New economic strategies for our generation?
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    Registered User Thevail's Avatar
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    Default New economic strategies for our generation?

    I got to thinking today, about all the conventional "common" wisdom that everyone hears all the time about achieving financial security.

    Save 10% of your income. Invest in your companies 401k to the maximum match point (at least). Invest, invest, invest.. or you'll end up poor when you're old. Be well insured.. car, life, home, health.

    I've begun to wonder if these financial "rules" are really all that great.

    I mean, sure, saving 10% of your income is never going to be a bad thing. But is it ever really going to be anywhere near enough?

    If at the beginning of your career you make $30,000/yr.. ten years later you've advanced etc and you make $50,000/yr. So in that time you've save the equivalent of ONE year of wages at the average of $40,000. After 30 years the actual amount saved is about $120,000.

    Now, before the huffing and puffing and calculating begins in earnest about the miracle of compounding interest... has it occurred to anyone else that YOU CAN'T COUNT ON THAT?

    My Father-in-law is a saver.. every year IRA, 401k, etc. And he lost nearly everything in the 80's market crash. ten+ years of savings down the spout. But he's persistant, he started over.. and lost almost all of it again last year. He has now about twice what he actually saved, lets say about $250,000.

    He's also two years from retirement. Even if he only uses $17,000 per year from his nest egg to supplement what he'll lose in income. He's got a BIG problem. that's about 14 years.

    Inflation goes up at about 3% per year.. and that you CAN count on. So in that same 14 years the cost of everything will have gone up 42%

    So with his income of $50,000... he'll be able to buy about $29,000 worth of goods. He has a BIG problem.

    And it's all well fine and good to say that you have to be careful and choose safe investments as you get older.. but he was invested in BANKS. Who would have seen that as unsafe two years ago? Not the Wall St. Journal, not Barron's, and not the guy administering his 401k or his IRA either.

    And health insurance costs an arm and a leg, drops your butt instantly if they can find any reason to do so if you DO get ill, denies coverage on all sorts of stuff.. and costs incrementally more and more the older you get.

    Not just the cost of insurance itself, but your need for more medications (blood pressure, cholesterol, insulin, cumadin, etc. etc.)
    and procedures no one needs when they're younger (new knee, new shoulder, cataract surgery, bunion removal, angioplasty). All with a co-pay.

    The percentage of the American population who declare bankruptcy due to medical bills is staggering. The far scarier number is the amount of people who have to declare bankruptcy due to medical bills AND HAVE INSURANCE at the onset of the medical condition or illness.

    (note.. this is not any sort of political rant, this is just a terrible financial statistic)

  2. #2
    Registered User Thevail's Avatar
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    (cont)

    So.. what winning strategies can we use to achieve the financial stability and security for our generation that seems to have utterly eluded my father-in-law despite his having heeded all the coventional wisdom?

    Any ideas?

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    Registered User Preston's Avatar
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    Quote Originally Posted by Thevail View Post
    (cont)

    So.. what winning strategies can we use to achieve the financial stability and security for our generation that seems to have utterly eluded my father-in-law despite his having heeded all the coventional wisdom?

    Any ideas?
    I'm 29. I do not know where I am in comparison to you, but I will say this.

    We NEED health insurance reform. It is a burden on the economy that businesses are expected to provide insurance. I could go into further rant but I will just say there should be universal basic coverage. Have deductibles and copays and such so people aren't running to the doctor left and right.

    Look at it this way, when you buy car insurance you hope you never use it. Same for Life insurance or home insurance. It is a matter of protection. But with health it is different.. you WILL get sick.

    The biggest thing we can do to protect our future is to base our decisions on fact, not fear. Too much policy is knee jerk and irresponsible based upon fear. Fear is a means to keep you alert to what you need to do, but once you lose control of fear you start doing really stupid things.

    Politicians need to be public servants not corporate whores.

    Also, we need to get rid of the 'debt-as-a-way-of-life' mentality. I have had heated arguments with people defending their car payment. We need to go back to thinking 'can I afford this?" vs "Can I afford this payment?"

    Also, get rid of the 'gimme gimme gimme' consumer culture. Instant gratification. A pill can cure everything overnight. People need to be taught to live within the means and be self-sufficient. People have been sold out for test messages, snuggies, and timeshares.

    The whole culture needs a dramatic shift in their way of looking at things -- this is true from both sides of it. The right needs to realize that there are some things more important than profits but the left needs to realize that doing things for the sake of profit is not always a bad thing.

    Sorry if I got a little political too, but I think a lot of the problems we have as a culture would be solved if everyone looked at the flaws of the man in the mirror instead of looking at how great we are. He who acknowledges their faults will try to correct them, but he who sees perfection will cease to try and make himself become a better person.

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    Registered User Thevail's Avatar
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    You and I are on much the same page politically. But this is not a rant about that.

    I'm honestly curious to see what ideas people can come up with. Simply living beneath your means is a great place to start, but since profits in the market simply can't be counted on to increase the value of our savings to match inflation over the long haul... what are we going to do?

    Our houses cost an insane amount relative to our incomes, and even our ordinary bills (power, food, medical care, water, etc.) continue to skyrocket.

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    Registered User Preston's Avatar
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    No, the issue is a political one. The problems we face are across the board ones we all must deal with. We pay high costs for energy due to lack of conservation in the past, or complete ignorance toward where our gas (car) comes from. Never underestimate the cost of ignorance. Last summer, how many people complained about $4 a gallon gas but did NOTHING but complain? The changes we need to make are on a national level but also on a personal level.

    The things we can do in our personal lives include being extremely efficient and realistic. Be as frugal as possible and save as much as possible, and be ready to keep your standard of living as low as possible. Be judged by who you are not what you own. Life is more than a series of payments. Once you are used to living off a bare minimum and you have a significant savings rate then you can live off that nest egg for a while.

    My basic theory is to do a lot of mutual funds, but also a lot of t-bills and safe vehicles for deposit. I may suffer by not getting great returns on everything -- but at least I will have minimized risk.

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    Quote Originally Posted by Thevail View Post
    And it's all well fine and good to say that you have to be careful and choose safe investments as you get older.. but he was invested in BANKS. Who would have seen that as unsafe two years ago? Not the Wall St. Journal, not Barron's, and not the guy administering his 401k or his IRA either.
    This is a common misconception about "safe" investments. When you talk about safe investments, what you should talk about are defensive investment vehicles and strategies, not one "safe" sector.

    Sure, banks were considered safer, but that only means that the chance of them losing money is lower than, say, dotcoms. This does not mean that they are fail proof, only the percentages of failure probabilities shift around a bit.

    One example of a "safe" investment strategy for ultra risk adverse people (close to retirement there's no problem in bein risk adverse) would entail having large portions of your savings in money markets and bond funds and only a slice of your money in mutual funds.
    But if you've got all invested in bank bonds and funds and the banking sector goes down the drain, you'll still end up losing big chunks of money.

    That's where diversification comes into play. Spread those around utilities, food, and other so-called defensive sectors and you've got a fairly well diversified investment. Just don't expect it to return anything close to what the broader market will return.
    When one sector tanks, the others will limit your losses.

    For younger savers, I still believe a broadly diversified portfolio of mutual funds (or index fund) and taking full advantage of cost-averaging, you should do very well with very limited risk. The closer you get to retirement, you could think of shifting more money into bonds and finally into money market accounts.

    I've created a few calculations on past returns and shifting the focus of your monthly savings from stocks -> bonds -> money markets.
    With a plan like that you get a sliding effect: the more risk adverse you get (growing older), the less exposure to risk you will have applying such a strategy.
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    I think one of the biggest mistakes people make in retirement planning is failing to reach retirement debt free.

    Investing 10%-15% of your income isn't ever going to be enough if you reach retirement with a house payment, a car payment, and consumer debt.

    You need to be debt free at retirement. You need a balanced portfolio that isn't dependent upon a single market. That means more than mutual funds - it also means bonds or bond funds, and it also means real estate. You don't need to become a landlord, but there are portfolio investments that are based on real estate instead of stock.

    What you invest in needs to pay money REGARDLESS of its value. That means dividends. A stock that doesn't pay a dividend isn't an asset - its a prayer. You buy it you hold it and you pray it goes up, and when it doesn't, you weep and gnash your teeth. A fund that pays dividends puts money in your pocket every month whether the value goes up or down.

    But no amount of investing will help you if you're putting money in a bucket that grows at 4-8% a year and you're paying out 8-12% a year to debt payments.
    If you could kick in the pants the person responsible for your problems, you wouldn't be able to sit for a month.

    Did you know that a 4 year student paying $20,000/year who finances their education graduates with over $103,000 in debt to start? But a student who works and pays cash and takes 6 years to graduate ends with $6,300 in their pocket! So much for "getting a head start by financing!"


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    Registered User Nada.Leona's Avatar
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    Perhaps the 10% shouldn't be saved, but spent! Here me out.

    Let's say I make $30,000/year. Add in inflation, taxes, yadda yadda yadda, and let's say I make $24,000/year gross income. 10% of that should go into a cushion to protect me, correct?

    So we have $2400 to work with per year, or $200/month. If you make the right moves, $200 can go quite a ways. Let's say we put $24 (that's 10%) toward a stockpile of food that won't expire quickly -- say canned goods, or dry grains. And another $24 (another 10%) towards health supplies, like a stockpile of toothpaste and TP. Let's put another 20% into gas storage. So now we have $48 worth of gas in the garage (at gas prices currently, that's about one tank of gas in my car). So far we've spent $96. We're down to $104.

    Let's invest another $80 into housing costs (assuming the individual owns his/her own house). Maybe save up for some good new windows? Or save to dig a cellar for storage? How about adding solar power or wind power to the equation? These are all more expensive and may be unrealistic, but let's say we use that $80 toward improving the home in some form, to help lower expenses down the road (note: this money shouldn't be used for cosmetic improvements, such as changing the color of the house or putting in a gazebo -- this money is to be spent on home improvements and cost-saving methods).

    We're down to our last $24. Let's just put that in a mason jar. No interest, no taxes, just an ol' mason jar in the basement or under the bed.

    So, without any increase in income, let's look at what we have over the course of 10 years:

    Food: $24/month for 10 years = $2880 worth of food (note: I am aware that some of this food has gone bad -- we will assume that as it gets closer to its expiration date it is consumed and restocked from the grocery fund to replace it, thus keeping the same amount for the same cost).

    Health Supplies: $24/month for 10 years = $2880 worth of TP, toothpaste, etc. (Note: Same goes for items that might expire in this catagory as does the food.)

    Gas: $48/month for 10 years = $5760 worth of gas. (Note: This may or may not be feasible, environmentally, but we'll play with this for now.)

    Housing: $80/month for 10 years = $9600 spent on home improvements that will save on cost over the long run.

    Savings: $24/month for 10 years = $2880.

    Now, it might not seem like much saved. But with this size a stockpile of food and health supplies, a considerable amount of gas, and several cost-cutting home improvements done, you have essentially saved yourself a lot of time, money and difficulty over the long run.

    I know my arguement has lots of holes and situations that I'm not thinking of right now. You're all welcome to pick it apart as you like. This is just my theory -- invest in yourself and your family first, and see where it takes you.

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    Registered User TheRootedNomad's Avatar
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    It use to be - back in the day - that financial planning for the golden years was looked at like a 3 legged stool with the 3 legs being: social security, pension, and stocks/savings.

    Currently, as far as I'm concerned anyway, for most people 2 of those legs are not the legs they were. They are rickety, or non-existant, or will be non-exsisitant and let's face it, a one legged stool is not one I want to be sitting on.

    The best new stool model I've come up with so far consists of market investments (such as mutual funds, IRA, 401k, type stuff), investing in actual items that can be sold at a later date for profit (this can be property or precious metals or anything else that has a good chance of selling for profit a long way down the road), and finally at least one passive (or pretty close to passive) income source. This could be rental property, or a gumball machine business you pay your grandkid to refill, or monthly payments from a business you sold long ago, or profits from a business partnership you have where you are the silent (read you invested to get it started but do no work) partner.

    I'm still working on where we are going specifically but we currently:
    *** both have retirement plans through our jobs
    *** and are aggressively paying on our mortgage so that we can buy a second one as a rental when the right opportunity hits. (We had talked about just saving money in a seperate account or CDs to pay for one but that seemed like a money loser as far as far as intrest goes. Better to pay less intrest on our current mortgage than the small gains we would get in savings vehicles.) Real estate will definately play a piece for us.
    *** researching possible small businesses

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    Registered User nodmicks's Avatar
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    Quote Originally Posted by TheRootedNomad View Post
    It use to be - back in the day - that financial planning for the golden years was looked at like a 3 legged stool with the 3 legs being: social security, pension, and stocks/savings.

    Currently, as far as I'm concerned anyway, for most people 2 of those legs are not the legs they were. They are rickety, or non-existant, or will be non-exsisitant and let's face it, a one legged stool is not one I want to be sitting on.

    The best new stool model I've come up with so far consists of market investments (such as mutual funds, IRA, 401k, type stuff), investing in actual items that can be sold at a later date for profit (this can be property or precious metals or anything else that has a good chance of selling for profit a long way down the road), and finally at least one passive (or pretty close to passive) income source. This could be rental property, or a gumball machine business you pay your grandkid to refill, or monthly payments from a business you sold long ago, or profits from a business partnership you have where you are the silent (read you invested to get it started but do no work) partner.

    I'm still working on where we are going specifically but we currently:
    *** both have retirement plans through our jobs
    *** and are aggressively paying on our mortgage so that we can buy a second one as a rental when the right opportunity hits. (We had talked about just saving money in a seperate account or CDs to pay for one but that seemed like a money loser as far as far as intrest goes. Better to pay less intrest on our current mortgage than the small gains we would get in savings vehicles.) Real estate will definately play a piece for us.
    *** researching possible small businesses
    I really like the way you explained that!

    Dh and I do not have enough saved for retirement for our age currently. We spent our 20's and part of our 30's spending, spending and paying of tons of debt.

    We are wiser now but still behind. Our mortgage is small so our plan is ~

    * when the kids all have left the nest (youngest is 13) is to sell our home and land. No way we need this much room or land once the kiddos are gone.

    * buy a multi unit rental with the proceeeds in the bigger town 30 miles away ( that will save us from commuting too!) and keep one unit for us.

    * Dh does have a pension but you never know

    * keep saving

    * we have also entertained the idea of living in Mexico or very close where $ goes much further.

    * keep being frugal!

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    Quote Originally Posted by Nada.Leona View Post
    Perhaps the 10% shouldn't be saved, but spent! Here me out.

    Let's say I make $30,000/year. Add in inflation, taxes, yadda yadda yadda, and let's say I make $24,000/year gross income. 10% of that should go into a cushion to protect me, correct?

    So we have $2400 to work with per year, or $200/month. If you make the right moves, $200 can go quite a ways. Let's say we put $24 (that's 10%) toward a stockpile of food that won't expire quickly -- say canned goods, or dry grains. And another $24 (another 10%) towards health supplies, like a stockpile of toothpaste and TP. Let's put another 20% into gas storage. So now we have $48 worth of gas in the garage (at gas prices currently, that's about one tank of gas in my car). So far we've spent $96. We're down to $104.

    Let's invest another $80 into housing costs (assuming the individual owns his/her own house). Maybe save up for some good new windows? Or save to dig a cellar for storage? How about adding solar power or wind power to the equation? These are all more expensive and may be unrealistic, but let's say we use that $80 toward improving the home in some form, to help lower expenses down the road (note: this money shouldn't be used for cosmetic improvements, such as changing the color of the house or putting in a gazebo -- this money is to be spent on home improvements and cost-saving methods).

    We're down to our last $24. Let's just put that in a mason jar. No interest, no taxes, just an ol' mason jar in the basement or under the bed.

    So, without any increase in income, let's look at what we have over the course of 10 years:

    Food: $24/month for 10 years = $2880 worth of food (note: I am aware that some of this food has gone bad -- we will assume that as it gets closer to its expiration date it is consumed and restocked from the grocery fund to replace it, thus keeping the same amount for the same cost).

    Health Supplies: $24/month for 10 years = $2880 worth of TP, toothpaste, etc. (Note: Same goes for items that might expire in this catagory as does the food.)

    Gas: $48/month for 10 years = $5760 worth of gas. (Note: This may or may not be feasible, environmentally, but we'll play with this for now.)

    Housing: $80/month for 10 years = $9600 spent on home improvements that will save on cost over the long run.

    Savings: $24/month for 10 years = $2880.

    Now, it might not seem like much saved. But with this size a stockpile of food and health supplies, a considerable amount of gas, and several cost-cutting home improvements done, you have essentially saved yourself a lot of time, money and difficulty over the long run.

    I know my arguement has lots of holes and situations that I'm not thinking of right now. You're all welcome to pick it apart as you like. This is just my theory -- invest in yourself and your family first, and see where it takes you.
    I know we're undoubtedly in the minority here but I agree with ALMOST all of the above. One big exception would be the Savings at $2880. I think that is way to low for the rest of your life.

    But a biggie there is health care whether insurance cost figured in and or doctor etc. Something has to be considered for sickness.

    Other than that I'll go with you on the rest.
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    Registered User Mojjo's Avatar
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    For DH and I, one of our biggest considerations when looking for jobs was the benefits. We both work for the state and in 10 more years will have benefits for life...good ones. If the system doesn't change too much it will be the saving grace of our retirement. It's been the saving grace of our life with SS's med bills thus far. And it allows us to aggressively invest for our retirement in addition to our pensions.

    I think the issue is not easy enough to be catagorized as one or the other. But it really has changed, for us, how we went about evaluating careers. I'll admit, I was much more career driven when I was in my 20s and then realized in the long term the best way to go about having long term happiness might revolve around stability and consistency then working toward an unsure payoff.

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    I'll agree with the general principle that some of the "classic" financial advise is not as relevant today as it was generations ago. Like in whichever Matrix movie that is - "Some things never change. But some things do."

    I also think that diversifying is more important now than ever. Including having some kind of passive income in retirement (side business, rental income, whatever). That helps you diversify your income stream instead of relying solely on your 401K/IRA/Savings.

    I also find that rather than assuming everyone has similar financial situations and goals, we are not nearly as "similar" as we used to be, so coming up with rules of thumb that should apply to most people are a lot harder.

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    I agree with alot of what has been mentioned above. Though I think the best thing to invest in is ourselves. The original posts mentions health procedures that people may need to pay for when they are older they didn't need when they were younger. The question is how many of those health procedures could be avoided if we invested in ourselves while we are young. The original post mentions a knee replacement surgery, why are those surgeries done. I am willing to bet that most of them are performed on people such as my uncle. He had both knees replaced a year ago, because of the stress he allowed his 500+ pound body to put on his knees. Had he taken better care of his body when he was younger, perhaps he could have avoided the cost of those surgeries. By investing in ourselves while we are younger, we can prevent alot of future health issues/expenses.

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    Registered User Thevail's Avatar
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    Quote Originally Posted by justpeachy92 View Post
    I agree with alot of what has been mentioned above. Though I think the best thing to invest in is ourselves. The original posts mentions health procedures that people may need to pay for when they are older they didn't need when they were younger. The question is how many of those health procedures could be avoided if we invested in ourselves while we are young. The original post mentions a knee replacement surgery, why are those surgeries done. I am willing to bet that most of them are performed on people such as my uncle. He had both knees replaced a year ago, because of the stress he allowed his 500+ pound body to put on his knees. Had he taken better care of his body when he was younger, perhaps he could have avoided the cost of those surgeries. By investing in ourselves while we are younger, we can prevent alot of future health issues/expenses.
    I'd just like to point out that my hubby's 83 yr. old grandma just had a knee and a shoulder replaced. Because she fell in the bath. Other than that and the usual assortment of old age maladies.. she's perfectly healthy and sharp as a tack.

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