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April 16, 2008
Shelley's Teaching Minute - You Told Me When
I asked you guys to let me know when and why you started preparing for retirement. Your answers were quite interesting -- and perhaps not too surprisingly, many were quite similar. In fact, your answers by and large fell into three specific categories: starting a family, encouragement from your parents and changes in your work.
Let’s look at some of the responses of those who were motivated to start saving when they got married and/or had children.
The answer to the second question is: We started saving as soon as we got married and have never stopped. Our plan then was: 10% tithe, 10% savings, the rest for expenses. We even kept this up in the Navy, which was no easy task. As our finances improved we then adopted this plan: 10% tithe, 20% savings + maximum amount to IRAs, save for named big ticket items expenses with the caveat that when we got a raise it got saved also. The bottom line is that most of our adult lives we have lived on 50% or less than our income (the remainder going to taxes). The motivation for us was very high... We looked around and decided that Social Security would not be there for us (this in the 70s) and accepting responsibility for ourselves, we decided to save.
As regards to starting saving and planning for retirement, my wife and I started when we married. We decided to save her pay and live off my pay. It worked out very well. We put three children through college and are enjoying a comfortable retirement.
Per your question, I started seriously saving at age 25, after graduating from college and getting married. This was not expressly for retirement, but just to start building up cash to invest in real estate (not my home) and some stocks. I always believed I needed to invest to eventually amass any wealth, which I felt was necessary to consider myself successful and comfortable. We didn’t start saving specifically for retirement until about 1980 (age 35) when the IRA was first established. I was immediately attracted to this opportunity to attain a tax deduction for investing, so my wife and I always made the maximum IRA contributions allowed and invested that money in the stock market (mostly mutual funds). Fortunately for us, the market has risen at least 10X since then. Saving and investing was a great choice for us – I was able to retire early, when I wanted to.
I started attempting to build something for retirement right out of college. In fact, some of the earliest ”discussions” my new wife and I had were over my clumsy efforts to get started, e.g. paying premiums on whole life insurance (to amass cash value) and investing in hot tip stocks when we were faced with all the normal expenses of starting a family.
Many of you stated that your parents’ influence was the motivating factor for you.
As for when I started saving and why, it was as soon as I had a job with a 401(k) that had matching funds (in my mid-20’s) because my parents told me I needed to do it. I may not agree with them on everything, but I was smart enough to listen to that. I have made many financial mistakes along the way. I have charged the credit cards up, paid them, charged them up again, and recently paid them off again. I have wasted money trying to “fix” people that don’t really want to be “fixed,” they want to be “saved” (like your friend Tess). Through all of this, I have always contributed to retirement accounts and never touched the money, even for a layoff. No 401(k) loans. No cashing out, even to buy a house. I have read enough on my own over the years to know how detrimental to my future financial health that would be. I thank my lucky stars every day that: a) I was blessed with great parents, and b) I was smart enough to listen to them about money.
I started saving when I was a little kid. My parents taught me early on and brought me to the bank and helped me open a savings account and taught me how to deposit a dollar in there or my holiday gifts. I have done the same with my own daughter. There has never been a time when I haven't saved, although how much has been in the account has varied depending on my life's circumstances. Saving needs to be a part of your life.
This gentleman also credits his father for encouraging him to save for retirement. His email really touched me. I think many of us know someone from his father’s generation who has inspired us to take care of our finances.
I started (saving) when I was 18, not because of any wisdom of my own, but because of the vision and diligence of my father. My father was 17 years old when the stock market crashed in 1929 where he LIVED and struggled throughout the great depression. His story was a classic one where his father made him drop out of high school to try to make some money to help support the family. He eventually went into the Navy and finally got his GED at about the age of 30, never attending college. He struggled most of his adult life trying to get ahead. Being the youngest of 3 children, I never realized growing up just how little money my father had. Somehow, he did manage to save money for his retirement, never borrowing money, and eventually passing away as a very proud man.
With this said, he never wanted me to live the life that he did. My father went with me to file an application for an IRA and an annuity when I turned 18 that I still have today. I truly did not know or appreciate what I was doing at the time, but I just respected my father’s judgment and did what he asked. These are both fixed assets, but considering my father’s conservative nature, this was right in line with what he wanted me to do.
Changes in work seemed to be another commonality for you.
I have been an airline pilot for almost 20 years. I was naïve enough to believe that the pension I was promised would be there for me when I retire. My entire plan for retirement was to count on that pension. A few years ago, through the magic of Chapter 11 bankruptcy, my employer cut my pay by 42% and terminated my pension. What would have been 60% of my final average earnings and a sizeable lump sum was handed over to the Pension Benefit Guarantee Corporation (PBGC) through my company’s bankruptcy. The estimate I got from the PBGC is that I will get $800/month in retirement. Ouch!! And that’s only if the PBGC remains solvent. When I lost my pension, I had to start seriously thinking about how I was going to provide for my retirement. That was the defining moment. The 401(k) and Defined Contribution Plan were limited to mutual funds … or so I thought! I don’t remember exactly what it was that got me to thinking about it, but I started thinking about WHY we were limited to mutual funds in our 401(k) and DC Plan. Was there some kind of “legal” reason why we couldn’t trade individual stocks and options in a 401(k)/defined contribution type plan? I was ultimately able to help get my employer to expand the brokerage link capability we already had in the 401(k) and DC Plan.
I was able to start saving for retirement when I went to work for a company that had a pension plan and offered a 401(k). It was amazing to watch the 401(k) grow over the years with my contribution and my employer’s percentage matching contribution.
Maybe I should add a fourth category. I am not sure what to call this category, but a nice way to say it would be something like, “when I realized I could do it better.”
I didn't figure it out until I was 46 years old. I had invested $2,000.00 in some sort of IRA or insurance annuity every year or two for a few years and managed to save up about $20,000 or so. I was talking to a friend of mine who was a CPA and also oversaw some investments for a few of his customers. I was building houses at the time and was building his home for him. He volunteered to invest my money at no fee for 2 years. He was trading stocks with his broker, who was making 6% on the buy and 6% on the sell back in 1991 for me. His average return on my money for those two years amounted to 8.5%. Now had I been paying him a commission for his work, what would I have had left over? I decided to learn on my own and started reading John Bogle’s books and others. I pulled my money from the broker and invested it in index mutual funds and a brokerage account. All this happened because I didn't think it was in my best interest to let others manage my money.
This response falls into the same category, but as always, my friend Ron has added a little flair.
I started seriously thinking about providing for some kind of eventual retirement about four years ago. I had had a silent heart attack in 1988, and I guess I was just too dumb to know that I was supposed to die. Fast forward to 1998 when I had my first balloon angiogram at Dedman Hospital and was told that if I didn’t quit smoking I would be dead in 6 to 9 months. So, I quit smoking after 42 years of sucking on those foul-smelling packages of poor health. My mental position was that I had fixed things, so, therefore, I was still invincible. The future was still so far away that things would take care of themselves. (In a way, it was almost like déjà vu when I read about your conversation with your friend.) Fast forward again to 2003 when I had to have a two-lead pacemaker put in to keep my heart from stopping at inconvenient times. That’s when my resolve about my invincibility was shaken a bit and I began to think that maybe I should consider doing some planning for the “R” word. I had tried my hand at investing in sure things, winding up broke several times. After deciding to do some planning on my own, I lost my posterior again. Of course, you and Alison have explained ad infinitum why I failed so miserably. (When I attended Kim’s seminar in Frisco, I told her, “I’ve been rich and I’ve been broke. Rich is better.”) Realizing that I was going the wrong direction with my plans to have money to live on in my old age, I got me a …you guessed it … a FINANCIAL PLANNER. My salvation! This guy was going to take care of all my money and put me on the road to easy living for the rest of my life. This was great until I saw that his house was bigger and better than mine. I found out that while I was making 8%, he was making more. I was funding his retirement. I also realized that I would have to wait until I was almost 90 to retire with the comfort level that I want. Now, this was going to be a stretch. I have planned all along to retire on August 28, 2021; the day after I turn 80. Well, I’m not a financial genius, but things weren’t adding up. I started looking for something better.
This gentleman’s response reminds me of why I believe in saving for retirement.
I believe we should not retire from something, but rather retire to something. I started saving when I began earning more than my expenses (mid 30’s). I started saving because I’m a saver. I have made no plans for retirement from my profession, but am always keeping an eye out for something to retire to.
I have always been a diligent saver. Some of us are just wired that way. But I really kicked it into high gear in my late 20’s after a pretty challenging experience lead me to a moment of clarity when I finally understood that I am solely responsible for my financial security. A few years later I married Mr. Seagler and read Smart Couples Finish Rich by David Bach. In Bach’s book he encourages you to define the reason you save as it relates to your personal values. My husband I discussed at length what our savings meant to us and what our long-term/ retirement plans are. We believe our savings is more than just dollars; It is the representation of our accomplishments and our dreams.
As always, I enjoy hearing your opinions and appreciate your feedback.
Shelley Seagler
Kim Snider, Kim Snider Financial Communications and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.
