Retirement planning

[ultrarunner]

Bought my first home at 22, fixed it and made it a rent house when the next opportunity came up and repeated the process.

Paid $11,500 for my first single family home in the Oakland... much to the shock of just about everyone... even my step grandfather told my grandmother he didn't have the heart to tell what a huge mistake I had made because I was ecstatic owning my own home at age 22 in the Bay Area...

Spent about a year of nights and weekends renovating... and another 20k in materials... in 1985 I rented to my first of two tenants and only 2 week gap in 30 years... property tax is $850 and it's been rented at $725 since 2000 with no rent increase... and virtually zero expenses... did a complete rehab and it has paid off.

I do live in the heart of earthquake country so anything is possible... so far these homes have all stood the test of time going back to 1910 which is after the big 1906 quake.

The 1989 Loma Preita Quake caused massive devastation... freeways collapsed as well as structures... thankfully all of my single family homes came through unscathed... even when soft story structures collapsed in the area or were red tagged.

Make no mistake... managing residential rentals is a job.

Over the years I have transitioned to commercial with most being out of the area... places like Washington (Volcano) and Oklahoma (Tornado)

Guess just about anywhere carries risk...

 

[Steppenwolfe]

If you make $40k per year you'd be bringing home about $33,000 per year. Probably more with the deduction for say, 2 kids. So, family of 4.

If you spent:
200 per month into a ROTH IRA
500 on mortgage
800 on groceries
400 on utilities
200 on used car and insurance
200 in an emergency fund
200 on clothes
You'd spend about $2500 per month, or $30,000 per year.
You'd have $3000 left over per year to spend on health care and since you have a family of 4 you qualify for the affordable care act.
Once you save up your emergency fund after 4-5 years, you get an additional $2400 per year to use, so you now have $5300 per year left over if you'r lucky.

That $200 per month into a ROTH IRA earning 7% per year would yield you $687,764.00 in 45 years for you to retire on.

Now let's say you get a decent job at $20 per hour and your spouse gets a minimum wage job or two for, say another 20 hours per week. That's an additional $7500 per year.

It can be done with a disciplined approach to building wealth over the long term.

$500 a month for a mortgage??? Your utilities and car numbers are way off, also. Your scenario is a fantasy. The real numbers leave an adult child making $33000 a year living at home with Mom and Dad.

 

[MossRoad]

$500 a month for a mortgage??? Your utilities and car numbers are way off, also. Your scenario is a fantasy. The real numbers leave an adult child making $33000 a year living at home with Mom and Dad.

Yes, a $500 dollar mortgage payment. Housing here is very inexpensive. Decent used cars are cheap. Our gas, electric, phone, satellite and internet average less than $300 per month, so $400 is conservative. People can live well on average wages if they make the correct choices. That's why they call them average.

 

[wmonroe]

People can live well on average wages if they make the correct choices. That's why they call them average.

In my opinion this statement captures the reason so many in this country won't be prepared for retirement and are overloaded with debt. Lots do not make the correct choices and won't be happy with average till they save up more money for what they want.

 

[smstonypoint]

If you make $40k per year you'd be bringing home about $33,000 per year. Probably more with the deduction for say, 2 kids. So, family of 4.

If you spent:
200 per month into a ROTH IRA
500 on mortgage
800 on groceries
400 on utilities
200 on used car and insurance
200 in an emergency fund
200 on clothes
You'd spend about $2500 per month, or $30,000 per year.
You'd have $3000 left over per year to spend on health care and since you have a family of 4 you qualify for the affordable care act.
Once you save up your emergency fund after 4-5 years, you get an additional $2400 per year to use, so you now have $5300 per year left over if you'r lucky.

That $200 per month into a ROTH IRA earning 7% per year would yield you $687,764.00 in 45 years for you to retire on.

Now let's say you get a decent job at $20 per hour and your spouse gets a minimum wage job or two for, say another 20 hours per week. That's an additional $7500 per year.

It can be done with a disciplined approach to building wealth over the long term.

$500 a month for a mortgage??? Your utilities and car numbers are way off, also. Your scenario is a fantasy. The real numbers leave an adult child making $33000 a year living at home with Mom and Dad.

The BLS conducts annual surveys of consumer expenditures. Tables for the 2011 survey (the latest available) can be found at CE Expenditure Tables.

IMO, David is off on the federal income taxes paid by a family with two kids and before-tax income of $40K. I expect that family would pay little or nothing in the way of federal income taxes.

From the "Income before taxes" table, households with an annual income from $40-50K spent an average of $3,666 on utilities in 2011, or just over $300/month. The average family in that income range contained 2.6 members, so adding 1.4 kids would be expected to increase the monthly utility bill, but not so much as to say that $400/month is "fanciful."

From the "Income before taxes" table, households with an annual income from $40-50K spent an average of $7,128 on transportation in 2011. The average family in that income range owned 1.9 vehicles. Making an ad hoc adjustment for one vehicle gives $3,752/year or $313/month. The $200/month value is below the average, but whether the estimate is "fanciful" is debatable.

Steve

 

[MossRoad]

The BLS conducts annual surveys of consumer expenditures. Tables for the 2011 survey (the latest available) can be found at CE Expenditure Tables.

IMO, David is off on the federal income taxes paid by a family with two kids and before-tax income of $40K. I expect that family would pay little or nothing in the way of federal income taxes.

From the "Income before taxes" table, households with an annual income from $40-50K spent an average of $3,666 on utilities in 2011, or just over $300/month. The average family in that income range contained 2.6 members, so adding 1.4 kids would be expected to increase the monthly utility bill, but not so much as to say that $400/month is "fanciful."

From the "Income before taxes" table, households with an annual income from $40-50K spent an average of $7,128 on transportation in 2011. The average family in that income range owned 1.9 vehicles. Making an ad hoc adjustment for one vehicle gives $3,752/year or $313/month. The $200/month value is below the average, but whether the estimate is "fanciful" is debatable.

Steve

Yes, I did not include gas for that car. Good thing the wife works a part time job...

 

[ultrarunner]

Housing varies greatly depending on location...

Within 20 minutes from where I am there are 1 bedroom apartments going from $600 to $3600 per month...

Really depends...

With mortgage interest hovering around 4% or less... a$500 per month payment could be in the 100k mortgage loan area...

 

[dave1949]

Yes, I did not include gas for that car. Good thing the wife works a part time job...

Some childcare expenses should be included if that is the case.

When employers offer retirement savings plans with payroll deduction the participation rate is ~50%. Without payroll deduction it is practically 0%. According to this article:
http://www.nytimes.com/2015/01/06/u...rst-for-the-nation.html?ref=us&abt=0002&abg=0

People are people. Theorizing what the perfect and well-informed person would do is just that--theory. We know people aren't perfect, well except for us. :laughing: We should stop pretending they are or can be. I think there is a cost to that game of pretending.

 

[ultrarunner]

When the company match was suspended... about half of those participating had dropped out in 3 years.

Don't underestimate the power/attraction of something for nothing or "Free" money as HR always called it...

Plus there are still those for whatever reason that will cash out a retirement plan and pay all the penalties and taxes... it's part of free will.

 

[dave1949]

When the company match was suspended... about half of those participating had dropped out in 3 years.

Don't underestimate the power/attraction of something for nothing or "Free" money as HR always called it...

Plus there are still those for whatever reason that will cash out a retirement plan and pay all the penalties and taxes... it's part of free will.

I get that. Sometimes that "free will" becomes subsidized housing for low income seniors. That's the cost part. We can debate the wisdom of those subsidies but what seems un-debatable is that people will make poor choices if given enough rope to hang themselves. Of course for some, it wasn't a choice.

That's what is unique about mandatory SS, you can't screw it up or lose it through bad luck for the most part. I know that smacks of "we know what's best for you", but facts would indicate that is often the case like it or not.