In A Funk At 50?
Abnormal Returns shared a link on Twitter from the NY Times titled Generation Grumpy: Why You May Be Unhappy if You’re Around 50. Gil Weinreich had a related article about financial stresses that many people have based on a survey by the American Institute of CPAs. Today after doing an investor call with a portfolio manager whom I have become friends with over the last couple of years he talked about years seeming to go by faster as we get older.
The Times article focused on baby boomers being slow to leave the work force, getting in the way of 50-year olds ability to move into the highest paying jobs as has been the case in generations past. In noting that today’s 50-year olds have been less happy going back to their 20’s than previous generations the article makes an odd connection to this cohort having the drinking age raised to 21 from 18 just as they were getting close to 18 as being part of the problem.
One retirement implication is this phenomenon impedes the number of peak savings years that would coincide with peak earnings years. If people have only five years of the highest earnings, for example, instead of ten years then the threat is pretty clear especially given how under saved many people are.
Bring in Gil’s article about people being overly indebted which is not news to anyone which creates more stress contributing to the sense of unhappiness.
The Times might be right about the top down factors making it difficult for 50 years olds or maybe there are other factors but if you accept that the conclusion of the studies and surveys about being “grumpy” are correct regardless of the reason, what is the solution, how does it get better?
Blaming the causes for adverse circumstance doesn’t help make anything better, arguably dwelling in the negative makes it worse. For anyone in this type of funk, the solution starts from within. No one will care more about your situation than you.
We all have financial limits but someone who is in debt needs to stopping going further into debt. Emergencies come up but anyone can avoid eating out, as an example. Bigger picture the solution means living below ones means. Starting to save at 50 is not ideal but still leaves plenty of time to accumulate a decent nest egg by age 65, even better at 70.
Chances are you know all the basics like putting enough into a 401k to at least get the employer match, at age 50 IRA contribution limits (traditional and Roth) bump up to $6500/year, Health Savings Account limits are going up to $6950 in 2018 and you can tack on another $1000 at age 55.
Putting $5000/year in a 401k plus maybe another $1000 as a match would be $120,000 at age 70 plus whatever the average compounded growth rate turns out to be. Another $6950, becoming $7950 at 55 would be $114,000 (at age 65 Medicare kicks in) plus whatever the average compounded growth rate turns out to be. Assuming 4% for growth the 401k could be $148,000 at age 70 and untouched the Health Savings Account could be $202,000. In this scenario if the money is untouched until age 70 then presumably there has been an earned income delaying Social Security so that it can be maxed out.
The scenario may not be ideal, it makes some assumptions and relies on good luck with a couple of things, but it is plausible. At 65, assuming a 4% growth rate the two accounts add up to $266,000, still decent if not ideal. All the more of if the house has been paid off.
Tie in my conversation with my portfolio manager friend. My thought on time going by faster is sort of metaphysical, at 20 years old a year is 5% of a lifetime. At 50 years old a year is 2% of a lifetime. As a year becomes a smaller percentage it seems like it goes by quicker. My friend heard something a little different, that by age 50 (or maybe some other age) we have fewer new experiences. New experiences are more memorable and with fewer of them, time goes by faster. My immediate reaction was “I hope I avoid that rut!” He said “me too, maybe we need to quit our jobs and do something else.” While he was kidding, finding new things to do and learn about is crucial to successful aging on both physical and mental levels. It would make the above $352,000 or $266,000 go a lot further.
At this point you either can empathize with the grumpy 50-year-old or you feel pretty good about where you are. Future posts in this section will include a lot of content aimed at trying to help more people get to the point of feeling pretty good. Please share this post with anyone you think could benefit from it.