This reminds me that it is a long-run game. Many social platforms push this one way ideology of investing/saving, but the truth is there are so many different paths and many decisions to be made along those paths. It's content like this that helps keep me sane while on my own path.
A much needed reminder that wealth isn't built over night. I think many people forget or confuse that. It is a long game just like retirement is a long game. I blame influencer culture though.
Great summary! One tough challenge young people face is a fear of debt, based on all the horror stories of people unable to repay student loans or personal finance gurus telling people to avoid debt at all costs.
I wish we had a more reasonable conversation about responsible debt management.
I will add this to the list of items. I am seeing more and more fear of debt. I blame the Dave Ramsey method to teaching about personal finance. Not all debt is bad.
If we use historic inflation rate over the last 50 years of 3%, that $80K spending number is closer to $385K assuming a retirement date of 2075 (I'll be 103!).
While I'm not a fan of the "Buy less Starbucks" argument, the compounding argument of that additional $10/wk invested has merit. HSA, IRA, 401K, home purchase all benefit from incremental shifts in how money is spent. (Price vs Cost argument).
*The Health Insurance outcomes as an investment tool shouldn't be ignored.
Utilize SMART goal techniques (Specific, Measurable, Achievable, Relevant, Time Bound) and pretty much everything else falls into place.
If we use the historic inflation rate over the last 50 years of 3%, that $80K spending number is closer to $385K, assuming a retirement date of 2075 (I'll be 103!)." Better have 80K than 0! Seriously though, this is a common response to the math. I understand what they mean but I do not understand the action item of "why save then".
The only reason I used that crazy number was to point out what we both know, "widgets" inflate over time.
People are being trained that home ownership is the sole goal in life but that's wholly unrealistic for certain geographies/incomes. The outsized measurement against the "Boomers" falls to acknowledge many were brought up by Depression Era parents who taught them to save as much as possible. Now people want that home at 30, but all the inputs have changed.
"Hyperbolic Discounting" - not having the ability to see one's future realistically. Present Pleasures vs Future Consequences in a single sentence.
Your theme of educate them as young as possible, removing the regret function of present bias, is the only way to correct course.
*Social Media makes this all harder since most "Influencers" lie.
I love the idea of having a number, but I will echo other folks here in saying that it's really hard to pin down a realistic number. Beyond retirement, a lot of younger people are saving for their first house or a wedding. And in middle age, I think much more about saving for my kids' college educations than I do about retirement.
This is so helpful! I really like how you broke down the idea of having a specific retirement number instead of just telling people to save more. It really helped me see the big picture and that I should start thinking about my goals earlier.
It’s hard for me to pin down a number. Can I assume my house will be paid off? What will healthcare costs look like? Or inflation generally?
My goal is generally what you laid out from the top: save as much as I can earlier on (it’s still not that much). My pipe dream is that I’ll be able to afford a lot of travel in the early stages of retirement.
It is a good example of decision-making under uncertainty. There is so many unknowns about the future. Some can be estimated, some are out of our control. For instance, House being paid off is something you can estimate and have a strategy of having it paid off before you retire. Health care costs, property taxes, and inflation are less predictable. Historic averages or forecasts are what we can rely on to estimate their costs. Travel looks different for different people. But coming up with a travel budget for retirement should go into the "Annual spending" number. What would an optimal trip cost you today? Add that to your current spending, then multiply by 25.
This reminds me that it is a long-run game. Many social platforms push this one way ideology of investing/saving, but the truth is there are so many different paths and many decisions to be made along those paths. It's content like this that helps keep me sane while on my own path.
I am glad to hear. Do not rush life!
A much needed reminder that wealth isn't built over night. I think many people forget or confuse that. It is a long game just like retirement is a long game. I blame influencer culture though.
Behavioral economics tells us we care more about relative position to others. Comparison makes it hard to remain rational about the long run approach.
I am fortunate that i broke that cycle. I have adopted a more holistic view. I still place a lot of blame on social media.
I enjoyed learning from today’s post even though I am retired.
I am glad to hear!
Great summary! One tough challenge young people face is a fear of debt, based on all the horror stories of people unable to repay student loans or personal finance gurus telling people to avoid debt at all costs.
I wish we had a more reasonable conversation about responsible debt management.
I will add this to the list of items. I am seeing more and more fear of debt. I blame the Dave Ramsey method to teaching about personal finance. Not all debt is bad.
Future Value of Money dissent...
If we use historic inflation rate over the last 50 years of 3%, that $80K spending number is closer to $385K assuming a retirement date of 2075 (I'll be 103!).
While I'm not a fan of the "Buy less Starbucks" argument, the compounding argument of that additional $10/wk invested has merit. HSA, IRA, 401K, home purchase all benefit from incremental shifts in how money is spent. (Price vs Cost argument).
*The Health Insurance outcomes as an investment tool shouldn't be ignored.
Utilize SMART goal techniques (Specific, Measurable, Achievable, Relevant, Time Bound) and pretty much everything else falls into place.
A reply to my reply?
Find someone who you believe has acheived a pathway you might consider for yourself. Ask them how they did it? Who did they trust to handle money?
Tik-Tok is a lousy place since they offer no feedback to your specfic questions!
"Future Value of Money dissent...
If we use the historic inflation rate over the last 50 years of 3%, that $80K spending number is closer to $385K, assuming a retirement date of 2075 (I'll be 103!)." Better have 80K than 0! Seriously though, this is a common response to the math. I understand what they mean but I do not understand the action item of "why save then".
The only reason I used that crazy number was to point out what we both know, "widgets" inflate over time.
People are being trained that home ownership is the sole goal in life but that's wholly unrealistic for certain geographies/incomes. The outsized measurement against the "Boomers" falls to acknowledge many were brought up by Depression Era parents who taught them to save as much as possible. Now people want that home at 30, but all the inputs have changed.
"Hyperbolic Discounting" - not having the ability to see one's future realistically. Present Pleasures vs Future Consequences in a single sentence.
Your theme of educate them as young as possible, removing the regret function of present bias, is the only way to correct course.
*Social Media makes this all harder since most "Influencers" lie.
I love the idea of having a number, but I will echo other folks here in saying that it's really hard to pin down a realistic number. Beyond retirement, a lot of younger people are saving for their first house or a wedding. And in middle age, I think much more about saving for my kids' college educations than I do about retirement.
This is so helpful! I really like how you broke down the idea of having a specific retirement number instead of just telling people to save more. It really helped me see the big picture and that I should start thinking about my goals earlier.
It’s hard for me to pin down a number. Can I assume my house will be paid off? What will healthcare costs look like? Or inflation generally?
My goal is generally what you laid out from the top: save as much as I can earlier on (it’s still not that much). My pipe dream is that I’ll be able to afford a lot of travel in the early stages of retirement.
It is a good example of decision-making under uncertainty. There is so many unknowns about the future. Some can be estimated, some are out of our control. For instance, House being paid off is something you can estimate and have a strategy of having it paid off before you retire. Health care costs, property taxes, and inflation are less predictable. Historic averages or forecasts are what we can rely on to estimate their costs. Travel looks different for different people. But coming up with a travel budget for retirement should go into the "Annual spending" number. What would an optimal trip cost you today? Add that to your current spending, then multiply by 25.