5 ms·

most don't even have 3-5 years "spending money" (whatever that is) in total savings; if you're keeping that in cash you're getting 2-3% annually while the marke

most don't even have 3-5 years "spending money" (whatever that is) in total savings; if you're keeping that in cash you're getting 2-3% annually while the market has doubled.

hdgvhicv 2mo ago
People return with less than 4 years expenses in retirement funds Surely you need about 20 years?
- budman1 2mo ago
  Social Security, my friend. And there are still some pensions out there.
rwmj 2mo ago
Sure, but we're not talking about people who have no savings. FIRE people have huge investment portfolios while being frugal with their spending, and understand the risk of keeping 5-10% of their total net worth in cash equivalents (not dissimilar to having insurance).
- deleted 2mo ago
  [deleted]
MattGrommes 2mo ago
When you're headed into retirement, one possibility is to shift to saving more in cash-like options instead of a 401k (or whatever). It's should just be part of your retirement plan to account for possibilities like this.
- light_hue_1 2mo ago
  And lose the tax advantages? That's crazy
  - smallmancontrov 2mo ago
    The tax advantages of being forced to pay ordinary income rates on your distributions as compared to long term capital gains (which are low, capped, can be exercised before a tax hike, and avoided entirely if you just need collateral)?
    - Retric 2mo ago
      401k reduces your taxable income when depositing money, this is more tax efficient than paying normal income taxes and then also paying capital gains. 401k lets you rebalance a portfolio with zero tax implications. The downsides are generally high fees and a 10% penalty for early withdrawal which makes them surprisingly bad for young people. They tend to start in lower tax brackets, have fewer reserves when unemployed, and face fewer risks from an unbalanced portfolio. Pay down debt then Roth IRA when young 401k after 40 is often better than defaulting to a 401k, but saving anything tends to be more important than such optimizations.
      - smallmancontrov 2mo ago
        401k sure sounds good when you mention the "no taxes on money going in" and don't mention the "big taxes on money going out" part, doesn't it?
        Retric 2mo ago
        Avoiding X% tax on money going in and paying X% tax on money going out aounds balanced. But you avoid the highest marginal tax rate when putting money in and social security alone doesn’t push them into the highest tax bracket. So most people get taxed at lower marginal rates in retirement when they take money out. Which makes deferring taxes a meaningful advantage. This is especially true if you intend to money to a state with lower tax rates in retirement, but a worse deal if you intend to do the reverse.
      - leetrout 2mo ago
        I am alone in my peer group for doing something like this. Cars, student debt, credit card debt all gone. (And I dread needing a new car). Covered downpayment on my house and cash for a nice shed that matches the house and a fence so my kid can play in the back yard with no issue. Invested low 5 figures into myself taking a year off and now I am getting serious about the 401k at 41. And I am ok with that. I never worked at a big tech company and I covered my mom's down payment and appliances and new carpet and part of her move for her to move close to me. Dad died when I was 11 so I am all she has and she was a public school teacher so she's on a small pension. We all walk a different life and I know people that make my entire life savings in a year but I will eventually grow a retirement to get me through 10-15 years and then it will be what it will be. (Maybe a tank of helium and bag)
bell-cot 2mo ago
Look back at the grandparent comment. If someone doesn't have 3-5 years in total savings, then they had better not try to retire.
LargeWu 2mo ago
Last week I was at the bank in my hometown, a small rural community. The teller took a phone call, and I overheard her say "You have $1.53 in your checking account, and $150 in savings". Presumably this is their total net worth. I think this is way more common than people on this type of forum realize. Most will work until they literally can't anymore, then scrape by on social security until they die. I think it's important to keep that perspective.
- HDBaseT 2mo ago
  It is either that, or they have tons of debt. (Sometimes both!) The average person is struggling in modern America.
  - alex43578 2mo ago
    Because the average person also makes a litany of poor financial decisions. $100K student loan balances for an state school arts degree, forgoing health insurance but expecting to receive $200K in care for free, or buying that $80K F150 on a 12.5% loan and rolling in negative equity. The US is second in the world for median equivalised household disposable income, second only to Luxembourg and 10%+ above Norway. For daily median per person income after taxes and transfers, we're only behind Norway, Switzerland, Luxembourg, Qatar, and the UAE. Outside of petrostates, microstates, and Switzerland, no country has richer "average" people. The US certainly doesn't have the safety net of some of these other states, but these aren't holes you're being thrown into by society: they're pits you've deliberately jumped into in 99% of cases.
    - mancerayder 2mo ago
      Your error here, or the missing piece if we're generous, is what people are spending money on. Health care is astronomically more expensive here. Schooling isn't free after high school. Day care isn't free. Hell, even property taxes are simply 'not a thing' in France or the UK, where the taxes and Council Tax, respectively, are a tiny fraction of what Americans pay in property taxes ---- which, of course, pay for the 'free public schools.' Now, let's talk about insurance, that's also much higher. In states like California and Florida, home insurance is through the roof, in some states like NJ and NY, car insurance is through the roof. Both going up way above inflation (like the items in my first paragraph). You might counter with energy costs are much higher in these European countries (and similar ones like Germany, Benelux, etc), and the purchasing power might be higher, but the wages are so so much lower. That said, this trope of people misspending their money needs to consider this outrageous costs of things that many people around the world never need to think about. The shitty wages in France are overshadowed by so many essentials being available without a high cost or any cost in some cases.

most don't even have 3-5 years "spending money" (whatever that is) in total savings; if you're keeping that in cash you're getting 2-3% annually while the market has doubled.

hdgvhicv 2mo ago

People return with less than 4 years expenses in retirement funds Surely you need about 20 years?

budman1 2mo ago
Social Security, my friend. And there are still some pensions out there.

rwmj 2mo ago

Sure, but we're not talking about people who have no savings. FIRE people have huge investment portfolios while being frugal with their spending, and understand the risk of keeping 5-10% of their total net worth in cash equivalents (not dissimilar to having insurance).

deleted 2mo ago
[deleted]

MattGrommes 2mo ago

When you're headed into retirement, one possibility is to shift to saving more in cash-like options instead of a 401k (or whatever). It's should just be part of your retirement plan to account for possibilities like this.

light_hue_1 2mo ago
And lose the tax advantages? That's crazy
- smallmancontrov 2mo ago
  The tax advantages of being forced to pay ordinary income rates on your distributions as compared to long term capital gains (which are low, capped, can be exercised before a tax hike, and avoided entirely if you just need collateral)?
  - Retric 2mo ago
    401k reduces your taxable income when depositing money, this is more tax efficient than paying normal income taxes and then also paying capital gains. 401k lets you rebalance a portfolio with zero tax implications. The downsides are generally high fees and a 10% penalty for early withdrawal which makes them surprisingly bad for young people. They tend to start in lower tax brackets, have fewer reserves when unemployed, and face fewer risks from an unbalanced portfolio. Pay down debt then Roth IRA when young 401k after 40 is often better than defaulting to a 401k, but saving anything tends to be more important than such optimizations.
    - smallmancontrov 2mo ago
      401k sure sounds good when you mention the "no taxes on money going in" and don't mention the "big taxes on money going out" part, doesn't it?
      - Retric 2mo ago
        Avoiding X% tax on money going in and paying X% tax on money going out aounds balanced. But you avoid the highest marginal tax rate when putting money in and social security alone doesn’t push them into the highest tax bracket. So most people get taxed at lower marginal rates in retirement when they take money out. Which makes deferring taxes a meaningful advantage. This is especially true if you intend to money to a state with lower tax rates in retirement, but a worse deal if you intend to do the reverse.
    - leetrout 2mo ago
      I am alone in my peer group for doing something like this. Cars, student debt, credit card debt all gone. (And I dread needing a new car). Covered downpayment on my house and cash for a nice shed that matches the house and a fence so my kid can play in the back yard with no issue. Invested low 5 figures into myself taking a year off and now I am getting serious about the 401k at 41. And I am ok with that. I never worked at a big tech company and I covered my mom's down payment and appliances and new carpet and part of her move for her to move close to me. Dad died when I was 11 so I am all she has and she was a public school teacher so she's on a small pension. We all walk a different life and I know people that make my entire life savings in a year but I will eventually grow a retirement to get me through 10-15 years and then it will be what it will be. (Maybe a tank of helium and bag)

bell-cot 2mo ago

Look back at the grandparent comment. If someone doesn't have 3-5 years in total savings, then they had better not try to retire.

LargeWu 2mo ago

Last week I was at the bank in my hometown, a small rural community. The teller took a phone call, and I overheard her say "You have $1.53 in your checking account, and $150 in savings". Presumably this is their total net worth. I think this is way more common than people on this type of forum realize. Most will work until they literally can't anymore, then scrape by on social security until they die. I think it's important to keep that perspective.

HDBaseT 2mo ago
It is either that, or they have tons of debt. (Sometimes both!) The average person is struggling in modern America.
- alex43578 2mo ago
  Because the average person also makes a litany of poor financial decisions. $100K student loan balances for an state school arts degree, forgoing health insurance but expecting to receive $200K in care for free, or buying that $80K F150 on a 12.5% loan and rolling in negative equity. The US is second in the world for median equivalised household disposable income, second only to Luxembourg and 10%+ above Norway. For daily median per person income after taxes and transfers, we're only behind Norway, Switzerland, Luxembourg, Qatar, and the UAE. Outside of petrostates, microstates, and Switzerland, no country has richer "average" people. The US certainly doesn't have the safety net of some of these other states, but these aren't holes you're being thrown into by society: they're pits you've deliberately jumped into in 99% of cases.
  - mancerayder 2mo ago
    Your error here, or the missing piece if we're generous, is what people are spending money on. Health care is astronomically more expensive here. Schooling isn't free after high school. Day care isn't free. Hell, even property taxes are simply 'not a thing' in France or the UK, where the taxes and Council Tax, respectively, are a tiny fraction of what Americans pay in property taxes ---- which, of course, pay for the 'free public schools.' Now, let's talk about insurance, that's also much higher. In states like California and Florida, home insurance is through the roof, in some states like NJ and NY, car insurance is through the roof. Both going up way above inflation (like the items in my first paragraph). You might counter with energy costs are much higher in these European countries (and similar ones like Germany, Benelux, etc), and the purchasing power might be higher, but the wages are so so much lower. That said, this trope of people misspending their money needs to consider this outrageous costs of things that many people around the world never need to think about. The shitty wages in France are overshadowed by so many essentials being available without a high cost or any cost in some cases.