Conservation Is Silly

[jebatty]

I really enjoy the banter between the green beans and hum-dingers, most of which is tongue in cheek. But just thought it would be fun to see if being green translates into something that really does hum.

For example, assuming a heating bill average of only $100/month, and replacing with free wood from your new woodlot (a real estate investment, plus serving as your new "exercise workout room" to fulfill the New Year resolution to get fit, plus eliminating fossil fuel carbon), if you started at age 20, invested the $100 saved per month at an average of 8%, you would have $1 million by age 74. Increase that saving to $200/mo and you reach the $1 million by age 65. That extra $100 could come from the gas savings of moving to a 35 mpg vehicle from that hum-dinger. Just think, at age 65 you can be sunning yourself on your new Kansas beach!

Sure beats typical savings of soon-to-be retired folk of today.

 

[Nofossil]

Of course, if I had been allowed to invest my social security in the stock market - straight S&P;500 - assuming that the average return from now until my retirement is the same as the average return of the last 50 years, I'd retire a millionaire. If the market suffered a 1929 scale crash, then I'd only have half a million. In either case, it would be mine, and I'd be FAR better off than I am with the current social security system.

The trick is investing rather than convincing yourself that you need another toy.

 

[jebatty]

SS is not as bad as it looks for most people. Assume SS of $1000/month from age 62 to demise at 74, or 144 monthly checks; assume a measly 3% discount rate. That income stream is worth just over $100,000 present value. That's almost double what most boomers have saved as they head into retirement.

Forbes reports: http://www.forbes.com/2005/05/04/cx_da_0504topnews.html
"Among the households who owned a retirement savings account of any kind as of 2001, according to a 2004 report by the Congressional Research Service, the average value of all such accounts was $95,943. That number was distorted by the relatively few large accounts, and the median value of all accounts was just $27,000.

The median value of the retirement accounts held by households headed by a worker between the ages of 55 and 64 was $55,000 in 2001, the CRS says."

Given this info, even if SS is a "bad" investment, because most people in fact don't save (current US savings rate is negative), at least it is something rather than nothing.

Plus, look at the really positive side. SS withholding can fund our war adventures and really big deficit spending. And besides, we don't have to pay, because our children and grandchildren will bail us out. Now that's a return on investment! Count me in.

 

[webbie]

Slow and steady wins the race, and wood heat can be a part of it.

The savings that I have realized from:
1. Wood burning
2. Coal burning
3. Space Heating
4. Solar DHW
5. Being a vegetarian (home meals AND restaurant meals are MUCH less costly)...
6. Being DIY when ever possible

Most of the $ saved is tax-free savings, in other words those expenses are not deductible to the average person - so for every $100 you save, you would have had to make $150 or so if you wanted to cover that savings!

SS is a great thing, but hopefully for me it will be icing on the cake. I have had an IRA for 20+ years and now have a 2nd one which I am funding with my current ventures (this web site, etc.)....

So I guess conservation is good in more ways than one.....

BTW, not to scare anyone unfamiliar, but if you have a decent size family and spouse, etc....and you DON'T end up with over a million dollars (of net worth, including home) at retirement....well, you won't be golfing everyday in your 70's. I think the rule they use these days is something like take out 4% of your savings every year after retirement, so if you have one million, you will get:
1. 25K you can take out
2. Another 30K in interest (assumes 400K is tied up in your house)
plus SS

That should at least keep you on the golf course a few times a week....but if you were looking to help your kids with college, down payments, etc.....ain't enough.

Always depends on where you live...and many other factors (inheritance, etc.)..... but the point is, save early and often.

 

[Burn-1]

Given this info, even if SS is a "bad" investment, because most people in fact don't save (current US savings rate is negative), at least it is something rather than nothing.

Social Security is basically forced saving with the interest rate set at government bond rates. It was never designed to be the be-all, end-all but to give the elderly, disabled, and minor children of dead parents something.

 

[cbrodsky]

Slow and steady wins the race, and wood heat can be a part of it.

The savings that I have realized from:
1. Wood burning
2. Coal burning
3. Space Heating
4. Solar DHW
5. Being a vegetarian (home meals AND restaurant meals are MUCH less costly)...
6. Being DIY when ever possible

Most of the $ saved is tax-free savings, in other words those expenses are not deductible to the average person - so for every $100 you save, you would have had to make $150 or so if you wanted to cover that savings!

SS is a great thing, but hopefully for me it will be icing on the cake. I have had an IRA for 20+ years and now have a 2nd one which I am funding with my current ventures (this web site, etc.)....

Craig -

You hit my favorite point that so many people miss when it comes to managing monthly expenses! So many of these are after-tax - so when you translate back to income, it's always more than you think!

My favorite personal example is trash service. People I work with are amused that I take my trash to the dump. Around here, carting runs about $32/month. I go to the dump once every two months with three large cans of trash that cost me $9. Note I have pulled out all free recycling and composted food to make that work. I've been doing this for 6 years. Total savings so far: $1980 after taxes - or about $3K of gross income. I can think of FAR more exciting things to do with that money. And yes, it takes 30 minutes more every couple of months than taking it to the end of the driveway, so it's analogous to pulling in $80/hour or so. I'll sign up for much sloppier jobs for $80/hr

Of course wood/solar HW is also paying off faster than my wildest expecations...

I have friends that laugh at a dual engineering income household doing this, along with using a ~$7/month tracfone, $15 "low speed DSL" and other such examples. But we are on track to have the option to leave the workforce by age 40 to pursue whatever we want with a paid off house and investments sufficient to fund our current lifestyle following the "4 % rule." A large part of this opportunity will be due to never getting used to living on our income, managing expenses carefully and diverting to savings. Some of those friends have $150/month premium cable, $120/month family cell plans, $32 trash pickup, hiring out nearly every job around the house, etc...

If SS is there, it'll be a nice bonus to take some extra vacations or something. That's all I expect out of it.

Always question what you "need" in monthly recurring expenses - they are brutal and sap away at your post-tax income at an alarming rate.

 

[DiscoInferno]

Given this info, even if SS is a "bad" investment, because most people in fact don't save (current US savings rate is negative), at least it is something rather than nothing.

Social Security is basically forced saving with the interest rate set at government bond rates. It was never designed to be the be-all, end-all but to give the elderly, disabled, and minor children of dead parents something.

Except that when it was started up, it immediately started making payments out to people who had never paid in. And of course the politicians spend all the "savings" long before it ever makes it to the mythical "trust fund". On top of that, it is politically unwise to suggest making it actuarially sound, because this would typically involve cutting benefits to seniors who tend to vote themselves a check. The end result is both a permanent budget gimmick for hiding our true deficits and a pyramid scheme that transfers wealth from young to old, even though the old have had their entire lifetime to save for retirement. Statistically speaking, the old are more wealthy than the young, so this is more than a little perverse.

I don't have a huge problem in principle with some form of social insurance or even forced savings, but social security ain't either.

 

[Rick Stanley]

It's not a very good retirement plan or welfare plan, but it's trying to be both.

 

[Cath]

... Most of the $ saved is tax-free savings, in other words those expenses are not deductible to the average person - so for every $100 you save, you would have had to make $150 or so if you wanted to cover that savings! ...

Craig -

You hit my favorite point that so many people miss when it comes to managing monthly expenses! So many of these are after-tax - so when you translate back to income, it's always more than you think! ...

Soapstone & Craig,
Absolutely, most of the dollars you spend actually cost you that one dollar plus whatever taxes you paid on that dollar. (One obvious exception is pre-tax benefits through an employer). To put it a little differently, if the nominal tax rate is 30% or 40% then "a penny saved" is more than "a penny earned". It's more like 1.3 or 1.4 pennies not spent and still earning interest.
~Cath