How do our retirement savings look?

[disneysteve]

ok so double my numbers with 500K which would only be 5X you yearly. Christian321 is the perfect candidate for early/self retirement

I'm sure you wouldn't suggest that just anyone is able to earn 14% return on investment on a regular consistent basis. If that involves buying and managing real estate, that certainly isn't something that everyone is cut out to do successfully.

[97guns]

im not suggesting anyone jump into RE, just stating that its working for me and the power of having your money make money. doesn't much matter what one gets into just as long as profits are maximized, for me im getting maximum profit with minimum risk exposure.

[jpg7n16]

In theory, your advice is sound but I think earning 8% in the stock market is very hard to do. I don't know any common everyday investor who has ever earned greater than 4%.

Ummm what people are you talking to? And over what timeframe?

The average return of the market is 9.4%. The median 30 year period is 9.78% - meaning that half of the 30 year period returns are higher than that. 8% is a reasonable estimate to plan based on.

I know what the stats say over a 30 year period and all, but you also have to factor in the fact that we are living in very different times. Just because the market averaged 10% over the last 30 years, does not mean it will average 10% over the next 30 years. In fact, if anyone is calculating future savings based on a future expected interest rate, you are setting yourself up for failure.

Although it's true that past performance doesn't predict future results, consider this number:

Every single 30 year period in the history of the stock market, has earned at least 5.09% compounded yearly. 5.09% was the 30 year period ending with the Great Depression, which was WAY worse than anything the stock market has seen lately.

So how do you not know anyone who has averaged over 4% long term?

Or by long term, do you mean the past 5-10 years?

[Christian321]

Ummm what people are you talking to? And over what timeframe?

The average return of the market is 9.4%. The median 30 year period is 9.78% - meaning that half of the 30 year period returns are higher than that. 8% is a reasonable estimate to plan based on.


Although it's true that past performance doesn't predict future results, consider this number:

Every single 30 year period in the history of the stock market, has earned at least 5.09% compounded yearly. 5.09% was the 30 year period ending with the Great Depression, which was WAY worse than anything the stock market has seen lately.

So how do you not know anyone who has averaged over 4% long term?

Or by long term, do you mean the past 5-10 years?

I understand it is possible to earn greater than 4%. My point is, to the average joe, it is very difficult to earn the 8% that is always advertised. Yes, I know what 30 year averages are, however, this average is compiled of every stock in the market. I guess if we all held every stock, it would be easier. Normal, small time, everyday 401k stock investors are not seeing these types of returms. Savy investors might, but that is not the demographic I am talking about. The majority of people who have stock investmensts have them through their company's 401k plans (which, by the way, is the biggest scam ever created) and the average investor will take a best guess estimate as to which funds to pick and really just hope for the best and make changes here and there. Bottomline, unless you know what you are doing, unless you are a savy investor, I would not count on stock market investments to fund your retirement. Concentrate on maximizing savings and totally eliminating debt instead.

I would encourage anyone who has a company sponsored 401k or IRA account to look at your investment from its inception and determine what return you have averaged thus far. I am willing to bet it is not more than 4% at best. Again, I am not talking about seasoned investors who live and breath the stock market here...just your average joe investor which most of us are when it comes to the stock market.

Save consistantly + eliminate all debt + throw away credit cards + forget about the Jones + never finance anything that depriciates in value (exception-house) = early retirement. Easy as that folks.

[Jon991]

I understand it is possible to earn greater than 4%. My point is, to the average joe, it is very difficult to earn the 8% that is always advertised. Yes, I know what 30 year averages are, however, this average is compiled of every stock in the market. I guess if we all held every stock, it would be easier. Normal, small time, everyday 401k stock investors are not seeing these types of returms. Savy investors might, but that is not the demographic I am talking about. The majority of people who have stock investmensts have them through their company's 401k plans (which, by the way, is the biggest scam ever created) and the average investor will take a best guess estimate as to which funds to pick and really just hope for the best and make changes here and there. Bottomline, unless you know what you are doing, unless you are a savy investor, I would not count on stock market investments to fund your retirement. Concentrate on maximizing savings and totally eliminating debt instead.

I would encourage anyone who has a company sponsored 401k or IRA account to look at your investment from its inception and determine what return you have averaged thus far. I am willing to bet it is not more than 4% at best. Again, I am not talking about seasoned investors who live and breath the stock market here...just your average joe investor which most of us are when it comes to the stock market.

Save consistantly + eliminate all debt + throw away credit cards + forget about the Jones + never finance anything that depriciates in value (exception-house) = early retirement. Easy as that folks.

Possibly the best post I have read on this Forum to date! Very well said.

[disneysteve]

I understand it is possible to earn greater than 4%. My point is, to the average joe, it is very difficult to earn the 8% that is always advertised.

You don't need to be a Nobel prize-winning economist to do better than 4%.

Vanguard Total Stock Market Index fund: Average annual return since 1992 = 8.17%
Vanguard S&P 500 Index fund: Average annual return since 1976 = 10.39%

The S&P fund is one of the largest, most popular funds in the world. Lots and lots of people own it either directly or through employer-sponsored plans. So just investing in that one fund alone would give you well over a 4% return.

That said, you are absolutely right that the average investor doesn't do that well. Why? TRADING. Far too many people don't just set it and forget it. They jump in and out of the market based on emotion, news reports, political events, hot tips from friends and relatives and a dozen other reasons. They overestimate the risk of owning stock and subsequently under invest in the market. If the market is returning 10% but you only put 20% of your money in and keep the rest in savings accounts and CDs, guess what. Your portfolio isn't going to earn anywhere near 10%.

While I'll agree that the 401k system has problems, one of the great things it has done for millions of people is to put them on an automatic investment plan where their money goes in week after week after week without fail. But even there, problems exist. People contribute too little and choose overly conservative investments like the money market option. Then they go and take loans from the plan to buy cars, take vacations and fix up their homes. They don't understand that they are very literally borrowing from their future financial well being.

It is not at all difficult to earn well over 4% in the market. The problem is most people don't put enough in or keep it there consistently enough to see those returns.

[scubatim84]

You don't need to be a Nobel prize-winning economist to do better than 4%.

Vanguard Total Stock Market Index fund: Average annual return since 1992 = 8.17%
Vanguard S&P 500 Index fund: Average annual return since 1976 = 10.39%

The S&P fund is one of the largest, most popular funds in the world. Lots and lots of people own it either directly or through employer-sponsored plans. So just investing in that one fund alone would give you well over a 4% return.

That said, you are absolutely right that the average investor doesn't do that well. Why? TRADING. Far too many people don't just set it and forget it. They jump in and out of the market based on emotion, news reports, political events, hot tips from friends and relatives and a dozen other reasons. They overestimate the risk of owning stock and subsequently under invest in the market. If the market is returning 10% but you only put 20% of your money in and keep the rest in savings accounts and CDs, guess what. Your portfolio isn't going to earn anywhere near 10%.

While I'll agree that the 401k system has problems, one of the great things it has done for millions of people is to put them on an automatic investment plan where their money goes in week after week after week without fail. But even there, problems exist. People contribute too little and choose overly conservative investments like the money market option. Then they go and take loans from the plan to buy cars, take vacations and fix up their homes. They don't understand that they are very literally borrowing from their future financial well being.

It is not at all difficult to earn well over 4% in the market. The problem is most people don't put enough in or keep it there consistently enough to see those returns.

This. If you can't match the return of the market, then isn't that all the more reason to just invest in the whole market? A lot less time will be spent on investment planning and you'll get a better return...win win.

A lot of good advice has already been offered. The main thing that stuck out to me was the recommendation for a SEP IRA. Be wary of these. If you are self-employed, Individual/Solo 401ks give you much higher contribution limits and you can borrow from them if you need a personal loan. While you really don't want to do that unless you have to, you won't even have that option with a SEP IRA. This is a very small nuance that may have far-reaching implications if your emergency fund becomes depleted.

[disneysteve]

The main thing that stuck out to me was the recommendation for a SEP IRA. Be wary of these. If you are self-employed, Individual/Solo 401ks give you much higher contribution limits and you can borrow from them if you need a personal loan. While you really don't want to do that unless you have to, you won't even have that option with a SEP IRA. This is a very small nuance that may have far-reaching implications if your emergency fund becomes depleted.

If I ever have to borrow from my retirement accounts, I'll be in such deep crap that it really won't matter where I'm taking the money from, so I don't think that alone is a selling point for a Solo 401k vs. a SEP-IRA.

If it were up to me, 401k loans would be eliminated entirely. Retirement funds should be for retirement - period.

[jpg7n16]

I understand it is possible to earn greater than 4%. My point is, to the average joe, it is very difficult to earn the 8% that is always advertised. Yes, I know what 30 year averages are, however, this average is compiled of every stock in the market. I guess if we all held every stock, it would be easier.

No. It's the average of the S&P 500 index. If you'd like to own it, there are several funds that mirror it.

Normal, small time, everyday 401k stock investors are not seeing these types of returms. Savy investors might, but that is not the demographic I am talking about.

This is a myth that "normal" investors are at a disadvantage to the larger "savvy" investors.

Everyone has the same shot. 1 share costs the same no matter what your net worth is.

The majority of people who have stock investmensts have them through their company's 401k plans (which, by the way, is the biggest scam ever created)

Yes, because we all know that having a tax deduction and saving money towards your future is the biggest ripoff ever. Maybe you'd rather companies go back to pension plans? That way when you pass on, your funds will go to the other employees - rather than your children.

Stupid 401k's allowing me to reduce my taxable income by thousands of $$$ each year, and making it so easy to save for my future!! I hate you!!!

You know what's worse? This whole employer match thing! These people want to give me free money for putting my money in MY account?? How naive do they think I am!? No way![/sarcasm]

and the average investor will take a best guess estimate as to which funds to pick and really just hope for the best and make changes here and there. Bottomline, unless you know what you are doing, unless you are a savy investor, I would not count on stock market investments to fund your retirement. Concentrate on maximizing savings and totally eliminating debt instead.

The average investor typically goes with a target date fund for its convenience. Is it perfect - no. Has it outperformed 4%? Yes. Do the ones that haven't outperformed 4% have 30 years of history yet? No.

4% is a ridiculously low over-conservative, unrealistic planning tool.

It's like planning a trip from California to Florida, and only planning to average 35 mph while on the road (just to be sure we allow enough time to get there). Sure, you'll likely go through a patch of traffic or two on the way there, but it won't be bumper to bumper the whole way.

I would encourage anyone who has a company sponsored 401k or IRA account to look at your investment from its inception and determine what return you have averaged thus far. I am willing to bet it is not more than 4% at best. Again, I am not talking about seasoned investors who live and breath the stock market here...just your average joe investor which most of us are when it comes to the stock market.

How much are you willing to wager? Because I'd take you up on that offer.

I'm not talking people who have only saved for 5-10 years either, I'm talking comparable timeframes: 30-40 year timeframes

[Christian321]

No. It's the average of the S&P 500 index. If you'd like to own it, there are several funds that mirror it.


This is a myth that "normal" investors are at a disadvantage to the larger "savvy" investors.

Everyone has the same shot. 1 share costs the same no matter what your net worth is.


Yes, because we all know that having a tax deduction and saving money towards your future is the biggest ripoff ever. Maybe you'd rather companies go back to pension plans? That way when you pass on, your funds will go to the other employees - rather than your children.

Stupid 401k's allowing me to reduce my taxable income by thousands of $$$ each year, and making it so easy to save for my future!! I hate you!!!

You know what's worse? This whole employer match thing! These people want to give me free money for putting my money in MY account?? How naive do they think I am!? No way![/sarcasm]


The average investor typically goes with a target date fund for its convenience. Is it perfect - no. Has it outperformed 4%? Yes. Do the ones that haven't outperformed 4% have 30 years of history yet? No.

4% is a ridiculously low over-conservative, unrealistic planning tool.

It's like planning a trip from California to Florida, and only planning to average 35 mph while on the road (just to be sure we allow enough time to get there). Sure, you'll likely go through a patch of traffic or two on the way there, but it won't be bumper to bumper the whole way.



How much are you willing to wager? Because I'd take you up on that offer.

I'm not talking people who have only saved for 5-10 years either, I'm talking comparable timeframes: 30-40 year timeframes

Let me first say, you get a free pass on the sarcasm this morning because I am in a good mood.

I am happy for you. Sounds like you know what you are doing. Hopefully, you never get stung. I just hope that everyone putting their hopes in a 401k basket don't have their feet taken out from under them as they approach retirement by way of a steep market drop. The recent recession exposed 401Ks as a deeply flawed investment tool. Yes there are ways to cover down against this but the average 401k holder (notice I did not say 401k investor) does not know these things. Your life savings could be cut in half or worse right as you are approaching retirement.

I do not agree that we all have the same opportunity. I am not a conspiracy theorist but I feel that decisions made at a very high level on Wall Street manipulate and cause fluctuations in equities that we may have a vested interest in. This is not fair, it is not right, and it scares the hell out of me because I have no control over it. Therefore, since I don't know what is going on, I do not invest in it. What is truly driving the market? If I had an answer, I would invest in it...since I don't, I stay out....and it has served me pretty well in my quest for early retirement. Bottom-line: I don't get a warm and fuzzy feeling in my stomach when I think about investing in the market.

And you can talk until you are blue in the face, you will never convince me that the 401K system has worked out better for society vs. traditional company pensions. You give a large sample of middle class people the option today, I promise you, the large majority will take a guaranteed pension for live. 401ks were created to feed Wall Street. Period. They are flawed and dangerous if you do not know what you are doing.

We need a total shift in how we as a society are educated when it comes to our finances. From the time we are little ones in grade school through high school etc, we need to be made smart on everything money and savings instead of learning half the useless topics we are taught. Maybe then 401ks will work better for us. 401ks put the onus on people to manage and fund their own retirement. I think time has proven, with so many of our retirees unable to retire, that society was not ready to take charge of and execute the funding of their own retirement. Company pensions took care of this for us and so many would be better off today if these pensions still existed.

Having said all that, I feel that we as individuals SHOULD be responsible for our own retirement...I am not looking for a handout from anyone. I am just responding to the claim that somehow society is better off today with 401Ks vice Company pensions for life.

[LivingAlmostLarge]

Pensions rule period over 401k. Where else can you have a pension for life and not pay anything? The state where I grew up gave people pensions at 1.25% per year of service for life without contributing anything! $0 saved and you work 30 years and you get 37.5% of your salary for life. Not huge but OMG, how do you expect the state to balance a budget when you are giving people a monthly income for life from ZERO?

Hence why they are going bankrupt fast and have changed the laws called civil servant reform. I mean pensions don't work because people quickly run through what they have "saved" and end up living off the state or government instead of their own money. Hence why 401ks are a huge savings. The company/state only contributes even 10% is way less than a pension.

[disneysteve]

I recently read that many 401k plans are introducing pension-like options. Now that 401k plans have been around long enough that people are actually starting to retire who have had the plan for most of their career, folks are looking to convert their portfolios into income streams. So the plans are adding annuity-type options that pay a fixed monthly income. I think we'll see more and more of that over time.

[kork13]

Let me first say, you get a free pass on the sarcasm this morning because I am in a good mood.

...and I LOL'd... **phew!!** JPG sure is lucky to get that free pass! Who knows what could have happened otherwise!!!

society was not ready to take charge of and execute the funding of their own retirement. Company pensions took care of this for us and so many would be better off today if these pensions still existed.

I feel that we as individuals SHOULD be responsible for our own retirement... I'm not looking for a handout from anyone.

These two quotes are mutually exclusive. 401k's put people in charge of their own futures. Yes -- a 401k requires a level of financial responsibility (NOT investing smarts...that's what honest plan advisers & fund managers are there for) that many Americans simply don't have. Arguing that someone should be able to rely upon a company pension is advocating for A HANDOUT.

The major issue I have with people/organizations/institutions/political groups who constantly demonize 401k plans is that they think Americans need to be coddled, that we aren't capable or responsible enough to look out for our own future. I find that personally and morally offensive.

Yes, I understand that many people are simply never taught the basic skills necessary to make even the most basic, intelligent choices with their money. Yes, significant guilt for that lies on parents, educators, and our social system. But at the end of the day, it's a person's own fault if they never learn how not to make fundamentally stupid financial decisions. I'm not talking about getting duped by sleazy investment "advisors" (salesmen) or anything so complex as that. I'm talking about not spending more than you earn every month...not buying cars/houses/"toys" that you know you can't afford...not racking up tens of thousands of dollars in credit card debt on "stuff"...learning how to save a little every month...little things like that which, if put into practice, can keep anybody on decent financial footing. Especially in a day and age where books, radio, TV, and particularly internet resources ABOUND that can all teach anybody how to make simple, smart choices for themselves, there's really very little excuse for never knowing how to take care of yourself financially.

Seriously, people need to learn responsibility for themselves...It's not always somebody else's fault.
[/soapbox]

///break-break///
hmmm.......... it seems that we've gotten rather far off topic here....

[Christian321]

...The major issue I have with people/organizations/institutions/political groups who constantly demonize 401k plans is that they think Americans need to be coddled, that we aren't capable or responsible enough to look out for our own future. I find that personally and morally offensive.

Yes, I understand that many people are simply never taught the basic skills necessary to make even the most basic, intelligent choices with their money. Yes, significant guilt for that lies on parents, educators, and our social system. But at the end of the day, it's a person's own fault if they never learn how not to make fundamentally stupid financial decisions. I'm not talking about getting duped by sleazy investment "advisors" (salesmen) or anything so complex as that. I'm talking about not spending more than you earn every month...not buying cars/houses/"toys" that you know you can't afford...not racking up tens of thousands of dollars in credit card debt on "stuff"...learning how to save a little every month...little things like that which, if put into practice, can keep anybody on decent financial footing. Especially in a day and age where books, radio, TV, and particularly internet resources ABOUND that can all teach anybody how to make simple, smart choices for themselves, there's really very little excuse for never knowing how to take care of yourself financially.

Seriously, people need to learn responsibility for themselves...It's not always somebody else's fault.
[/soapbox]

///break-break///
hmmm.......... it seems that we've gotten rather far off topic here....[/QUOTE]

I agree with everything you said above, 150%. It is absolutely the individuals fault when they are unable to retire (in most cases). I was just pointing out that pensions enabled everyone to retire at least somewhat nicely. Look back at my posts. I always stress consistant saving, zero debt, ignore what your neighbors are doing, etc etc.

I was really just pointing out that pensions allowed everyone to retire and that having a 401k does not.. and that they can be a dangerous tool. Society is not better off with 401ks. I still believe they need an overhaul...but I won't get into that.

and yes, if I wasn't in a good mood that morning, I would have opened a major can of forum whoop-a$$ on that response

[Christian321]

Pensions rule period over 401k. Where else can you have a pension for life and not pay anything? The state where I grew up gave people pensions at 1.25% per year of service for life without contributing anything! $0 saved and you work 30 years and you get 37.5% of your salary for life. Not huge but OMG, how do you expect the state to balance a budget when you are giving people a monthly income for life from ZERO?

Hence why they are going bankrupt fast and have changed the laws called civil servant reform. I mean pensions don't work because people quickly run through what they have "saved" and end up living off the state or government instead of their own money. Hence why 401ks are a huge savings. The company/state only contributes even 10% is way less than a pension.

I am not arguing any of this...absolutely true. I understand why the country had to go to 401K plans...they are much cheaper. Got it, but are people better off today? Nope. Are our seniors in most cases working until they die? Yep. Are MOST (not all) of these cases the individulas fault? Yep? Save your pennies folks!