There is nobody on Earth I know who enjoys taking a needle and jabbing their eyeballs. I also don’t know anybody who takes pleasure in dropping a dumbbell on their bare toes. Doing either of these things is completely irrational. Given not saving is like jabbing your eyeballs with needles, it’s safe to say that everybody saves money. With this premise, the economy is very resilient to downturns as people use their savings to wait it out.
Many of you have argued against the premise that “many people” have nothing to show for after 15, 20, 25, 30 years of work in my post entitled, “Is Unemployment Really That High?” You and I know people who have worked for 15-30 years have PLENTY to show for, because anybody with a calculator will realize that compounding any savings or investments over the past 15-30 years yields tremendous results. As a result, we really shouldn’t worry about those who become unemployed after so many years of work experience.
Furthermore, it’s important to note that there’s a trend of “you know somebody who is suffering, yada, yada, yada” yet you yourself are doing just fine. The fact of the matter is, if you are everybody, and you are doing fine, then everyone is doing fine!
THANKFUL AFTER SO MANY YEARS
I’m reminded of an AP article I read that highlighted how several 45-50 year old people were so thankful to have unemployment insurance be extended further. They talked about how it was “their life line” after being out of work for over a year. I’m really excited that the unemployment benefits are working and going to people who need it most. Up to 99 weeks of benefits is a tremendous amount of time. The people profiled in the article all sounded like hard working people who just need a little bit of help to get by.
Part of me started wondering what happened though? After working for 28 years, shouldn’t we logically have at least 25 years worth of savings to hold us over for the rest of our lives? In fact, I would hope we’d be about to double dip by collecting 99 weeks of unemployment while also living off the interest and dividends from my savings and investments!
If you saved just $10,000 a year on average for 28 years, you’d surely have more than $500,000, if not millions due to compound interest and investments! Take a look at the numbers in my retirement savings guideline by age table and you’ll see what I mean. It’s possible to save more for your retirement even if you don’t make that much money too. So I got to thinking, perhaps the government should skew their unemployment benefits more towards younger unemployed workers and less towards older unemployed workers instead?
WHY WE NEED TO HELP OUR YOUTH
If you are 28 years old and get laid off, chances are you don’t have much savings to hold you over for a long time. After only 6 years of working, you are at the bottom of your earnings power, while the fixed cost of living is relatively high compared to your salary. You might even have school loans to pay off. As an unemployed 28 year old, your last resort is to move back home with mom and dad after your friends get sick of you for sleeping on the sofa.
Some may say the younger you are, the more resilient and resourceful you are. Really? Is that just an excuse older people make? If you’re older, you’ve got that many more connections and that much more knowledge. I know I am way more resourceful and savvy now than I was 15 years ago.
Others may highlight that when you’re young, you have much less responsibility, debt, and dependencies. True, but you also have much lower savings and income. Whatever the case may be, there always seems to be an excuse for everything. All I know is that the longer you work, the more you have time to save and invest. We all talk about the time value of money and the miracles of compounding.
SAVE OUR YOUTH?
It is a tautology that a younger person is at a disadvantage to that compounding miracle as the older person. Hence, if you look at any demographic wealth chart around, you will see that younger people are worth less! There’s no gray areas here. Since younger people are disadvantaged by time, perhaps they should get even higher benefits from unemployment than older people. Perhaps after working for 30 years, maybe you shouldn’t even be allowed to get unemployment. It sounds cruel, but this post is a thought exercise in allocating resources properly. The government does it all the time by punishing the rich and redistributing income to the poor.
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Regards,
Sam
Unemployment benefits is a necessary part of unions. The benefits was created in solidarity with the unemployed to avoid people becoming so desperate that they would accept any job whatsoever no matter the wage and rights. Such desperation in the job market would quickly lead to a nullification of all rights and benefits which the workers has fought so hard for.
I hear you. Thanks for the perspective. Unions… that’s a whole separate topic!
I think we should help people who need it, regardless of age, but probably a part of that help should be helping them to get a clue/help themselves. Regarding “it’s safe to say that everybody saves money” I wondered at first if you were missing a “not” in there. Sadly, there are LOTS of people who don’t save anything, for retirement or even just something like getting new tires. Of course they know that they should, but they are in a cycle where they don’t, for whatever reason.
Is it rational not to save money though? It’s very hard not to think people would not want to safeguard their future.
I’ll partly echo Edward’s thoughts on this one. The need to “just get by” is foremost on the mind of many young people (and when I say “young”, I mean 20’s and 30’s) who don’t have the retirement mindset. I know of several at work that have some tough life circumstances going on right now. Issues with kids, issues with spouses, and issues with personal health. Easy and flippant to say, well, maybe they shouldn’t have had those kids, or made those spousal choices. Well, they did. Some or many people are not well equipped to see well into their own future.
I’m totally on board with the necessity to save for retirement, and the urgent need to make it happen. Nobody will be there to rescue us…well, most of us anyway. Most people need be self-reliant, and disciplined enough to structure their lives to make that happen.
Why don’t some do it? I think mostly its irresponsibility, but there are certainly some people who have unfortunate life events that have really harmed them. I think we need to be consider that. Also, in terms of older people vs younger, I simply have to show more respect/compassion to elders.
I liked your post on retirement guidelines by age. It’s more realistic than many people want to admit,
Thanks Ray. I do think we need to show respect and compassion to our elders.
Should we reward irresponsibility though? Doesn’t that just encourage MORE responsibility?
I’m not a huge Tony Robbins fan, but I do like one thing that he says: Actions are created through desperation or perspiration. In this case, I think people minimize the effects of compounding interest in their head and don’t save until they’re in panic mode. It always amazed me how many people I’d meet when practicing financial planning who hadn’t started yet and were over 40. They thought they’d be able to catch up “after I finish working on…..(fill in with whatever you’d like).”
AJ, you are correct. When our backs are against the wall and we have NO WAY OUT but forward, we’ll go into overdrive and do anything to survive and thrive.
I’ve had this relative’s house in a beautiful place calling to me for 20 years to quit and kick back since it’s free to live. I fight this urge everyday. It’s actually very distracting!
Perhaps that’s the way it should be, but I don’t see how (politically) you could swing it. The truth is, for whatever reason, older folks don’t always have readily available sources of extra income. It could be due to laws – like 401(k)s or IRAs which can only be tapped with a penalty – or it might just be a lack of savings. Also, younger generations – say people younger than 18 or not yet born – don’t vote so it’s politically convenient to shift financial burdens down the age chart.
I don’t know the answer, I just now that when I read about someone who is craving unemployment insurance after 30 years of working, I admittedly wonder what happened in those 30 years. Compound interest on savings gets HUGE after 30 years.
Should we bet on our youth or bet on our elderly? Hard answer.
Sam, I’m not sure what planet you’re on, but I know a LOT of people that aren’t saving for retirement. My parents have been working for 37 years and have a net worth of under $1000. They’re rich compared to my aunt. My grandmother died on welfare.
And saving $10,000/year? That is about a third of our income and 25% of my parent’s income. Yeah, that would be nice, but my parents were busy trying to raise 3 kids with that money. Maybe they should have fed us less so they could be comfortable when they retire. This reminds me of an argument on Net Worth Protect that the middle class starts at the 25% tax bracket, which in fact is a MUCH higher number than reality. If you are poor at $65,000/yr income, the IRS says you have a family the size of the Duggars.
Edward, I live on planet Earth. I hope with the sacrifice of your parents, that you provide an equal amount of sacrifice and take care of them in retirement. It’s the right thing to do right?
Do you really not save Edward? Help me understand the mindset. Is it the expectation of your kids taking care of you in retirement?
thx
You started out with the premise that there is not really anybody that is struggling. That doesn’t mesh with the reality I’ve seen. I’d love to help my parents out, but I have to keep the lights on, as well.
I save, but certainly not a third of my income. 1% of my wife’s income goes into a 401k and I managed to set aside $100 for my IRA. If I could get steady employment, we could manage more. But I’ve only worked 13 of the last 30 months. Last month, in my supposedly full-time job, I got 60 hours. For the entire month. Before I ran through my unemployment, I was getting about $100 per week.
I don’t expect anyone to take care of my in retirement. Actually, I hope to not retire. That’s my fear, that I will outlive my usefulness. My grandfather’s doctor made him retire a year before he died. It was the most miserable year of his life.
Ed, please have a look at this article to help change your mindset and give you a guideline for retirement: http://www.financialsamurai.com/2012/01/09/how-much-should-one-have-in-their-401k-at-different-ages/
I think it is our duty to help our parents out in retirement, if they have sacrificed for us during their working lives. I’m sure you feel the same way as well. This duty motivated me tremendously when I was younger and I hope it motivates you as well.
Good luck and let me know your thoughts on the savings article. There is no excuse not to save at any level.
Sam
I knew very little about personal finance when I first started living on my own. I felt empowered by my freedom and the ease of being able to pay for things with plastic so I got a bit caught up in spending money things I really didn’t need. Fortunately that phase didn’t last too long for me, so I was able to keep my debt from getting out of control, and started putting money aside each month at the bank. It took me about four years of working before I started contributing to 401k, and even though I wasn’t putting in very much in the beginning, I learned how the system worked, saw how easy it really is, and started getting employer matching which has been great.
Having savings goals really helps too and I try and redo my budget a few times a year so I can see where I’m at. I hope more people stop being afraid of personal finance and focus on the benefits both short and long term for making budgets and saving money.
Good stuff Syndey. Didn’t realize you waited for 4 years until contributing. Time goes quick, and 4 years is around $60,000-$70,000 in extra savings. As long as you used that money for other more productive things, that’s all that matters.
We need to definitely look at our budgets at LEAST twice a year. I recommend once a quarter, to make sure we are on track.
Unemployment payments can never be subjective because some employers try to get rid of employees for no other reason that they cost the company too much. Unemployment payments compensate for the sudden and unexpected loss of employment. Young or old should be saving independent of this.
I do not know why people do not save, although I could guess. I know savings allowed me to become independent.
In a perfect world what you propose is just. But we don’t live in a perfect world. A person who is young but unemployed and with no savings, should be able to find a job relatively easily.
A person who is nearing retirement, but got laid off and doesn’t have savings is stupid *and* doesn’t have the means to find a job.
We could punish stupidity, but that is just cruel.
(One reason why I support social security even though it goes against everything I believe in. Give the massess full control of their money and there will be some who will gamble every cent of it. Forcibly take the money from them, at least they won’t be broke during their golden years. Unfair on the smart ones, but necessary.)
BTW, I do know people who love poking eyes with needles. Acupuncturists! 🙂
I donno if Acuuncturists poke eyeballs MoneyCone! I’ll be happy to bet you whatever you want that they don’t!
I don’t want to punish stupidity. I just don’t think we should REWARD stupidity! We can let stupidity fix itself.