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Grex > Agora56 > #83: Road to Ruin No. 4: Procrastinate! | |
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tsty
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Road to Ruin No. 4: Procrastinate!
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Feb 2 20:07 UTC 2006 |
4 Ways to Ruin Your Retirement
http://www.fool.com/news/commentary/2006/
commentary06020107.htm?source=eptyholnk303100&logvisit=y&npu=y
Want to retire in poverty and live a life of penury?
Here are four good ways to get started (and one great
solution for those who choose to become wealthy instead.)
By Rich Smith (TMF Ditty) February 1, 2006
Road to Ruin No. 1: __**Trust Uncle Sam**__
If you want to be certain you'll spend your golden years dining
on Ramen noodles and white bread, put your faith in Social Security.
Sure, studies show that the institution can meet its obligations
in full through 2042 (or 2052, according to the Congressional
Budget Office). But that's still not good enough.
Putnam Investments recently conducted a study of median income
levels among retirees. Of the $34,000 your average retiree collects
every year, Social Security provides just 41% -- $13,940. (Pensions
and other defined benefits plans add some more, but even with their
help, "retirees" find they need to work part-time to scrape by.)
The Foolish solution: Remember that Social Security can supplement
your income, but it won't pay for your retirement in and of itself --
you need to do your part.
Road to Ruin No. 2: Spend too much, save too little.
Curious how the other 59% breaks down? It goes like this -- 24% comes
from defined-benefit pension plans, and 24% more from part-time jobs.
And here's the kicker: The average American can fund only 11% of
retirement needs from personal savings. Of course, with our national
savings rate hovering around 0%, that should come as no surprise.
The Foolish solution: Spend less, save more. If you can up your
savings by just $84 per month ($1,000 a year) and grow that nest
egg at the stock market's average historical rate of 10.5% per annum,
in 20 years' time you'll have $45,285 to supplement your Social
Security income. And that's factoring in an inflation rate of 3%.
Road to Ruin No. 3: Buy high, sell low.
Of course, that 10.5% is just the average return on stocks. If you
try really hard, you can find a way to underperform it. The best
way to ruin your portfolio's performance: Buy hot stocks and mutual
funds. Then, when they crash -- as they inevitably do -- sell in a
panic. According to Standard & Poor's, a top-25% mutual fund has
only one chance in 10 of remaining a top-25% mutual fund for more
than one year running. "Chasing performance" in one year is almost
certain to cost you in subsequent years.
It works the same way with popular stocks. Think back to 2000 for
a moment. What were the popular stocks at the turn of the millennium,
and where are they today?
Company Share price on Today Wealth
Dec. 31, 1999* destroyed
Yahoo! (Nasdaq: YHOO) $108.17 $39.90 63%
http://quote.fool.com/uberdata.asp?symbols=YHOO
Sirius (Nasdaq: SIRI) $44.50 $6.28 86%
http://quote.fool.com/uberdata.asp?symbols=SIRI
Lucent (NYSE: LU) $57.04 $2.65 95%
http://quote.fool.com/uberdata.asp?symbols=LU
Sun Microsystems $38.72 $4.50 88%
(Nasdaq: SUNW) http://quote.fool.com/uberdata.asp?symbols=SUNW
And what were the, umm, unpopular ones way back on the millennium's
cusp? And where are they now?
Company Share price on Today Wealth
Dec. 31, 1999* created
American Standard 15.08 39.22 160%
(NYSE: ASD) http://quote.fool.com/uberdata.asp?symbols=ASD
Altria (NYSE: MO) 16.74 76.44 357%
http://quote.fool.com/uberdata.asp?symbols=MO
Valero (NYSE: VLO) 4.69 58.24 1,142%
http://quote.fool.com/uberdata.asp?symbols=VLO
*All prices adjusted for dividends and stock splits. Data provided
by Yahoo! Finance.
The Foolish solution: Avoid the crowds that gather around "hot"
tech stocks. Buy undervalued companies, even -- or especially --
when they operate in boring industries. Toilets, tobacco, and
refining may not be the most exciting industries, but that doesn't
mean they can't make you rich.
Road to Ruin No. 4: Procrastinate.
According to the Employee Benefit Research Institute's 2005
Retirement Confidence Survey, fewer than half of all Americans
age 55 and older have even $45,000 saved up for retirement. In
fact, excluding home equity, the median net worth of retirement-age
Americans is closer to $30,000 -- which explains why their savings
suffice to fund only 11% of their living costs.
You, too, can join this unlucky crowd and share their fate. All
you have to do is keep putting off your saving plan until tomorrow.
Tomorrow will come soon enough, of course -- and then you may have
second thoughts.
The Foolish solution: Act now to change Fate. Start investing earlier,
and save more. If you can save twice the $84 mentioned above, and start
just five years earlier, that $168 invested monthly over 25 years will
more than triple your nest egg, giving you more than $142,319 by
retirement (again, in today's dollars).
Think you'll need more than that, but not sure how to get what you
need? We've got a handy tool on the Rule Your Retirement website
that can work the numbers for you automatically and help you figure
out how to reach your goals -- just one of many free "extras" that
come with a subscription to Rule Your Retirement. Speaking of "free,"
you can tour the site and try the newsletter entirely on our dime.
To learn how, click here.
Fool contributor Rich Smith has no position in any company mentioned
in this article. The Motley Fool is investors writing for investors.
=====[[..xnip..]]=====
.... it's not business; it's just personal.
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| 66 responses total. |
gull
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response 1 of 66:
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Feb 2 20:35 UTC 2006 |
The average savings rate for Americans, last year: -0.5%
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marcvh
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response 2 of 66:
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Feb 2 20:49 UTC 2006 |
I've always wondered about that. I mean, it seems to me that after
adjusting for inflation and population growth, the savings rate really
should be zero, because for every person saving money there's somebody
else spending their savings on retirement expenses or car repair or on
whatever it was you were saving it for.
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jep
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response 3 of 66:
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Feb 2 20:59 UTC 2006 |
I've encouraged my son to be a saver. I require him to put 50% of his
allowance in the bank. I then give him incentives; if he gets to a
$100 plateau, I deposit an extra $20. When he gets to $500, I deposit
an extra $100.
I also banned "see, want, buy" shopping. He has to go into the store
with the intention to buy something specific, before he can spend his
money. If he's browsing the toy aisle and sees something he wants, he
has to come back the next day to get it. He almost never goes back for
that 2nd trip.
He has $1300 in the bank. Not bad for a 9 year old.
I am implementing the same savings plan for the stepkids; they will get
their first allowance from me when they open their bank accounts.
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keesan
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response 4 of 66:
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Feb 3 16:42 UTC 2006 |
You must be paying him a large allowance. I used to get a nickel and was not
required to save it.
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jadecat
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response 5 of 66:
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Feb 3 16:58 UTC 2006 |
Yes, but what did a nickel buy at the time? Not much that can be
purchased for a nickel these days. My hubby remembers his grandma giving
him a quarter, when he was kid, and he was able to run down to the
corner store and get a comic book and a Coke (and possibly a candy bar,
but I don't remember right now) with it. Now a comic book is at least $2
all by itself.
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klg
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response 6 of 66:
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Feb 3 17:25 UTC 2006 |
(Clearly, President Bush erred in not naming VH as Fed chairman.)
Sindi, do you still have the nickel?
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eprom
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response 7 of 66:
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Feb 3 17:31 UTC 2006 |
I'm not sure if you can spend your way out of a recession, but i've
heard part of the the reason Japan has/had such a crappy economy for
the past decade is because their avg. rate of savings is so high.
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tod
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response 8 of 66:
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Feb 3 17:42 UTC 2006 |
Our economy is partly to blame because of Skillings, Enron, and the rest of
the guys that GW used to consult him on who to hire for the Energy Commission.
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mcnally
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response 9 of 66:
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Feb 3 18:13 UTC 2006 |
re #7: It also has the strange side-effect of making their postal service
one of the most powerful institutions in the country.
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keesan
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response 10 of 66:
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Feb 3 18:35 UTC 2006 |
I think my brother would buy nickel comic books. I bought vegetable seeds
and hamster food.
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kingjon
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response 11 of 66:
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Feb 3 18:43 UTC 2006 |
I was given a quarter (later 50 cents) for allowance (weekly) -- and I was born
in 1987. (I was then required to take 10 or 15% out as tithe and also put 10 or
15% into a "bank" to save for "major" purchases.)
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keesan
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response 12 of 66:
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Feb 3 18:58 UTC 2006 |
What did you spend the other 15-20 cents/week on?
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kingjon
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response 13 of 66:
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Feb 3 19:00 UTC 2006 |
I generally didn't. The "saving for major purchases" meant I had to consult my
parents and say "I want to buy this [whatever] and it costs this much" to pull
the money out. I've learned to be content without the sort of thing I would
have otherwise bought impulsively.
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tod
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response 14 of 66:
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Feb 3 19:03 UTC 2006 |
I got a quarter each Friday from Dad. I remember when I asked him for a raise
to $35 cents a week. It was like a job interview.
I would save the money to buy a toy when Dad would take me grocery shopping
every 2 or 3 weeks.
The folks got divorced when I was going into 2nd grade so no more allowance
after that. That's when I started going with my brother on his paper routes
and going around the block to showel sidewalks. I dont think I stopped
working odd jobs ever since then.
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gull
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response 15 of 66:
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Feb 3 19:46 UTC 2006 |
I used to get $2 every two weeks, IF I did all my chores. Gift money
for birthdays and such was supposed to go into my savings account,
though I was allowed to keep a portion of it to spend.
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slynne
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response 16 of 66:
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Feb 3 19:50 UTC 2006 |
When I was in highschool, my allowance was $20/wk. I had to use that
money to buy my clothes, bus fare, lunches at school, and so on. I
usually had around $5/wk left over which was, at that time, just enough
to pay for a movie or something. I would save my money but never for
very long because once I had a couple of hundred saved up, there was
always something that I wanted to buy. I earned extra money by
babysitting.
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jadecat
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response 17 of 66:
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Feb 3 20:10 UTC 2006 |
Seems strange to me- but I don't remember how much my allowance was.
When I was around 6-9 or so we had our allowance and then a list of
chores that had a monetary value. Mowing the lawn was one of the higher
values- but I wasn't allowed to do that one since I was too little.
Annoyed the heck outta me too.
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tod
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response 18 of 66:
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Feb 3 20:22 UTC 2006 |
The last time my father gave me lunch money was when I was in 6th grade.
My mother was on some DEA thing down in Florida and I had to live with my Dad
while he drove me to/from school each day. He gave me $5 for lunch that week.
I aptly spent it on fireworks on Monday and went "home" for lunch to get some
matches. Of course, our new neighbors knew nobody was going to be home that
week so they saw my unsavory self lurking around the side door trying to pry
open the side boarded-up window with hedgeclippers. Before you could whisper
Yankee Doodle, some cop had his pistol drawn on me and was saying "Lower the
hedgeclippers SLOWLY." While I didn't piss myself, I did get a golfball knot
in my throat and began trembling. The cop cuffed me and took me around to
the front of the house where 5 squad cars had their blue lights going and my
schoolbuddy's mom across the street was staring out her living room horrified
that I was being treated like Lee Harvey Oswald for trying to enter my own
house.
I sat in the back of the squadcar for what seemed almost an hour constructing
my fate that lay ahead. Do I stuff the fireworks from my socks into the
bottom of this guy's seat? Am I going to get my ass kicked in a jail cell
by these bastards? Will my Dad not find me when school lets out?
I pleaded with this cop to take me back to the school. I told him about my
mom and dropped cop names like a professional donut baker. No luck. The cop
just kept repeating "SURRRRE You live there. We know you don't live there.
And NO the lady living there is NOT in Florida. She's in the hospital."
I froze. Now, I was wondering if my mom is in the hospital. Turns out, she
gave that cover story to our neighbors that called the cops on me. The
neighbors had never seen me before.
When I arrived at the station, they took me into a cell and frisked me and
found the half brick of black cats and a lil note from the kid that sold them
to me "More where this came from. Call me at blah blah"
Oh great, now I'm a rat for letting them find out who sold the stuff to me!
This detective came into the room and turned a chair around backwards just
like Kojak and started with the index finger punching and yelling to find out
why I was trying to get into that house. Eventually, he went off course and
asked me why I was breaking into Jack Tocco's warehouse(which was on the other
side of our new neighbor's house.) What?! "Hey, I don't know what you're
talking about sir! *SOB*" "Bullshit, we know you broke into their warehouse.
Tell us what you saw in there! Why were you in there!"
This went on for 2 hours.
Finally, my father showed up two sheets to the wind. At this time, he was
unemployed and enjoying the Kroger cases of No Brand double stripe beer which
my grandmother was hesitantly furnishing for him.
"For 5 cents right now, I'd kick your ass! What the hell are you doing here
in jail?"
I reached into my pocket to look for 5 cents and got a swat across the head
"You smart ass! C'mon, lets go back to school."
I got back to class sometime around 2:30pm and the teacher had me go sit in
her chair at the front to relay to the class my experience as a criminal.
Now, somehow, I'd found my reputation in the school. Everybody is known
for something. I was now known as the kid everyoone heard about over
the school PA during lunchtime telling Mrs.Wilson that I wouldnt be back
to school cuz I was in jail.
I could elaborate more about this but lemme just say that
ALLOWANCE CAN BE DANGEROUS!
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klg
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response 19 of 66:
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Feb 3 20:26 UTC 2006 |
Yuk. Vegetable seeds and hamster food. Sounds even worse than sindi's
current diet.
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fitz
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response 20 of 66:
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Feb 4 12:22 UTC 2006 |
I think you've alredy trumped any future responses with that story, tod.
Congratulations on surviving.
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tod
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response 21 of 66:
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Feb 4 18:57 UTC 2006 |
re #20
It was fun! C'mon, I know I'm not the only one that can tell a story about
their allowance. Let's hear it.
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nharmon
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response 22 of 66:
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Feb 4 21:43 UTC 2006 |
I didn't get an allowance as a kid. Money I got at Christmas and
birthdays had to be spent wisely, for it would be a while before I got
more. :)
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kingjon
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response 23 of 66:
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Feb 4 21:54 UTC 2006 |
Like I said, I got what could reasonably be called a pittance for allowance --
but I'm not complaining. I got $5 for mowing the lawn (less if I missed spots),
plus gifts (mainly from grandparents and aunts and uncles) for birthdays and
Christmas. Lately (last five years or more, I'd guess) some of the
Christmas/birthday money has come in the form of gift cards to bookstores,
which I think is the second-best sort of present (the first being actual books,
but mostly I've learned not to trust their choice in books -- except my aunt
who's a librarian).
I said that I don't complain about having a very small allowance. Better to be
content than always want something more. Another thing that I'm now thanking
them for is that we've never in my almost-nineteen years owned a television --
so I've grown up with books as my primary distraction. In fourth grade I had a
book taken away from me because I was reading at the wrong time.
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keesan
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response 24 of 66:
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Feb 5 03:07 UTC 2006 |
I never got paid anything for doing housework. My mother was working full
time and also running a dialysis machine for my father so my brother and I
did the cleaning and shopping and cooking and snow shoveling. My brother
could not be trusted to iron but he still did laundry. Are kids still
considered an asset now?
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