Retiring the Experts

Why don’t people save enough?

Photo: Dika Seva. Source: Unsplash

You’ve heard the advice: “Put enough aside when you’re in your 20s, and you can have millions by the time you’re 60. Just stop drinking a latte, and you, too, can be a millionaire.”

Okay, let’s do the math. Suppose you give up that latte and save $5 four days per week—you can have one latte. And let’s assume you do that 50 weeks out of the year. That’s $1,000. If you do this for 40 years, that’s — $40,000. And if you invest it at 6% per year—the long run return of the stock market above inflation—you’ll have $172 thousand. With that retirement account, you can safely spend $6000 per year—after taxes. Congratulations: you’ve turned your daily coffee into a rotisserie chicken and veggies.

This is why people don’t like trust retirement “experts.” Regular folks may not have spreadsheet programs to make the calculations, but they’re not stupid. They know that you can’t spin straw into gold, and that you can’t turn a Starbucks latte into a huge nest-egg. Maybe if I had 80 years, then my weekly $20 could grow to $2 million. But in 80 years, I won’t need a retirement account.

Most people have daily demands that keep them from saving very much, especially when they’re young. Rent, health care, child care, transportation—these needs trump entertainment and fancy coffee. And today everyone needs a smart phone and data plan. Try getting hired without quick access to email and a browser. It doesn’t work.

Photo: Victor Hanacek. Source: Pikjumbo

Retirement gurus who suggest austerity as the solution for young people need to look in the mirror. How austere is their lifestyle? How well does it work for them if they drive a cheap clunker to their radio or TV spot, and it breaks down on the way? Are their producers, sponsors, or fans very understanding if they show up late?

People don’t save enough because they don’t make enough. The best way for them to get ready for retirement is to grow their careers. And the best way for politicians to improve our retirement system is to grow the economy. Everything else is window-dressing.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:22:05+00:00 April 7th, 2016|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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