Remember the investment advice people used to get, and probably still do, about how to retire rich?

[raccoon]

For example, an investment advice article/book will come up with a scenario, such as Joe (Jane) Blow starts saving at age 20, assume he gets a 3% raise each year, saves 10% per year, his investments earn 7% per year, yadda, yadda, yadda...then in 40 years he will have a brazillion dollars.

I guess this kind of thing is well-intentioned, trying to show the need to start early and save. But this assumes some very unrealistic things.

--That Joe will get an annual raise every year.

--That he won't go through periods of un/underemployment when he can't save 10% and has to go into his savings.

--That investments will earn 7% per year for 40 years--yeah, right....

--That he won't have some extreme medical or other expenses.

When I posted this over a year ago, I said I thought this was well-intentioned. Yeah, right. Another DU’er posted at the time that they didn’t think it is well intentioned, it was just to sell various investment vehicles. IMO,that poster was right.

That stuff MIGHT work out for somebody if everything went according to plan…but when does that ever happen?

(The scenario business was originally posted here:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3188878#3188917

[sinkingfeeling]

1. So doing nothing would be better?

[raccoon]

2. I don't know. Wish I did.

I guess it does work out for a few people. Or, I should say, it did in the past. And it may in the future.

[JDPriestly]

4. Decent pension plan enforcement would be better.

Most individuals do not have the time to spend on studying investments. If you raise a family, if you or a family member become seriously ill, if your profession takes a downturn and you have to go back to school to get retrained, if your kids need a lot of help, if the economy goes into a recession or 9/11 happens and the stock market crashes just when you have to take money out of your retirement -- and if one or more of these things happen when you are in your late 50s or early 60s (and they often do), then there are so many reasons why people cannot save the huge amounts you need to live on in retirement.

I did some research on ERISA law some years ago and, in the '90s, it was estimated according to the author of a text on the subject that the average retiree retired at that time with only about $10,000 in savings. That's the reality. Nobody wants to admit it. But the fact is that most Americans cannot save for retirement.

You would be surprised at the numbers of babyboomers who thought that their homes would be a big part of their net worth at retirement. They planned to sell their homes and buy something cheaper and supplement retirement with the difference. Well, if they bought young enough and cheap enough, maybe there will be something left over for retirement if the housing market improves before they have to sell. But the fact of the matter is that a lot of babyboomers found themselves jobless and borrowed against their homes to get by, to go back to school or to start consulting businesses.

We need a decent government-run pension system along the lines of Social Security but that pays out a living stipend for people who are disabled and people over 65. And, based on my experience, 65 is the retirement age. We may be living longer, but older people still have all the infirmities of age to deal with -- and a very difficult time competing with younger people in the workplace. This may be particularly true for the generation of women in their 50s and 60s. The glass ceiling was set really low for that generation. Secretaries are not in such great demand today and a lot of women of that age have worked as secretaries most of their lives. Also, those who worked as nurses have difficulty dealing with the physical aspects of their jobs -- the lifting and the finger dexterity (arthritis) once they are in their 60s.

So, don't be so smug. You may have a big surprise coming one of these days.

[sinkingfeeling]

6. Enforcement of what? Defined-contribution plans aren't 'pension' plans at all. They're nothing

more than saving plans that may or may not have the employer contributing.

[JDPriestly]

8. Not all pension plans are defined.

[sinkingfeeling]

9. Uh, you either have defined benefit plans or defined contribution plans. I'm still waiting for an

answer about enforcement of what?

[JDPriestly]

10. Defined benefits and not permitting employers to sell their pension

plans. The employees' rights to pension benefits should be protected from bankruptcy also. That is because the pension rights are deferred pay -- already earned by the employees. Pension rights are not bonuses to be paid in the future. They are actually earned pay that is deferred. Think about the analogy to 401(K)s. The IRS recognizes that the 401(K) is not tax exempt but rather tax deferred. The money in the 401(K) is not taken as income at the time it is earned but rather is acknowledged as income at the time it is taken out of the 401(K). The same should be true for all pension funds.

[JDPriestly]

11. ERISA is the Employment Retirement Income Security Act of 1974

It governs both defined contribution and defined benefit plans (among other things).

Your employer’s retirement savings plan is an essential part of your future financial security. It is important to understand how your plan works and what benefits you will receive. Just as you would keep track of money that you put in a bank or other financial institution, it is in your best interest to keep track of your retirement benefits.

Those responsible for the management and oversight of your retirement plan must follow certain rules for operating the plan, handling the plan’s money and overseeing the firms that manage the money. You should also understand and monitor your retirement plan and your benefits. You will find Action Items in each chapter to assist you in doing this.

http://www.dol.gov/ebsa/publications/wyskapr.html

These laws need to be improved.

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.

ERISA requires plans to provide participants with plan information including important information about plan features and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; and gives participants the right to sue for benefits and breaches of fiduciary duty.

http://www.dol.gov/dol/topic/health-plans/erisa.htm

[boomerbust]

3. Kenny Rogers

You got to know when to hold em
, know when to fold em,
Know when to walk away and know when to run.
You never count your money when youre sittin at the table.
Therell be time enough for countin when the dealins done

[HughBeaumont]

5. Because "You're working until you're coffin fodder" doesn't put asses in the seats.

When you sit down and do the math, $1,000,000 in today's dollars isn't going to carry you very far 25 years from now, unless your living expenses are at a bare minimum and live in an ultra-low cost area of the country. And it's more than just a little difficult to acheive a goal of just a million dollars, let alone the 1.5 to 2 you're realistically going to need for just a middle class life. It REALLY assumes you can time markets just right, are able to put a consistent amount of money away no matter what happens . .. and no major catastrophes that blast your plans to hell ever rear their ugly heads over a period of 20-40 years.

Here's another one that victim-blaming Financial Planners love to use:

You probably assume it's because you aren't earning enough money, but the truth is that for most people, whether or not you become a millionaire has very little to do with the amount of money you make.

See, this is something they love to say to give you that Horatio Alger glimmer of hope; to dangle that proverbial carrot.

For many, MANY people, what they get to keep has EVERYthing to do with their financial situation.

Someone earning $30,000 a year in an area where at least $60,000 a year is required for a basic living (that is, no frills) likely is going to have to work harder to become a millionaire than someone who earns, say, $110,000 in that same area due to getting all the breaks in life. That is:

* knew all the right people,
* got the right college degrees,
* didn't work for a mismanaged fire-a-thon company,
* didn't have bosses that sucked and held them back in life,
* saw into the future and moved into cash at the right times,
* ran a business that DIDN'T fail,
* had no major illnesses, accidents, financial ruin or

. . . 'nother words, had no major landmine roadblocks like 94% of the population does.

The not-so-well-to-do's are going to struggle harder to buy basic needs and God Forbid actually have anything left over to SAVE for themselves once the month is left after the money moreso than said lucky rich guy above.

[CTyankee]

7. I was lucky. I inherited my mother's bonds and the big profit she got on selling her house

at the time I hit 65 and retired. She and my father had done the stock market thing and settled on having bonds, low living costs (paid off the house years before)and no chronic illnesses. Mother lived to be 94. She died with no debt. She and my father had remembered the Depression and never really overspent in their lifetimes.

Ilearned a lot from them growing up. I used to think they were fuddy duds but now I appreciate them A LOT...