JoeTaxpayer

It’s possible, of course, but is it really common? From a number of recent articles, you’d conclude that we are now a nation of savers. In early December, I read, “Could You Be Oversaving for Retirement?” on Yahoo Finance. (To give you a hint as to how rare I thought this was, the word oversaving wasn’t in my speck check dictionary till now.) A couple weeks later, Jean Chatzky wrote You may be saving too much for retirement for CNN Money.  I like Jean’s writing, and she was kind enough to cite the source for this wave of ‘saving too much’ articles that have sprung up. It was a paper by the Head of Retirement Research at Morningstar, David Blanchett. Estimating the True Cost of Retirement dispels, sort of, the notion that one will need 80% of their pre-retirement income post retirement. I say ‘sort of’ because one’s earnings aren’t linear, nor is one’s lifestyle, and there are too many variables to project 40 years out with any level of confidence. The 80% number is as good a rule of thumb as any especially when considering the alternatives. If, instead you plan for 60, and as you near retirement, realize that in those final years your lifestyle has crept up a bit, more vacations, a second home, any number of things, it will be tough to catch up to where you should be. But if you plan for 80%, and, with 5 years to go till retirement, you realize you have more than you need, it’s a simple matter to retire early, or just enjoy the fact that you have an extra cushion.

David’s paper makes excellent points, and is a worthwhile read, but it doesn’t discuss one thing, the amount we are actually saving. The average retirement savings for those 55-64 is $69,127. If you understand how averages and median compare, you know that for every saver with a million dollar retirement account, a hundred people will be $10K less than that average to balance out. This forces the median, the halfway point, far lower than the average. In fact, the same report cites that 39% of those age 55 and older have less than $25,000 in their retirement accounts. To be clear – No, we are not saving too much, not by a longshot.

There’s a point to be made that a reasonable retirement goal might be more motivating than one that appears so far out of reach. It’s also safe to say that retirement spending is better correlated with preretirement spending than with preretirement income. This is tougher for a younger person to analyze. I got married at 32, bought my first ‘real’ house at 34, and became a dad at 36. At 40, I had a real grown up budget, 20% to the mortgage, 10% to the college account, 15% to retirement, etc. Not tough to see the math show that 45% of our income was budgeted to things that would be gone when we retired.

In the end, the question isn’t about averages or rules of thumb, it’s about you. Only you can calculate your Number.

Now and then it’s time to point out things that are just nonsensical. Today’s the day for a few. We start by recalling how the media and our president both used the word Rich when really what they meant was High Earners. No doubt, if a couple makes $400K a year, they are high earners, but if they spend every cent, and have little savings, they are actually not rich. I recently read an article making a similar mistake, How Many Millionaires in Belmont? Not As Many As You May Think. The headline caught my attention, but as I read the article I saw, “Of the 11,557 state tax filers who reported at least $1 million in income in 2011, Belmont can only claim 178 millionaires.” Hello? Just when I came to terms with “black is the new black,” do I need to accept that ‘millionaire’ now means ‘million dollar per year earner’? Probably not, even the cited article had a title of, “The Massachusetts towns and cities with the most million-dollar earners,” exactly describing this correctly.

I love reading Paula Pant’s blog, Afford Anything. It reminded me of a teaching moment I had with my daughter many years back when she asked me if we could afford something. My response was, “We can afford anything, we just can’t afford everything.” For me, there are many aspects of my spending that are clearly frugal, yet others that seem extravagant. Balancing the two fits our budget. Paula recently offered an anecdote we can all learn from, Why I Wasted an Hour of My Life to Save $3.60. It’s a look at how even someone focused on the numbers can slip up, wasting time that’s far more valuable than the money one might save. In Paula’s case, the cash discount meant an hour round trip in the car. A stupid mistake by someone I know to be a bright entrepreneur and financial author.

And the third article is actually a pair by Forbes author Laura Shin, 13 Money Mistakes To Stop Making By Year’s End, and The 13 Biggest Money Mistakes Retirees Make. I’m sure there’s a psychological effect on an article of mistakes to avoid vs stuff you should consider. Which is why these two lists strike me as brilliant. A total of 26 bits of advice, I’d bet you’ll find at least a handful that can help you improve your finances.

“You are Here” is an article by The Reformed Broker, frequent CNBC commentator Josh Brown. It’s an overview of where we are in the market and what 2014 might hold in store. If you don’t read any other links today, read Josh, he’s an investment advisor who pulls no punches, using phrases such as “Thank god there was no f***ing Twitter back then.” With all the talking heads on TV shouting this or that, Josh appears the voice of reason, expletives aside.

Bargain Babe asked, “Are We Saving Too Much Money?” She and her husband were saving 26% of their take home pay, and she was having a bit of internal monologue on this. She’s in the minority, as a country we save far too little despite the recent media promotion of claims to the contrary. More on that topic on Tuesday.

A guest post from Crystal –

Do you realize that much of our fun is purely dependent on our mental attitude at the time? I tend to be quite competitive at times. When I play sports, if I don’t check myself then I am often out there to win, not to merely have fun. And let’s be honest, I am not a professional athlete. I am not getting paid to play, so I may as well have some fun while I’m recreating! The same is true for gambling.

So often we can get caught up in gambling for a big jackpot return. For some, gambling is actually their retirement plan. Chances are, it’s not going to work out that way and it can make gambling incredibly unenjoyable. If you take your $20 to a casino and “put it all on red” and the ball lands on black, you may have just lost your hopes and dreams for that day. That can be an incredible let down! But, just like with sports activities, we need to learn to turn gambling into recreation, not as a necessity to win at life.

Budget For It

If I know that I am traveling for a vacation, and it will land me near a top notched casino, I will put an extra $50 into my budget for entertainment purposes. No doubt, this often turns into my casino money.

Just a tip for you (to keep it entertaining), when I leave my hotel and head out to the casino, I take only the amount of money that I have budgeted for myself that night. I know of a few people that divide their money in their wallet as “entertainment money” and “hands-off money”, but the fact is, if I am getting too involved in the gambling scene, it is just too easy to pull out that hands-off money. It’s best just to leave it at home (or in this case, in the hotel).

The purpose of the budget is to regulate yourself. If you did not put a definite number in your head before beginning to gamble, then chances are that you will spend more than you really wanted to in any given night.

Enjoy Yourself and Have Fun

There are many ways to gamble. You could wager some money at the craps table, at the track, or enjoy some sports gambling from your personal smart phone. Whatever is your choice in gambling, just remember to budget for this entertainment and have fun with your gambling.

A Guest Post today –

Most states in the country require drivers to either carry liability insurance minimums, or to carry bonds that prove they can financially afford driving without it, should an accident occur. Cost of insurance per individual depends on a number of factors. These factors are called risks.

The car that you drive can influence the cost of your insurance. Something that has more safety features will cost less than a sports car with a larger engine. Even the color of the car can influence the risk of the vehicle.

The age and sex of the driver also determines the risk. Typically, teenage boys have higher risk than teenage girls. A guy who drives a red sports car is a higher risk than a woman who is the same age driving the same car. Family can influence the cost as well. People with young children are statistically more cautious drivers than those without, so their rates are lower.

The other major factor in determining the cost of insurance is the record of the driver. Someone with speeding tickets will pay more than someone without because the risk of accident is considered to be higher due to faster driving speeds. Someone else the same age with accidents on the record will pay more than those with speeding tickets because of the track record for actually having accidents versus the risk of the speeder getting into them.

The city or state you live in can also influence the risk. Someone living in a more rural area will pay less than someone else with the same car and same driving record who lives in a larger city. This is because larger cities and more populated areas have more accidents. The cost of insurance payouts the company has to make in that particular area is distributed to those who carry insurance in that area. This same idea goes along with the most expensive states as well.

There is also a different class of high risk insurance. Drivers who have high risk insurance are those who have multiple accidents, speeding tickets, or DUI convictions on their driving record. Typically these drivers get their insurance from a pool of insurance carriers who share the risk involved with insuring high risk drivers. High risk drivers are required to get SR22 auto insurance instead of standard insurance.

This insurance coverage is a bit more costly than standard insurance, and it requires the driver to file special paperwork with the DMV to get driving privileges reinstated after a DUI or uninsured traffic accident. Not every insurance company offers sr22 auto insurance, making it more difficult to obtain the proof. The period of time the driver is required to carry this insurance is determined by the courts. In some cases, the insured carries it for a year; in other cases, the insured carries it for 3 years. It typically depends on the offense.

Avoid the need for sr22 insurance by driving safely, and never driving under the influence. If your state requires insurance or bonds, make sure it is kept up to date.