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This Week In Your Wallet: Hitting The Benchmarks
Yesterday morning, my Twitter feed blew up a little bit. Was it my beautiful sunset-over-LBI picture gaining traction? Or the Natalie Dunlap line I retweeted about how “journalism kids are theater kids who can’t sing?” Nope and nope. A Men’s Health writer had taken belated offense at a tweet I’d posted in 2017 outlining the guidelines for how to know if you’re on track for retirement. Here’s the original tweet.
By the time you’re 30, aim to have 1x your annual income set aside for retirement. At 40, 3x; at 50, 6x; at 60, 8x; and by retirement, 10x.
— Jean Chatzky (@JeanChatzky) November 1, 2017
By the time you’re 30, aim to have 1x your annual income set aside for retirement. At 40, 3x; at 50, 6x; at 60, 8x; and by retirement, 10x.
These benchmarks were developed by the folks at Fidelity, but it’s worth noting that many firms have similar ones. And they’re more specific in nature than that original tweet laid out. If people who earn between $50,000 and $300,000 per year can hit these marks then, when combined with Social Security, they should be able to replace 80% to 85 percent of their pre-retirement income for a retirement that lasts 30 years. Useful, I think.
But also — and this was the point writer Riza Cruz made (though it would have been nice if she had called me to talk about it before taking a shot at me on Yahoo! Life) — potentially demoralizing if you feel like you’re either not on track right now or, as many people are, losing ground. After predictions of a V-shaped economic recovery from this pandemic, then a W-shaped one, what we’ve ended up with is, as economist Ben Harris aptly noted is shaped like a K. Professionals, able to do their jobs from home, have watched their investments recover, refinanced their mortgages at unimaginably cheap rates and largely emerged unscathed. Indeed, as Joe Pinsker noted in The Atlantic, many of these people have watched their saving rates during the pandemic soar. Almost everyone else is suffering as restaurants, travel and retail continue to suffer —an effect that has been exacerbated since since the additional $600 in unemployment payments ended with the month of July.
So, what to make of the guidelines in my original tweet for now? They are just that, guidelines. (That’s why I included the word aim.) If you are not there and you are able to save right now, then use this opportunity — this time of not spending on commuting, on travel, etc. — to nudge your savings rate up a bit. If you are struggling, then by all means don’t worry about them. Now is not the time to beat yourself up. Instead, continue to focus, as I’m sure you have been, on the left side of your financial equation, looking for that next job, making the next contact, retooling your skill set if that’s what seems needed. Once you turn the corner, you can refocus your energies on making up some of that ground.
Used Car Talk
In the past few months, I’ve received at least a half dozen requests from my local Volvo dealer to trade in my 2015 wagon. It has seemed they want my old car far more than they want me to buy a new one (though they would be happy to do the latter) and now I know why. Used cars are the pandemic’s new toilet paper. As The New York Times reports, increased demand from commuters and others who don’t want to take Uber or public transportation coupled with a two-month pause in new car production this past spring has sent demand for used cars through the roof. The value of used cars in July alone rose by 16% according to Edmunds. Bottom line: If you’ve got an extra car sitting around that you’ve been thinking about selling, now’s the time.
First You Saved For College, Now It’s Time To Spend
There have been a lot of questions lately on 529s, many because this year was the first time in history that many colleges had ever given widespread refunds. Generally, to avoid paying taxes and penalties, you have to get any refunded money back into your 529 account within 60 days, but this year the IRS granted extra time as part of the federal pandemic relief program. Students were allowed to use the money for the fall semester as well.
But there are other questions, too: Should I spend down all the 529 funds first, before taking on loans? Can the funds be used to pay for things like utilities in a student’s apartment? Should I withdraw the 529 funds myself, and then pay the college, or have the 529 plan pay the college directly? All these and more are tackled in an incredibly thorough piece in The New York Times, by Ann Carrns. Over the course of the next year, as many students elect to take a gap year, or choose lighter academic loads to ensure they get only in-person classes (or only remote) parents would be wise to pay close attention to their 529 withdrawals. Withdrawals must be made during the same calendar year that expenses are paid. Carrns breaks it down: “Families should be particularly careful about spring tuition bills, advisers say, because academic years span two calendar years. The spring term often begins in January, but colleges may send out the bill in December. If you withdraw the money in December, make sure to pay the bill before Jan. 1. Similarly, if you wait to pay the bill in January, you should also withdraw the money after Jan. 1.”
What’s For Dinner?
This morning CNN is reporting that “the great grocery boom” seems to be over — at least for now. In March, year-over-year sales at grocers were up more than 31%. In August, they were still up but by just 11.5%. Still, as we look to the winter when it may not be possible to eat outside at your favorite local haunt, it seems like we will still be cooking up a storm.
That’s a notion I was finding increasingly daunting but these folks have my back.* The small box ($149) has enough proteins for — as I count them — 19 meals for my family of 2 (not counting leftovers). And, although I’m still working my way through my first shipment, can vouch for both the pork chops and salmon which I used last night to quickly whip up Ina Garten’s panko-crusted version. Yum.
* Today’s newsletter is sponsored by ButcherBox.
Have a great week,
Jean
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