The Non-Retirement Generation

A few days ago I was discussing the economy with an office mate, and he said something interesting:

Did you know that we are the first generation that won’t ever retire?

After I finished laughing, I dug in an asked him why he believed this.  As he explained his opinion (which was sourced by NPR), what he said saddened me.  How he said it also saddened me.  He spoke as a victim to a system that was using him as a slave, a system that will use him for his entire life and throw him out when he is no longer of use.  Sadly, he’s right (sort of).  And I just wanted to scream: It doesn’t have to be this way!

Here’s a few facts about my friend:

  1. He drives a truck that gets 20 miles per gallon.  Worse, he commutes 50 miles to work each way.
  2. He spends $1000/month on groceries, and another $200 eating out
  3. He owns a $300K house, and his mortgage is about $1600/month.
  4. I don’t know for sure, but I suspect he makes about $90K/year given his position at our company

At this point, I wanted to show him my story, but unfortunately it’s still important for me to keep my retirement plans under wraps at work, otherwise it would make things a little awkward.

Before we declare him a victim, let’s break down some of the numbers:

100 miles to work 5 days a week comes out to 500 miles per week.  I don’t normally use the IRS value for cost of commute, but since he drives a 2010 truck that is both inefficient and depreciating at an astonishing rate, let’s say $0.50 per mile.  This is equivalent to $250/week, and roughly $1000/month.

I asked him about his grocery budget, and he said it’s not possible to reduce because his wife loves to cook.  Perplexed, I asked why her love for cooking couldn’t be steered in the direction of cheaper ingredients.  He didn’t really have an answer for this.  I didn’t suggest to him that he just eat rice and beans (although a good bowl of rice and beans can be pretty satisfying), but perhaps he could lay off the red meats, , truffles, and foie gras.  Let’s say a reasonable budget for a family of four that loves to cook is $500/month, and let’s reduce their restaurant budget to $100/month.  This would be an additional $600/month saved.

His $300K house is too much.  Besides increasing his heating bills, it requires more time to clean and more stuff to fill it.   His family is the same size as mine, with 2 small kids, therefore I know he could easily fit within my $200K house quite comfortably.  My mortgage is $870/month, including taxes and insurance. This means he could save an additional $730/month.

If he were to simply downsize his house by purchasing a new one close enough to our office to walk or bike to work, get rid of his truck (or at least not drive it to work), and eat a simpler diet, he could be spending $2300/month less.  (BTW, this is before accounting for all the second order savings that come with less driving and a smaller house).  Using a safe withdrawal rate of 3%, this is equivalent to a savings of $920,000 (multiply monthly expenses by 400).

As I mentioned earlier, my friend makes about $90K/year.  Just to keep things simple, let’s say it’s $60K after taxes, which works out to $5K/month.  I know he has no savings beyond the 4% he puts into his 401K, which the company matches.  So, basically, he requires $5000/month to “get by” with his desired lifestyle.  With all this added up, he’s correct in the assumption that he’ll never retire.

Now, if he made the changes I suggest he would instantly be saving $2300/month, nearly half of his entire income.  At a 50% savings rate, he could retire in 22 short years.  At 38 years old this isn’t ideal, but it’s a hell of a lot better than never retiring at all.

In the end, my friend is right.  Many people in my generation will never be able to retire, or will be so old and tired that it won’t be much fun.  Their prime years will be past them, and their kids will already be too busy working towards their own non-retirement.  He’s also right that he is a victim, but he’s pointing his blame in the wrong direction.  He’s not a victim of the economy or “the system,” he’s a victim of his own beliefs on how life should be lived, and what choices he has in front of him.

33 Responses to The Non-Retirement Generation

  1. Mrs. MM says:

    Excellent example!

    He has a bunch of other options as well (working from home, perhaps?) and who knows what else he is spending his money on…

    I find it interesting that many people don’t feel they have a choice, yet I see them complaining on facebook about how much money they have to spend at Christmas or excitedly reporting that they just purchased a $700 ski pass for the season.

    I wish money wasn’t such a taboo subject, as people get very defensive when you gently suggest a change in behavior. I guess sending them over to blogs like yours is a good first step.

    • Funny, he has a ski pass. :)

      I also wish money wasn’t such a taboo subject. If wealth was discussed in real terms rather than falsely displayed with extravagant purchases then people would be more inclined to save.

      I thought about sending him over to ERE or MMM, however I feel that my blog is too entrenched in that circle now that he may stumble over here. (To clarify, I don’t mean to compare this site to ERE or MMM on a quality level – those sites are far better).

    • @Mrs. MM

      Anonymous mentioned below that $500 was too low a budget for a family of 4. I disagree, I’ve been hovering around $400/month for my family of 4.

      I seem to recall reading on MMM that you guys spend $300/month. I also recall that you buy quite a bit of good food (organic, healthy, etc.). Have you guys ever written a post on that, or do you plan to?

      • Mrs. MM says:

        We’re a family of 3 and spend about $300/month. This post touches on it a bit:

        The monthly average in 2010 ended up being $321 per month, but this includes all food on our trips as well. We rarely eat out (about $40/month last year, but likely less this year) so all our food is consumed at home. I am also gluten-intolerant, so we buy a lot more meat and vegetables than we used to (we used to be almost-vegetarians). We never skimp on good food.

        $500/month is definitely do-able!

      • Nami says:

        We are family of 4 (kids 5 and 2 yr old) and I cook every day + pack my son’s lunch. I spend about $350 every month and I still feel like I buy too much. I buy lots of snacks for my sons so if I make my own probably I can cut down even further. I’m Japanese so our food is very colorful with many veggies and fruits. We eat meat as well.

        Those complainers just don’t want to do the work or don’t know the alternative way of living.
        Till I found ERE a little 1 1/2 yr ago, I didn’t know the alternative, either.
        But after 1 1/2 yr, I paid off 50% of our remaining mortgage and should be done in October next yr :-)
        I’m dying to talk about it to my family and friends but I keep my anonymity, too.
        Money talk is complicated.
        I don’t want my friends to look at me differently.
        (I don’t want them to be jealous in the wrong way like “oh she has no mortgage because her husband must make lots of money, now she can buy whatever blah blah blahhh).

        Anyway, ERE, MMM and BNL are the 3 sites I look at every day to inspire myself. Keep up the good work!

      • Slonnyneo says:

        I’m with you on checking those three blogs for inspiration!

        You mentioned your Japanese and I am currently living in Japan (I am assuming you live in the states though). Do you think Japan is an ERE friendly country? I’d love to stay here for the long term but want to retire early as well.

      • Nami says:

        I’m envious that you’re over in Japan! I miss my beautiful country.

        If you can read Japanese, there are tons of hardcore money saving and early retirement sites. I think working environment is a bit different. Traditionally, the longer you work (so the older you get) the better you get paid regardless of your ability. So, you work for a company for many years, get promoted multiple times and retire from the same company with a pension. Also, many job postings have age limit believe it or not.
        So, if you are semi-retired but want to get back into a job, you might have a tough time getting back into it? But healthcare is taken care of by the government.

        I’m sure it’s all doable wherever you live.

  2. anonymous says:

    50 miles is a long commute. Does he live own acreage? I’ve found that people that live that far out usually want to be that far out for some reason. I think many people under-estimate the cost of driving. They calculate the cost of gasoline, but not the truck tires, brake jobs, automatic transmissions, and even the occasional traffic ticket and accident.

    Feeding a family of four seems like it would be a challenge for $500/mo. Fresh fruits, vegetables, and quality meats, cheese, and eggs are expensive.

    At this point, its likely his lifestyle is entrenched. It will be hard to convince the wife to start buying 20 pound bags of beans and rice at Costco, and to uproot the family, and move closer to work. Some people don’t have enough job security to buy a house close to work. It’s easier to just burn the gasoline.

    • He doesn’t own acreage, he likes the area because you can get “more house for your money.” Of course, he’s only looking at the cost of the house, not the total cost of ownership (particularly the commute).

      He also chose the area because it is centrally located between Colorado Springs and Denver. This gives him more employment opportunities. However, the price he is paying for this safety net is what keeps him dependent on having the net. Kind of a perverted twist to the golden handcuff phenomenon.

      You’re right that his lifestyle is entrenched, and there’s no easy way out. Convincing yourself to change is only the first step. Convincing your spouse is an entirely different challenge, and I imagine reducing luxuries that your children already enjoy would be the hardest of all. Fortunately for me, my kids were never spoiled in the first place.

  3. You can always point him to my site and ERE. 😉
    It will at least show him that some people are thinking differently. Your suggestions are good. It’s a pain to move, but it will shave a lot of his monthly payment off.

  4. I do feel sorry for people like this to some degree. On the other hand, people are responsible for their own choices, no? Although I didn’t start my journey down the early retirement plan until I found Jacob’s site, I have always been fairly frugal and money conscious. I suppose it’s because I grew up in a very impoverished neighborhood in Detroit.

    My entire monthly budget is less than just his food budget. Yikes!

    Great story here. I hope this guy starts to change things around before it’s too late.

    Best wishes!

  5. Man, you are SO lucky to have a coworker that provides such sweet writing inspiration!

    I especially love the wistful dreamy-eyed comment about how uniquely tough our generation has it. *Sigh!*

    I see the Mrs. has beaten me to commenting on this article. And it also looks like she needs to fix her avatar, because she looks suspiciously similar to ME right now 😉

    • You have no idea. I could write a post about almost everyone in my office.

      I try not to, though. Just the guys that bring up their financial situations to me. To judge everyone seems unfair, because for all I know they like the idea of working in a 5ft x 5ft cubicle under fluorescent lights for the rest of their lives… I try not to judge…

  6. Yabusame says:

    OK, I can understand you want to keep your move towards early retirement a secret from those you work with but might I suggest that when you do retire in just over a year that you give this guy your blog address and that of MMM too. Hey, he’ll have to wait a few more months to get the info, but at least he’ll have someone he knows in real life to act as a mentor/inspiration. Might make it easier for him to persuade the wife.

  7. Neo says:

    I consider myself a saver, but man you are a power-saving. I save 30% to 40% of my income each month and I thought I was hardcore. To be honest, I have been holding on to a few luxuries that I have not wanted to give up even though I know if I saved 70% like you I could retire earlier. But the bottomline for me is that I never plan to “retire”, in the traditional sense of the word.

    I always want to work, HOWEVER, I want to work on my terms instead of for a company, at desk, in a cubicle. And like you I want to get “there”, as in “free to work on my own projects” sooner. You have just inspired me to increase my savings rate by 10% and let go a of a few small luxuries that I really could live without.

    • That’s great that you are saving 30-40%. This is far better than most people. On the other hand (and I hate to break it to you) but if you run the math then you are still somewhere around 30-40 years away from retirement on that pace. Get up to 50-70% and you’ll see drastic improvements…

      See here for a thorough description of the math.

      It’s not that 40% isn’t good, but it’s easy for someone that wants an extreme early retirement to think that 40% is good enough (I was one of them) and a more straight forward answer is appropriate.

  8. Interesting post. I’ve only just discovered EEE – too late it would appear – and followed it here. Inspired by EEE, I just posted on my own blog my own simple mathematical model for calculating when to retire. I freely admit it is simplistic, but it does illustrate the importance of reducing your lifestyle expenditure (consequently increasing your savings rate). I don’t like to trust maths that simply comes to conclusions, rather preferring to be able to derive how the conclusions were reached. In the link you provide, conclusions are reached but I don’t see the maths. Is it elsewhere on this site as I’d love to read it?

    Congratulations on an excellent blog. I’ve not read much yet, but what I have is of good quality. I’ll be sure to explore it further.

    • I just read your post. The variable you are missing is “interest.” The 4% “drawdown rate” you refer to is also commonly referred to as “safe withdrawal rate.” I like SWR as a term better because the idea is that there is no end to your retirement, you will have the same or more money when you die because you’re withdrawing at a rate lower than your interest rate on your capital.

      You may want to read the first 2 questions on < a href="">this post.

      • Thanks for responding (and reading my post). I thought I’d made it clear that the return on the savings pot was matching inflation. In the UK the RPI (retail price index) is running at 5.4%. Savings accounts and bank long term saving rates are typically returning 3-4% at most. Matching inflation over the short term would be a good achievement (especially given that that 3-4% is taxable). Of course safe withdrawal rates, if I understand them correctly, are calculated over the long-term. The Firecalc page indicates that it provides an avoid-the-worst-case result. However, I’m not convinced that we have ever had a financial situation like the one we are currently face. US and UK debts are running at extreme levels, both on personal and government levels. Are we coming to the end of a 40 year credit expansion bubble? If so, for how long are the current ZIRPs and high inflation policies here to stay? We’ve already had 3 years of it and the situation looks no better today than it did in 2008. Has the can just been kicked down the road?

      • Yeah, I can’t speculate as to what will happen when the credit expansion bubble busts – although I do think it’s deflating now. It’s also important to consider the debt/GDP ratio, which is more than I would want as an individual, but isn’t all that bad on a historical level for the US.

        Anyways, this is why I like the Permanent Portfolio combined with the ERE strategy. The Permanent Portfolio allocates capital evenly to prepare for the 4 different economic conditions (inflation, deflation, recession, and prosperity). There’s a 5th uwritten condition – end of civilization / anarchy where money is no more valuable than confetti, and gold is a useless metal. Nothing will prepare you for that better than ERE and self-sufficiency.

        There’s a good thread about this topic here:

  9. fred doe says:

    sure he’s a slave. but some slaves put the chains on themselves. and then whine about it.

    • True.. sort of.

      But when your parents teach you a way of life from the time you are born – most people buy in. Then the culture around them spends a lifetime reinforcing it. You see, these chains are self-made, but they are rarely explained to be what they are. Instead, they are considered the way of life.

      This is why it’s so important to live a deliberate life, where you think about each choice you make.

  10. John says:

    $1000 on groceries? That seems a little high. Is he buying for a family of 10?

  11. Nick says:

    We’re a family of 4 in the NYC area (although technically only 3 of us eat food – our daughter is a newborn) and we spend about $500 per month on groceries. We probably spend another $100 or so at restaurants on average. I definitely think there’s a lot of waste in our food budget that we need to pay more attention to.

    But re: not retiring, that’s really a simple function like you point out. Sacrifice enough and most people can do it. For those who start earlier, you don’t need to sacrifice as much. For those who don’t, you need to give up more. Anyone can retire if they want to bad enough. It’s all about lifestyle in (and especially before) retirement.

    Not to pick on the smokers, but, for example, if you smoke 2 packs a day for 20 years, don’t complain to me about not having an IRA…

  12. […] Andy’s an interesting dude.  He’s the motive for several of my previous posts, most notably “The Non-Retirement Generation.” […]

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  14. Velavan says:

    Podolgo vreme One imaat odlichna pounda. Verojatno najdobar odnos kvalitet/cena. Ama ova so cena za vospostavuvanje povik im e najglupo neshto shto go napravile. Sami si se vrakjaat od percepcija na operator koj raboti bez skrieni troshoci (i reklami imaa so koja gi trolaa T-Mobile i Vip) vo standarden operator. Tapa poteg.

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