I hardly ever go to the doctor, but since having kids, I’m not quite as healthy as I used to be. Children bring home bugs from school that they then pass on to me. These new kiddy-critters give my body fits for brief amounts of time. A couple months ago, a particularly nasty one really got a hold of me, so I begrudgingly made an appointment to see the general practitioner.
The truth is that I don’t mind doctor visits because I love to read. Doctor’s offices are usually filled with a treasure trove of magazines of all types. This past visit, I thought I really hit the magazine lottery when I spotted one about money. Better yet, it was their Special Retirement Issue! Wooo! Doctor, please make me wait an hour so I can read through this.
However, what I read made me feel even worse. There was an article that detailed three couples on the verge of retirement. All three seemed to be making some horrible decisions, but the author didn’t call them out. So now, I’m going to.
Case Study #1
The first couple were in their early 60s, lived in Waukesha, Wisconsin and were about to retire. The author made a big deal about how this couple had saved 13% of their $130,000 annual income every year. They have no debt and have a nest egg about 1.3 million. The couple is quoted in the article as saying, “We’re just not big spenders.”
My response: I can relate to this couple a bit because I actually lived near them for the past 6 years of my life. I’ll acknowledge that Wisconsin has high taxes, but other than that, the cost of living is low. Houses are cheap and the government services are good.
I think it is ridiculous that they only saved 13% of their money and then insinuate that they are thrifty. If you do the math, these people are plowing through almost $100,000 per year or $8000 per month with no mortgage. They are actually HUGE spenders.
Case Study #2
The next couple were also in their early 60s and lived in Seattle. Seattle is a bit more expensive than Wisconsin, but Washington has no state income tax. Together, this couple earned $210,000/year. Do you want to take a guess at how much this couple has saved? Wait for it. $1.6 million. This may sound like a lot, but I don’t think so. I have a couple relatives and friends who have saved aggressively and despite never making more than $130,000 in a year, have saved more than $2 million.
Another way to think about it is that this Seattle couple have saved a little under 8x their income. I’m 25 years younger than them and have almost 8x my income saved. I’m no Warren Buffett either.
The story went on to discuss how this couple talked to a financial adviser who warned them that ‘they would quickly burn through their entire nest egg if they retired now.’ Nice work Sherlock. The adviser said that they would need to postpone their retirement to their late 60s. The husband’s response was priceless; “Evidently $1.6 million doesn’t go as far as it used too.”
My response: What. A. Tool! Poor guy can’t live on almost $2 million, waaa waaa! I feel your pain. Wait, no I don’t!
What on earth are these people spending their money on? The 4% rule tells us that these folks could very safely spend $64,000/year in retirement, but apparently that isn’t nearly enough, even with a paid off home. This couple has clearly lost sight of what is important in life. Whatever they are blowing all of their money on, it’s not worth it. They are getting up in their years and the one thing money can’t buy more of is time.
Case Study #3
The final couple were in their late 60s and lived in Cleveland. These people had an entirely different problem. They had $5,000,000 saved up, but couldn’t bring themselves to retire because their lives were built around their jobs.
Although this story isn’t as bad as the previous two, it still doesn’t sit right with me. I admire this couple for finding happiness and meaning through their work, but it seems to me that they may have missed out on life. The author talked about how they worked crazy hours for years to build their business.
There is so much to see and do in the short time we’re allotted on our little green/blue sphere. I’m not even 40, but I know that I won’t be able to see much of it. The fact that these people haven’t found anything meaningful outside of their business makes me a bit sad.
Mainstream Money Media is Horrible
The thing that really chafes my hide is the money media in general. The average family doesn’t make $210,000 or even $130,000 per year. Normal folks are going to read these stories and be terrified. If a couple can’t retire with almost $2 million, the average person is going to think they can never retire.
Instead of the Retirement Issue, I’d like to see the Spending Issue or the Thrifty Issue. Profile the first two couples in this article and show all the crazy nonsense that they waste their money on. Then, show how easy retirement can be with a low consumption lifestyle. When that issue comes out, I’ll buy a subscription*.
*To read the stories for yourself, boogie on down to your local library and turn to page 87 of the March, 2013 edition of Money.
Join the 10s who have signed up already!
Subscribing will improve your life in incredible ways*.
*Only if your life is pretty bad to begin with.
I’m still shaking my head over this these case studies. I’ve read enough to know that sometimes when people say they “can’t afford to retire” it often means 1) they can’t afford to retire and keep their current spendy lifestyle or 2) they want an even better lifestyle in retirement (i.e. more travel, more hobbies, etc.)
I wouldn’t be too hard on the third couple though — I didn’t read the article, but did it talk about their lives beyond money? I ask because not everyone wants kids. Not everyone wants to travel. Some people find their focus and purpose at work (or rather, build their careers/business around this focus) while others find their passions outside of work. (Some do both.) What’s meaningful for one person isn’t necessarily meaningful for another — but I do think life has to be more than the pursuit of money.
The “great recession” hit when I was in my junior/senior year of college. I was taking investing classes at the time. As if we weren’t getting enough “doom and gloom” talk already, I remember the following couple of years reading articles similar to this and being SO SCARED that I would never be able to retire!
This was, of course, before I started reading PF blogs and then of course MMM, which drastically changed the way I view saving and the ability to retire early.
Still, like you said, no wonder so many Americans were scared to death! Hearing these stories of, “I only have 1 mil in the bank, and that won’t last me!”
Maybe YOU and some other great PF minds should start a Spending Issue or Thrifty Issue! 🙂
Mrs. Herb recently posted…Sirloin Steak with Orange Sauce
Yeah, MMM is completely awesome. Not many things have steered my life in a different course, but his blog is one of them.
I’m with Ms. Herb, maybe Mr. 1500 should write a “Ridiculous Spending” issue. I really liked his analysis on the first two scenarios and the statement “…the one thing money can’t buy more of is time” rings so true.
Ree Klein recently posted…Visual Cues Matter
Case studies 1 and 2 are amazing. I could retire now with a potential 60 years to fund on $1.6 mill or $2 mill. And they can’t figure out how to do it?
“We’re just not big spenders”
Ha, you’re spending 87% of your income. And I’m sure most of that money is saved through 401ks so they’ve probably spent closer to 100% of their take-home in reality.
Just curious did the article cover anything about pensions? Given that all the couples are at retirement age, they were working when companies still had pensions so that’s yet another source of income.
I have to second Elizabeth’s comment from above about the average Joe probably reading that and just throwing their hands up. If someone making that much money can only save $1.6 mill and can’t afford to retire, what kind of hope does that give the regular guy with a $45k income and 3 kids?
JC @ Passive Income Pursuit recently posted…Net Worth Update – April 2013
Nope, article said nothing about pensions. If they have pensions on top of all this other income and still can’t retire, they are really pathetic!
I disagree that the first couple are spendthrifts. If they have saved 13% for decades, that’s not so bad. And the proof is that if they achieve an 8% return for next 4 years, they could end up retiring on $1.8M. With 4% plus social security, they would be able to retire on close to $100k. No problem!
But I agree with you that the media is overly focused on the this big number we need to retire on. When you’re talking millions of dollars, it sounds like a ton of money. They really don’t understand why $1.6M doesn’t go very far. 4% feels crazy low to people who don’t understand financial models. Instead of saying we need $3M to retire, they could say a certain couple wants to retire on 80% of their current income. I think that would be a lot more motivating to most people.
I guess we agree wholeheartedly, which is why we’re on a mission to live on next to nothing. Surely leading by examples is a great way to start teaching people that less is more and that a great life can be lived with very little money!
Funny times we live in, 1500.
Jacob @ Cash Cow Couple recently posted…Starting a Blog That Matters
Jacob, you guys are killing it. I think you’re be retired before me!
It is interesting that main stream financial advice almost never includes the words “spend less”. It’s virtually always “work longer” even though the benefits of spending less are far more cumulative than working a few years longer.
Mrs PoP @ Planting Our Pennies recently posted…What To Do With A Car Accident Settlement?
I agree. I wish that just every once in a while, they would be more like Mr. Money Mustache.
Wow, great comment Mrs. PoP. You’re absolutely right. I’d like the financial adviser to tell these people to tone down their rock star lifestyles and try to see what is really important.
Unfortunately, we’re not saving anything for retirement right now, which kind of scares me. We do have some money in Roth IRAs, but we stopped contributing to them for the time being so we can focus full-force on paying down my student loans. But even so, living in Texas, we can get by on about $3k a month including mortgage and loan payments. It’s not always comfortable, but it’s do-able. So these couples really shouldn’t have that much problem living on less than $8k a month! It’s time to get uncomfortable!
Texas is a cheap place to live. No income taxes and lots of jobs. Before you know it, you’ll be out of debt and building wealth. I was where you are now not too long ago.
Maybe we can look at things a different way and say, WOW average retirees actually have a lot more than the mainstream media makes them out to have?
I’ve help a thesis for a while now that there is much more money out there than we know. But b/c of class warfare, much of this wealth is hidden. Stealth Wealth.
Financial Samurai recently posted…The Virtual Currency World Of Investing With Olim Dives
I agree about the stealth wealth. I see relative who appear very poor, but are millionaires.
That would be my in-laws! It’s ridiculous – and makes my husband bat-shit crazy!
Valid points about the first couple, but then again, with their location, they have succeeded in quite the savings.
Really not upset about these guys, they have saved a ton more money than the average retiree, and they have different aspirations than you and I share. Much more concerned by the people who have nothing saved at all at that age, or are in debt.
Matt from Saverocity recently posted…Puerto Rico Dilemma – to Vieques or not to Vieques?
They have done better than most. I just wish the article pointed out how much better they could have been.
Wow, craziness. I’d like to know a little more about #1 and if they had any kids and if so once they were out of the nest. If they’re an “average” family there is no reason why they could not have been saving 50%+ or more of that salary for a good number of years. If they did not, then they could’ve been doing that for decades.
John S @ Frugal Rules recently posted…Ways to Save on Gourmet Coffee at Home
I’m all for saving and being reasonably frugal, but seriously?? You and others here think they could save $65,000 per year? Y’all are crazy!
A $130k salary probably puts them in the 28% tax bracket ($36,300), plus they almost certainly pay at least $2,000 for health insurance. Also remove 13% ($16,900) for savings. So they’re likely bringing home around $75,000. But you think saving and additional $48, 000 is doable. Where would they they live? How would they eat?
$75,000 take-home for a couple in a fairly expensive city is not extravagant, especially if they have kids. They put away enough and will now retire near their current cost of living.
So the taxes would actually be a bit lower since they woukd not pay them on the savings or health insurance. But still, a take-home of about $30,000 (for a couple!) you advocate is no way to live in Milwauee.
With no other debt (a reasonable expectation near retirement), I think that it would be pretty easy to live on $2500/month.
Scooze, you’re taxes are way off. $23,089 is what they would pay in federal taxes along with their share of Social Security and Medicare. Didn’t figure WI state taxes if there are any. This amount if for 130k combined income with 13% 401k and the standard deduction. The taxes would be even lower if they have kids in the house, are able to itemize, or if all 130k was just for one of them since they would max out on Social Security.
I absolutely do think it’s possible. If they have no debt (which I am hoping is a place they’re at since they’re near retirement) then I see no reason why they could not live on $2500-$3000 per month like Mr. 1500 said. They could easily live another 30 years and live in a low cost of living area. The focus needs to be on the long term and saving as much as they really can, while still enjoying life (to some extent), since they’re so close to retirement. I think that one simple look at their expenses would show that there are a number of areas they could cut back on easily and jack up that savings rate.
John S @ Frugal Rules recently posted…Frugal Friday: Who’s Worse – Wal-Mart or the Government?
But why should they live so far below what they can afford? They don’t need to save that kind of money. Why not live and enjoy if they can easily afford it, and still save for retirement? That’s what they have done. You could argue that instead of 13%, they should have saved 15%. Fine. But 50% is extreme – and for no reason! On the $1.7-1.8M they will have saved by 65, they will be just fine. Why not have fun if they have the money???
They absolutely don’t have to. However, in the case of the second couple, they are working up until age 70 just so they can maintain their lifestyle. If they are at peace with that, great! However, the guy seemed pretty bitter that he had saved what he considered a large sum of money and couldn’t retire and maintain his spending. Something has to give.
I’m pretty sure that my husband would work in music as long as people will pay him (or not) to play piano. He’d do it if we were independently wealthy, too. I don’t understand it, but he’s madly in love with his music. I can’t see either of us continuing the software engineering or travel agenting in the long term, though.
Meg recently posted…Marry Young, Prosper
I want to meet your husband! Very cool to hear about people who have found their true passion and get to pursue it.
If you ever come to New York, let me know. Then you could!
Meg recently posted…Marry Young, Prosper
Instead of bemoaning the financial concerns of some truly rich retirees, why don’t they just teach them what kind of lifestyle they could have on only $60k/yr? I think they’d chooseto that every time over working for 10the more years!
CashRebel recently posted…Investment Tinkering Part I: Investing In Real Estate Without Buying A House
I am nosey by nature and love to read the details of others’ finances. I am continually shocked by the number of seemingly bright people who can’t manage their own finances and pay high commissions to get advice that is slanted to give the advisors a higher commission.
Jane Savers @ Solving The Money Puzzle recently posted…Money Quickies And Mall Smells For May 15,2013
I am soooo with you! I absolutely love to hear about how other people spend or better yet, save their money.
Yeah, I’d love a show like this – I continually say “People are SO damn stupid with their money!” It’s really mind-boggling to me.
The retirement media is really geared to people in their 50s that are coming up on retirement age which I think is a national blunder. People don’t think about retirement until they start getting older. I had an instructor for a class a few weeks ago that makes well into the $100k’s who told me that he’s too young to plan for retirement. He has all the time in the world for that.
People think their spending is okay, because they look at their neighbors and friends and the financial media who tells them that they’re doing okay. “If you’re saving 13%, you’re doing okay! Good job buddy!” Yeah right. We save about 50% of our income, and sometimes I don’t think that’s enough!
Johnny Moneyseed recently posted…Do you have an emergency fund?
Wow, great comment! First of all, that instructor’s comment is insane. You could (and should) write a post just on that.
Right on about the media too. They are just telling people what they want to hear. No-one wants to hear that they’re not doing is as good as they could be.
That’s true.. The audience will be limited to those that care or that make that kind of money. Most people don’t and yes it freaks us out as well. I agree with the comment above that we don’t know how much case #1 was earning and for how long. There are so many things to look at rather than the end number. It’s more about the trail that led to the number that’s intriguing to me.
Canadian Budget Binder recently posted…Working Towards A Debt Free Lifestyle In 8 Steps
I’m not really sure what to say about this article, really. On one hand, I couldn’t agree more with the focus on high earning couples with their flashy-looking “nest eggs” totals being scary for the average joe earner trying to save up for retirement.
I also completely support that this magazine should have done more research to give us the bigger picture so we understand what actually got these people to where they are at.
What I’m not a huge fan of is assuming they’re idiots because we don’t have all the facts. Maybe couple #1 weren’t big spenders – maybe they only paid off their mortgage recently; maybe they had to cash in investments to carry them through the recession. Doesn’t really matter.
I guess my point is, maybe we could find a way of sharing this super important information without alienating everyone who doesn’t have $15,000 in the bank or whatever zillion in retirement funnds.
Lindsey @ Cents & Sensibility recently posted…Fiscal Flamingo Financial Program Giveaway!
Hi Lindsey-
I really hate to be negative. Its really the magazine that I take issue with. Normal people read articles like this for advice and inspiration. The couple who make $200,000+ per year, have almost $2,000,000 saved up and aren’t able to retire are not good role models and are far from normal.
I would have felt better about the story if they had profiled someone on the other side of the spectrum. For example. Mr. Money Mustache retired in his 30s on much less income and with much less savings. An alternate view would have been really cool.
Wow, you are right. They are crazy. But I don’t need a magazine to see this. I see this everyday. My in-laws are in their 60s and complain they will never be able to retire. Yet they have a huge house, won’t decrease their spending, and feel entitled to have what they have. I think because most of their other family has wealth, and at some point they were competing. Except they are in debt, and the others aren’t.
I, also, talk to people in their 50s at my work, who live paycheck to paycheck…. It’s astounding.
Savvy Financial Latina recently posted…The Value of an MBA for Women
Yeah, it is really sad to see people live like this. I’m definitely more frugal than I used to be. I’l also definitely happier than I used to be.
I’ve found that a lot of these magazines just don’t do their research, and it’s very frustrating when you’re aware of the real story but know it will be lost on most people. I think a lot of journalists are getting lazy and relying on the people who put themselves out there for attention rather than seeking out genuinely great stories.
My husband and I are working on saving at least as much as the first two examples on his modest 5-figure income. It boggles my mind how people manage to blow 6-figure incomes!
Jen, you’re absolutely right about these magazine not doing research. The mainstream financial media is horrible. Mostly, its just a bunch of fear tactics (“Why the 4% is no longer valid” or “Why you’lll need the same income in retirement”).
Perhaps this is why personal finance blogs are popular? The show an alternative and better way.
After reading part of “Pound Foolish”, I’m inclined to agree! Then again, many bloggers have gone “mainstream media” with no journalistic training in research, objectivity, ethics, etc, so it’s a mixed bag. IMHO, we need to think critically about whatever we — be it on a blog, in a magazine, on TV, etc.
I think part of it too is that how people consume information is changing as well. People seem to want quick sound bites and blurbs they can digest easily and on the go rather than having to think in depth about issues. I like PF blogs because they make me think.
Case #1 – saving only 13% of a 130K yearly income does not make you a smart saver.
Case #2 – 2 million is “enough” to retire.
Case #3 – there is much more to life then hoarding hard-earned work money.
I couldn’t agree more on this magazine profiling more “realistic” people about to retire… Another great Thursday Rant Mr. 1500 🙂
Thanks GMD! I’m glad to se that you approve of my assessment of #2 since you live in an expensive part of the world.
Anna, with $1,600,000, you could live on $64,000/year without ever touching the principle. If you have no debt (and you shouldn’t in retirement), 64K/year seems like a lot.
Maybe a huge cocaine habit! Just kidding. Yeah, I would have liked to see a bulleted list: How many times a week do you eat out? What cars do you drive? How many times did you go to Fiji last year?
I’ll take it a step further and say that I’ll retire when I have 1,000,000 in the bank!
An alternative thought: Is the magazine article only focusing on what percent of their income they saved in their company retirment accounts? For example, 13% from case study 1 sounds like a slightly above average number that you would sock away in a employer sponsored 401K. Perhaps the couple has more money in savings accounts or other investment accounts that is not being mentioned in the article? Is the author of the article only looking at living on what is in your 401K and no other sources of money? I agree that the mainstream media is short sighted when it comes reporting on anything – they go for more shock value more than reporting an objective news story.
Next question on a different note, has anyone seen this news story from PBS about fees on retirement accounts and what are their thoughts???
http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/retirement-gamble/how-retirement-fees-cost-you/
Vanguard.com
Recently had a client come through the office, her and her husband made over $1,000,000 per year (saw the tax return). She is the breadwinner and 58 years old.
Net Worth = Less than a Million and a lot of that number was locked up in non-income producing property.
I wanted to rip my hair out
Evan recently posted…Caring Less about the Financial Stupidty of Others
Wow, that is a post right there. Very sad.
Ridiculous indeed! I agree that someone in their 60’s with a six-figure income should have more than $1-2 million in savings/investments. I’ve calculated projections based on my current income, savings rate, and reasonable investment growth rates. Even though my income is far below six figures, I determined that I should be capable of reaching $3 million in investments by the time I’m 60 (about 28 years from now). That’s actually somewhat conservative because it assumes no change in my income over time. Thus, I shake my head when I read about cases like those you cited.
Dividend Growth Machine recently posted…Book Review: The Vigilant Investor
Wow, this kind of blows my mind. The most telling part to me is how the guy just accepts what his “financial adviser” tells him blindly. Oh well, guess I better keep working and forking over more money to you, then. Crikey!
Totally agree on the mainstream media aspect, too. Most are financially clueless, as evidenced by the recent Frontline episode.
For the record, although Seattle has no income tax, we have extremely high property tax and sales tax. Basically because there is no income tax, the governments keep coming back to the well on property and sales tax. Those are much more regressive than an income tax, which does cause a lot of strain here. How I wish we’d move to an income tax here and move into the modern age.
Pretired Nick recently posted…Pretired.org so far — the social edition
I had no idea about the property taxes. It still could be worse. We lived in Wisconsin where we paid almost 7% income tax and an annual property tax that was 2% of the value of my home ($8000 on a $400,000 home): http://taxes.about.com/od/statetaxes/a/property-taxes-best-and-worst-states.htm
Maybe the couple in the first case gave a bunch to charity or helped kids pay for college. Plus they might have saved 13% all their lives but didn’t make $130K until later in life. If they are simply spending around $100K a year on ‘normal’ day to day activities then, yes, they spend more than they should. I’m guessing it is more likely that they spend more than what you or I would but we just never know. When I go to the library next weekend I’ll have to check the article out. Sounds like it was interesting.
Jennifer @ Money Aches recently posted…Suddenly Frugal – Review
Yeah, I wish the article would have gone into more detail. I am always fascinated to see how people use their money.