The average Generation Xer who took the survey thinks they will need $1.2 million to retire on. I gotta tell ya, I don’t think that’s enough. Let’s think about it for a minute. Here’s a look at the possible first-year income on $1.2 million based on three different withdrawal rates:

Not too bad until you consider the fact that these numbers don’t include inflation. If the average Gen Xer is my age (38) they have about 27 years until retirement if they retire at 65. Here’s a look at the numbers after you adjust them for a 3% inflation rate over the next 27 years (I realize inflation has been running higher than 3% as of late, but 3% has been the long-term inflation rate):

Call me crazy but I just don’t see $21,000 to $26,000 (I wouldn’t recommend a 6% withdrawal) as being a comfortable retirement income. Sure, there will be some Social Security income available but I can’t imagine it being more than $20,000 to $25,000 per year. Including Social Security, you’re looking at an income of $41,000 to $51,000 per year in today’s dollars.

Is it enough? I don’t think so. What about you?

One of the questions towards the end of the survey pertains to parents and children. I’m curious to know how you would answer this question:

Of the following, which are the most important lessons in saving and investing for parents to teach their children? Please select up to two.

A. Live within your means
B. Begin saving at an early age
C. Avoid high interest debt
D. Get sound financial advice from a trustworthy resource
E. Learn how to invest wisely

I had a difficult time picking two answers as ALL OF THEM seem important to me. That said, I chose the first two. My thinking was that if parents can teach their kids to live within their means, they won’t be as likely to run out and use high interest debt like credit cards. The second one was a no-brainer since we all know the power of compounding over long-periods of time. Yes, they need to know how to invest wisely, but I think starting earlier is more important as long as they aren’t just storing their money under a mattress.

It turns out that most of my fellow Generation Xers agreed with me:

I’m curious. How would you answer this question?

But if you’re young enough, with some concerted effort you can save for only ONE year, never save another dime, and still retire with a million dollars. This Motely Fool article explains.

It all comes down to the power of compounding. Let’s say you’re 26 years old, you start with $0, and somehow you manage to invest $20,500 that year (not so coincidentally the same amount it takes to max an IRA and a 401k in 2008). If you never save another dime after that, you can retire at 67 with over $1M if you can achieve annual returns of 10%.

As daunting as it sounds, coming up with $20,500 in one year is not impossible for many 26 year olds. Maybe you live at home after graduation and save most of your salary; maybe you receive a small inheritance; maybe you even have a high paying job and decide to just save half your salary and continue living like a student. The beauty of it is, it’s a one year committment – you don’t have to do it year in and year out forever.

And the longer you wait, the harder the one year challenge would be. If you wait until you’re 30, you’ll have to come up with $30,000 in one year.

Of course you don’t have to do it all in one year (though it’s kind of an exciting concept, isn’t it?). If you can manage to have invested $30,000 by the time you are 30 years old, you can quit saving for retirement and hit 67 a millionaire. That means if you start saving at age 20 you only need put away $2,000 a year for 10 years (earning 10% a year) – and then you’re done. You’ll have $37,000 at age 30 which will grow into $1.3MM in 37 years.

I must point out that $1MM several decades from now will not buy nearly as much as it does today. Still, it’s a nice round number to shoot for. And once you’re in the habit of saving that much I doubt anyone would really be able to stop. If that 20 yr old kept investing $2,000 a year rather than stopping at age 30, she would have $2MM at 67. And if she increased her contributions with inflation (putting in $2,060 in year two, 2,121 in year three, etc) then she’d end up with almost $3MM.

[Note: invest in index funds to minimize fees and within retirement accounts to minimize taxes, and you'll be even farther ahead!]

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Should Parents Bail Out Their Kids?

That is the title of Liz Pulliam Weston’s article over on MSN Money.

I can’t remember a time when I ever “bailed out” financially by my parents. Sure, they helped me from time-to-time and my wife’s parents helped us with groceries and stuff when my wife and I were in college but nobody bailed us out. Why? Because my wife and I knew our place. In other words, we didn’t go out and buy things we couldn’t afford. We were responsible for ourselves.

Normally I agree with Liz but her excuses for why today’s kids get into trouble bother me. Check this out:

Most baby boomers had the economic winds at their backs. They graduated into decent job markets and enjoyed strong appreciation of their homes and (for the most part) stock portfolios.

Today’s graduates, by contrast, are a bit more behind the eight ball:

• A rapidly decelerating economy means college graduates are facing the worst job market in several years.
• Instead of getting free money in the form of grants to pay for college, they’re taking out student loans — an average of about $20,000 at last count, an amount that’s nearly doubled since the mid-1990s.
• And then there’s the demon credit card, pushed on college campuses today with a vigor unheard of a generation ago. The majority of students now have credit cards, according to studies by student lender Nellie Mae. The average balance was $2,864 for college seniors in 2004 and $8,612 for graduate students in 2006, the latest years for which statistics are available.

Excuses, excuses. Tell me, what generation hasn’t had obstacles to overcome? Didn’t the Baby Boom generation graduate from college into the inflation-ridden 70s?

I think the root of the problem lies in the fact that today’s kids think they deserve everything right off the bat. There’s no working and saving up for things. At least that’s my perception of today’s society. Maybe I’m wrong and maybe I’m being harsh but I think today’s kids need to figure out that everything costs money and that they are going to have to prioritize their finances and make decisions accordingly.

Our kids are still young so it’s tough to say how my wife and I will treat them when they are adults. I’m hoping that they will have a good understanding of their responsibilities when they leave home. I can tell you that if they were to ever come back home after leaving, rent will be due. Hopefully it won’t ever get to that point.

What are your thoughts?

Instead I’m writing this.

I have a friend who really busts his hump all day long every day for his employer. He just got this new sales job, so he’s really trying to impress. He’s constantly reaching out to refereral sources. He sets up at least 1 meeting a day with a potential client. He’s learning quickly, he’s always polite and helpful, and he’s already initiated over 20 new deals in 6 weeks – they expected him to do 10 in his first 90 days.

Interestingly, this friend told me he was thinking of strategically slowing it down, in order to avoid setting the bar to high with his new employer. But in reality I know he won’t do that; he takes pride in his reputation, which is clearly tied to his production at work. That’s the beauty (and scariness, to me) of sales.

I just read the following article by Ben Stein on Yahoo! Finance: Want To Survive the Recession? Work it Out. Ben uses some personal anecdotes to point out that many American workers (specifically young ones) just don’t care about doing their jobs well. He asserts that despite the idea of workers begging for jobs that the media perpetuates, in reality it’s employers that are begging for qualified workers.

Why? Well, because many of us have never had to struggle at work. Those in my generation – myself included – have never faced a tough (or nonexistant) job market, a deep recession, or even a job loss. On top of that, many if not most jobs today are such that it’s easy to slide by without really trying your best or working your hardest. No one will notice if you’re online shopping instead of working on that power point for an hour or two. Sure you may only get “meets expectations” at your next review as opposed to “exceeds expectations,” but that is likely the extent of the consequences.

The difficult thing for all involved is that some of the best workers aren’t even noticed by their employers in certain industries. Secretaries are often more vital to the company and to the client relationship than the highly paid people they support, in my experience. But they seldom get the bonuses, the glory, even the thanks. Customer service reps aren’t going to get paid more or even recognized for being polite to you on the phone. Only if you are physically producing something might you get recognized for finishing ahead of schedule; or if you are selling something your boss will notice if you exceed your quota.

Ben closes with a quote that I’d like to echo: “I wish every worker in America had to be a freelancer at selling or writing or painting or carpentry or computer repair or law or something for two years. I wish Americans could have a period in their lives when they only got paid for what they sold and produced. It would do this country world of good.”

I know it would do me a world of good; what about you?

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Those promises bring extraordinary pressure and set expectations that frankly, not many people can or will ever realize. Even to those with endless resources (including time and money), it’s not wise to to endlessly encourage and promise today’s youth that they can and should LOVE their jobs. They might, and that’s great, but they don’t have to.

The message that you can and should be wildly passionate about and totally fulfilled by your career can promote impatience, entitlement mentality, poor work ethic, chronic dissatisfaction, frustration, and even depression. Over and over I hear young people lament “What do I want to DO with my life?” “What do I want to BE when I grow up?” “How do I find a job that I LOVE?” “Follow Your Dreams!” society yells back. “The Sky is Your Limit!”

So millions of idealistic youngsters seek happy, fulfilled careers out of their inevitable passions for art, theater, music, sports, volunteering, or one of the liberal arts. Some of them can do it, of course, but many will realize a little late (approximately one year after graduating from college) that a small dose of realism and practicality along with the unwavering encouragement might have prompted them to at least develop a few sales skills or pick up a minor in business that could help them figure out how to pay the bills (which is, after all, another secret to satisfaction).

Get Rich Slowly has an article about How to Find Work That You Love after which dozens of commenters offer share their frustrations with that search and offer tips on countless books, indicators, and quizzes that will help you analyze your interests and take inventory of your talents.

I grew up undergoing the same search, and I feel a lot of that effort was well spent. But then again, I enjoy self-evaluation for its own sake. And I’m a Super-Planner: I had a detailed spreadsheet of every class I was going to take throughout college to take when I started my first semester, so as to effeciently squeeze in 2 majors and 3 minors in 4 years. After all that? Yeah, I have a job, and yeah I like it, but I don’t feel like it’s my Passion or my Destiny. Does that mean I’m not fulfilling my Dreams and reaching my Full Potential like those posters in elementary school insisted I could? NO! I’m having a blast, enjoying my 20’s, traveling, blogging, writing, reading, and developing meaningful relationships. My career will unfold as it will; I’m trying not to focus on it too much.

What about encouraging people to simply pursue balanced lives? There’s nothing wrong with following your passion if you actually have one or with being motivated and career-oriented. But lets fact it: not many people are qualified or talented enough to fulfil their “passion” as a video-game tester, a fashion model, an athlete, a musician, a writer, or an internet mogul. Not everyone is smart enough to get a degree or to launch a business that will make them millions and simultaneously bringing everlasting happiness. We need to send the message that that’s OK; you’re still valuable and you can still be happy.

You can have a wonderful loving family. You can have interesting, stimulating hobbies. You can give back to your community, develop meaningful relationships, “find yourself” through travel, religion, and art rather than through the boardroom. So get a job you enjoy, one that pays the bills and has room for growth and can teach you a few things that you want to learn. And then focus on the rest of your life. There’s a lot more to it than work and even money. If people realized that before they wasted half their lives stressing about college applications and chsaing the elusive Perfect Job, then they’d probably be a lot happier.

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I realized while reading it that Ben might as well be talking to me. And I think his points are pertinant to the goals and attitudes of millions in my generation.

New Cultural Phenomenon: Aversion to Work

Ben’s basic message is that “while almost everyone I know went to college, very few learned how to actually work — i.e., how to give an honest day’s labor for a paycheck.” He mentions various friends of his who have never held a steady job, “creative” types who live one paycheck away from homelessness because they can’t IMAGINE working a 9 – 5 job, women who spend their attractive youths “working” for various rich boyfriends, and other examples.

I have observed this reality quite a bit, now that I think about it. Many people quit working (or never start) at the first opportunity. Females upon marraige or pregnancy; males upon inheriting or accumulating a modest sum. More than a few of my peers chose one of the following alternatives to work shortly after graduation or after only a year or two in the work force:

• “I got married and/or got pregnant!”
• “I’ve decided to start my own businesses!”
• “I volunteer” or “I work for X foundation/museum/non-profit”
• “I am traveling abroad to experience the world and find myself”
• “I’m going to work for my family’s company”

Oh, and lets not forget the ubiquitous

• “I’m going back to school.”

All of these are theoretically wonderful choices, but they are all to often code for “I don’t know how to and/or I refuse to actually work.”

The Benefit of a Hard Day’s Work:

The problem with this is that people who never experience working hard to earn a paycheck also never develop the pride, empowerment, and work ethic that comes along with it. “Work elevates the spirit, disciplines the mind, conveys self worth — redeems life itself.” Ben points out that people who develop the habit of hard work don’t become bums, criminals, or drug addicts, and they don’t wind up in middle age with suicidal self-loathing.

Even those who “work” can fall prey to work-aversion techniques and end up tempted towards addictions and the self-loathing Ben warns against. There’s a difference between earning good money and hard work. Lots of people earn great livings, and many would insist that they “work hard”–movie stars come to mind. But literally working hard for hours on end in order to earn your dinner money–without the option to leave for an appointment, surf the internet, or make a phone call–is a very different thing than what many of us experience at work.

Studies show that most Americans only contribue 2 solid hours of productivity to their employers during a typical 8-9 hour workday. Email, internet, computer games, phone calls, chatting, work-gossip, and meals are what we really spend our time, attention, and energy on.

The Ruining of Our Generation?

Like many of you, I have a steady job, I get up every morning and work 9 hours a day, I am moving up in my company and developing a career. But…I’m not actually working very hard. The truth is I’ve never had to work that hard to earn my grades, resume, and promotions at work. And the truth is, if I didn’t happen to have a well-paying job that I like, I’d probably quit and choose one of the other alternatives to work I mentioned above.

I, like most in my generation, grew up being told “You’re Special!” and “You Can Do Anything You Dream!” Every student got a gold star and every athlete got a trophy. My generation spent its childhood learning how to be totally self-indulgent–travel, music lessons, sports, camps, shopping, TV, study abroad, eating out, allowances, etc. Those things all have their place, but perhaps good old-fashioned hard work should be added to the list as well.

More from Meg at The World of Wealth

Though the vast majority of eligible baby boomers participate in their 401(k)s, less than a third of workers 25 and under are contributing to these employer sponsored retirement plans. Even worse, only 4% of young workers are maxing out their workplace retirement plans, according to a recent survey by the tax information service CCH.

Ironically, these accounts are more important to young workers than to older Americans. That’s because the majority of younger workers aren’t covered by an old-fashioned guaranteed pension. Moreover, every dollar that 20-somethings save will be more valuable over the course of their lives than the same dollar will be for older workers. That’s because young workers have more time to invest their savings and then let that money grow, tax-deferred.

That quote came from an article found on MSN Money titled Young adults all but ignore 401(k)s, IRAs.

This table from Hewitt and Associates is both telling and disappointing on ALL levels:

Holy cow! Even those who are older than 42 only have an average balance of $93,000, while the median balance is just $44,000. By that age, the average balance should be $250,000 or more.

The question that comes to mind with all of this is:

I have a few ideas:

1. Start teaching and preaching about and personal finance early in life. Personal finance know-how is very important because it won’t do any good for young people to understand the need for retirement planning if they are drowning in credit card debt.

2. Make sure people understand the numbers when it comes to retirement planning. Stuff like how much it is going to cost, and how much is going to need to be saved in order to realistically reach that goal.

3. Automatic enrollment into target funds. I know this sounds anti-free choice, but I almost think we should make retirement savings MANDATORY kind of like social security is. I also think that if we went this route, we could possibly reduce the amount that goes into social security.

Those are a few that I can think of off the top of my head. I realize that number 3 is controversial.

What do you guys think?

1. Start saving NOW!

That’s all there is to it. I’m not talking $25 per paycheck. I’m talking about at least $100 per week. Of course, you need to be able to afford to save. But, if you think you can’t afford to save, then you probably need to give your budget a serious look. I’d be willing to be that most people could cut out some fat if they really wanted to.

2. Make sure your money is invested properly.

I know lots of people who have no clue where or how to invest the money they have in their 401(k) or other retirement plan. Not knowing how to invest your money could mean the difference between a secure retirement and a retirement spent eating beans. There are two ways to solve this problem: 1. Learn how by reading books or 2. visit a financial planner who can help you understand your choices.

3. Get out of debt.

My wife and I are STILL paying off debt from college. Some of it was necessary debt but most of it was the result of stupidity. Nonetheless, we are focusing on getting out of debt so that the only debt we have to worry about is our house note. Our interest rate on our mortgage is low enough that I’m not aggressively trying to pay off the house. Instead, I’m concentrating on paying off the other debt and investing in our retirement plan.

4. Set up some sort of emergency fund.

Hurrricane Rita taught me the importance of having an emergency fund that can be tapped when needed. EVERYONE needs at least three months worth of expenses in an account that be accessed easily. If you are one of those people who spends money just because you have it, you may want to make your money harder to get to by depositing it somewhere like EmigrantDirect, which is currently paying 4% or ING Orange.

There’s much, much more that Generation X can do to assure themselves a secure retirement. I hope to continue with this topic in the future. In the meantime, you can be working on the four suggestions above.