> To put it another way, if you're socking cash in a savings account paying 0.6%, while inflation is 9%, you're losing money.
Right, but you're losing 8.4% instead of 9%.
(And hopefully you're investing the cash more wisely than a savings account!)
Right, but you're losing 8.4% instead of 9%.
(And hopefully you're investing the cash more wisely than a savings account!)
Compound interest works in reverse as well. Losing "only" 8.4% of your wealth each year means in 8 years more than 1/2 your wealth is gone. Thus, saving is basically irrelevant. By the time you'd have saved enough money to be meaningful, it is not worth anything.
The average rate of return for a 401k is around 5% - 8% yearly. So in this scenario, you'd be losing 1% - 4% yearly.
$10,000 initial investment after 10 years:
-1% -> $9,048.00
-4 -> $6,698.72
-8.4 -> $4,304.37
From the article:
In fact, a Fidelity retirement planning survey of about 2,600 adults found that 45% of "next gen" — defined as 18 to 35-year-olds — "don't see a point in saving until things return to normal."
Assume net $40,000 income per year and an investment of $500 per month at a 5% rate of return. Assume the person is 22 (just out of college) and retires at 65.
Their retirement account would be worth around $900,000 at retirement.
I understand the fatalistic attitude, but it would be smart to hedge one's bets.
You are not at a loss if you don't sell....
Any buying in a down market is ALWAYS better for a younger generation.
S&P500 still has a 10y avg of 11-12%, that means every year that is the avg return. Even if there was 2-3 bad years, the 7-8 good years make up for it... So in 30 years time, it doesn't mater if we had a few bad years of -20% declines. You are still up massively.
Young people have such a lack of understanding when it comes to the stock market and it shows.
If your 401k only avg %5 return per year over a 30y span, you picked the wrong investment methods. Too much in bonds..
Still you should be taking advantage of employer match. Pretty much every employer has a 401k program, use it. SS will be there, but you don't want that to be your life line. Sadly Gen X didn't really understand 401ks, they got them later in life and many didn't fund them correctly. It isn't uncommon to see genXers take money from the 401k later in life with a hit, and it will be on their family to take care of them when SS isn't enough.
Sure it is.
Yep, I agree with your investment advice.
The article is about retirement and how some generations aren't saving for it. How, then, are you going to use that purchasing power today to help yourself in 40 years, with the caveat that you can't save that money for retirement?
I have plenty of savings, but I never expect to be able to retire. There is simply no way I could ever have enough savings for it to amount to anything. The last time I did the math was pre-COVID and I estimated I'd need no less than $4 million to retire.
Unless you count working until I am physically unable to work any longer, then living a very meager existence for a few short years and dying. That I fully expect.