Retirement epidemic?

[Corpsman2PA]

Greetings all,

I was having a discussion with a PA colleague the other day about retirement, and it sparked an interesting thought. 

I was listening to a Podcast (the money guy show) and he asked if I was contributing to my 401k. I said of course (I max it out on top of 7% match) along with Spousal Roth IRA and my own Roth IRA. 

He quipped something like “I should probably get on that. If I could only get paid more.”

Turns out he’s not doing any retirement and we’re the same age, same time in the profession (approx 5 years) and make about the same ($170k/yr). But, he drives a brand new luxury vehicle ($800/month) , I drive an old paid for Honda (hey it’s practical!)

I’m curious, which camp do you fall into? I consider myself frugal, and save about 20% of my income in retirement (buy and hold no-load low cost index funds, etc).

Is this a “PA epidemic” so to speak? Meaning, are we shooting ourselves in the foot by not teaching basic financial skills and/or what options we have out there? Whether it be part of the PA school curriculum or otherwise.

I am on track for a multi-million dollar portfolio, I enjoy life, eat out and vacation 2-3 times a year, etc. 

At what point do we sit down and mentor each other, the next generation, or at least talk about finances? I understand there are many views, and “it’s not about the money” in this profession, but I’m sorry I don’t want to work until I’m 90. 

Just curious if this is an anomaly or widespread “hyper-consumerism” issue that The Millionaire Next Door book talks about. 

Regards,

C2PA

 

Edited October 24, 2019 by Corpsman2PA
Detail

[pa-wannabe]

I'm so glad someone else is seeing the same issue. I've been out of school for 1.5 years, $170,000 in debt between undergrad and PA school. Salary is just shy of 100k. I currently contribute 15% to my 403b, with my employer contributing 6%. I've paid off two of my four student loans since graduating and am hoping to be completely debt free within 7 years. I own the same car I had six years ago, shop at Aldi, and forego luxury items (sans a few handbags). 

 

I think the difference in the two camps you mention has to do with the financial situation of a person during their childhood plus their total student loan debt. I grew up pretty broke and amassed more student debt than I can stomach, but it has taught me to pinch pennies and plan for the unpredictable.

 

I think some people come out of school so happy to finally be earning money rather than having it loaned to them, that many feel entitled to the $800/mo vehicle or a mortgage on a larger than average home in at least an upper middle class area.

 

Additionally, I've heard colleagues and friends say things like, "I'm spending it now because tomorrow isn't promised, and I can't take it with me." Vastly different from my point of view, but a reality nonetheless.

 

At the end of the day, I'm young and not convinced that social security and Medicare will be available to me when I reach the applicable age, so I do my best to save aggressively now, pay down quick, and allow myself a few indulgences here and there.

 

To each their own. 

[Corpsman2PA]

48 minutes ago, pa-wannabe said:

I'm so glad someone else is seeing the same issue. I've been out of school for 1.5 years, $170,000 in debt between undergrad and PA school. Salary is just shy of 100k. I currently contribute 15% to my 403b, with my employer contributing 6%. I've paid off two of my four student loans since graduating and am hoping to be completely debt free within 7 years. I own the same car I had six years ago, shop at Aldi, and forego luxury items (sans a few handbags). 

 

I think the difference in the two camps you mention has to do with the financial situation of a person during their childhood plus their total student loan debt. I grew up pretty broke and amassed more student debt than I can stomach, but it has taught me to pinch pennies and plan for the unpredictable.

 

I think some people come out of school so happy to finally be earning money rather than having it loaned to them, that many feel entitled to the $800/mo vehicle or a mortgage on a larger than average home in at least an upper middle class area.

 

Additionally, I've heard colleagues and friends say things like, "I'm spending it now because tomorrow isn't promised, and I can't take it with me." Vastly different from my point of view, but a reality nonetheless.

 

At the end of the day, I'm young and not convinced that social security and Medicare will be available to me when I reach the applicable age, so I do my best to save aggressively now, pay down quick, and allow myself a few indulgences here and there.

 

To each their own. 

Agree 100%. Different upbringings perhaps. I too grew up in a low income household and a “waste not, want not” mentality. 

I also view social security as mere icing on the cake if it’s atill around when I retire, not calculated into my retirement.

congrats on the student loan pay down! I got rid of mine, and it was a huge weight lifted. 

I just hate seeing colleagues not capitalize on the opportunity they’ve been given in terms of personal finance, as if it’s some taboo topic not to be discussed.

[cinntsp]

It's an everyone issue...not just a PA issue. Most people don't have much in the way of retirement savings, or savings in general.

[UGoLong]

It is very much a cultural issue that has a lot to do with how you were raised. We saved and invested in 401ks and later in life it has brought us freedom.

Run your own race and enjoy the results. I’m not sure anything you could say would change how someone else does it.


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[kidpresentable]

4 hours ago, pa-wannabe said:

I currently contribute 15% to my 403b, with my employer contributing 6%. I've paid off two of my four student loans since graduating and am hoping to be completely debt free within 7 years.

If you don’t me asking, how did you decide on 15%? Is that the minimum for your employer to put up their 6? Or was that under professional recommendation?

Optimizing the damage of student loans and the good of saving is a bit of a mystery to me - where does one draw the line?

[pa-wannabe]

24 minutes ago, kidpresentable said:

If you don’t me asking, how did you decide on 15%? Is that the minimum for your employer to put up their 6? Or was that under professional recommendation?

Optimizing the damage of student loans and the good of saving is a bit of a mystery to me - where does one draw the line?

I believe I can go to 18 or 19% for my contribution before maxing out. I chose 15 because it is a hefty amount to save but still gives me room to increase once my loans have been paid down more. At that point, I'd probably also contribute to an IRA. I've always been told when it comes to retirement contributions, it's better to continually increase the amount when you can, rather than one day having to decrease. 

I, too, find it a fine line to walk between paying off debt and contributing significantly to savings. It's possible to save more now while being on 20-30 year loan repayment plan with more interest accrued down the line. I've chosen to do the opposite, simply because I am on track to have a sizeable retirement with the combined 21%. Kids aren't in the picture now or ever, a home is several years away, so I use that money to shrink current debt. 

 

Just depends on your preferences, interest rates, and goals I suppose.

[mgriffiths]

29 minutes ago, kidpresentable said:

If you don’t me asking, how did you decide on 15%?

That is a very common target number for retirement savings.  Generally, over the course of a full working career, 15% into retirement annually will replace 80%+ of your current spending.

 

As for me, I have an NP coworker who is financially illiterate.  She has a married daughter in college and is paying 100% of tuition and lifestyle.  That is awesome, except she has 4 more children with zero college savings.  This NP is also 10 years older than me.  She has saved some for her retirement, but nothing significant.  Her savings are purely from when she was an RN and had a 6% match.  We unfortunately don't get an employer match into our 403b...sucks...but she uses that as an excuse to save nothing now.

My goal is to be financially independent in 10 years.  My definition of financially independent is that my passive income provides for my basic needs - NOT my entire lifestyle.  I don't plan to actually retire once that is achieved, but the point is that if I wanted to (or needed to) I could.  This gives me the control.  This concept is what some call coastFIRE.  But, again, I don't plan to necessarily do the RE part, or at least not that early.

[mgriffiths]

30 minutes ago, pa-wannabe said:

I, too, find it a fine line to walk between paying off debt and contributing significantly to savings.

For me, I chose to refinance my loans and was able to get a quite low interest rate, 3.375% over 5 years.  At that interest rate it really doesn't make financial sense to pay off early.  This allows me to pay the minimum, fund my budget, and everything extra is prioritized to retirement savings.

[CAdamsPAC]

I had both a 401K and traditional retirement accounts at my longest employer. I maxed out my contributions and gladly accepted the 4% match. I worked hard to pay off all of my credit accounts too. I gave all of the folks at the job advise to do this as retirement comes faster than one realizes! I have made a comfortable nest for myself.

[Mayamom]

Dave Ramsey. Listen to pod cast or get his book from the library.  

[Corpsman2PA]

34 minutes ago, Mayamom said:

Dave Ramsey. Listen to pod cast or get his book from the library.  

I agree with Ramsey on “starting out” principles (attack debt, emergency savings, etc). However I think his target audience is a little different than me.

I personally fund all my regular purchases through my airline credit card and get free flights for vacations. I don’t carry a balance and pay it off bi-weekly. I don’t spend frivolously on credit and have the discipline to use it as a tool for my benefit. It’s like a machete, if used correctly is great, but it can also hurt you bad if used improperly!

I also have more “opportunity cost” in funding retirement rather than plunking it all down on my 3.25% fixed mortgage. That being said I do plan to have that paid off before the full term is up.

I’m a fan of Brian Preston (the money guy show podcast) as they have a very good order of financial operations that I subscribe to. 

[GetMeOuttaThisMess]

I start living this scenario beginning next Friday.  Own home, only debt is a Lexus for my wife.  Got daughter through UT-Austin debt-free and paid off house 10 years early.  No credit card debt.

My wife and I did it based on an example set by my parents, not hers.  We initially ran up credit cards in the late-80's when every one else did because we were a consumption society.  Reality soon set in and it became a simple matter of paying off the credit card quickly versus savings since the cost of the interest exceeded what we could be earning back then.  When interest rates dropped below 10% on home mortgages back around '90, we refinanced for 30 years (2 years in) and I factored in how much extra to pay monthly to pay off the house in an additional 18 years (so 20 years total from time of build).  By doing that I saved right at $100K.  My school debt for 2 years at UTMB and a year at UT-Austin was about $10-15K as I recall.  I paid that off in a year by living at home and commuting to my job the first year.

Daughter's college?  My dad and I matched $1000 deposits at the end of each year (her birthday is after Christmas) so by the time she was in elementary school I could do a lump sum prepaid tuition purchase which in retrospect was a great idea (don't think any state offers this any longer).  She still was going to need about $60K for COL for four years so we put back extra when she was in high school so I always had that $15K each year before it was needed.

What about our retirement?  No retirement plans to speak of through employers back when.  We maxed out our Roth options from the beginning when Roths first became available and over the past 10 or so years have been fortunate to have employers with defined pension options (two for me, one for her).  The last couple of years since house is paid for, we've been dumping cash into 457b/403b plans.  NEVER leave free money on the table!  If you have a 401K with an employer match to typically 3%, contribute at least the minimum to qualify for THEIR contribution.

How much do I need?  I have budgets dating back decades and have used present day expenses as estimates of need with line items being updated monthly, etc. as the amounts come due (utilities, prop. taxes, other insurance expenses, etc.).  Based on all this I know that I can defer my pensions and SSI till age 65 and my wife will begin to draw at 63.  We'll still be at six figures, excluding income taxes which I also have budgeted based on today's costs.  We also have our LT care medical policies in place if needed.  Medicare costs I'm estimating based on what my mom is paying for hers, as well as her supplemental policy.

One needs to take into consideration at retirement which funds to use first.  Since my income ($35K draw down annually) will be less thus lowering our taxes, I'll hit the taxable accounts first and then over the last couple of years till age 65, draw down on the Roth accounts since my SSI will be taxable along with our pensions.  After 65, pensions and SSI will be the primary revenue sources.  I've budgeted in a rainy day fund of $200K and have allocated $35K for a future wedding (wild guess on this cost).

Bottom line, and the point of this dissertation, is to look ahead and plan accordingly and don't make long-term financial decisions on a whim (such as having the ability of fielding a baseball team with your own kids) without knowing how you're going to pay for it.  You have to be disciplined.  Always have a six month emergency fund which should be priority one.  Next, if one has a family, have LT disability insurance>life insurance, though try and have both.

Edited October 24, 2019 by GetMeOuttaThisMess

[BlueWhale]

There is hope for us! I'm in the newest generation because I will be starting PA school in May. Like you all have said, it's definitely cultural because I grew up nearly broke without any luxuries and saw my parents divorce over finances. Watching that as a kiddo, I started watching a lot of Dave Ramsey and spendings more hours on the /FIRE, /personalfinance, and /frugal reddit threads because I was lucky to see the importance of financial education before it was too late.

Currently committed to a private school, but having interviewed at a state school this week, I'm planning on paying off loans within two to three years max. I'm living on nearly 1k a month with multiple roommates in a high COL area. No wife or kids which is helping me save before school starts back up.

[Corpsman2PA]

40 minutes ago, BlueWhale said:

There is hope for us! I'm in the newest generation because I will be starting PA school in May. Like you all have said, it's definitely cultural because I grew up nearly broke without any luxuries and saw my parents divorce over finances. Watching that as a kiddo, I started watching a lot of Dave Ramsey and spendings more hours on the /FIRE, /personalfinance, and /frugal reddit threads because I was lucky to see the importance of financial education before it was too late.

Currently committed to a private school, but having interviewed at a state school this week, I'm planning on paying off loans within two to three years max. I'm living on nearly 1k a month with multiple roommates in a high COL area. No wife or kids which is helping me save before school starts back up.

I think the basis of FIRE is good (frugality, hypersaving, etc) but personally I don’t want to live in a tiny home with no electricity just so I can blog all day lol. 

Good on you for already having a plan to pay off your loans after school. Just remember, don’t fall victim to lifestyle creep. Avoid the brand new car after graduation! 

And definitely get your employer match even when paying off the loans, it’s a 100% return on investment. 

[Boatswain2PA]

22 hours ago, Corpsman2PA said:

I’m curious, which camp do you fall into? I consider myself frugal, and save about 20% of my income in retirement (buy and hold no-load low cost index funds, etc).

My wife and I both max out our 401Ks which is about 12% of our income.  Of the remainder, we pay about 30% tax.  Of the remainder of that we are saving about 65% of our income toward building our dream house, with the rest going toward living expenses and giving.

 

22 hours ago, Corpsman2PA said:

Is this a “PA epidemic” so to speak?

It's not a "PA epidemic", it's an American Consumerism epidemic.  People have been indoctrinated into believing if they can afford the monthly payment on something (house, truck, car, boat, phone, watch, etc) then they can "afford" it.  And the mental midgets who are running academia tell kids to take out student loans for useless degrees just make things worse.  

 

21 hours ago, pa-wannabe said:

I'm so glad someone else is seeing the same issue. I've been out of school for 1.5 years, $170,000 in debt between undergrad and PA school. Salary is just shy of 100k. I currently contribute 15% to my 403b, with my employer contributing 6%. I've paid off two of my four student loans since graduating and am hoping to be completely debt free within 7 years.

Not saying your plan is "wrong" in any way, but if I were in your shoes I would put 6% toward retirement (enough to get the full match) and then push to get completely debt free in 3-4 years instead of 7.    Anything beyond the 6% match I would put into a ROTH.

14 hours ago, BlueWhale said:

I'm planning on paying off loans within two to three years max. I'm living on nearly 1k a month with multiple roommates in a high COL area. No wife or kids which is helping me save before school starts back up.

Once you pay everything off and are debt free (and putting money into retirement) you will be golden.

I read an article recently that one reason young people aren't getting married is because the lack of financially stable men able to support families.  Very soon you will be one of the men who can!

[EMEDPA]

Not a big fan of being in debt. we try to have all our expenses aside from the mortgage and a single car loan paid off by the end of the yr every yr. No vacation homes. no boats. no yearly ski trips to Switzerland. My last job had a great retirement plan and I was there for 15 years . I worked for kaiser for many years before that and have a pension and 401 k through them. my current part time job gives me 3% if I put in 6% (and I do). My current full time job is 1099 so I get no retirement through them. 

[Lexapro]

Fiance and I max out our IRAs and 401ks, then have an extra taxable brokerage account. We should be able to retire in  ~12-15 years if we so desire, but plan on retiring in more like ~20-25 years quite wealthy. I'm a big bogleheads fan, I prefer bogleheads over Dave Ramsey (who is a bit too conservative when it comes to debt IMO).

Edited October 24, 2019 by Lexapro

[Corpsman2PA]

22 minutes ago, Lexapro said:

Fiance and I max out our IRAs and 401ks, then have an extra taxable brokerage account. We should be able to retire in  ~12-15 years if we so desire, but plan on retiring in more like ~20-25 years quite wealthy. I'm a big bogleheads fan, I prefer bogleheads over Dave Ramsey (who is a bit too conservative when it comes to debt IMO).

Fellow Boglehead for the win! I could say that Bogles book really shaped my investing philosophy. 

[bovineplane]

Boglehead fan although we are not religious about it. Graduated PA school 2013. Current job is $112k annually. Couple part time 1099 which varies but adds 10-15k annually. Wife makes ~$87k annually as a GS employee. 

Through the Military the TSP did not become available until 2004 if I recall. Before then I was a low income earner and didnt save much in a Roth IRA. Started saving once it became available. Maxed some years, others not so much. Even skipped a year when we had a baby and wife was SAHM for most of the year. Bought houses when we moved which turned out to be both bad and good ideas but balanced out to a near net zero. Would have been better off renting as the drag on income prevented larger TSP savings. 

Now retiring from the Army Ill have the pension from my service. Id have to look but we have nearly $400k in the TSP to go along with it. No student loans ever as the Army paid for all schooling I ever went to. GI Bill split between our two kids pays for 2 years each for them. Small Coverdell ESA for each of them will cover about another year each. Will income/scholarship the rest as we wont qualify for subsidized loans I bet.  Grad school is on them if they choose. 

Wife started GS employment 7 years ago (RN).  Next year will be the first we max both her TSP and my new 401k. Will have a bit more to save, not sure if we will use taxable or backdoor Roths. Taxable is easier documentation wise for the minimal tax gains we would get from the Roth. If we retire early which is the plan taxable would be the income source. 

At 41 we are not close to FIRE but this year our savings will be $38k plus and next year close or over $50k annually for retirement. Kids have 5 years left until College so we plan to save as much as we can next 5 years and see what happens. My pension plus her pension is a nice steady income buffer. Whatever is left of SS will hopefully be gravy. We could have done better but we also could have done far worse. 

Our goal is to seriously look at 8-10 years and see where we are at financially. We would like to do short term contracts part of the year and travel part of the year. Not really retired but not working full time. My goal is to save at least another $500k in the next 8-10 years in retirement accounts. If the market plays nice and we get some growth those accounts could be $1 mil or more. Not enough to pull the rip cord and FIRE but enough for the part time plan. Sounds terrible but I hope the market muddles along with little change the next 3-4 years before taking off on the next bull market to the end of our 10 year timeline. 

I dont offer retirement talk to co-workers. Guess I figure they are all adults. We are better off than most and discussions such as politics, money, marriage/divorce etc do not seem to make friends at work. Have a few friends I talk with who are PAs I went to school with. We each have different plans. One hasnt saved a penny and is a few years older than us. His kids just finished college and he is only now starting to lay a plan down starting with zero. As a bonus he is between jobs at the moment waiting on credentialing. 

[Guest Paula]

I'm out of debt, no car payment, house paid off  and working part-time.  My work for the first 11 years had little employer investment opportunities such as 401k, due to the rural nature of the clinics and tribal direct hire.  But  I started a Roth account way before PA school. When I retire I should be fine but  I can't say my husband and I are set though due to unforeseen circumstances.  We had to use one of his IRA's for his care for assisted living expenses and now I take care of him at home with a bevy of people coming in to help.  I refuse to let the government impoverish us with all the rules in place to take our assets down to bare bones.  

One cannot predict the future but it's best to plan, not spend you income willy-nilly with the thought you "can't take it with you". 

Plan, Prepare, Invest.  Best advice ever!

 

 

[jmj11]

I’ve met with countless financial planners over the years. I can remember, so many times, sitting and talking about our goals. Mine was to retire at 65 and to move to the Mediterranean region and live a quiet and frugal lifestyle until the end. The planners always wanted to guarantee my 100 K income forever through my investments. They would estimate (based on my good health) that I would live to be in my 90s (as did my mother).

Then, something that never showed up in any discussion with the planners, I get suddenly and profoundly ill before my retirement and have to quit work, then I look ahead, hoping to survive until I’m 65 or 66. What do I do with all the money? My kids are doing well. I may need an expensive, lifesaving, treatment later on. Forget the Mediterranean.

My point is, do get too worried about it, but keep in the back of your mind that no matter how good your genes are (parents lived to be 105) and you live a very health lifestyle, you can become seriously ill with a terminal and incurable illness, that will profoundly change your dreams.

[CookiePA]

Great pointers on here!

I havent added to my retirement plan as robustly as I could. My focus was paying off loans within 3-4 years post grad which I was able to accomplish. My entire paycheck first two years went directly to my loans. I refinanced them as soon as I could after graduation. Kept few bucks for insurance/minimum spending etc and dumped everything else. I drive a very old car which runs perfectly fine. 
My next goal is house investment and firing up my retirement accounts hopefully. I too hope to retire before 65 and live out the days in a quiet place with no stress.

 

[UGoLong]

Your stress doesn’t go away when you retire, it just changes. Enjoy as many of your days as you can, before or after retirement.


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