I plan to write more about this as time goes on, but I recently realized that at the rate things are going, I’ll be able to retire a few years after I’m dead.
I’ve never been a money-guy. Don’t get me wrong; I like money. It’s just that while I’m generally good with numbers, I even took calculus in high school, once you add a dollar sign in front of those digits, my brain kinda glazes over.
I remember when I worked at the Children’s Defense Fund oh so many years ago, Marian Wright Edelman, our larger-than-life president, whenever it came time to figuring out some budget pickle, would simply raise her arms, in that distinct commanding voice of hers, and say “the Lord will provide.”
And while God has done me pretty well in life, I’ve been able to finally buy my own condo (though I had to delay it a few decades due to all the student loans), have done some exciting things over the years, and while some months my angst does rise a bit when it comes time to pay the mortgage, I know I’ve done better than a lot of Americans, and I’m thankful for that.
But I still have nowhere near the money I should have at this point in life in order to be able to some day retire. And that scares me.
I started really thinking about all of this the other day, though I’ve thought about it for a while. I’d read the articles talking about how at the time you retire you need 20 times the salary you want to retire on. Meaning, if you want to pull in $50,000 a year when you retire, you need to have at least a million bucks in your IRA, or whatever (and apparently, you can really only drawn down 5% a year, or the money will run out, assuming you don’t die early). And I can only think of one person I know, my age, who might have that kind of money. Okay, maybe two.
Back in dad’s day, you got a pension. He still gets his. I think it’s like 80% of his highest salary, which isn’t shabby. Of course, if he dies before mom, the amount drops to 40% until she dies. And it’s not like dad is 50% of the annual debt in the house (though, he’s been sick of late, so I might just eat my words). Which raises another point. I was just talking about an annual salary. I wasn’t even talking about having enough put away for long-term care.
I’ve only recently become more fluent in medicalese (again, because of dad), and long-term care is, among other things, nursing homes. And I learned recently that nursing homes aren’t just for people who can no longer fully take care of themselves. They’re also for people who are well enough to leave the hospital but not well enough to be home. So they send you to a nursing home to rehabilitate. And if your insurance is good enough, and you time the recuperation just right, Medicare might – might – just pay for it. But if you’re so sick that you can’t get out in a few weeks, then you’re in (money) trouble. And that 1 million you maybe (in a dream) have socked away in your 401k or your IRA may not be nearly enough, depending when during your retirement you need the nursing care, and how long you’re able to stay alive after you enter the facility.
Ironically, sadly, creepily, most of us can’t afford to stay alive too long in a nursing home.
As I said, I plan to write a lot more about this as I delve through my own finances. My cousin, who’s a bit of a financial guru, along with his wife (she’s one too), and a good friend (who isn’t no slouch either), have given me lots to read about IRAs and index funds. And what I’ve learned has not just scared me, but it’s kind of ticked me off too. In two ways, for starters.
1) I’m starting to appreciate on a personal level that at this point I’m actually going to need my Social Security benefits when I retire.
I’d always thought they’d be gone, but I’d have good job, would sock my money away, and wouldn’t need ’em. Well. Looks like I’m gonna need ’em. (From what I’ve read, the max monthly benefit is only in the upper $2k region per month, just fyi — and that depends on how much you made, and when you decide to start taking the money out.) And I say “only” because I live in a town where a mortgage, property tax and condo fee on a one-bedroom condo can easily cost you $2,800 per month (or more).
So when I hear people in Washington talking about cutting Social Security or Medicare benefits, or about moving the retirement age back a few years (because so many people out there are happy to give you a job at 66 years of age), I get increasingly annoyed.
2) My guru-cuz told me to check my financial statements from my IRA, and maybe over the last five years or so, see how it’s fared vs the S&P500.
I was able to find my statements, and over the last four years, my IRA went up a very small amount. Nowhere near the stock market itself, which went up around 70%. And the flatlined nature of my retirement account doesn’t even take into account the not-small amount of contributions I made to it each year at tax time. So basically, I lost a lot of money, when simply putting my money in an S&P500 low-cost index fund would have nearly doubled his assets. (Case in point, I had forgotten about some money I had in an 403b I had from job at CDF. That small amount of money doubled in the last few years, based on some goofy investment I picked nearly 20 years ago, not even knowing what I was doing.)
As to what happened next, let’s just say I had a very interesting conversation with my now-fired financial guy, who informed me that he didn’t know who was looking at my financial statements but I was WRONG — my IRA grew 2% in the last two years! And guess how much the S&P500 grew during those same two years: 45%.
Yeah, you get the picture.
(And while, of course it’s true that you shouldn’t just pick 2 or 4 years out of a portfolio and judge how it’s done, every single person who looked at my portfolio (and who knows more than I about such things) was shocked when they read how it fared.)
I’ve been doing a ton of reading, and am having a long phone call with cuz this weekend. I’ll be taking over my own retirement fund, and per cuz’s advice, be investing in low-cost index funds, though I’m going to pick his brain a bit more about what percentage of stocks to own vs bonds, and how much international exposure I should have (I suspect we’re heading towards 85% stocks and 10% international exposure overall).
But overall, from what I’ve read, it seems that financial advisers don’t beat the market 80% of the time. That if you simply put your money in a low-risk, low-cost fund that tracks the market overall, an index fun, you’ll beat the financial gurus 80% of the time. I like those numbers. A lot more than the ones I’ve got at the moment.
PS Check your retirement plan. Look at the year end statements for the last 4 or 5 years, and see if your savings have increased 70% or not. If, like mine, they basically flatlined (or in fact, in my case, they dropped), you might want to find a financially-savvy friend and have them look at it for you.