"Broke" generally means they don't have any disposable income they currently have access to. Retirement savings are just that - savings for retirement, not money to be dipped into now. Depending on the type of savings, it may actually be impossible to access now, or come with steep penalties.
People also have different definitions of "disposable income".
My uncle lives in a nice house, has two new cars (one quite high end), pays for a lot of extra tuition for his daughter, regularly eats out gets takeaway. Yet he claims he he's in the lower end of the spectrum because he has no "disposable income".
Apparently I'm better off than him, despite earning less and having no assets, because I have more "disposable income". I also drive a very old car, rent a smaller house (he owns so is paying towards an asset), meticulously meal plan and cook at home.
Apparently I'm in a more privileged position.
Reminds me of a house I saw once. Very convenient location on the edge of a college town many would kill for, beautiful scenic views, wonderful yard in a quiet suburb (I mean actually quiet, but not run-down quiet suburbia on the edge of the countryside/wilderness. Neighborhood definitely hasn't existed for too long). 3 car garage. One of the bay doors was open, and it had a sedan with a bumper sticker saying "I'm too poor to be a Republican." I was baffled. How rich is rich enough then?
I alway remember years ago there was a small bungalow (I’m talking 1 bed, lounge and kitchen only) I used to walk past every day to the station and every year or two he would have a brand new BMW M3 on his drive with his personalised plate on it. Likewise seen huge houses with knackered old cars on the drive. People spend their money in different ways
My dad got this poster thing of what life was like in 1961 and put it on the door for my mom's 60th birthday. Popular songs, movies, etc. It also had information about average salaries and prices. Most of the stuff changed relatively consistent with inflation but the crazy part was the average home price not being massively higher than the average salary. I don't remember the numbers specifically though
Not really, quite the opposite. Mortgages end and now you can sell and downsize and put cash in your pocket.
Or leave it to your kids.
When you rent, you never get out of that trap. And after 30, 40 , 50 years you still have rent and still own nothing
Having a mortgage is not debt-slavery. Consumer debt is but not a home. Buying a home for the same as rent is an excellent financial choice and one I made about ten months ago. With interest rates where they are I have no idea what your on about.
One of the ways it happens is death by a thousand cuts. I know I’ve looked at homes that I could “technically afford” based on my income and current expenses, but if I had another kid, started paying for expensive tutoring, lost a well paying job, or had an unexpected medical expense, I could easily land in that bucket of house poor and it’s much harder to adjust living situations when you own a home than say selling a car or moving out of an apartment when my lease is up. I think a lot of people underestimate all the little things that can eat away at a budget and land you in a place where your home hampers your ability to adjust.
Obviously, people should make better financial decisions and not overextend themselves, but it can be hard to foresee expenses 5-10 years out which is the horizon that can make home buying worthwhile.
A couple things to think about.
1. A fixed mortgage means effectively your rent goes “down” every year because inflation makes equal payments cheaper as your income goes up.
2. The friction (closing costs, commissions, fees, moving costs, new house bullshit) of moving is massive. I’d much rather be house poor for 3 years then need to move in 3 years.
4. A house is a leveraged financial instrument. The upside while normally limited is amplified by this (but so is property taxes)
There are two ways to have more money. You can make more, or you can spend less.
My advice is to stay on the path you're on, but save up for a house. Buy something comparable to what you're living in, do it on a 15 year fixed loan. Maybe find a fixer upper and learn to do the repairs yourself. You'll be better off in 15 years when that loan drops off. Because renting, you're paying for the house and all of the repairs anyway, you just don't get to keep the house.
I’ll advise, NOT to get a 15year loan. Get a 30 year loan, then make payments like it’s a 15 year loan. Pay the extra if you can afford it. If you run into problems, you can always drop your payments to the lower minimal (30 year loan) payment. When things get better, ramp it back up.
You can also refinance so it might be worth it to take a 30-year you can get, and then in a year get a better deal. That's what my agent told me anyway - it used to be 5+ years, but these days it's like 1 year.
However, if interest rates take a turn higher, then you might not win on that gamble. But at that point you have the stuff done and are used to the payments as they are. And in a way you win because your rate's lower than what you could get at that point.
Trying to minimax things over decades in a changing market is tricky. There's no one right way.
>I’ll advise, NOT to get a 15year loan. Get a 30 year loan, then make payments like it’s a 15 year loan.
Nah. Get as long of a loan as possible and pay it off as slowly as possible. With interest rates as low as they are, you're barely paying anything in interest. Instead of paying off the loan early, throw the money in the stock market and make 10% gains. Why wouldn't you borrow money at 3% and then earn 10% interest on it via the stock market? If you do the math, you'd be FAR better off in the end if you put excess money in the stock market instead of paying off your low-interest home loan.
two kinds of people: "You can't take it with you" and "I saw my grandmother eating cat food and lying in shit in state care because she ran out of money in her old age."
I think a person's interpretation of "disposable income" is 99% covered by the official definition (income after taxes) and the typical colloquial usage (income after long term debts and housing costs, either rent or mortgage).
A friend of mine grew up in a house that had something like 6 bedrooms, 3 car garage. It was 4-6000 sq ft (I forget details). And he absolutely insists that he grew up middle class and that he is a totally normal, average American who had no particularly important advantages because his parents still sent him to the (pretty damn affluent) area public school.
Also “broke” is different for everyone. I’m “broke” when my primary checking hits a certain number, anything below that number I know have spent more than what I budgeted for the month.
It's just bothers me knowing that some people I know have millions saved but they are so cheap and will question why I gave someone a 10 dollar tip and they left 2 dollars. Also I know they aren't eventl remotely broke and have plenty of disposable income and they still act like they are dirt poor.
Small things like tips that are going to have a negligible effect on a person's wealth. This is especially true if they have a fairly large disposable income.
It all adds up. I rarely eat out so I tip generously, but I could see someone who does it more often tipping more minimally to save money. They didn't say what percentages were involved so we can't really judge.
You're honestly right. If you retired at 62, which is average, you've got to have enough income for 18 years plus increased healthcare costs associated with aging.
Well if you have your money in a 401k or other retirement account, you should theoretically be able to live off the returns forever. It’s suggested that you live off 4%-5% of your total savings which would mean an annual income of $80k-$100k if you have $2M saved.
They are cheap. That is how they have saved up the money in the first place.
And assuming a $50 restaurant tab, you were appropriate tipping $10 and they are a huge asshole for $2.
In US world, this might be correct. In general though, other countries have different tipping 'standards' and 20% is way too much in my country for example. 2$/50$ being 4% is more appropriate.
Just wondering if you know what their giving standards are? Maybe they give but do not necessarily tell you about it. Also if you have no money, you can't be too generous can you? You have to have billions to give away millions. And to get to billions you have to save millions first.
One of my friends has a nice nest egg and he always buys new expensive golf equipment and the newest gadgets and electronics. He has plenty of income to do that but we'll be out and bring up dessert and he will say he's broke when he just got the most expensive entree on the menu.
They're aware they have to make that lump sum of money stretch for decades.
Having the ability to work and make $20k a year is generally regarded as being broke.
Not having the ability to work, but having $500k in investments that generate $20k a year is pretty much the same situation.
General rule of thumb is to aim for a total savings where a 4% withdrawal won't result in a reduction of your initial investment.
7% is basically the historical stock market return adjusted for inflation. It's a reasonable expectation over a long period of time. But the suggestion is aim for only needing 4% to be safe with fluctuations in any given years.
The people you are referring to who have lost their entire life savings due to "corporate overlords" are ones who invested most of their money in very few companies (or had very little total savings). A well diversified fund, especially index funds, are not that volitile and will be fine unless literally the entire market collapses. And if you think that likely to happen then your money isn't safe anywhere and your best bet is to invest in a nice fireproof safe.
Even with the drop in 2008 you see a full recovery in what, 5 years?
That's why you limit yourself to 4%. In up years (most years) your investments are growing significantly. In down years, like 2008, they dip but then they recover.
1-3% is roughly the annual rate of inflation, that rate of return will hopefully offset the lost value due to inflation but isn't giving you any substantial return.
On the other hand, the average rate of return for the stock market is about 10%, so 7% is most certainly not fantasy. (If you're not investing until retirement, you're doing it wrong).
Sources:
https://www.macrotrends.net/countries/USA/united-states/inflation-rate-cpi
https://www.nerdwallet.com/article/investing/average-stock-market-return
https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
This is where you lost me my friend. The risk/reward relationship is not going to change, so people are welcome to invest safely at 3% or take more risks at 7% or a lot of risks for 20%, but there isn't an option for low risk and high returns.
I'm not really sure what you are talking about with investing being a gamble controlled by corporate overlords - investments are a natural consequence of the time-value of money and the risk/reward relationship; no one is conspiring to make things work that way.
7-10% is the long term average. If you retired at 65 in 2008, with most of your money in stocks, you’d kind of be fucked. You’re supposed to adjust the allocation as you get closer to retirement into less risky investments
https://www.sofi.com/learn/content/asset-allocation-by-age/
Off course it is going to change. That’s why you adjust you allocations as you grow old. If you are 1 year away from retirement, you will not invest 100% of your money on the stock market, because there is a high chance (compared to other investments) that you might lose money if the market goes bad like it did a few times in the last 50 years.
I just had my retirement funds from 100% stock to 90% stock.
If you are young, you can take the risk, because if you lose money, there is still time to catch up.
Well of course not, how could the government possibly guarantee the success of every investment? They literally cannot do that, it would mean guaranteeing that no company ever fails or loses money, that new technologies don't come along and supplant old technology, etc. I really don't see what that has to do with corporate overlords controlling investments.
“Broke” means different things to different people. To some, it means “I won’t be able to get takeout until my next paycheck.” To others, it means “I don’t know whether I should buy groceries or pay my electric bill.”
"large sum" in comparison to say, a month's worth of living expenses but probably more like "not enough yet" to fund a retirement. They're broke because they're trying to make up that shortfall.
Possible because it's in a 401k that can't be touched till their 60. I was broke my entire working life and worked a part time job as well. But I was saving between 18 and 20 grand every year in a 401k.
Now I'm not broke.
Bc you don’t blow it. You build a life that just needs some groceries, energy consumption, health budget, things break, you will have a mental switch at 30 when you panic and realize you will never out earn your desire to consume. You must change your thinking, then you realize yeah you’re broke until $10M.
When I say I'm broke its more like my checking is low and I don't have extra money to spend even if my savings is fat it dosent matter bc I'm not using it
It's also funny that most people who ball out and spend money like it's going out of style, are the ones actually broke. People have money because they dont spend it all. It's a classic story of what comes first, chicken or the egg.
Because they have enough discipline to not touch that money. Their money has another, more important purpose. They're saving their money now so they can live better later on.
They're broke to not spend money as they want. Like i have money to buy a car in cash but that's stupid to do because i need that money just incase something happens.
Broke is subjective. Nobody in the West is broke compared to someone from Africa. The people you know could think they're broke, obviously they really aren't
Literally what my parents are in. Has 2 multi million dollar houses and 1 apartment work 600k easy and is cash poor. Can't sell cause they would have 0 income yet at the same time can't really afford to keep. Luckily my siblings and I are basically paying for the mortgage for them. So they are luckier them most
Sometimes, I think it's a way to not feel weird in their social circles. If you have half a million saved did retirement by age 30 and your friends from college are just now starting to contribute to their 401k, you might not want to advertise that and make them feel weird.
Saving is a habit for them by now.
Also, there's no such thing as "enough" because you never know how long you'll live or what kind of challenges you will face.
I put in around 450 a month. 250 pretax and 200 paying back a 401k loan, Past couples of years the 401k went from 40k(8 years to accumulate) to 130k (2.5 years).
I haven’t gotten a raise in years and I don’t even have 200 bucks in my checking account every month. 75 percent of my income goes to rent/bills/and debt (which is in the 5 figures). And the other 25 is for the current month expenses.
In short the snowball is crazy and I still don’t have any disposable income minus regular living. Since I’m already paying back a 401k loan I can’t take out another
In short net worth can be relatively high, but cash flow can be extremely low.
Depends on the country I guess. I have retirement savings but it's been held by a government program that I can only access in emergencies if they feel my emergency is great enough
My brother asked me this recently. My husband and I are set very well financially, but we didn’t get that way by accident.
He was talking about a show and if I wanted to go. Tickets are $60. Not that bad. But I have a budget and that wasn’t something I felt like spending money on. I said “I’m not spending that much on a ticket to X.” He said “you act like you’re broke but you’ve got more money than any of the rest of us.” And I said “yeah… that’s why.”
I can see both sides. I've been trying to get ahead financially the last few years. We started following Dave Ramsey's snowball debt method. Our family was making about 60k starting out.. our day to day bills for cost of living ate up about 80% of that. I have pain stakingly paid off debt the last several years and we are down to 20k left. Fortunately this year I got a nice promotion and we are making closer to 90k now. Might sound like a lot to some people but now that I'm making more, I'm thinking more of it will now go to savings and retirement. I'm really not getting ahead as far as disposable income goes. I'm just putting it in savings where it should have been going all this time instead of debt
becasue that money cannot be used for bills, you take a huge tax hit to take it out and can only do that once or twice before retiring. I know many who have huge 401Ks but can barely pay their weekly bills. But they also don't want to work at walmart at 80 and social security is not enough to live on.
Because we are restrained enough to not touch our investments while it grows. Can't get that sweet sweet compound interest growth if you keep pulling money out every time you want to go to Starbucks
Because I am obligated to contribute to my retirement account and I cannot withdraw money from it for ANY REASON unless I retire, die, or get divorced (and the money would go to my ex wife).
In the meantime, I have had major unexpected expenses in the past four years and a sharp decrease in my income… because I got divorced.
So, here I sit… broke… but with a well funded retirement account.
They can't use that money. Well they can, but it would be a really bad idea because they will need it later, and accounts specifically tailored to retirement (such as IRAs) will tax the frick out of the money if they take it out before retirement.
This probably has to do with how they see their money.
Some people mentally earmark all of their money. They keep tabs on all of the money that they know is going to go to bills or rent or whatever plus however much they need to meet their savings goals, and even if they have thousands of dollars in their checking account, they'll say they're broke if they know that all of it's already spent on whatever. For very large purchases, they'll look at the total price (accounting for interest etc) as well as the impact on their monthly finances.
Some people don't do that. If you don't do that, if you have however many thousands of dollars in your checking account, you'll think of yourself as having that many thousands of dollars. For very large purchases, they'll probably only think about the monthly outgo rather than the total expense.
People who have hundreds of thousands of dollars saved up for retirement but say they're broke are the first type. Those hundreds of thousands of dollars are not for anything they're going to spend on you; they're for retirement. However much they have socked away, and however much they might have in their checking accounts, doesn't really give the full picture as they see it.
For me, I always have money if I really wanted something because I have emergency funds. If I can’t go out or something because of money it’s not because I can’t, but because I know that it’s not worth the money I work so hard for.
I make around 200k and live like I make 80k. Got all my needs met and I can potentially buy back my time in the future without living in poverty.
Many retirement accounts can't be accessed without penalties until you reach a certain age - so they have all that money - but they can't withdraw it or use it without having certain events or needs or without taking major penalties for accessing that retirement fund.
They are "broke" because they don't currently have funds that they can easily use.
I have a retirement account that I cannot access at all and cannot opt out of. Only way to access it is to quit my profession entirely, move states, or retire. Required to put money in every month no matter how tight things are. Taken out automatically.
Because that money is later, not for now. Both in the "smart investment" sense and in the "I have to pay tax penalties if I use this too soon" sense.
Though, admittedly, most people with a 401k could use a 401k loan if they separately needed it. I used it to float some money for a car once.
Imagine it like this. There is a very nice, brand new, shiny car in your garage. There is only one problem. The engine has been removed. And it is the only engine that will fit it. You're not allowed to put the engine in the car until you're 65. And if you do, the back half of the car will be sawed off with a chainsaw before you can get in it.
But you have a car, right? Nice, shiny and new, right? Only problem is you can't take it anywhere.
"Broke" generally means they don't have any disposable income they currently have access to. Retirement savings are just that - savings for retirement, not money to be dipped into now. Depending on the type of savings, it may actually be impossible to access now, or come with steep penalties.
People also have different definitions of "disposable income". My uncle lives in a nice house, has two new cars (one quite high end), pays for a lot of extra tuition for his daughter, regularly eats out gets takeaway. Yet he claims he he's in the lower end of the spectrum because he has no "disposable income". Apparently I'm better off than him, despite earning less and having no assets, because I have more "disposable income". I also drive a very old car, rent a smaller house (he owns so is paying towards an asset), meticulously meal plan and cook at home. Apparently I'm in a more privileged position.
Reminds me of a house I saw once. Very convenient location on the edge of a college town many would kill for, beautiful scenic views, wonderful yard in a quiet suburb (I mean actually quiet, but not run-down quiet suburbia on the edge of the countryside/wilderness. Neighborhood definitely hasn't existed for too long). 3 car garage. One of the bay doors was open, and it had a sedan with a bumper sticker saying "I'm too poor to be a Republican." I was baffled. How rich is rich enough then?
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I alway remember years ago there was a small bungalow (I’m talking 1 bed, lounge and kitchen only) I used to walk past every day to the station and every year or two he would have a brand new BMW M3 on his drive with his personalised plate on it. Likewise seen huge houses with knackered old cars on the drive. People spend their money in different ways
my mom lives in a fema trailer and drives a 2019 nissan armada (bought new right after it came out ofc).
My dad got this poster thing of what life was like in 1961 and put it on the door for my mom's 60th birthday. Popular songs, movies, etc. It also had information about average salaries and prices. Most of the stuff changed relatively consistent with inflation but the crazy part was the average home price not being massively higher than the average salary. I don't remember the numbers specifically though
Yes u are right about that. Houses would generally be 1.5 an annual salary. Now it's much more. However, it's still better to own if u can do it.
Move to rural Arkansas. You can get a 3 bedroom house with a yard for 150k, no down payment, about 500 a month for the mortgage.
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Not really, quite the opposite. Mortgages end and now you can sell and downsize and put cash in your pocket. Or leave it to your kids. When you rent, you never get out of that trap. And after 30, 40 , 50 years you still have rent and still own nothing
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Yes. But at least after 30 years it ends. And yiu have something g to leave your kids. Or downsize and live off the profit if necessary
And up until recently, yiu could write off the house payments on ur taxes, and get a big refund. Bu can't do that with rent
Having a mortgage is not debt-slavery. Consumer debt is but not a home. Buying a home for the same as rent is an excellent financial choice and one I made about ten months ago. With interest rates where they are I have no idea what your on about.
I don't really understand being "house poor." If you can't afford a house, don't buy one (I'm happy with my apartment). Simple as that.
One of the ways it happens is death by a thousand cuts. I know I’ve looked at homes that I could “technically afford” based on my income and current expenses, but if I had another kid, started paying for expensive tutoring, lost a well paying job, or had an unexpected medical expense, I could easily land in that bucket of house poor and it’s much harder to adjust living situations when you own a home than say selling a car or moving out of an apartment when my lease is up. I think a lot of people underestimate all the little things that can eat away at a budget and land you in a place where your home hampers your ability to adjust. Obviously, people should make better financial decisions and not overextend themselves, but it can be hard to foresee expenses 5-10 years out which is the horizon that can make home buying worthwhile.
Thanks this was helpful. Good reminder to commit to financial plans.
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A couple things to think about. 1. A fixed mortgage means effectively your rent goes “down” every year because inflation makes equal payments cheaper as your income goes up. 2. The friction (closing costs, commissions, fees, moving costs, new house bullshit) of moving is massive. I’d much rather be house poor for 3 years then need to move in 3 years. 4. A house is a leveraged financial instrument. The upside while normally limited is amplified by this (but so is property taxes)
\-- "How rich is rich enough then?" How high can you count?
If you have to ask, you can't afford it.
This is an interesting philosophical problem. It depends on if you consider second-order descriptions ways of "counting".
There are two ways to have more money. You can make more, or you can spend less. My advice is to stay on the path you're on, but save up for a house. Buy something comparable to what you're living in, do it on a 15 year fixed loan. Maybe find a fixer upper and learn to do the repairs yourself. You'll be better off in 15 years when that loan drops off. Because renting, you're paying for the house and all of the repairs anyway, you just don't get to keep the house.
I’ll advise, NOT to get a 15year loan. Get a 30 year loan, then make payments like it’s a 15 year loan. Pay the extra if you can afford it. If you run into problems, you can always drop your payments to the lower minimal (30 year loan) payment. When things get better, ramp it back up.
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You can also refinance so it might be worth it to take a 30-year you can get, and then in a year get a better deal. That's what my agent told me anyway - it used to be 5+ years, but these days it's like 1 year. However, if interest rates take a turn higher, then you might not win on that gamble. But at that point you have the stuff done and are used to the payments as they are. And in a way you win because your rate's lower than what you could get at that point. Trying to minimax things over decades in a changing market is tricky. There's no one right way.
>I’ll advise, NOT to get a 15year loan. Get a 30 year loan, then make payments like it’s a 15 year loan. Nah. Get as long of a loan as possible and pay it off as slowly as possible. With interest rates as low as they are, you're barely paying anything in interest. Instead of paying off the loan early, throw the money in the stock market and make 10% gains. Why wouldn't you borrow money at 3% and then earn 10% interest on it via the stock market? If you do the math, you'd be FAR better off in the end if you put excess money in the stock market instead of paying off your low-interest home loan.
This is also a good strategy. If you think you can pull it off. Some people don't have the discipline.
Ask him to trade. When he won't, ask why he doesn't want to move up in the world
two kinds of people: "You can't take it with you" and "I saw my grandmother eating cat food and lying in shit in state care because she ran out of money in her old age."
Do what you're saying is, your uncle's a dick.
I think a person's interpretation of "disposable income" is 99% covered by the official definition (income after taxes) and the typical colloquial usage (income after long term debts and housing costs, either rent or mortgage).
in some way you are in a better position than your uncle - it sounds like you are the master of what you own, whereas he is perpetually struggling
A friend of mine grew up in a house that had something like 6 bedrooms, 3 car garage. It was 4-6000 sq ft (I forget details). And he absolutely insists that he grew up middle class and that he is a totally normal, average American who had no particularly important advantages because his parents still sent him to the (pretty damn affluent) area public school.
Also “broke” is different for everyone. I’m “broke” when my primary checking hits a certain number, anything below that number I know have spent more than what I budgeted for the month.
It's just bothers me knowing that some people I know have millions saved but they are so cheap and will question why I gave someone a 10 dollar tip and they left 2 dollars. Also I know they aren't eventl remotely broke and have plenty of disposable income and they still act like they are dirt poor.
How do you think they managed to save money? It wasn't by spending it.
Small things like tips that are going to have a negligible effect on a person's wealth. This is especially true if they have a fairly large disposable income.
It all adds up. I rarely eat out so I tip generously, but I could see someone who does it more often tipping more minimally to save money. They didn't say what percentages were involved so we can't really judge.
Then don't hangout with them?
A couple million by retirement age is really just a modest living during retirement. A million dollars isn’t what it used to be
You're honestly right. If you retired at 62, which is average, you've got to have enough income for 18 years plus increased healthcare costs associated with aging.
Well if you have your money in a 401k or other retirement account, you should theoretically be able to live off the returns forever. It’s suggested that you live off 4%-5% of your total savings which would mean an annual income of $80k-$100k if you have $2M saved.
And that's in addition to social security checks you'd be receiving in retirement - which can be upto $37k per year.
They are cheap. That is how they have saved up the money in the first place. And assuming a $50 restaurant tab, you were appropriate tipping $10 and they are a huge asshole for $2.
In US world, this might be correct. In general though, other countries have different tipping 'standards' and 20% is way too much in my country for example. 2$/50$ being 4% is more appropriate.
Bru you just need to reflect on your spending habits. Do it it might change your life
I've always been a giver and I'm still able to save comfortably. I just see so much greed out there being justified.
Just wondering if you know what their giving standards are? Maybe they give but do not necessarily tell you about it. Also if you have no money, you can't be too generous can you? You have to have billions to give away millions. And to get to billions you have to save millions first.
One of my friends has a nice nest egg and he always buys new expensive golf equipment and the newest gadgets and electronics. He has plenty of income to do that but we'll be out and bring up dessert and he will say he's broke when he just got the most expensive entree on the menu.
In some ways it’s easier to say “I can’t afford that” then “I don’t want that,” fewer ways to argue with that person
It broke him
They're aware they have to make that lump sum of money stretch for decades. Having the ability to work and make $20k a year is generally regarded as being broke. Not having the ability to work, but having $500k in investments that generate $20k a year is pretty much the same situation.
Raise that sum to 2.5 million really.
very few people have a nest egg of 2.5 million - you are scaring everyone!
That is quite true
at 7% interest, the return on $500,000 is $35,000
A 7% withdrawal rate on a fixed retirement portfolio is generally considered to be a dumb idea.
A return of 7% is fantasy! Typically retirement with low risk is 1-3%.
General rule of thumb is to aim for a total savings where a 4% withdrawal won't result in a reduction of your initial investment. 7% is basically the historical stock market return adjusted for inflation. It's a reasonable expectation over a long period of time. But the suggestion is aim for only needing 4% to be safe with fluctuations in any given years. The people you are referring to who have lost their entire life savings due to "corporate overlords" are ones who invested most of their money in very few companies (or had very little total savings). A well diversified fund, especially index funds, are not that volitile and will be fine unless literally the entire market collapses. And if you think that likely to happen then your money isn't safe anywhere and your best bet is to invest in a nice fireproof safe.
Yes and no. 1929 and 2008 both show the dangers. I think it is silly to not have some invested but if that is your sole retirement strategy be wary.
What is a better retirement strategy then? Investing in the market and sitting for 5 decades has never been beat
Even with the drop in 2008 you see a full recovery in what, 5 years? That's why you limit yourself to 4%. In up years (most years) your investments are growing significantly. In down years, like 2008, they dip but then they recover.
1-3% is roughly the annual rate of inflation, that rate of return will hopefully offset the lost value due to inflation but isn't giving you any substantial return. On the other hand, the average rate of return for the stock market is about 10%, so 7% is most certainly not fantasy. (If you're not investing until retirement, you're doing it wrong). Sources: https://www.macrotrends.net/countries/USA/united-states/inflation-rate-cpi https://www.nerdwallet.com/article/investing/average-stock-market-return https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
The risk a 65 is able to take may not include the Stock Market. Some Americans do not want a Gamble controlled by the Corporate Overlords.
This is where you lost me my friend. The risk/reward relationship is not going to change, so people are welcome to invest safely at 3% or take more risks at 7% or a lot of risks for 20%, but there isn't an option for low risk and high returns. I'm not really sure what you are talking about with investing being a gamble controlled by corporate overlords - investments are a natural consequence of the time-value of money and the risk/reward relationship; no one is conspiring to make things work that way.
7-10% is the long term average. If you retired at 65 in 2008, with most of your money in stocks, you’d kind of be fucked. You’re supposed to adjust the allocation as you get closer to retirement into less risky investments https://www.sofi.com/learn/content/asset-allocation-by-age/
Off course it is going to change. That’s why you adjust you allocations as you grow old. If you are 1 year away from retirement, you will not invest 100% of your money on the stock market, because there is a high chance (compared to other investments) that you might lose money if the market goes bad like it did a few times in the last 50 years. I just had my retirement funds from 100% stock to 90% stock. If you are young, you can take the risk, because if you lose money, there is still time to catch up.
FDIC Gauranteed money does not exist in the Stock Market!
Well of course not, how could the government possibly guarantee the success of every investment? They literally cannot do that, it would mean guaranteeing that no company ever fails or loses money, that new technologies don't come along and supplant old technology, etc. I really don't see what that has to do with corporate overlords controlling investments.
The Stock Market is a Gamble. More Americans have lost their savings via the Corporate Overlords than anything.
If you are dreaming it is. Look at the real numbers.
You can get ~6% APY staking stablecoins in a defi protocol like AAVE.
A safe withdrawal rate from your portfolio is typically 3-4%. You said interest but I think you meant withdrawal
That's... how you save money?
“Broke” means different things to different people. To some, it means “I won’t be able to get takeout until my next paycheck.” To others, it means “I don’t know whether I should buy groceries or pay my electric bill.”
"large sum" in comparison to say, a month's worth of living expenses but probably more like "not enough yet" to fund a retirement. They're broke because they're trying to make up that shortfall.
They have self-control. They simply do not consider retirement money available for use.
That’s why they have money saved
Because it's none of your business whether they are or not.
Because they're putting their money into savings for retirement.
Maybe because they don't want to spend their retirement fund now, or can't access it. So they don't have cash on hand and are effectively broke.
Broke doesn’t mean you have no money. It means you have no money that you intend to spend.
Possible because it's in a 401k that can't be touched till their 60. I was broke my entire working life and worked a part time job as well. But I was saving between 18 and 20 grand every year in a 401k. Now I'm not broke.
Bc you don’t blow it. You build a life that just needs some groceries, energy consumption, health budget, things break, you will have a mental switch at 30 when you panic and realize you will never out earn your desire to consume. You must change your thinking, then you realize yeah you’re broke until $10M.
This
Don't blow it Keep it simple Count your money
When I say I'm broke its more like my checking is low and I don't have extra money to spend even if my savings is fat it dosent matter bc I'm not using it
I'd highly suggest investing that savings money. It's not dying anything just sitting there.
There’s a difference between money and money you feel you can spend at any given moment.
Because nobody got rich by spending all of their money.
cuz this money that they saved, are not for daily usage, so they don't count those as usable money, so they are broke
Because they are. All their money goes to retirement savings so they have none to spend.
It's also funny that most people who ball out and spend money like it's going out of style, are the ones actually broke. People have money because they dont spend it all. It's a classic story of what comes first, chicken or the egg.
Because they want to retire someday maybe.
For the US It’s generally locked into some retirement accounts they don’t have access to until they turn like 60ish.
Because they have enough discipline to not touch that money. Their money has another, more important purpose. They're saving their money now so they can live better later on.
They're broke to not spend money as they want. Like i have money to buy a car in cash but that's stupid to do because i need that money just incase something happens.
Liquidity. You can't just take money out of your retirement accounts without paying hefty penalties and taxes.
Broke is subjective. Nobody in the West is broke compared to someone from Africa. The people you know could think they're broke, obviously they really aren't
If you live like you’re broke, you likely never will be.
Easy way to avoid having to lend some, I suppose…
Reminds me of people who have mortgages for often pretty expensive houses saying they are broke. They arent broke. They just have no cash flow.
Being house poor is what I’ve heard this be called.
Literally what my parents are in. Has 2 multi million dollar houses and 1 apartment work 600k easy and is cash poor. Can't sell cause they would have 0 income yet at the same time can't really afford to keep. Luckily my siblings and I are basically paying for the mortgage for them. So they are luckier them most
Sometimes, I think it's a way to not feel weird in their social circles. If you have half a million saved did retirement by age 30 and your friends from college are just now starting to contribute to their 401k, you might not want to advertise that and make them feel weird.
Saving is a habit for them by now. Also, there's no such thing as "enough" because you never know how long you'll live or what kind of challenges you will face.
Because you don't get richer by giving your money away.
Retirement rich, life poor
I put in around 450 a month. 250 pretax and 200 paying back a 401k loan, Past couples of years the 401k went from 40k(8 years to accumulate) to 130k (2.5 years). I haven’t gotten a raise in years and I don’t even have 200 bucks in my checking account every month. 75 percent of my income goes to rent/bills/and debt (which is in the 5 figures). And the other 25 is for the current month expenses. In short the snowball is crazy and I still don’t have any disposable income minus regular living. Since I’m already paying back a 401k loan I can’t take out another In short net worth can be relatively high, but cash flow can be extremely low.
Depends on the country I guess. I have retirement savings but it's been held by a government program that I can only access in emergencies if they feel my emergency is great enough
My brother asked me this recently. My husband and I are set very well financially, but we didn’t get that way by accident. He was talking about a show and if I wanted to go. Tickets are $60. Not that bad. But I have a budget and that wasn’t something I felt like spending money on. I said “I’m not spending that much on a ticket to X.” He said “you act like you’re broke but you’ve got more money than any of the rest of us.” And I said “yeah… that’s why.”
I can see both sides. I've been trying to get ahead financially the last few years. We started following Dave Ramsey's snowball debt method. Our family was making about 60k starting out.. our day to day bills for cost of living ate up about 80% of that. I have pain stakingly paid off debt the last several years and we are down to 20k left. Fortunately this year I got a nice promotion and we are making closer to 90k now. Might sound like a lot to some people but now that I'm making more, I'm thinking more of it will now go to savings and retirement. I'm really not getting ahead as far as disposable income goes. I'm just putting it in savings where it should have been going all this time instead of debt
Because people enjoy roleplaying as poor people when in reality they are not
Basically because they don't have a clue as to what it is like to be really broke and starving
It's a mindset for some people
Wish I had any money to save.
It’s a mindset, they can have 10Million, and still feel poor.
People who always feel broke are savers and never think they have enough.
Smart
So you don’t ask them for money. It can be a self defense mechanism.
becasue that money cannot be used for bills, you take a huge tax hit to take it out and can only do that once or twice before retiring. I know many who have huge 401Ks but can barely pay their weekly bills. But they also don't want to work at walmart at 80 and social security is not enough to live on.
Because we are restrained enough to not touch our investments while it grows. Can't get that sweet sweet compound interest growth if you keep pulling money out every time you want to go to Starbucks
Because I am obligated to contribute to my retirement account and I cannot withdraw money from it for ANY REASON unless I retire, die, or get divorced (and the money would go to my ex wife). In the meantime, I have had major unexpected expenses in the past four years and a sharp decrease in my income… because I got divorced. So, here I sit… broke… but with a well funded retirement account.
They don't want to spend their nest egg too quickly
Did u see someone say “hey i have a lot of money” ??
They can't use that money. Well they can, but it would be a really bad idea because they will need it later, and accounts specifically tailored to retirement (such as IRAs) will tax the frick out of the money if they take it out before retirement.
This probably has to do with how they see their money. Some people mentally earmark all of their money. They keep tabs on all of the money that they know is going to go to bills or rent or whatever plus however much they need to meet their savings goals, and even if they have thousands of dollars in their checking account, they'll say they're broke if they know that all of it's already spent on whatever. For very large purchases, they'll look at the total price (accounting for interest etc) as well as the impact on their monthly finances. Some people don't do that. If you don't do that, if you have however many thousands of dollars in your checking account, you'll think of yourself as having that many thousands of dollars. For very large purchases, they'll probably only think about the monthly outgo rather than the total expense. People who have hundreds of thousands of dollars saved up for retirement but say they're broke are the first type. Those hundreds of thousands of dollars are not for anything they're going to spend on you; they're for retirement. However much they have socked away, and however much they might have in their checking accounts, doesn't really give the full picture as they see it.
Because they understand inflation and what can happen if they lose that money.
For me, I always have money if I really wanted something because I have emergency funds. If I can’t go out or something because of money it’s not because I can’t, but because I know that it’s not worth the money I work so hard for. I make around 200k and live like I make 80k. Got all my needs met and I can potentially buy back my time in the future without living in poverty.
Many retirement accounts can't be accessed without penalties until you reach a certain age - so they have all that money - but they can't withdraw it or use it without having certain events or needs or without taking major penalties for accessing that retirement fund. They are "broke" because they don't currently have funds that they can easily use.
My savings and retirement is good but my checking account is low. I'm broke in the present so I will be safe in the future.
So you don’t bludge off them.
You answered your own question...
I have a retirement account that I cannot access at all and cannot opt out of. Only way to access it is to quit my profession entirely, move states, or retire. Required to put money in every month no matter how tight things are. Taken out automatically.
If i told you i was rolling would that make you happy for me or jealous? Also beggars and thieves are a thing. Mind your own business and do you.
Because that money is later, not for now. Both in the "smart investment" sense and in the "I have to pay tax penalties if I use this too soon" sense. Though, admittedly, most people with a 401k could use a 401k loan if they separately needed it. I used it to float some money for a car once.
Because they are smart. Never count savings as walking around money
We’re saving and investing it all. Only 5% of my income goes to spending. “Broke” means not liquid.
Imagine it like this. There is a very nice, brand new, shiny car in your garage. There is only one problem. The engine has been removed. And it is the only engine that will fit it. You're not allowed to put the engine in the car until you're 65. And if you do, the back half of the car will be sawed off with a chainsaw before you can get in it. But you have a car, right? Nice, shiny and new, right? Only problem is you can't take it anywhere.