A whole lot of retirement focused articles to hit on today.
First is The Money Habits I Learned From My Parents-for Better or Worse. This is very interesting to me on a personal level. I was somehow aware of how bad my parents were with their money when I was very young and I've described it before as having benefitted from my parents mistakes.
The comments were interesting. Always read the comments. There were several that echoed my experience as well as people who agree that they picked up their parents' habits. One other interesting comment was essentially what I parrot from Nassim Taleb they they learned about finance from their grandmother.
As children, we hear at some point very simple but very important rules to live by. Related to finance, save for a rainy day or don't borrow too much money and so on. Related to health habits, exercise and don't eat too much sugar. I realize that just because we hear these things as kids, it can be difficult to do as adults. As one commenter said, sharing insight from his father, "you're gonna get old. You can be old and rich or you can be old and poor. You don't want to be old and poor."
My spin on this point has been to think in terms of doing favors for your future self. Your 50's, and I'm sure I will say the same in my 60's, can be great time of life and much easier when you have a little money in the bank and you are at least moderately fit. Great if you can learn productive lessons from your parents, even if what not to do, but the drive for moderate success, financially comfortable enough to able to withstand the occasional unexpected, expensive one-offs and the ability to still get it done physically has to come from within. Getting to that point and maintaining it takes work which is underscored by the Joe Moglia quote that no one will care more about your retirement than you.
Next up is an article about companies auto-enrolling employees into the 401k at a 6% contribution rate. Richard Thaler is the expert on nudging (his research says it works) but there is also research that says it doesn't. I can buy into the idea that starting the habit with a first job makes it easier to contribute until retirement and then maybe adopt the mindset of increasing the contribution rate with every raise. The sooner you can start, obviously the easier personal finances become in middle age. I've long described my approach as socking it away like I was desperate to retire last year. I think this mindset creates optionality for future self in case ten or 15 years down the road you decide you want to do something completely different than happens to pay a lot less.
Yahoo had an article on an incredibly touchy subject, having the money talk with parents. The primary context was about inheritance issues but this can be broader than that. The comments were interesting, always read the comments. A lot of them focused on the amount of money parents have being none of the kids' business. There was also the point that some parents fear telling their kids they will get some large pot of money will zap their ambition.
I have conflicting thoughts and no great insight into the nuances of this. When my dad died, he had about $20,000 in a bank account and another €4000 in a drawer in his apartment. Long story short, my dad moved to Spain in 1980 and I was the only one of my siblings who had a relationship with him. The Nusbaum family dynamics are awful, there's no way to sugarcoat it. He figured out how to live the life he wanted on Social Security, the Spanish equivalent and what amounted to side hustles. The money inherited pretty much covered the cost of two trips over to see him at the end and the expense of bringing his remains back to be buried in in a VA cemetery which was very important to him. He would have felt awful if I'd have had to pay for any of that which is maybe something other people can relate to but other than a small delay, I didn't have to pay. He'd visit us in Arizona every so often and would never let us buy a meal. He knew we had more money than he did but there was no way we were going to pay so in this context he died very well.
People do frequently expect an inheritance, they often plan on it, I get it but that can be very risky. Beyond the vagaries of family dynamics changing, some sort of expensive medical event can radically alter an inheritance picture. It's not unrealistic for people who are quite well off, so not extremely wealthy, merely quite well off, to be late 70's and healthy with high six-figures or low seven-figures that they aren't really using and intend to split between two kids. A $500,000 inheritance sounds like a meaningful chunk of money to me but then 7 or 8 years later one of the parents needs some sort of expensive care in a facility and they are able to live much longer at the facility than the average duration. This scenario could easily take the vast majority of that wealth and maybe each kid getting $500,000 turns into each kid getting $135,000. A plan that is overly reliant on getting the $500,000 will be left having to scramble, maybe desperately so.
A completely different layer is potentially slight cognitive impairment that leads to bad investment decisions if they are managing their own money like putting 25% into a lottery ticket biotech that craps out or the susceptibility of being swindled.
There is probably a way to have conversations very early that strike a balance between maintaining privacy for instances where that is a priority but allow for credibility to raise the subject later. "I don't need to know how much you have but if you're managing your own money, just keep it simple, put most of it in a couple of broad based index funds." Or, "remember, the IRS will never call you, they will always send a letter."
The most interesting article was part of a series from the WSJ where they profile five people who've retired in similar situations. One article was five profiles of people with about $1 million, five people with $5 million and the one today, Here's What Retirement With Less Than $1 million Looks Like. The article is actually from March but I just found it today.
This was my favorite of the series in large part because it confirms a point I've been making from my earliest blog posts which is that people who are undersaved will figure it out because they have to. I would see that regularly here in Walker before a real estate boom changed our socioeconomic structure.
When you read articles comprised of what I'll call self-reported anecdotes, there will be some things that don't make sense and this article is no exception. The first profile is a couple who are 75 and 70 respectively. They each have health issues. The thing that jumped out at me is that they spend only $350/mo on food. Unless they are OMAD, one meal a day, eating hamburgers from Walmart, there is no way they can eat healthy for that little money. There is research connecting their respective maladies to poor diets. That doesn't mean their diet specifically caused their problem, I have no idea but research has been done. Eating that cheaply, if the article is correct, implies they eat a lot of processed food high in seed oils or carbohydrates or both.
You can make fun of my comment about just eating Walmart hamburgers but again, there is a mountain of research saying that if nothing else, just eating red meat is better than a bunch of processed food that is high in seed oils, carbs or both. Diet is the last thing that should be sacrificed. Even cutting the gym should come before sacrificing your diet. A couple of kettlebells from Facebook marketplace, a couple of five gallon water jugs, a jump rope and some ingenuity is all you need to work out at home and stay very fit.
One of the profiles was a 70 year old woman who spends most of her time in Florida and a little time in Canada near her grandkids. She has $240,000 and says she spends $38,000/yr. She collects Social Security and money from the Canadian equivalent. She talked about being flexible and resilient, having a Plan B and if needed a Plan C and D which are all things we talk about here frequently. She made about $5000 last year freelancing in her pre-retirement field and hopes to dial that up a little bit this year. They also mentioned that she may get a small inheritance from her mother who is 99. Where as the couple I mentioned above has health problems, this lady apparently does not. He mother is alive and harsh comment coming, she appears to be thin. Not skinny frail but thin. Between her mother being alive and not having gotten big in middle/older age, the odds are high she will live for a long time.
I have no idea if her body composition comes naturally or she exercises a lot but aging is much easier when you have the body composition you had at a young age regardless of whether it just comes to you or you have to work your butt off. Obviously nothing is guaranteed, this is all about putting the odds in your favor. This may be naive but who wouldn't want an easier life and eating right, exercising and living below your means is a short cut to an easier life and easier retirement.
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