Dreamworlds, RIP

Not only, as TCS Daily points out, is it time for “back to basics” on financial matters, but, so long as we’re puncturing all sorts of wishful thinking by suggesting that maybe saving is a good idea after all, let’s pop this little wet dream:

Which moron said that you could save 10% of your salary per year, and have enough to live on for the rest of your retired life?

I’d like to meet that guy and thank him… with a 2×4. That’s almost as bad as the dork who goes around on his radio show saying that you don’t have to save if you’ve invested in the same fund for years in a row, because your shares are diversified in time. As if anybody gives a crap what you paid for a share: when it comes time to dump it, you get what people are willing to pay, less brokers’ fees.

But, I digress. Let’s say 30 years of working. Hey, yeah, basic mathematics! You really think you can keep anything other than a “mournful pasta” lifestyle if you’re going to live an extra 15 past retirement (a reasonable bet nowadays), if you only have three years’ savings? Okay, that’s a bad number. What if you got a “career-quality job” at age 25 and were never unemployed?

How many fifty-somethings do you know with four and a half years’ savings in the bank? And what’s the average credit-card debt running at nowadays? 7-10k?
Of course, the Baby Boomers will simply assume that they’re entitled to suck off the rest of our salaries to cover for the fact that they never bothered to save. That’s how the Congress-critters managed to pass a NEW trillion-dollar-and-growing entitlement this administration. But that gets in trouble, too, because of demographic drops. It’s going to be:

  1. Social Security folds (or is effectively gutted) along with other entitlements
  2. The economy goes right into the toilet b/c the politicos buy votes by trying to spare their constituents the price of their decision-making
  3. Or the retirement age jumps dramatically.

Personally, I’m hoping for #3. Social Security was never, outside of Boomer pipe dreams, meant to fund twenty years of retirement. And I’m willing to put my generational mouth behind it, and have a ten year jump to 75, starting for workers under the age of 40. (Now, age-based discrimination is something else, but let’s hunt one species at a time)

Why am I picking on the Boomers? Because collectively, they’re the ones who have had decades to do what has to be done, and have instead generated the kinds of debt and lack-of-savings numbers you keep hearing about in the financial news. And in case you haven’t checked them lately, the numbers are grim.

If you don’t have several years’ worth of salaries either saved, or else invested in a way that can be made liquid in a crisis without losing double-digits’ worth of value… now would be the time to start doing some math and making some choices. It doesn’t have to be rocket science.

  1. I’m late finding a career. “God willin’ and the creek don’t rise,” I get thirty years to productively save.
  2. I’m planning on living to 100, because I at least one relative who’s done it and I figure medicine will make this reasonable.
  3. 30 years of working, to fund 35 years of retirement at current income.
  4. I must plan for the likelihood that politicians are going to force me to pay an ever-increasing percentage of my paycheck to fund previous generations’ retirement.

No dice.

At this rate, my spouse and I must, at minimum, max out a 401k, and be prepared to live on one salary, saving the other one. Sure, compound interest rocks. Unfortunately, so do monetary inflation and occasional financial cycles… unless you want to bet your livelihood that you don’t have to cash out while an Enron is going on. Of course, if everything stays pretty, and your mortgage is long out of the picture, then there’s a good chance that you’ll be just fine, because your rising medical expenses will gradually replace the disappearing mortgage expenses.

There are lots of ways to quibble with that, many of which are much more optimistic. That’s okay. Please, feel free to chime in and slap this down. Because at least that’s quibbling and calculating… not dreaming.

We can survive driving used cars and hitting garage sales for the fun of the bargain-hunt.  But the daydreaming has got to go.

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  1. alex

     /  August 28, 2007

    I’m not going to disagree with your assessment at all, but instead a few extra thoughts.

    If one adds children into the equation, the ability to save can drop quite a bit. Further, for both parents to work and support the cost of living increase for children, you also have to add in the cost of a 2nd job (gas, wardrobe, professional costs, daycare, etc.). This is why in my family I’m the only one with an official job, but the money we save from my wife’s full time job taking care of the kids at home compensates for this, and probably is cheaper too. That being said I cannot put money aside each month because I’m dumping $450 a month into my student loans to pay them off before I’m 40. Add in a mortgage and everything else and I do okay with my professional salary, but not enough to retire at 65, let alone 75.

    I honestly believe that our generation will not see social security at all. Further, due to increases in lifespan, it would not surprise me at all to see that what is called “retirement” for our generation is in reality part-time work until we are truly too infirm to work any longer. I personally expect to work until I die and never really have a retirement at all. I do have a 401(k) and even an annuity through the place where I work, but I know with the inflated cost of living 30-40 years out from now…it will not be enough to live off of for more than 2-3 years unless my final years of life are truly spartan.

    I strongly suspect that our generation will clean up the mess left rightly or wrongly by the previous one and short of some major shift in economic theory or society occurs.

    The only way that I’ll be able to yell out “I’m socially secure!” in old age is to find riches like Daffy Duck did when he yelled out that same phrase, or to win the lottery. I don’t see either happening.

    But then again, I’m a pessimist.

  2. I’m finding myself more and more wondering why retirement is considered something to which we’re entitled. Certainly, should we have enough money that we no longer need to work, and don’t wish to… GREAT! Equally, nobody wants to lack for the basics of life in the face of catastrophic healthcare costs.

    Not only do I think we won’t see SocSec, I also think our notion of what “retirement” means is going to be something radically different than the “you’ve earned the right to sit on your ass” that it seems to mean currently.

  3. Mike

     /  August 28, 2007

    No kidding. This is why I am sticking with the Army for at least 20 years. I am investing and saving (and making the neat safety deposit box marked “open in case of having to flee country”, but that is another story), and I am very scared that I am not saving nearly enough.

    You know, since we are basically going after boomers in this one, I have to relate a story that supports this line. My uncle and aunt had been fairly smart in stashing away savings back in the day. But in the 1990’s they got onboard with a supposedly high speed investor who was hooking them up. And did too. According to sources, they had made several million in the stock market.

    And then lost it all when the crash hit in 1999.

    They got greedy and rather than balancing and skimming money into other accounts, they tried to go for the next million benchmark and just like on a blackjack table when you decide that once you get back to a certain amount you quit, they kept loosing.

    This is one of the major reasons why my aunt thinks all corporations are evil, as this crash was obviously deliberate and aimed at her retirement.

    Balance and patience are how you have to play stuff like this. You can’t look at it in a short term, you have to be willing to not touch some of this money for decades.

  4. And you have to be willing to live a happy life without a pinched face just because you’re saving. On a generational note, that’s where I think the emotional issue lies: the Boomers look at the obsessive spending of the Depression Generation, and see… Depression. Not the sort of long-range planning that says “I’m saving like mad so that my life will be MUCH nicer than it is now, and my kids have the opportunity to have wider horizons.”

  5. Bear in mind, much of the retirement story made more sense when savings rates were non-negligable. Used to be that compounding your money magnified it significantly. For example, my late grandfather-in-law saved through the 80’s with their >10% CDs and made a boatload, and so my grandmother-in-law is sitting very, very pretty.

    The idea we need to get back to is selling to OTHER PEOPLE while we save our own money, instead of the other way around.

  6. As an aside, this’s part of why I’m trading: attempting to fabricate a reasonable rate of return, rather than letting inflation (REAL inflation, not the aggregated, super-massaged, pay no attention to the price-changes behind the curtain slight-of-mind gimmick that the Fed is using instead of “increase or decrease in money supply”) rates of >7% eat it all away. High-risk venture, though, not to be generally recommended.

  7. Definitely. Under those circumstances, we’re hell-bent-for-leather to kill the mortgage, since in theory, inflation helps that to happen. No clue whether my 401k will be worth anything (and it’s only 6 mos. of salary, anyway).

  8. Inflation only helps to kill your mortgage if your incoming dollar intake increases. Until then, it just makes it harder to buy groceries, gas, etc.

  9. alex

     /  August 28, 2007

    Mike is onto something about being in the investments for the long haul and diversifying, but I heard an interesting theory the other day.

    The “history” of the stock market is only just now turning 100, and with major economic changes, having occurred between now and then, can we really expect it to always, with time, increase?
    When the baby boomers start cashing out all those 401(k) and stocks in their old age and there are not enough people around to want to buy them up, what happens to those of us still holding onto the stuff? Do we have to wait 20+ years after that event for the value to come back?

    Oh well – that’s the game of economics we are stuck with.

  10. happycrow

     /  August 28, 2007

    Yep. So far, we’ve managed to kinda-sort move in the right direction. Part of why I left the Bank was that, w/o benefit of a performance review several years running, the money I was bringing home was becoming less and less valuable, w/ no prospects for turning the situation around.

    I’ve effectively written myself a raise now, though it’s at the price of teaching 7 sections. Even teaching in three counties, I don’t see myself doing 8 or 9 sections a semester. W/o something really weird happening, 7 is pretty much maximal– after that, it’s either get a full-time gig (which pays better), or start bringing in side cash. Fortunately, if I can keep doing 6 or 7, that will take care of the problem for the next couple of years. So full-time is the definite next step.

  11. happycrow

     /  August 28, 2007

    Alex: those are precisely the sorts of questions that people SHOULD be asking, and which I never hear. Similar to all the folks who are shocked that housing prices have dropped, when a simple look at demographics should tell us that the U.S. can’t sustain a serious long-term housing increase. Eventually those folks die, retire, hit nursing homes, live with their kids, whatever, but what they DON’T generally do in their 70s is sign on for another mortgage and purchase another house.

  12. alex

     /  August 28, 2007

    Unless we let people from other countries come in and buy up all those houses and stocks…
    Sounds like a case for immigration reform to me. Japan is already doing it since they know they don’t have enough population at the moment.

    And those in their 70s and 80s now, even in todays market when they sell they’re making a killing. A house they bought for 15,000 40 years ago is selling for $140,000 now, and its all tax free.

  13. Alex, that’s why the only stock in my 401(k) is a commodity index — everything else is debt instruments. That way I don’t have to care what people think the stuff’s worth, as long as the paying companies remain solvent. Yields are rather low, however.

  14. alex

     /  August 28, 2007

    I can get some low yield but safe(r) returns as well in mine, but I just diversify and try to play the game as best as I can with my limited understanding of the rules. I haven’t considered commodities though…they’re certainly always needed and therefore always of some minimal value.

    I’ve done slightly better by putting a lot into Canada and Defense lately, but after the coming election I’ll know if it is time to put that money elsewhere for defense.

  15. Well, if nothing else, doing like Russ is and investing in your mortgage will get net you five or six percent. It won’t beat (monetary)inflation, but it’s one of the best yielding low-risk options out there….

  16. Actually, I don’t even think of it that way, so much as minimizing my cost of living and liabilities as much as possible. If the mortgage is gone, our COL drops through the floor, relatively speaking.

  17. Agreed.. we live cheap on my little place, paying it all off in 5 years. Then I’ll build something nice here and just pay the taxes. Right now it’s just debt and kids, work from home and buy used cars.

    Since I already have a house I can build something over a couple of years and avoid a mortgage. A little elbow grease should go a long way also.

  18. happycrow

     /  August 29, 2007

    Anything other than sitting there paying an effective double or triple mortgage slaving away with 30 years’ interest payments. (You should see the looks on Hungarians’ faces when they ask me if Americans really have to pay for 30 years to have a house.)

    Borrowing is good. I couldn’t have done grad school without it. But I think we do it too rapidly, and don’t save nearly enough in the process.

  19. Mike

     /  August 29, 2007

    Yeah, that “borrowing” word is a killer for a lot of folks. We have way to many people who don’t get the concept down and end up in debt up too their eyeballs. Someone said it earlier about how much credit card debt the average joe in the US has and that is just plain scary. My sister is still paying off college (as are several other folks in the chat here) and that is now a decade gone.

    Scary stuff if you ask me.

    Which is why I will now say join the Army and do the GI Bill thing or ROTC. Not only do you have a job and much less debt, you also get to screw over the loan officers and the liberals in one shot.

  20. alex

     /  August 29, 2007

    I would have joined the military to pay for my education – but I’m 4F due to eyesight (at least, I was back then).
    So the time honored US way to get a better degree is to self finance it through loans, and since that ain’t cheap – hello student loan debt.

    This is very different than many other parts of the world, where yes, you get weeded out through selective tests on who can attend college and work towards higher degrees, but there you don’t pay for college, the state does. I have known many foreign PhDs who came out with their degree flush with cash to start their career with. I started my career $41k in debt.

  21. The downside that I’ve heard is that in places where they pay for the colleges, the non-elite ones aren’t much better than four more years of high-school. Anecdote only, but I’ve heard it more than once.

  22. But then again, look where we’re from 🙂

  23. I also know folks for whom student loans have been the lifeline to a kickass career. So I’m not about to biatch about them too much. Makes an ultimate difference re: retirement, certainly.

  24. Alex

     /  August 29, 2007

    Oh yes, student loans can indeed be the gateway to a good career and an excellent job – and you hit the nail on the head for what I was getting at. You may indeed get into a good career that pays well, but you’re still starting the path to retirement waaaay behind those who don’t have such debt and got a similar education, like my foreign PhD colleagues.

  25. Absolutely…

    I know there’s many places in the world where you can get a good degree on the cheap. Making sure that degree is recognized in the US is a concern, but by and large a good school should be fine.

    Many of my friends at University de Paris received their PhD for free, or minimal cost – around 3500 Euros total. You can get a nice degree in Mexico for cheap in many fields. The downside is many of the degree plans are pretty rigid (by US standards) and some of them have little professional use here as well, such as JD or MD programs.

    Staying in the US – I’d utilize community college as much as possible – it’s a bargain compared to university fees.

  26. Anna

     /  August 30, 2007

    As one of those foreign PhDs, let me just point it out very quietly that it hugely depends on your discipline whether you even find a job in the US, let alone get a huge salary. I was told point blank by a US professor who guest-lectured at and who is on the advisory board of the university I got my PhD from (which is, by the way, fully accredited in the US to boot) that he cannot give me a recommendation for any jobs because I would be competing against his own students.
    Hence me being a secretary.
    I suspect hard sciences are a tad different.

  27. It’s tough to play the savings game while keeping up with a sane cost-of-living: Kill debt or invest? Get “good” debt, to invest in the future (job, house)? Or pay-as-you-go? How to balance all of these things?

    Either way, the one thing in common is this: If you have a poor credit rating, you’re screwed. If you have a good one, then you have options.

    It goes beyond being extended credit or getting a lease on a car or an apartment or getting the best APR on mortgages or credit cards. Even my sister, who does security checks for DHS, has seen folks lose their federal jobs or denied jobs, based on poor credit.

    Just something else (as a person who wracked up $90K in student loan debt to finance her graduate degrees and get her current full-time faculty gig) to throw into the conversation soup…

  28. Anna

     /  August 30, 2007

    Believe me, I totally am with you on that poor credit thing. It took me 5 years and needed a company credit card to finally HAVE a credit score, being out of the country, and it is slowly and steadily climbing upwards…You should have seen my dad’s face when I explained the US consumer credit system to him: it was priceless.

  29. alex

     /  August 30, 2007

    Saying the hard sciences are a tad different is quite an understatement. A foreign Ph.D. in the sciences will not have a problem finding a good job in the US if they have the skills that are being sought after. In fact, having that extra language skill will likely get them promoted even faster and kept around longer if they’re willing to interface with scientists from their home country on behalf of the US employer.

    As for what the US professor said to you in regards to competition – that’s incredibly wrong and that lousy SOB should have been thrown off that board. But as for what you want to do with that degree – maybe you need to consider remarketing what you can do with that degree. Obviously a Ph.D. in history can go to original sources, translate documents, and develop analysis of the information.

    While I value your skills in history for teaching, the US marketplace sadly does not. So unless you’re actively looking for professor positions outside the Dallas area, unfortunately you will have to consider an alternate career path. Have you considered applying for a job with the FBI or other intelligence organization which needs analysis skills?

  30. Anna

     /  August 30, 2007

    Alex-I am not a citizen (yet), so that’s not in the pocket.

  31. Mike

     /  August 30, 2007

    Not to jump backwards on the dicussion thread, but a friend of mine at Fort Riley had a really bum experience with college loans. He had gotten his Master’s Degree and had financed it with a loan from one of the big student loan groups (I forget the name). He was paying it back at the standard rate when his wife discovered by accident that the monthly payment wasn’t making the cut. He was paying less than the amount needed to cover the payment plus interest and was actually extending his payment out and increasing the amount he had to pay back. The student loan group thingy never even apologized and just said “we can adjust you payments if you want, but you agreed to the rate so why are you blaming us?”. Debt and credit problems are not helped by the predatory lenders in this country.

  32. If the wording was confusing, bad on the company. If it wasn’t… how’d his wife find out?

  33. It’s usually part of the repayment plan that’s offered. Kind of like ARMs, the repayment plans that most Big Loan Companies (like Sallie Mae) fall into three categories. And the lowest payment (like mortgage ARMs) hardly ever touches the principal. Sometimes the consumer chooses the repayment plan, but sometimes it defaults to one over the other, and the consumer has to opt into a more sensible plan.

  34. lq: “And the lowest payment (like mortgage ARMs) hardly ever touches the principal.”

    There have been a lot of loans out there where the first year’s payment does not even pay the interest, so after a payment the principal goes up! But of course the real estate market will go up 20-25% per year ad infinitum, so it doesn’t matter, right?

  35. Alex

     /  August 30, 2007

    Oh yes, the Student Loan Corporation (part of the Citi Group), of whom I am glad to identify as the parasites I pay my loans to, got me on an issue early on when I was a post-doc and could barely make ends meet.

    They indicated to me, by mail and by phone, that since I had been doing such a good job paying more than the minimum each month I could skip this month’s payment. Since that month was rough financially in the DC area, I was glad to do so.

    Then I got the next month statement and saw that my balance had increased greatly due to accrued interest from the one payment I was told I could skip. Technically they got me in that I had paid up so far as to miss a month of SCHEDULED payments over that 20 year period, not that I could truly skip a payment.

    This was 2000, one year into my student loan payments, and with that experience in hand I have never trusted them since and make sure to never ever miss a payment no matter what they say. It seems that about 6 months after this incident I started seeing a box that one could check which said “Check this box to have excess from your monthly payment to pay down your main balance rather than advance your payment date”. Why should the bank be crooked when they can just quibble and get away with it?

  36. Alex

     /  August 30, 2007


    What about working at a museum as a staff researcher, or at a library as a research librarian? Or an independent contract researcher/analyst? My brother in law got his B.S. in chemistry and started as a research librarian at a museum and with that initial experience is getting to explore more history related options.

  37. Anna

     /  August 31, 2007

    Alex–this is DFW…not exactly museum heaven especially for one from Europe (no American expeciance at all)…There were no opportunities when I arrived here at all, and none right now. I am looking, believe me…

  38. alex

     /  August 31, 2007


    So why not work at an American Museum? You have the all the necessary skills to do the work, you just have to learn US history local to that area which should be a breeze to pickup with your skillset.

    I guess the point I’m trying to make is that many of us are taught to be specialists but in reality we have the right skills to go and do something outside of our specialization. I was trained as an organic chemist with specialization in fire safety of plastics. There is very little funding for this type of work in the US (loads of it in the EU) so I took my base skills and applied it to other fields where there was work and now the fire safety stuff is just 1/4 of my time.

    Be a mercenary – go where the money is. This is the true career path for our generation in the US since there is no such thing any more as job loyalty from employer to employee or vice versa.

  39. Anna

     /  August 31, 2007

    Alex-that’s the point., I AM where the money is. This is not a small paying job I am in. I am earning more than Russ did when he left the bank,with all his experience, and my benefits here keeping us safe in case something happens. To go back and get into a museum job would mean to take a significant (try about $10,000) pay cut. We just cannot afford that right now, with planning to start a family.

  40. alex

     /  August 31, 2007

    Okay, now I understand. I had thought that the two of you were looking for better paying history jobs.

  41. Anna

     /  August 31, 2007

    “Better paying history job…” Those are mutually exclusive terms, Alex…:-) Russ is actually on his way to be paid very well, but he had the training to be employed at the CC level entry, as an adjunct. I am too specialized and would need to take AmHist classes to be ever to be able to teach at the CC level, which, after being in college for 10 years counting all my degrees, I am kinda reluctant to do. Might be a route to take down the road but right now with this job I actually like and making a difference in, unless something catastrophic happens, financially we are in a win situation.


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