We are all looking for ways to make money and use it to its fullest potential in order to achieve our goals. You would like assume that money publications know what they are talking about, but be careful who you trust when it comes to money advice.
Don’t Write A Letter To Money Magazine!
I subscribe to exactly one publication, Money Magazine. Like any other resource, some of the content is helpful, some irrelevant, and sometimes, advice seems way off base. I’m sure Money tries to appeal to the most broad target demographic, those who will likely work until their sixties or beyond and retire with a nice 401(k) balance. This month, one reader story jumped out at me.
It was from Carlos, a 38 year old high school assistant principal. He lives in Southern California with his wife, a former dental assistant who currently stays home with their two young children. His goal was to retire at age 55 when he would be eligible for a pension of $52,000 a year. Now, we obviously don’t get the whole life story in a one page article, but to me, it seems he and his family are doing fairly well. This was the snapshot for Carlos and his family.
- They own three rental properties.
- Only $6000 in an emergency fund
- Just over $6,000 in credit card debt from their last rental property renovation.
- 60/40 stock/cash mix in their retirement accounts
Obviously, they need to get rid of the credit card debt and have more in emergency savings. Apparently, they wiped out most of their cash in purchasing the latest rental property. My thought is that if they have been able to save for three rental down payments, these are not spendy people. They should be able to pay off this debt and build up savings. Money recommended all these things plus changing their investment allocation to an 80/20 stock/bond mix. I agree so far, but here is why I would never take Money’s advice hook, line and sinker.
Work Till You Drop
For Carlos, as well as for most of the people in these feature articles, Money says to work longer. Instead of retiring on his timeline with a guaranteed annual income of $52,000, they say he needs to sock away $1.3 million dollars to quit work by 55. They recommend he works until age 62 to save more money. They also advised his wife to go back to work, full time! I’m sorry, but this is just wrong.
Money always assumes that people will need 80% of their current income in retirement. I think for most people, especially high earners, you need nowhere near that amount. I think we could live on 25% of our current income, and we would be sitting pretty at half. In no way should we need 80% unless we get into debt, drive new cars every few years, and buy a bigger house with a mortgage.
Telling someone who wants to retire that he needs to work for 7 more years or asking a stay at home mom to put the kids in daycare so she can work full time is insane. Obviously it would be different if they were $100,000 in credit card debt, but this isn’t the case here. Let’s take what joy they do have and squash it all out, every last drop, until they are shells of the people they used to be!
Why People Can’t Save For Retirement
I believe this is actually a reason people don’t save for retirement. They go online and look at calculators, see they need $2 million to retire, think it’s impossible, and give up because they assume they will be working forever anyway. Why sacrifice today if comfortable retirement is unattainable?
Before you take the advice of any calculator, magazine, or even personal finance bloggers like myself, look at your expected expenses in retirement, add up how much you have, how much you can save, and do the math. Maybe the current path you’re on isn’t working. Maybe you will have to work longer than you’d like or maybe you can retire early if you make smart choices. Just make sure to decide for yourself and don’t assume people know what they’re talking about. Be careful who you trust when it comes to money advice!
Could you live comfortably in retirement on $52,000 a year? Do retirement calculators do a good job of predicting retirement money needs?