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April 18, 2014


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I don't believe $100,000 is what it use to be. That combined with the fact that it is so easy to borrow money (home equity loans/lines of credit) on top of mortgages, car payments, and credit cards, so many people I know use pretty much all credit available to them. They may be in their 50s and have borrowed heavily against the equity in their homes. No one wants to say they can't afford something but people spend so much on stuff like take-out food and beverages, kids activities (travel teams for sports being one example), nights on the town, and many others. I really believe people are sheep, behavior-wise.

We have been working on our finances for over fifteen years and would not have a problem in any of the situations you describe.

A majority of the people I know are as described above. One disaster away from financial hardship. The economy is not as strong as the media reports. It is very fragile.

If you don't fit with the above comments , and I don't consider myself in that category, your are not the norm.

Seems it's just another spot survey with poorly worded questions IMHO. To take just one, truly define what "live comfortably" for three months means. I can tell you if I lost my job even with more than three months of expenses covered I would hardly be living "comfortably" in that comforts would be the first thing axed until I was making money again.

I also think we are still suffering mentally from the recession mindset. Many folks are still likely stung from having lost previous jobs and searching for new jobs during the recession, or have friends and relatives who suffered through that search and the difficulty is still on our minds even if the actual reality may have changed.

I do agree that people appear worried about their finances and that is what this survey is really saying to me. But nothing in the survey implies if the same people worrying are doing anything to change their circumstance. I may have overextended myself in the past, am I trying to cut back now (e.g. I sold my expensive SUV and bought a smaller car)? I may be living paycheck to paycheck now, but have I started a small emergency fund as a first step to correct that?

Just seems lacking when a few more simple quesions would have helped to see if the same people worrying are either helping themselves or feel they are in a position where they're stuck and don't know what to do.

I think we've all run into the person who won't take the steps they need to get financially sound and will shoot down every reasonable suggestion you provide as unworkable and then still complain they have no money. I'd like to know if we're dealing with that kind of person or a person who honestly just doesn't know what to do to get on a better financial footing.

I don't think I could possibly have an unexpected $10,000 expense. Maybe because I have health insurance and I rent? What are some examples of a $10,000 unexpected expense people could expect to happen with some type of regular frequency? Is that really a good measure as opposed to something like an unexpected $2,000 expense?

That being said, I would have to shuffle some money around but could handle it.

Josh. I own my house and the sewer line collapsed and needed to be replaced from the house to the sewer tap. It was $10k. If we needed to cut into the street it would have been $20k. That is the price you pay for a 70 year old house.

I also wonder about the questions:

55% are living paycheck to paycheck
47% couldn't live comfortably even three months if breadwinner lost his job

If 55% are living paycheck to paycheck, how can 47% live comfortably for three months if breadwinner lost job. That seems inconsistent to me.

It is easy to have a several thousand dollar expense. Even though I have always taken care of my teeth I had a hidden cavity which led to a visit to the dentist, a partial root canal by an endodontisit, an extraction and bone graft by an oral surgeon, followed by an implant (special screw in the jaw) and a larger bone graft. I have spent about $4000 out of pocket (dental insurance is covering very little) and still do not have a tooth. I believe it is a few thousand dollars for that, when the time comes (there is a lot of waiting, for healing) involved.

In response to Josh:

If one of our vehicles were to be totaled in an accident it would cost us at least $20,000 out of pocket. We have reliable vehicles that are about ten years old but would replace them with new if they were totaled (I guess that is an expense we will incur someday regardless) but we are not planning on it now.

If a family member that lives far away falls seriously ill I can imagine spending thousands of dollars dealing with that (airfare and rental car, possibly hotel bills).

That is why we live beneath our means and have an amergency fund.

Some people may also have a hard time covering a $10,000 expense because they don't have easily liquidated funds available. During my mom's final illness, I loaned my parents over $3,000 because most of their money was in retirement accounts or in mutual funds that would have taken a loss if sold at that time. If the funeral home hadn't allowed 30 days for payment, it would have been close to $10K in expenses. Fortunately, the life insurance company paid out the policy proceeds within a few weeks, and my father reimbursed me. Not everyone has family members who can help in tough times.

We have a larger than typical catch-all fund for future family emergencies because we don't live near our parents and my husband's grandmother. Any illness or death in the family will require travel and time off work. My husband has vacation time, but I only get paid for hours worked.

Imagine a serious car accident. Between replacing the car and a hospitalization, you could easily run up $10K or more in costs even with insurance. Unexpected home repairs--or, if you're a renter and don't have adequate insurance, a fire or flood in your apartment. Family illness, especially if the family member lives outside the U.S. One of your kids gets arrested for a felony (innocent or guilty). Plenty of ways to find yourself stuck with an unexpected $10K bill. And if your household income is, say, $30K, it's not exactly easy to save that much (keeping in mind that emergency funds should be in highly liquid, conservative investments).

That said, I, personally, could weather either that or three months' employment, but in today's fragile economy, *anyone* who loses their job should be concerned about the spectre of long-term unemployment.

These numbers do not surprise me. You are right about what is keeping this economy afloat spend, spend, spend. Personally when I was making over $100,000/year, I saved, saved, saved, nearly 25% of my pay. Now I have a nest egg that people say I could retire as well. The biggest thing I see is the lifestyle people want to keep, it costs lots of money. Why do you need a $45,000 car, because I want it. Well I have never bought a car over $30,000 and I own my cars until they die and I maintain them well. Yet I see my neighbors and friends with not one high end car, but two in the driveway. Then we need that expensive vacation to the islands not just once a year but twice a year. And lets not talk about eating out, restaurants are packed, eating out is expensive. Once or twice a week is ok, but I know neighbors who eat out everyday. And lets talk about energy costs. I can monitor my energy usage and compare it to others with similar households. I use about 30% less energy.

So it all adds up to lifestyle, the American Dream. That is what is costing Americans their financial security. I have left out a lot of other things, ie debt, private school, country clubs etc.

But I thank all these people who are spending all their money, because consumers are 70% of our economy without them I would not have been able to secure my financial future.

If you have a high-deductible health plan, a serious illness or accident could possibly set you back $10K by the time you pay deductibles and co-pays.

I don't happen to fit in any of those categories ... though if I were to lose my job, it's doubtful I could find one with a comparable salary.

Many of the above comments make me glad that our children were born in 1958, 1960, and 1963. It was a very different world during the era in which they were growing up. The term "pocket money" didn't exist in our family. Each of our children had multiple jobs such as delivering papers, pumping gas, stocking shelves, washing cars, cleaning homes, flipping burgers, installing car radios, working in delicatessens etc. etc. There was just a single house phone, no computers in their rooms, and no iPhone bills in those days. I also kept track of any long distance calls they made and gave them a bill at the end of the month when required. They also walked to school or rode their bicycle. We were always savers, and they followed my example, maybe that's why the eldest has $2M at Fidelity and they own their home outright, the next oldest has $3M at Fidelity, and the youngest, a sales manager for an international company, is well on his way to his first $1M in spite of a recent divorce. The eldest, twice divorced, was office manager for an attorney for a long time but now telecommutes from Maui and handles all the billing. The middle daughter, formerly married to the above attorney but now divorced gets $20K/month in alimony and sells items on eBay & Amazon as a sideline.

Divorces are unfortunate but still better than staying in unhappy relationships. My wife and I have our 58th. anniversary in July but that's very unusual these days.

@Rich & FMF.

I do think the spend, spend, spend crowd is keeping things afloat. But ultimately, I don't thank them for it. Their overspending just means our economy is very vulnerable to any and every economic blip that comes along. Overspending is what led up to the 2008 financial crisis in the first place. So, if people are living up to or beyond their means, we all end up paying for it down the road...and maybe not as far down the road as many think.

I think its probably even worse than it first appears as I bet "can handle a $10k expense" means from credit, not savings.

I think those reading this blog are the exception
to the rule. Either good savers or wanting to
be good savers.

Almost everyone I know is a spendthrift.

Conspicuous consumption. Keeping up with the
Jonses. Etc. No one wants to admit they
cannot afford something. Or they feel they or
their family " deserves " it.

Part of the problem is that money is such a taboo
subject. No one talks about it and everyone
pretends it's a non- issue.

We have a circle of friends and we are all
Making different amounts of money. No one
knows what the others are making but everyone
Does all the same things.

Everyone has two upscale cars that get swapped
Out every few years. Everyone sends their
kids to private schools for $20k per year starting
In middle school ( sometime elementary).
Everyone has a beach house. Everyone belongs
to the country club too. Everyone goes out to
dinner at upscale steak houses and trendy
"Best of" places numerous times per week
( think Morton's ). Everyone attends all the fancy
charitable events for $200 or more per person
And then partake a in the silent auctions.

Now if you think about it, if not everyone makes
A ton of money-- most of these people are
struggling to keep up appearances. They want
To go to Aruba with their friends and they want
their kids to play on the travel team.

Because I am known as someone who is good
with money-- sometimes I get asked for advice
and get an inside peek at peoples financial

It's usually pretty ugly.

Credit card debt maxed out. Home equity
Maxed out. Loans from 401k plans. Early withdrawals
from IRA accounts.

I think this survey is accurate. Maybe even
Better than reality because most people
Will lie on the survey as well.

Out of curiosity, after reading your post I totalled up the credit limits on our 5 credit cards - they came to $80,000. I have yet to pay interest or late changes on any of them and I have had them for many years. I like them for the convenience of not having to carry more than about $20 of cash at any time and also for the rewards. I guess I'm not typical, if I was then the card companies would have all gone out of business long ago. One of my best feelings ever came just after retiring when I paid off a real estate loan and became debt free.

@Old Limey

You are definitely not typical. You are money saavy
And you are a fantastic investor.

As I re- read my post, I think I came across as pessimistic
and I wish I didn't.

But the jist of my post is that, from the real life
scenarios I have seen- most people seem to
be living only for the moment. And then some.
It bothers me that my brother saves zilch. And my mother
In law turned 75 yesterday and has no prospect of ever
retiring. No savings at all. She owns a small biz and she has to work every day
to keep the cash flow going. When she has an illness or just cannot
do it anymore -- which will happen one of these days, her income will drop from $75-100k to about $30k from social security. That is going to be a tough day
for someone who still lives very high on the hog.

I also have several credit cards with very high
limits-- each in the $75k range. Why? Because
They were offered to me. It's funny to me because I do not see how
I am a profitable customer for them.

I pay off my balence every month in full. I do pay everything on the
card as I rarely use cash.

But it also serves to allow my credit utilization
ratio to be very small- which helps keep my FICO
score high. And there is no liability for a stolen card to me.

I also carry no more than $50 in cash at any time.

I look at you old Limey and I hope to be in your position
one day. I see you as a role model and I am grateful that
you share your stories with us.


There is a drawback to being like me. Saving has become a bit of an obsession. Now that I'm 79 and my wife is 81 our lifestyle has changed. My wife no longer drives so we are reliant on me for getting around. We like to have some wine with our evening meal and going out to eat at a restaurant would put me at risk of getting a DUI, which would be catastrophic. Thus we get takeout a couple of times/week and my wife cooks the other 5 days. Fortunately we have many restaurants nearby so it's not a problem.

We feel very fortunate that we can still live in our home rather than having to move to an assisted living facility. Fortunately I'm in excellent health and between us everything gets taken care of and we are immensely happy.

The biggest worry about growing old for many people seems to be the onset of Dementia or Alzheimers. Even though it's normal that your memory isn't as sharp at 80 as it was at 50 it's not a problem for either of us, especially with the advent of computer search engines such as GOOGLE which I find very helpful at times. My wife has also never touched a computer so I help her a when she needs some information. She also often has some lower back pain but I bought a very small, quite inexpensive, TENS unit (Transcutaneous Electrical Nerve Stimulation) and hook it up for her most afternoons while we are watching a NETFLIX movie, and it helps a great deal even though it doesn't cure the problem.

@old Limey

I understand. But being a compulsive saver beats the heck out of
being a compulsive spender ! At least pre retirement.

I was recently told by a financial advisor that the personality
traits that allowed me to be a good saver may very well be
my downfall as I retire and transition into " spend mode".

I was told that savers like me have trouble with the concept of
not saving for the future anymore and transitioning from savings to
spending the savings. I am looking at the prospect of retiring. I am 50
years old. I am not sure I want to retire but I want to reach the point
Where I can if I want. When I choose how to spend my days
rather than having to work to reach my goals. I guess it's more like reaching financial
independence than retiring. That crossover point where I no longer
NEED to keep doing what I do.

I do see how it could be an interesting transition after being a
Compulsive saver/ accumulator for so many years. But once
My passive income exceeds my current spending needs I will
Be in a much better position. That days is getting closer.

5 years out maybe.

But that is a problem for another day. I still see you
as a role model in that you have successfully navigated the
rough terrain from working to retirement. You have been able to increase
your net worth even while spending from your nestegg and you
Seem to be doing all of this while still helping your kids.

I realize from your posts that you had some good fortune
in that you have two pensions plus social security as a base. But
You steered through the dot com crash and came out a winner.

You get big kudos for that. Let's hope the rest of us do half as well.

Even people who have plenty of money who do not fall in these statistics get in trouble. I work in banking. I get calls all day long from people who find themselves in a bind. For example I got a call from a woman who was trying to help her brother. The brother had had a stroke and couldn't talk. He had bought a vehicle that he now couldn't pay for. (He thought that was his only problem but I had to inform him and the sister of all the other problems they missed.)

At age 53 the stroke left him incapacitated. Since he cannot work he cannot pay for the vehicle. He HAD plenty of money saved up but now it's all gone. He didn't buy credit life for the vehicle and the disability income he's trying to qualify for could take months, maybe even years to be approved.

A voluntary repo is not a good option since he needs the car to get around. If he does do a vol repo he will at some point end up getting a 1099 which will eventually cause the IRS to come knocking at his door.

I've seen people do voluntary repos on boats and planes, and they laugh it off until they get that little notice from the IRS. Can you imagine the tax consequence of a $100,000 1099 on a boat you decided you didn't want to pay for anymore. You can tell the bank you don't have anymore money and walk away, but you can't walk away from the IRS.

I talk to people all the time who consider themselves financially savvy who missed that one little thing. Many have a lot of cash but very few back it up with all the proper insurances and proper directives. I've seen some very very sad situations.

Transitioning into retirement could be a problem if you have a large "Bucket List" of places you want to see and things that you want to do. I started doing a lot of the difficult trips before I retired since I had 5 weeks vacation every year while my wife only had 2 weeks and many of the trips were long and also required a lot of training to get into the necessary physical shape.

In 1980, at age 46 I did a tough trek in Peru called the Andes, the Incas, and the Amazon.

In 1981 I went to Nepal on a trip where we flew to Kathmandu, Nepal, then by a single engine plane as close as we could get to a Himalayan mountain called Mt. Mera where a small group of us climbed to its summit at 21,500ft.

Then in 1984 I did another tough, high altitude trip in Nepal that was called "Circumnavigation of the Annapurnas".

In 1985 after seeing my slides my wife showed interest in going to Nepal and after checking with her doctor he said that if she prepared well beforehand and passed his tests she could hike to 10,000ft. We did a lot of hiking together in the Sierras and the local mountains to get into shape and then went on a trek called "The Annapurna Villages" which we did together and where she had the most exciting trip of her life.

The next year, 1986 we went on a fantastic long trip to China with the Smithsonian, soon after it opened up to tourists and, unlike today, when the locals were still all riding black bicycles.

Then in 1987 I did a solo hike of the John Muir Trail in the Sierra Nevada. I took a Greyhound bus to the trailhead, hiked the 215 miles in 15 days and arranged for my wife and daughter to pick me up at Happy Isles in Yosemite Valley where I showed up right on time.

Other exciting trips we did together were Africa in 1989 and Turkey in 1995.

We also sandwiched in a couple of trips back home to the British Isles.

After retiring we started taking easy river trips down the rivers of Europe as well as a fantastic river trip in Russia where we sailed down the Volga River from Moscow to St. Petersburg.

Finally my wife's walking abilities became such that we made our last river trip down the Rhine and Mosel in Germany in 2010 and have been homebodies ever since.

Old Limey and Jnew, don't fret about the profitability of the credit card companies. Keep in mind that every time you use your card, the vendor you're buying from has to pay an interchange fee. My understanding is that these fees are typically in the 3% range. That's why the card companies can afford cash back, concierge services, fraud protection, money-back guarantees on stuff like airline tickets, etc. I'm sure they enjoy charging exorbitant interest rates on people who are foolish enough to carry a balance, but they make tons of money on you and I as well, and why they continue to offer us new cards and more credit.

My husband and I were also good savers. He is 61 and I am 58. We have a net worth of 2.5 mil. Some always criticized
us because we did not spend, spend ,spend. We never bought a brand new car even though we could,never got into the brand names for everything, used coupons and shopped around.I am a nurse, my husband a cop.There are no ginormous salaries here although adequate. We always worked more then one job and invested our money.We have three kids who have no college loans due to us.The steps we took were no hardships to us.We did things, not bought things. Now we travel around have absolutely no money worries and people are always commenting "It must be nice!" Yes it is , but we worked for it!

I enjoyed reading your story. You're 20 years younger than me. I retired in 1992 at 58 and have no regrets whatsoever about doing so. At the time our investments were only $320K but we were debt free. What helped a lot to grow our investments was the bubble in the Nasdaq market between when I retired and March 2000. I also started writing some financial software that took me a couple of years to write but I sold a lot of copies. Retirement can be a very pleasurable time in your life but you need to think it through very thoroughly before biting the bullet.

In our case retirement turned out to be a lot better than I ever expected but at the time we had no idea what the future would bring. Our three kids have each made their own lives without help from us after they left home, however I do manage their investments for them. Your husband, as a cop, should have a very nice pension when he retires.

The best decision of my life however was marrying my wife in 1956 when I was 21. The other great decision was emigrating to N. America. They were important turning points. Buying our present home in 1977 has also turned out great and it's just incredible how much homes have been going up in price here in Silicon Valley. Apple Computer is now building a giant circular campus about a mile away and that is also contributing strongly to the demand.

I think a better title for this post would be "How Bad Americans Make It". Driving around the typical suburban neighborhood in the US you will see parked in the driveways and on the streets rapidly depreciating assets that in a lot of cases cost that family up to half what their house cost them. If they replace their vehicles with new ones every 5 years, trade in the old one and receive trade-in value of 1/4 of what it cost them (I have in mind the experience of people I know who have particular affection for full-size pickups and SUV's)they have in effect spent 3/4 the cost of a second home for iron, plastic and glass that 90% of the time is just getting them to/from work.

Having worked and lived overseas the past 5 years it is striking when i come back to the US for visits how unique the popularity of large and relatively expensive vehicles is here. Where I live you do see large SUV's and even American pickups but the majority of vehicles are compact and mid-size sedans which cost half what a large pickup or SUV run.

And have not even addressed the operating and insurance cost for the large pickups and SUVs vs smaller vehicles. In the country I live gasoline cost $1.15 per gallon and yet the affinity for large vehicles is no where near as prevalent as it is in the US.

My guess is a large percentage of the Americans mentioned in the posting who are living paycheck to paycheck could easily have a savings cushion that allows them to sleep comfortably at night if they made better decisions just in the category of transportation.

Its not a case of how bad Americans have it; its how bad Americans have made it.

In my comment above I hit "Post" too early.

Meant to say every 10 years the family in the described scenario has in affect spent 3/4's the cost of a second house on rapidly depreciating iron, plastic and glass.

Ideally, that second house could also be generating this family a nice monthly rental income too rather than depreciating in the driveway.

@Old Limey,

Thanks.My husband has a good pension he retired already,but picked up another full time job in security. He also has a military pension because he did the reserves for over 25 years. We were not afraid of working and now it has paid off! Between the pensions, soc security and interest we will earn more when we stop working!The other thing that helped us is that since we married, we put away the max in our tax deferred annuities.

The other vital thing we all need as we get older is to have excellent healthcare. We have been on medicare many years now, our insurer is United Healthcare & our provider is the Palo Alto Medical Foundation which is affiliated with Stanford University. I am lucky enough to still be in my former employer's plan for retirees for which I pay $326/month for us both. Of course money is also taken out of our Social Security checks that goes towards Medicare and Prescrition drug coverage. I am very fortunate healthwise but my wife has needed two hip replacements as well as colon & intestinal surgeries that each turned out very well indeed. We are both very conscientious about our diet & healthcare and each have regular checkups and lab tests as well as taking pills, various vitamin products, and in my wife's case also using two inhalers, twice/day. The new inhalers have been lifesavers for people with asthma reated problems. They are under patent and very expensive but with Medicare a 3 month supply is only $50.

With regard to our investments, since reaching 70 1/2 we both have to move money from our IRAs into our taxable accounts every year and pay the taxes due on the amount moved. However our investments are growing every year since I reinvest all of the taxfree interest I receive into buying more municipal bonds. Thus our IRAs are shrinking (as designed) but our taxable accounts are growing.

I agree and that will be my next step towards retirement, checking out healthcare .

I'm surprised that since you are a nurse that you don't already have healthcare. My wife had her first surgery at 63 and it was quite unexpected. She was under the care of her primary care physician for colon pains and he wasn't as proactive as he should have been. He tried various antibiotics for too long and when he finally sent her to the surgeon and had an MRI the problem was diagnosed immediately and taken care of just in the nick of time. After that incident her physician changed over to his specialty which was Pulmonary care, a field that he is really good at and thanks to Advair & Spiriva inhalers my wife's asthma is totally under control.

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