Can you save more than $5.09/day? You’d better start!

By Caitlin Kelly

If you want to scare the shit out of almost any American — those who don’t have a defined-benefit pension guaranteed to them — which knocks out most workers, ask them how much money they have saved for their retirement.

retirement
retirement (Photo credit: 401(K) 2013)

The median figure, among those aged 55 to 64, (i.e. an age group, traditionally, potentially planning/hoping to retire within a decade or less), is a mere $63,100.

The median among all Americans is a staggeringly low $10,890, (minus the value of a home and/or vehicle.)

When New York Times writer Jeff Sommer recently wrote that $1 million wouldn’t do much, more than 600 readers weighed in with comments, prompting him to tackle the subject again the following week.

My math works like this — if, when (if) you graduate from college at 22 and start working immediately, you begin saving $5.09 every day, some $36.00 every week, or $144 every month, every year without a break — and with no accrued or compound interest from investing that money — you’d end up with the $63,100 median figure.

Surely we can do better?

For some people, right now, saving $5.09 every day, all seven days of every week, is impossible. Their living costs cannot be trimmed in any way, and/or their wages are too low.

Many fresh graduates, and older workers, are unable to find paid work in this economy. They are stalled, frustrated, broke, angry. Some carry enormous debt burdens of homes underwater or student loans they cannot discharge through bankruptcy. Some people are very ill, or have very ill family members for whom they must add the cost of care and the time it takes — i.e. unpaid labor — to do this as well.

But…for the rest of you, snap that wallet shut!

The culture that most Americans live in is one that continues to glorify and fetishize spending lots of cash, (or credit, mostly), acquiring tons of shit that’s new and shiny and cooler than everyone else’s — whether an Ipad or Ipod, phone, car, house, vacation, clothing, whatever. You can blow easily thousands of dollars on a freaking baby stroller, if that somehow seems essential to you.

Television and social media and the internet bring very rich peoples’ lives into our own. We can press our greasy little noses against the impenetrable glass wall of their luxuries and whine: “Why not me?”

You can go broke even trying to keep up.

saving and spending
saving and spending (Photo credit: 401(K) 2013)

I’ve been lucky. I grew up in Canada, a nation that still chooses — with much higher rates of taxation — to heavily subsidize college education. My annual tuition, from 1975 to 1979, (yes, really) was $660 a year. I was able to put myself through university and graduate debt-free.

I’ve also been able, since my second year of university, to sell my writing, photography, editing and translating skills to others — and had the developed skills, delivered on or before deadline every time, to make them want more of my work.

I’ve been fortunate, since the age of 22, to be able to share housing on four occasions, which helped cut my living costs in two expensive places — suburban New York and Toronto.

I’ve been grateful for good health, so I have never lost months or years to debilitating illness(es) and treatments that would have prevented me from working.

But that’s one side of the ledger — the getting side.

I’m also cheap as hell, when necessary, and it was necessary for years on end, especially when single paying $500 a month for health insurance, and facing three recessions in my industry.

I’ve chosen to stay in a one-bedroom apartment for 25 years. Would I prefer a second or third bedroom or bathroom? A backyard and fireplace and verandah? Hell, yes. But did I want to assume a much larger mortgage payment and longer repayment term? No. Nor the stress of fearing potential homelessness. Ever.

I’ve been saving 15 to 25 percent of my income every single year for years.

Our ironing board recently broke. I paid $4.30 at our local thrift shop for another one. Score!

When my income bottomed out to a terrifying degree in 2007 to 2009, I took a part-time retail job ($11/hour no commission) and bought my clothes and shoes from consignment shops.

Until my ex-husband moved in, I had no television. Until my second husband moved in — when I was in my early 40s — I did not have cable or a cellphone ($200/month saved right there.) I drove a used, paid-for car, as we still do.

A friend of mine runs her own company, an investment fund, literally managing millions of other people’s money. She drives a Mini Cooper, not a Mercedes or Lexus or Range Rover, the vehicle people expect.

“That’s how I got a million dollars,” she says, with a knowing smile.

We plan to be mortgage-free by 65. We have no children. We will have multiple income streams, one of which is our savings. Adding to them is a non-negotiable part of our life, as automatic, necessary (and boring!) as brushing our teeth.

Here’s an interesting, helpful and smart post from Dailyworth.com about how to face up to the reality that we all need to save (more!) money and invest it as wisely as possible.

Are you saving for retirement?

If not, why not?

If not, how do you plan to pay for your living costs in your 70s, 80s and beyond? (People insist they will keep working. Find me the employer willing to hire a 75-year-old.)

Be Thrifty – Or Else

An assortment of United States coins, includin...
We'll need a lot more than that...Image via Wikipedia

Being cheap is the new black, writes Daniel Akst in the Wilson Quarterly (you have to pay for on-line access), quoted in The New York Times:

To be thrifty, after all, is to save, and to save is not only to keep but to rescue. Thrift is thus a way to redeem yourself not just from the unsexy bondage of indebtedness but also from subjugation to people and efforts that are meaningless to you, or worse. Debt means staying in a pointless job, failing to support needy people or worthwhile causes, accepting the strings that come with dependence, and gritting your teeth when your boss asks you to do something unethical (instead of saying “drop dead”). Ultimately, thrift delivers not just freedom but salvation — which makes it a bargain even Jack Benny could love.

Margaret Wente, writing in The Globe and Mail, wonders how anyone — save the fortunate few with defined-benefit pensions — will actually survive retirement without a pile ‘o cash:

Because of imprudence, misfortune, a vast shift in cultural habits, or the sheer financial drain of supporting their kids until age 28, they are facing their old age with no savings, no pension and few assets. I have no idea what they’re going to do. All I know is that there are plenty of them. For the first time since we introduced old age pensions, millions of people who’ve led comfortable, middle-class lives are facing a big drop in their standard of living when they stop working. No more salmon teriyaki for them.

“A large chunk of the baby-boom generation is on the verge of retirement with only the state to depend on for a retirement period that will be, on average, the longest in Canadian history,” writes consultant Robin Sears in the magazine Policy Options. “We were pension pioneers. But we’ve lost our way.”

Whose fault is it that we don’t save like Grandma did? Is it ours, for crashing our savings rate below zero, and not being disciplined enough to resist the siren call of easy debt that’s been relentlessly marketed to us for a generation? Whose fault is it that we’re living longer than anybody has before, and screwing up the actuarial tables? Whose fault is it that the vast majority of us fail to save at least 10 per cent of our earnings starting at the age of 30, the way we’re supposed to? What about the single mom who’s put her kid through university, or the highly creative guy who is stupidly hopeless with his money, or the manager who got laid off at 57 and has to dip into his savings, or the millions of conscientious people who pay shocking fees to the investment industry to mismanage their RRSPs? Should we blame them, too?

You can see the problem here. Saving up for your old age is an individual responsibility. But helping you do it is a social one.

It would be nice if we could be more like the Chinese, who save 40 per cent of their money. That’s because they know they might starve or die from lack of health care if they don’t. The danger is that we’ll wind up like the Japanese, who suffered a huge economic hit in the ’70s and ’80s. Millions of retired folks were forced back into employment to support themselves. Former doctors took jobs as parking-lot attendants.

As someone self-employed, it’s not an issue I take lightly.

It’s a big pile of ifs: If my partner and I stay together, married or not, I’ll be OK, if his pension is still there; if Social Security pays out to us both what our statements tells us it will; if we keep saving 15% -plus percent of our incomes every single year; if our carefully chosen and diversified investments don’t tank; if , when we finally tap our accumulated capital, interest rates aren’t where they are now — a smack-in-the-face 1-2 percent on safe, secure holdings like CDs.

Now there’s a fair recompense for all that thrift!

If we bust up, it’s Friskies and a cardboard box for me! If I still own my home, and the mortgage is paid off, and if I can afford the monthly co-op maintenance fee, my only possible salvation from penury will be a reverse mortgage. Because my writing income isn’t nearly where I want it to be, and I can’t see suddenly doubling or tripling it for the next decade consistently, (believe me, I’m trying), my projected SS income wouldn’t get me through a month right now. There’s a comfy thought.

The old three-legged stool: SS, pension and savings is missing a leg — the pension — for most of us now. The second leg, savings, is a perpetual challenge when gas is $3/gallon and wages are stagnant or, in my industry falling to 1970s rates. Hey, change careers! Assume $10,000 to $75,000+ in student loan debt and cross your fingers that shiny new job market is all perky and welcoming when you graduate, competing with people willing and able to work at half the wages because they’ve still got five decades to save.

If they do save.

I recently interviewed, for my book, a single 51-year-old with a Master’s degree and $40,000 of student debt. Canned from her non-profit job a few years ago, she makes — wait for it — $7.25 an hour working retail. She couldn’t possibly save a dime and lives thanks to hand-outs from her 82-year-old mother. Her life is not quite what she planned.

One friend, 16 years my junior, is scrambling harder and harder and harder, like a hamster on a speeding wheel, to earn what she needs. Like us, she and her partner don’t even have kids. They are stylish and fun, but live very frugally.

Our “old age” is now.