Thursday, February 10, 2011

How Big is your..... Retirement Savings?

When it comes to retirement savings, people are often reluctant to say how much they have - or they lie about how much they have.  Sort of reminds me of men and penis size!

On another blogsite, a blogger had to close comments on an posting, as it started getting out of hand.  The topic?  How much should you have saved for retirement, by age 30?

The topic started getting out of hand, as some people posted crazy amounts of savings, while others complained they had too little, and then people started making personal comments, and well, it got ugly and nasty, real fast.

People don't like to talk about how much they have in the bank, and the reason is fairly simple.  First, many have less than they think they should - or have less than they think their friends do - and are embarrassed to admit it.  Second, many have more - or think they have more - than their friends do, and don't want to foster resentment.

One problem with having money - and by that, I don't mean billions, but just some money in the bank and no debts - is that people will think you are "rich" and not surprisingly, start asking you for money.  So you never want to advertise that you have more than a nickel to your name, otherwise folks will start to resent you, or start hitting you up for money.

If people think you have money, they will say stupid things, like, "Well, that's easy for you to say, you're lucky, you're rich!"

And there are two things wrong with that statement - well actually three.  First, the person saying it makes more money that you do - they just squander it twice as fast.  They are, in fact, "richer" than you are, or could be, but chose instead to pay $100 a month for cable TV.  Second, having enough money in the bank to retire on hardly make you "rich" unless you are comparing your income to that of someone in Somalia.  Third, while luck is a fine and wonderful thing, most people become wealthy because of their spending and investing habits, aided by luck.  Most poor people become poor just because of poor habits, period.  "Luck" is not the controlling factor - life is not a Casino (but ironically, many poor people spend a lot of their income gambling).

So people don't want to talk about their retirement accounts, just as Men don't want to really honestly talk about their penis size (other than F. Scott Fitzgerald).  And this makes it hard to understand how much you need to retire.  Most financial pages will equivocate, when it comes to putting out a hard number on retirement, as "it may depend on a number of factors, such as your lifestyle, etc." or some other lame excuse.

So what some people think is a good amount, others think of as paltry.

But getting back to the amount you should have at age 30 (the subject of the original post) I can only say that by that age, my retirement savings were pretty paltry.  As I noted in an earlier posting, while in Law School, I realized that my net worth was actually negative and my savings pretty much near zero.  By age 30, I had managed to save up some money, although I was acquiring student loan and consumer debt at about the same rate - in other words, I was saving, but I was spending.

And I guess, to some extent, the question of  "how much should you have saved by age 30" is meaningless, in that it does not take into consideration your overall net worth.  If you have saved "one year's salary" as they suggest, that is a fine and wonderful thing.  But, at the same time, you are an equal amount in debt for credit cards, car loans, student loans, etc., then maybe you are just treading water and not really getting ahead.

And yes, it is a wonderful thing to say "I have $100,000 in my 401(k) account at age 30" - but if you are working at one of those high-paying Wall Street jobs and making $250,000 a year, then that really isn't much of a savings plan, is it? You are not saving, but squandering, and "but for" the huge paycheck, you'd probably have nothing saved.

The guy who manages to save that much on $50,000 a year - he gets my admiration. Saving that much on a smaller salary is a lot harder to do.

Ahhhh!  But that is another area where comparing penis size comes into play - salaries.  No one likes to talk about how much they make - but we all speculate about how much others make.  We are all certain that we are underpaid - but that that useless drip in Human Resources, the guy who walks around all day with his coffee cup, bending anyone's ear he can find about his weekend plans, that guy is making like $250,000 a year.

And that may be true.  Companies often wildly underpay real talent and then wildly overpay executives with little or no talent.  But arguing against the unfairness of it all rarely results in anything constructive - which is one reason why it is never good to compare penis size in this category as well.  No matter how well endowed you think you are, you'll be shocked that some little guy was more blessed than yourself.

In my next posting, I will explore some real-life scenarios for retirement and see if we can't answer the question "How much should I be saving for retirement?"

Short answer - more than you are now.