But, the second most popular option was to pay via credit card, and this does not preclude having the money in savings. Given the popularity of credit cards in the US, this makes sense too. If faced with a sudden large expense, I too would put it on credit and pay it off at the end of the cycle instead of pulling from savings, despite being able to afford the latter.
Similarly, the third most popular option was to pay the bill and cut other expenses, which also doesn't exclude savings and would be a pretty normal thing to do too.
IIRC only ~15% said they'd take a loan or borrow from friends/family.
> Lawmakers who opposed the bankruptcy bill cited a 2005 study by Himmelstein, Thome, Warren, and Woolhandler finding that approximately half of bankruptcies were medical-related. Supporters of the bankruptcy bill countered with a court record analysis conducted within the Department of Justice (DOJ). According to the DOJ analysis, over half of the sample (54%) had no medical debt at all, the average medical debt among those with any such debt was under $5,000, and medical debt comprised only 5.5% of the total unsecured debt of the sample.
https://www.bankrate.com/banking/savings/emergency-savings-r...
The source of their statistics, which has a separate section which clearly asks about how much savings people have (granted, in terms relative to their living expenses instead of absolute numbers), rather than pulling 56% out of the statistic about how they would pay for an expense: https://www.bankrate.com/banking/savings/emergency-savings-r...
This finds that ~22% of Americans don't have emergency savings. Which is still a lot, but certainly not as crazy and eye catching as 56%.
Note that the second link is the 2023 version, CNBC references the 2021 stats, but those don't seem to be accessible anymore (which is a strange arrangement).
>When faced with a hypothetical expense of $400, 63 percent of all adults in 2022 said they would have covered it exclusively using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as “cash or its equivalent”). The remainder said they would have paid by borrowing or selling something, or said they would not have been able to cover the expense.
https://www.federalreserve.gov/publications/files/2022-repor...
Per another Federal Reserve study I saw, the percentage of the population where income does not exceed necessary expenditures -- people with no income surplus, latent or otherwise -- is something like 12%. Which sounds about right and is still a lot of people.
...the 2022 SHED included a new question asking what is the largest emergency expense people could handle using only savings. Sixty-eight percent of adults said they could pay an expense of at least $500 using only their current savings (table 12). This is a somewhat larger share than the 63 percent of adults who said they would pay an unexpected $400 expense with cash or the equivalent, suggesting that some people do choose to pay with other methods, even if they have cash savings available to them.
We often hear this "all over the map" blamed on the "1%" (that's a lot of people in the US). Not so. A police officer is not expected to be a rich career, but it's one where it's easy to put in lots of high-paid overtime and like in any other job, invest a lot from early on. It's a short career that leaves time for a second one afterwards. It's easy to finish with a high pension in addition to high investment. Obviously not all cops will do that but it's possible. Investing is also well understood by many people so you see teachers ending up with very nice piles. Nothing to do with "1%" or income inequality.
The US make it also easy - well, maybe not easy but not uncommon - for a cliché "Wall Street lawyer" to end up broke.
We were discussing the awesome breadth in outcome in the US.
The median US household entering retirement age has saved about $120k-$150k. That is, over 50% of people are more or less 100% reliant on social security to get by in retirement.
The mean US household savings at retirement age is like closer to $500k, because it's overwhelmingly top heavy in the 1%/0.1%/etc of people.
Anyone who finds it important and has the means to do so is—in general—likely saving more than a token amount. 10% is a good start and enough to be noticeably worth the effort. And then of course you have the FI/RE crowd who (while rarer) push their savings to anywhere from 30–50%, or even higher.
Also, a lot of people have equity in their homes. I don’t know if that counts as savings, but is money that can be accessed with HELOC or sale.
We have friends and acquaintances in the same income bracket and many are leveraged to the gills, don't fund their 401k, don't have any emergency savings, etc... Hell, they're often using margin for risky investments.
There is for most people little reason to keep much money in a savings account. They don't earn much interest.
Unless you've made a typo and you mean 20 years? (in which case, now 300k is below maxing out, but slightly closer (although with returns it should be a good bit more))
You’re right…but that’s not what was said. After 2 years, all they had was $13K. But if they’d been contributing for 20 years like they should have been doing (because they’re 40, not fresh out of college), they’d have $300K.
IOW, $13K is nothing to brag about if you’re 35 and working software jobs your whole career. At least that’s how I read it.
This is a bit of an aside, but… this isn't quite correct.
Your (combined) individual contribution limit to a Traditional 401(k) and Roth 401(k) is $22,500 for this year. That doesn't include employer contributions. It also doesn't include after-tax contributions. The total combined limit for all contributions from all sources is $66,000 this year. So you could max out your Traditional 401(k), have your employer contribute $4,000, and then contribute an additional $39,500 to the after-tax portion.
The after-tax portion has no advantageous tax treatment whatsoever. It's identical to putting that same amount into a brokerage account… except for one detail. If you employer has a plan which allows for in-service distributions, you can immediately roll over after-tax contributions into the Roth portion of your account. This enables individuals working for companies with very good benefits packages to save an incredible $66,000/yr into tax-advantaged retirement accounts.
So assuming no growth, you can actually legally put $132,000 into a 401(k) in two years.
It is thoroughly fucked up that the majority of Americans who don't work for giant companies with gold-plated benefits packages only have access to $6,500 in tax-advantaged savings through IRAs.
I'm not high-net worth, but I suspect that a lot of the same vacation forces are at play in that community as well, particularly during the pandemic.
Consider that this reporting is/was complete bullshit intended to get clicks. More critically, that headline gobbled up answers like "I would put this expense on a credit card" into "people have no savings to pay for things" when it's extremely common for people to pay for things with a credit card and have 30 days to settle their balances for the month.
Heck, I do the same thing. I have a predefined amount that goes into my various accounts each paycheck. The rest is used for the mortgage, bills, other monthly expenses, etc...
It is much easier to adjust your 401k, Roth, HSA and Brokerage account transfers than to get a raise.
I don't even see the money that goes into my savings--it happens automatically before I even get paid. What's left over is a small, small percentage of my actual after-tax pay, and that has to somehow stretch to the next paycheck, which is not always easy.
Relying on a 401k alone means that in the best case scenario means you're all but guaranteed to work until 60. Being on this site, you're statistically likely to be a person that can retire on great sums long before 60 and be both financially secure and have many healthy years to enjoy your life.
This isn't actually true. I don't mean to suggest that the GP is good advice, but:
1) Many companies offer "mega-backdoor Roth" 401k, with in-service conversion from regular after-tax dollars to Roth after-tax, meaning you can contribute a total of ~$53k annually or whatever the number is now.
2) When you separate from your employer, you can roll over your Trad and Roth 401k into Trad and Roth IRAs.
3) After 5 years (which clearly won't be an issue), the principal contributed to a Roth can be withdrawn tax and penalty free even before retirement age.
4) You can always convert Trad IRA dollars to Roth IRA dollars by paying tax. These dollars become principal in the Roth and therefore eligible for early distribution.
Assuming you haven't retired incredibly early or made highly unusual gains, a combination of continued Trad->Roth conversion and Roth principal distribution can get you to retirement age even without any additional savings.
This sounds like really bad advice. 401K limits are 22.5K this year. If you are making 100K and you are able to put away over 20% of it, maybe that gives you a reasonable probability of maintaining your lifestyle in retirement. If you're making good money and you're only saving 22.5K, you are probably going to take a serious hit whenever your income stops.
You are also completely undervaluing having "dry powder." Let's say interest rates go through the roof and "nobody" can afford to take out a mortgage, being the one guy with cash-on-hand will let you capture some once-in-a-lifetime real estate deals.
Also, freedom. Under your scenario, someone working a decade will have saved 220K in their 401k and that's it. Now they want to quit their job and start a business. They have to cash out their 401k just to sustain ~1 year of them not drawing a salary. Who's gonna do that? Versus, imagine the same person has a ton of additional savings - they can take the risk because it's a much smaller risk to them (longer runway)
// if there is money left over after paying for normal life enjoy it as you can't take it with you
You are probably undervaluing the "enjoyment" people get out of deep financial safety.
In short, saving taxed income is a form of diversification.
The key is to save all a long. If you start saving for retirement at 50, even with catch up contributions you are probably not going to have a nice retirement.
So let's say your number is 2x optimistic and someone retires with 4M instead - whatever that means in a bunch of decades from now. Then you pay tax. Depending on where you live, between federal, state, and city that can be close to 50% especially if rates go up. So that leaves you with 2M. Then say you end up living to 90, that's like 71K per year take-home. I guess you can live on that today. But for example my taxes for the house are like 20KL. So almost a 1/3 of your take-home goes to that. it's not SOOOO cozy.
2023 - $293,319.96
Federal minimum wage 2013 - $7.25 an hour
Federal minimum wage 2023 - $7.25 an hour
- You will live to see tomorrow.
- If you are high enough income, maxing 401k, an IRA, and an HSA every year is sadly still not enough.
- Location variance makes it really hard to find comparable intel online for a right path. Cost of living, job market / income levels, family situation and size, etc...
- Although sometimes extreme, the Bogglehead and FI/RE communities are great.
> You will live to see tomorrow.
statistically yes, but there are outliers who won't.
> If you are high enough income, maxing 401k, an IRA, and an HSA every year is sadly still not enough.
Sure, but few people are that high. Even of those who are, 22k (adjusting upward every year) from 25-65 is a lot of money. You can save a little more if you want to retire early, but you are only young once and your time is better spent enjoying youth while you have it.
The only thing to keep in mind is that debts like that contribute to negative net worth/retirement savings. If you have 200k in student loan debt, you have a -200k net worth (even if it costs ~250-300k to pay off due to interest...)
The path to freedom is max, not min or mean.
Are you claiming that many people you know who are maxing out their 401k, HSA, and Roth IRA literally speak the words "paycheck to paycheck" to describe their financial situation?
This requires you to have the discipline to not spend your emergency fund on Christmas shopping. It's for emergencies.
Also we somehow owed over $6000 in taxes this year despite me increasing how much money was set aside each paycheck by $250 per paycheck after the same thing happened the previous year.
We still have an emergency savings, but wow is life working hard to keep depleting it. There's a chance I might have to liquidate some investments to pay for everything this year.
If insurance doesn't cover it, I'm expecting to pay over $10k for the roof.
Doubly so if the HVAC system's intake is down there.
We rented a dumpster and tossed most of what was in the basement (various things were on shelves or in the elevated crawlspace and didn't need to be tossed, like my old NES games), ripped out the carpet, and hired a mold remediation company that ripped out the bottom two feet of our drywall. And we will replace the sump pump soonish, although it hasn't had a problem since.
It's fine down there now. Wasn't cheap to get it to that point, though. Especially since our insurance company doesn't cover sump pump failures unless you have a specific rider, which apparently we didn't have.
Still might not be good enough for you, and that's fine. But I suspect you wouldn't notice if you went down there and didn't know it had once flooded beforehand. About the only telltale thing down there is a bump here and there where the seam of the bottom two feet of the new drywall is.