Wealthy parents? Incredible student aid from Stanford's endowment? Both? Either way, I have a feeling this is one of the biggest advantages they will have in achieving a secure financial future.
I would be surprised if the difference in the average for a midwest state university versus Stanford varied significantly after controlling for labour market (i.e. people taking jobs in St Louis or Minneapolis are probably getting paid a lot less than people taking jobs in the Bay Area or Seattle).
Of course, UIUC is a "midwest state university" and it is on (or very close to) the same level as Stanford.
Saving $5.5k in an IRA every year for 40 years earning 7% ARR is a retirement nest egg of $1.1M dollars.
Median family income is $60k, making this 9% of the budget. Even if you earned say... $25k/yr ($12 per hour) for your entire life, you can afford to save $5.5k per year.
There is zero excuse for most people not emerging a millionaire at retirement.
Man, I'd love to live in a world where that would be possible.
My point is that even if you do make that for your entire life, you can still get by and build a secure retirement.
Not where I'm from or from what I've seen.
And my point is that you can't save that amount of money on that sort of salary.
Well it sure does for the kind of people who go to Stanford and emerge with no debt. For everyone else circumstance is a heavy weight.
>Even if you earned say... $25k/yr ($12 per hour) for your entire life, you can afford to save $5.5k per year.
...How many people over the age of 30 do you actually know making $12/hr? If you have kids on that kind of wage there is absolutely no room for any saving.
According to [1], 25k/year is about 21k take home wages per year, or ~$1755 per month. $5.5k/year is ~$460/month, so you budget is essentially $1300/month for everything: living expenses, food, transportation, everything else. In other words, you’re living on what is pretty close to minimum wage.
I’ll leave it up to you to make your own decisions about that, but I question the practical utility of having a million dollar retirement fund when you’ve spent your life living a minimum wage lifestyle, even if you have the fortitude to save that much at those wages.
The important point is that even under the most pessimistic assumptions people can get by AND build a secure retirement.
The "it can't be done" mentality is not justified in 2017 America.
You take FICA out, some federal/state taxes, you've got less than $2k a month. That doesn't stretch too far in some places.
Also, since you're lower working class, you're not going to be buying in bulk. You're not going to be avoiding late fees. You're not going to have economies of scale available to you on a $100k annual income.
So, the ability to save $5.5k is much different for someone earning $25k vs $100k. I'm not saying it's outright impossible, but it will have measurable impact on lifestyle for the lower income worker, whereas not so much for the higher income worker, since each marginal dollar you earn provides less and less utility. But the first $25k you earn really is your lifeline to meet basic necessities in life.
As in, I could make $25k (at a level where the tax rate is effectively near-0) and still save > $5k per year.
40 years is a long time, and I'm talking about a notably bad start and end date (though remember how it looked between 2000-2010, almost a lost decade from the perspective of investment growth for retirement planning).
But while I still support saving and investing, a lot of people are reasonably starting to wonder, at what point should we stop assuming these kinds of returns in our planning?