Why American is failing to prepare for their retirement?

[carlsbadworker]

The answer is here. In the survey of Americans over the age of 50, about one third of participants incorrectly answered the following question:

Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow: More than $102, exactly $102, less than $102?

Remember, if you randomly select an answer, you can get it right 1/3 of the time.

http://www.fpanet.org/ToolsResources/ArticlesBooksChecklists/Articles/Savings/TheChallengeofSaving/

[UCGal]

Not only do people not understand compound interest… they don’t leave money in a savings account (or investment account)… they spend it.

For a large part of the population, the answer would be zero to the question… because they’d have withdrawn that $100 and spent it at the first opportunity.

[SK in CV]

[quote=UCGal]Not only do people not understand compound interest… they don’t leave money in a savings account (or investment account)… they spend it.

For a large part of the population, the answer would be zero to the question… because they’d have withdrawn that $100 and spent it at the first opportunity.[/quote]

Bingo.

For probably 1/3 of those responding, the right answer would be <$102.

[earlyretirement]

[quote=UCGal]Not only do people not understand compound interest… they don’t leave money in a savings account (or investment account)… they spend it.

For a large part of the population, the answer would be zero to the question… because they’d have withdrawn that $100 and spent it at the first opportunity.[/quote]

Absolutely 100% agree. It’s really shocking how many people aren’t saving anything for retirement. I always read these surveys and statistics that show many people over 50 with less than $25,000 in savings. I’m not sure what they are going to do.

I was reading around on some message blogs and it seems like the “retirement plan” for many seems to be possibly suicide which is depressing but probably a reality for many Americans.

[bearishgurl]

[quote=earlyretirement]…I was reading around on some message blogs and it seems like the “retirement plan” for many seems to be possibly suicide which is depressing but probably a reality for many Americans.[/quote]

I don’t know who these people are (or, more importantly, their age group) who are writing into blogs claiming they will “commit suicide” when they get old.

Almost all the folks I know over age 55 are doing fine and will do fine (myself incl).

In San Diego, the vast majority of “boomers” are living in their paid-off homes or owe very little on them. A large portion have very low property taxes. Another large portion (inclusive of the low-property-tax group) have defined benefit pensions. Some have already started collecting SS or will apply within the year. Some are eligible for Medicare. Most are NOT primarily living off their IRA’s/401K’s if they are eligible to withdraw from them. That is just traveling money, home improvement money or a small income supplement (to temporarily pay healthcare premiums, for example, until Medicare-qualified).

Perhaps it is the currently-overextended Gen X crowd who is vocal about their future plans for “suicide” on the blogs. You know … the ones approaching age 50 in the coming years who have spent themselves down the drain for decades?

[no_such_reality]

Well, the right answer is $100.

Yes, that’s right. $100.

If you had a savings account paying 2% over the last five years, you’re exactly breakeven with the official and artificially low inflation rate.

[UCGal]

[quote=no_such_reality]Well, the right answer is $100.

Yes, that’s right. $100.

If you had a savings account paying 2% over the last five years, you’re exactly breakeven with the official and artificially low inflation rate.[/quote]
But you are ahead of most passbook savings accounts.

[no_such_reality]

[quote=UCGal][quote=no_such_reality]Well, the right answer is $100.

Yes, that’s right. $100.

If you had a savings account paying 2% over the last five years, you’re exactly breakeven with the official and artificially low inflation rate.[/quote]
But you are ahead of most passbook savings accounts.[/quote]

Yes, and that’s the point. If it was in virtually any savings, MM, or checking account over the last five years, you’re in the hole. If five years ago you grabbed a 4% CD, you’re okay. If you grabbed it in 2008, you’re barely okay (a whole $10 spending money, less taxes on the $21 though) and any time after you’re in the hole. If you grabbed any CDs shorter than 5 years, you’re in the hole.

If you bought the DJIA five years ago, you’re ironically worse off than having bought the 5 year CD and probably soiled your pants in 2009 when you lost nearly half.

[flyer]

It is shocking, and will, most likely get worse, as younger generations need more and more just to survive, and to possibly support their parents and their children–for an indefinite period of time.

Add to that, the possible absence or diminished benefits of Social Security and Medicare for future generations, and you have a real recipe for disaster.

Many people believe they are making more and saving more today, but they will also have to spend much more than previous generations for everything from homes, to medical care, retirement, etc., etc., so the net result may not prove to be much different in the final analysis. It will be interesting to look at the stats on the 50+ crowd 20 years from now.

As a BB, I’m very glad we, and most of our friends got the retirement memo years ago, and planned well.

[earlyretirement]

[quote=bearishgurl]
Perhaps it is the currently-overextended Gen X crowd who is vocal about their future plans for “suicide” on the blogs. You know … the ones approaching age 50 in the coming years who have spent themselves down the drain for decades?[/quote]

Yes. On most of the comments I’ve seen they were from over-extended Gen X & Y groups that feel like they have no hope as they are so far in debt. Obviously they probably have some other issues if they are talking suicide but I have some clients that admitted to me that they had relatives that committed suicide over financial issues. Also, I have a friend that also had a brother commit suicide once he lost all his money.

I do see the biggest problem with the X & Y group that is over leveraged and seem to spend as much as they make and have no or negative net worth. I’m not sure what the future holds for these type of people.

I’m not so sure however that all the Boomers are in as good of a situation as you and your friends.

[flyer]

Good thoughts ER, and BG.

I guess the answer is (regardless of your generation) to just to try to do your best to make sure you and yours are well taken care of. At this point in time, that’s probably all any of us can do.

[paramount]

Most of you have been brainwashed by Wall Street and Madison Avenue propaganda.

1st of all, most people shouldn’t retire – stay active and work.

2nd, savings is paying 0% anyway (or close to zero).

Live while you’re young, screw saving money – most of it is harvested by wall street crooks anyway.

And then when wall street gives you what little is left, the Jerry Brown’s will take the rest for his cronies (govt workers, baby mommas, etc…).

[moneymaker]

I think the correct answer would be 10% growth, about the same as I can make in the market in about 3-4 months. So you have to ask yourself, “do you want to spend 5 years to make the same money you could make in a quarter”? P.S.-About the same amount of growth China has yearly. Also the same percentage of my salary that I save yearly. Which will double in 7.2 years. Confession: only save 9% so it takes 8 years to double,if only I could live longer.

[flyer]

[quote=paramount]Most of you have been brainwashed by Wall Street and Madison Avenue propaganda.

1st of all, most people shouldn’t retire – stay active and work.

2nd, savings is paying 0% anyway (or close to zero).

Live while you’re young, screw saving money – most of it is harvested by wall street crooks anyway.

And then when wall street gives you what little is left, the Jerry Brown’s will take the rest for his cronies (govt workers, baby mommas, etc…).[/quote]

I agree, people should live while they are young (we did), and work as long as they have something interesting they want to do (doing that, too), but, IMO, everyone still needs to be prepared for when they can’t or don’t want to work anymore–and that is going to take a lot of resources–if you want to live well.

[CA renter]

Now, if only the Fed would get rid of ZIRP, once and for all. They’ve caused so much damage over the past decade, yet nobody is really addressing how every saver has been subjected to a very steep “hidden tax” in the form of artificially low interest rates…and it’s literally taken a decade from their lives WRT their ability to save and earn this compound interests.

And then there are the bubbles/busts that the Fed has caused with their interest rate policies…

[Author]

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