TRUTHFUL ORIGINS

America: is financial security possible anymore?

 

Americans, especially the younger generations, are rightly despondent over any hope of owning a home, of saving enough for retirement. Are there still pathways for financial security in an America which does not have the social safety nets of other developed countries? Do previous methods still work? Is the American dream now out of reach for most?

Around 70% of Americans reaching age 65 will need long term care at some time. The cost at the time of this writing is about $120,000 per year for a private room. Assisted living is about $65,000 per year. How much will an American need in retirement to live comfortably and have funds to pay for medical needs, housing, food, etc? 

 

Disclaimer - I am not a financial advisor, nor am I formally educated in wealth accumulation and management. However, I had to educate myself and implement how to provide for my family, financially rebuild a 401k, put the equivalent of 6 family members through college bachelor’s degrees with no debt for them, and somehow save for retirement. Besides trying to make wise decisions I fully admit that much was timing, luck, and having partners who were savers. Being prepared to take advantage of opportunities however is not luck. Because of an extended academic career and career change I was not able to start saving significantly until about age 42. I realize that any wisdom I have may have derived from my personal experiences and not apply to other Americans. 

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Below are some principles I learned along the way.

1. Front-load your life as much as possible. Get your degrees or trade schooling done as soon as you can. When you are older there will be many distractions and needs that will impact your ability to finish training and/or degrees. 

 

2. Life if unpredictable. If you have a steady income, save 4 - 6 months of funds first for living in case you are unemployed, injured or unable to work for sometime. Park it somewhere that is safe and you can access it but don’t forget to have it earn interest. High yield accounts or even CDs despite the penalties for early withdrawals can be examined. Don’t just put it into a regular savings account.

 

3. Live below your means. Save, save, save. Participate fully in your employer’s 401k or equivalent and any matching. Having your money make money for you is a key and start as early as you can. How many shoes and different clothing do you really need? Those drive-through coffee stands - $5/drink average, 4X per week = about $1,000/yr. What would happen if you started putting $200/month into a simple investment account at age 25 and earning 5%, and just left it for 40 years? You would have $306,000 dollars 40 years later at age 65 without doing any work and not including outside employer savings. Compound interest is when your money makes money for you. Do you really need a new, expensive car or truck? Have you read “The Millionaire Next Door”?

 

4. Your 401k or equivalent probably won’t be enough. In my opinion the development of these systems for saving were a way for companies to get out of funding pensions. Except for government employees, vested military and some union jobs, 90% of employed workers in America don’t have access to a defined benefit pension plan. In general you will need to supplement your employer plans. 

 

5. Social Security or similar retirement funds won’t be enough. A common SS monthly benefit as of this writing was about $2,000. That’s not enough to live well in America. 

 

6. Stocks, a business, or real estate. In America it’s very difficult to become financially independent without owning something. Although with a house you have repairs and upkeep expenses, property taxes, etc. traditionally it is a good purchase and will appreciate nicely and a mortgage is a way of forcing you to save indirectly into an appreciating asset. If the house appreciates, which much of the time it does, you will have a nice profit in the end. Unfortunately so much of the price is out of reach of many would-be home buyers. About 50% of small businesses fail by the 5th year and 65% by the 10th year. Having rental property means you will need to deal with “interesting people". Home ownership means you will need to keep up with repairs and maintenance. The stock market goes up and down but over time has been predicable long term if you don’t approach it like a gambler, try to time it, and don’t diversify. Personally I don’t mind keeping a house up and the freedom it allows, don’t want the drama of renters, and figured out how to use the stock market effectively. But some love real estate investing and that can definitely work well. You will put in incredible hours to make a business be successful for 10+ years but if you can sell it later and that can be your retirement. However, you many never get the time back that you took from family, friends and a healthy lifestyle. Each has advantages and disadvantages but in America you usually need to do something to become financially independent since unlike other developed countries there is little to no social safety network. For example, 1/3 of Americans need a nursing home at sometime and that can run $3,000 - $10,000 per month, not covered by Medicare. In addition there are forces in American politics that want to make getting Medicare and Social Security less or more expensive.

 

7. Car? Almost never buy a new car unless you are retired and have the extra money and will keep it for 10+ years. As soon as you drive it off the lot, it loses a lot of value traditionally although post pandemic strange things happened in the used car market for a few years. Why not purchase one 2-3 years old, one owner who took care of it, and has about 25,000 miles on it? OK, it may not be the color you want, but what would thousands of saved dollars do for you? Will Americans even be able to afford cars in the future as the price exceeds $50,000 - $100,000+ and insurance becomes very costly? Autonomous cars you just call when you need to drive long distances for trips, vacations, etc.? When or will real public transportation become the norm in America? Those expensive BMWs, Audi’s, and Porches you see around - do they own them or are they leasing? To get ahead in America basically one needs to own IMO. Are you moving that way or not?

One method to get the car you want - an example. Purchase a used good car at $10,000 hopefully for cash or close to it. Cars to consider that have good value AND the smallest maintenance footprint; Toyotas, Hondas, maybe Subarus. Possibly Nissan but insurance may be more. Drive it for 3 years all the time saving for the next car at say $300/mo. Sell the car for $8000? + your $10,000 saved less any paid payments and go buy a used car for say $18,000. Continue $300/mo savings. You are basically making payments to yourself. In three years, sell for $14000? + $10,000 saved and purchase a 3 year old car. Next cycle, sell car for $20,000 used + $10,000 saved and pay cash for a car at $30,000. Worked for me. Probably stay away from rental cars and salvage titles. 

 

8. Home, townhome. Try to get into one sometime. If you purchase one look if it will be easier to sell in the future. Good bones? Good neighborhood? Dead end street, cul-de-sac? Green belt in back or creek? Good view? Save up for a downpayment - work two jobs? If not enough, change careers? That’s what I had to do. My $13,000/yr tenure track position at a college was a joke and no way was I going to make it out of a city I did not feel safe, or probably ever have enough for retirement. It seems getting on the ladder is getting in the game - or it has been in the past. I doubt there are any married teachers where both don’t work.

If you do own a home, do regular maintenance. Change air filters regularly, clean out your dryer vent to the outside every few years, change refrigerator filters, keep your sink drains clean a few times per year, etc. It’s often the little things regularly done that keep problems from developing. Turn off your water if fairly easy when you’re gone for weeks. Too many people spend all they have to purchase a house and then don’t have the time or funds to keep it up. Roofs need to be replaced and houses painted eventually, and these can cost tens of thousands of dollars. HVACs don’t last forever. Yes, having a house costs but if you’ve purchased in a good area, real estate appreciation has a good track record in America.

 

9. Stay out of debt. Pay off your credit cards monthly. Never float an amount to the next month if possible. Have a goal to stop renting and own your home and your cars if possible. Go into retirement with no mortgage. What can you cut back on to get out of debt? There are several debt reducing systems you can learn and use online. If you must use debt, use it wisely. For example, taking out loans for real estate that has a high probability of appreciating. School loans for occupations that will be bring high earnings. When you take out loans, realize that every day you go to work, you are at least partially essentially working for whatever entity gave you the loan and not for yourself.

10. Stock Market Investing. This is what worked best for me. Some of what I’ve learned:
a. The market is often driven by emotion; it goes up and down. What works is long range thinking & planning. 

b. To lower your risk, diversify

c. If you go out ten years or so, almost no one beats the market. Just use low cost index funds that follow the market instead of trying to beat it.

d. Traditionally the more percentage stocks you have the more your portfolio goes up, but the more risk. When young and you have a long time line, lots of stocks make sense. As you get closer to retirement you need more safety since a big downturn may mean you don’t have enough years to make up the loss, so a 50/50 mix of stocks/bonds or other works best. 

e. Some years all the gains come down to only 10 days or so. You will lose if you try and time the market instead of just staying in and riding downturns out.

f. If you’re young, when the market goes up you win - money making money. When the market is down, you win because you can buy at lower prices. 

g. Because of compounding, if you start at 25 instead of say 40 you really, really win. As mentioned in #3 above, $200/mo at age 25 for 40 years is $308,000 and you do nothing but park it in a low index fund, average 5% return (some years more, some less). If you do the same but don’t start until age 40 - only $120,000. To get the same amount at age 65 you’d need to put in about $525/mo. starting at age 40. It’s a J-shaped curve; most of the increase happens in the final years. 

h. Easy to set up your own portfolio - great resources now. Low cost index funds. When you have a larger amount saved, you could get a financial advisor but you’ll be paying a 1% fee or so, which may be worth it. Index funds that contain many mutual funds or EFTs that individually are already diversified should work well.  You can even have real estate funds in it.
i. You will hear about how the market is about to crash, that what has worked in the past won’t now. Things are different, etc. Not that I’ve seen going back 125 years. 

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11. Annuities. In most cases by far, stay away from them as they benefit the insurance writers and not you. 

 

12. Be careful about insurance plans that are not term insurance. Promises often are not kept as far as assumptions and returns, and the commissions are high. You only need insurance if you have kids and/or a spouse who would be financially stressed if you were not in the picture. 

 

13. Take care of the only body and mind you will ever have. You don’t have a choice as to where your DNA came from, the time in history you were born, nor who raised you. Take responsibility to avoid habits that will hinder your health. Don’t smoke, don’t drink to excess, don’t become addicted to life’s false pleasures. Exercise and eat healthy. Surround yourself with people and sources smarter than you and good role models. There are too many good resources available if these are not in your immediate circles. 

 

14. How to save? Make it a priority. The tortoise wins the race usually. Discipline savings weekly or monthly. Do what you have to do to find it. Don’t have a budget? Learn how to make one and use it. The advantage of putting a certain amount into investment portfolios monthly or weekly instead of all at once is called “dollar cost averaging”. The idea is that sometimes the markets are up and sometimes down so by putting in some on a regular schedule you spread out your risk instead of investing a large sum of money all at once, only to see the market go down right after.

 

15. Test different projections by using on-line tools. What happens if you start in your 20’s to invest rather than in your 40s? What happens if you invest $200/mo vs $500/mo? What about putting money into something that gets 2% on average returns vs. 8% over time. Notice that much of the growth occurs in the last 25% or so of the investment timeline. The amazing thing of compound interest - your interest earning interest and compounding. Look at a graph of the stock market or DOW Jones from the early 1900’s until now. How did WWII affect it? The Great Depression? The stock market crash of 2008? 

 

16. Consider using an honest fee only Broker. What is a fiduciary broker? How much is their fee and how does it affect your returns over 30 years? Or can you do it yourself?

 

17. Books, videos for education. Wow - there’s so much more available now than what I had years past. Here are a few suggestions but find resources that work for you. These should be a good start.

a. What living below your income means. An oldie but goodie. Updated
“The Next Millionaire Next Door”  (who drives an old Ford F150 pick-up truck…)

 

b. “The Four Pillars of Investing”. Classic. 2023 new edition. Love it. Why invest a certain way, why it beats active investing nearly 100% of the time over long periods, and examples of how to do it yourself if you choose.

 

c. Tyler’s Financial tips. Short videos. Youtube, FB, TikTok. If you like what he says, just camp out on his FB or YouTube channel to watch his short clips

> $1,000 to invest - 

> $100,000 invest?
https://www.tiktok.com/@socialcap/video/7360282605444418862?lang=en

 

> 3 tips for investing
https://www.facebook.com/reel/1715941802561032

d. 10 Greatest Personal Finance Lessons That Changed My Life (see below)​​​​​​​​​​​

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​​​​​​e. How to Retire; 20 lessons for a Happy, Successful, and Wealthy Retirement. Benz, Christine. 2024

 

 

JFP 11/14/2024