sounds so arbitrary.

If you're looking for it to grow (or at least seem to grow), then having it taken out before you ever see it and put into a place where you never get at it--like your 401(k)--is pretty much the best way. You could try setting up an online, high interest account, like ING, and have an amount direct deposited in there.

[Umbra]

To be honest, many people may never get ahead. Even in twenty years. And even with a 401k plan. Unless you can contribute ten to fifteen thousand dollars a year to the 401k for the next thirty years or so then you're unlikely to be able to retire. I'm basing this on inflation, and the unliklihood of Social Security being there for us when we retire. And when I say retire I mean completely stop working at sixty five. More than likely, the majority of us will have to work beyond seventy. And some of us will never stop working until we either die or become hospitalized. So you're not alone.

Then again, you may win the lottery or inherit a large some of money. You might start a successful business one day or invent something, which could make you wealthy beyond your wildest dreams. Time will tell.

A website with good retirement calculators: Dinkytown (http://dinkytown.net)

[hoodie]

Forget getting ahead...I'd be happy to catch up!

[WorkInProgress]

To be honest, many people may never get ahead. Even in twenty years. And even with a 401k plan. Unless you can contribute ten to fifteen thousand dollars a year to the 401k for the next thirty years or so then you're unlikely to be able to retire. I'm basing this on inflation, and the unliklihood of Social Security being there for us when we retire.

I'm not sure it's that drastic. How much inflation are you expecting?

[redav]

I ran some math on this problem.

Given:
- You save a constant percentage of your income each year.
- You get a consistent raise every year.
- Your actual dollars saved goes up each year due to the raise and constant savings rate.
- Your standard of living does not increase. This assumes that inflation is at or below your raise. (Actually, if your raise it higher than inflation, there is money that disappears in this model, making it conservative)
- In retirement your needed income will equal a percentage of your initial salary (standard of living) adjusted for inflation
- You can retire when you can withdraw a given percentage of your savings to cover your needed income for retirement with sustainability. This is approximately equal to rate of earnings minus inflation.

The governing equation is:

w*f*((1+r)^n - (1+R)^n)/(r-R) = L*(1+i)^n

where:
r = annual raise (such as 4%)
R = rate of return on investments (such as 9%)
i = inflation (such as 3%)
n = number of years
f = percentage of income saved each year (such as 10%)
L = percentage of your original standard of living you need to replace (such as 70%)
w = percentage of savings you can withdraw each year (such as 4%)

It's worth noting that since it is assumed that both retirement needs and savings are based on income, it gets factored out, and the result is independent of income.

With the above numbers, that makes n just over 41 yrs. So, assuming you start working at 25, you could potentially retire by 67 without SS.

Of course, this doesn't factor in taxes. With income, it can be assumed to be included in your standard of living. However, for earnings on investments, that needs to be after-tax or tax-deferred returns.

[AshleyJordan]

I've actually run the numbers for myself on quite a few retirement calculators and never had any indication that I wouldn't be able to retire by 67. . . but as I've posted before, I have great benefits and a paltry salary. I'll seriously have a better standard of living as a retiree than I do now, but I suppose that being young and broke is probably much better than being old and destitute. It breaks my heart to see seniors working as busboys or cashiers, etc.

[Umbra]

I'm not sure it's that drastic. How much inflation are you expecting?


Three percent each year. Minimum. There are a lot of factors that can drastically impact how much you'll need to save. But I expect that many people will need between three and five million to retire. Hopefully, I'm wrong and so much the better if I am. I assume that most people will own a house in my calculations.

And then I add in housing expenses, healthcare, taxes; etc. I expect the housing expenses to come to a few thousand a year, and healthcare is a big one. If we have universal healthcare(unlikely) then you obviously will not need as much money to retire on. If universal healthcare does not exist in thirty to forty years then it may cost you a few thousand a month(factoring in inflation). Of course, if you have great benefits then you may have nothing to worry about. But many people will not have great benefits.

And remember, those seniors who are working may actually want to work. Retirement can be incredibly boring. Not that a busboy or a cashier is a fun job, but you never know.

Here's the specific calculator that I used: http://dinkytown.net/java/RetirementPlan.html

[Rage]

Some people never get ahead because they always want more. They get a new high paying job and rather than living the same way, they go out and buy a bigger house, or a new car. People are constantly living with as much debt as their check will cover with maybe a small bit of savings. Big houses don't always mean easy living, just more expenses.

I do know what you mean though, it would be nice to get rid of some of the bills like student loans.