A Conversation With My Dad About His Money and My Lack Thereof

My father and I recently had our annual recorded discussion about money. This one went mostly okay.

Logan Sachon: What are you watching?

Mike Sachon: I flip between CNBC and Bloomberg. Trying to keep abreast of the world stock markets and the world economies, since I’m invested in some domestic stocks and some foreign stocks. And some foreign ETFs.

LS: What’s an ETF?

MS: It’s baskets of foreign stocks, is what it is, basically.

LS: How do you pick what you’re going to invest in?

MS: I read Barron’s magazine and I watch these television shows, and I do research at the online brokerage.

LS: So you make your own investment decisions?

MS: Right.

LS: And you’ve always done it that way?

MS: Yeah. I started investing in a tax-sheltered savings, like a 403(b) since I was a public employee. It’s the same as a 401(k), but the tax rules about it are different, slightly. I started doing that when I was about 30.

LS: What precipitated that?

MS: I don’t remember exactly. At that time I was in an MBA program, so I had taken some finance courses and that probably was the impetus to think about investing.

When I first got out of school I worked computer programming at a defense contractor in Virginia Beach. I lived at home for a year and saved enough money for the down payment I needed to get into a small house.

LS: Did you consider that an investment when you did it?

MS: I considered it a better standard of living than I would have if I was in an apartment. And I knew, even if a house doesn’t appreciate, even if it stays the same, you’re paying off the loan, and the interest on the loan you’re able to write off against the tax liability, which lowers the total cost of the loan. And eventually you start paying off the principal that you borrowed of the house. So eventually when you sell you can make some money. At that time, houses were going up two or three percent a year, so I didn’t think I was going to make a lot of money.

But I still own that house. I paid off the loan and I’ve had rental income for 28 years. But at the time, it was a pretty equivalent choice—I had a three-bedroom house and the cost was about the same as a two-bedroom apartment, the monthly cost. And now the house is worth five times what I paid for it. Even after the correction, after the real estate collapse of 2008.

LS: Correction. I haven’t heard that before.

MS: Markets correct, and the real estate market corrected. It was a bubble with inflated prices.

LS: Up until 30, did you have excess money?

MS: No.

LS: That makes me feel a lot better. Like I still have some time. I’ve got two years to buy a house.

MS: You don’t have to buy a house. That’s not feasible.

LS: Actually I have one year. Fuck.

MS: Ha, yes, you have one year.

LS: Okay, so when you decided you wanted to start investing, where did that money come from?

MS: Tax-sheltered payroll withholding, so it was through work, you could save money before taxes. So you could save $100, but it would only reduce your takehome pay by $80. When I bought my first house, I was making $10,000 a year, and my house payment with taxes and insurance was $315.

LS: Can you explain to me the difference between going to a casino and playing the stock market?

MS: In my mind, and I’ve played it every way, when you invest in stocks, you look for growth companies, you look for companies that pay dividends and have a history of consistently paying dividends. You look for value stocks that are good companies that for some reason have not looked at favorably by the market, so they might be opportunities, to buy low and later sell high, and then the fourth time is totally speculative buying, that’s kind of like Vegas. You’re buying a story and it can be like playing roulette.

LS: Have you done all of it?

MS: Oh yeah.

LS: Why?

MS: Now I buy individual stocks. Before, the 403(b), you didn’t have a lot of investment choices. Initially it was a fixed account that you would save money and it would pay compound interest. Even saving in a fixed account, compound interest will let that grow over time.

LS: And you didn’t start with compound interest til you were 30.

MS: Right. And so. Initially the 403(b) plans were offered from life insurance companies. They were fixed accounts, tax sheltered savings, you couldn’t invest in stocks. But once the opportunity became possible to invest from stocks and mutual funds, I switched my tax savings to an account that let me save and invest in mutual funds.

LS: Was that a gamble? Because the compound interest was a sure thing.

MS: No I viewed it as an opportunity, because stock markets tended to average 8 to 10% over the long term. So I saw it as a way to grow my wealth faster.

LS: Was it ever real money?

MS: It’s always real money, but it didn’t feel like real money at the time because it came out of my salary before I got my check. It was just money that I never saw, so it couldn’t be part of what I budgeted. And there was a time when I stopped doing it.

LS: Why was that?

MS: The cost of private school. Actually I can’t even say it was totally that because it may have been when mom didn’t work for a year. So I stopped it, because I needed more takehome pay, because your mom, when you were little, she took one year off and then she worked part-time for another year. So that’s why I stopped.

LS: Was it stressful to stop?

MS: No. At that time we just couldn’t afford it. But as soon as she went back to work fulltime, we both started saving again, investing.

LS: So back to real money.

MS: It’s not real money you can touch. It was in a place where you’d have to fill out paperwork, pay penalties to get to the money, as well as income tax when you pull it out.

LS: So it was always for your future.

MS: Right. We looked at that as retirement savings, and we lived within the cash flow that we had other than that. We didn’t really think about savings beyond that. We didn’t think about building up a savings account. We had stable jobs. So we didn’t have six months of savings in case we were out of work, but we would save money toward buying an appliance or something. And we typically bought used cars.

And we both had stable employment, mom with the school system, me with the university. A state university.

The first six years out of college I didn’t have stable employment. My first job was with a defense job, I was there for two and a half years, and the contract we were working on got bid out to another company. And then when I first got a job at the university, I was employed by a National Science Foundation grant, and that was three years, and that was soft money—when that ended there was no job. Once I was hired by the university they created a position, I thought I’d finish my master’s degree and then leave, but then my job became more defined, and I ended up staying for 31 more years.

LS: Did you always know you were going to stay that long?

MS: There were a couple of times when I thought of leaving. There was one time when I thought I was going to have to leave.

Once I was over 15 years as a state employee, there was a lot of incentive to stay longer. The state pension really only becomes enough to live on when you have 30 years in the system. You can have less than that, but the amount of your pension goes down like 4% every year less than 30. So it was a lot of incentive to stay. Once you’re in a state system, employee salaries tended to be an easy target to balance the state budget, so we went many years without a salary increase. And before I retired we went three in a row without a salary increase.

LS: Before that was it merit-based, or a raise every year?

MS: A combination.

LS: When did you start thinking seriously about retirement?

MS: At one time in the middle of the nineties, the computer field was taking off all over the country. And I thought about leaving then, so that would be 15 or 16 years into my employment there. And that was a pivotal point. If I was going to stay in the system it was going to be for the long run, because that was the time to leave. And I chose to stay.

LS: Because of the pension?

MS: After 15 years, that’s really an incentive. Yeah. You see the fact that 15 years later, I would be 58 years old, and I’d be in a position to retire at 58. And that was incentive to stay. The other thing was, I had a working wife and two kids in local schools, and changing jobs meant we would probably relocate.

LS: But still, you were 40 and thinking about yourself in 20 years.

MS: Oh yeah. Your mom calls me the poster boy for retirement, because I’d been talking about it when we were married.

LS: So when you first started investing when you were 30, were you also thinking about your 60-year-old self?

MS: Yes, the idea was, in my mind, if you wanted to have a nice retirement, you needed more than one source of income. So you have to put that money aside and not even think about it to meet your monthly expenses. Growing old comes faster than you think. You’re 29 in May.

LS: 29 ahhhhh. That’s old. But no, it’s young. I’m no spring chicken. But maybe I am a spring chicken. I feel fine with my age. Only like 20% of my hair is gray. At this point, have you taken out the money you’ve invested?

MS: Yes. I started taking it out. And I decided that taking out as much—mom and I went on a big European trip, and I can show you the bank records of how much we transferred to you clowns. But I decided I wanted to take that money out for big purchases, but I didn’t like the way the taxes were working out. So I decided to refinance the house, so I got a ten-year loan at 3%, and that took care of any outstanding loans that we had and gave us enough cash so I have cash to take care of any other needs that we have. Then I can pull the money out of my tax shelter to make the payments on that loan.

LS: And you just figured that out by yourself?

MS: Yes.

LS: If you hadn’t invested that money, would you still have been able to retire?

MS: Yeah, but I probably wouldn’t. One of our 403(b) companies prepared a retirement analysis before we decided to retire and that money, the money that we had saved, really put us in a position where we could retire at age 59 and be able to afford our retirement.

LS: Did grandma and grandpa do stocks and stuff?

MS: Yeah, yeah they did. I didn’t really talk about that with them. They did some, which was good. They were in a good shape. They saved their money in treasury bills. They had some mutual funds invested and they had invested in treasury bills. I had talked to my dad about that, and what they were invested in.

But treasury bills are now a terrible investment. Because the interest rates are being kept artificially low by the Federal Reserve, so people who are saving money and have money locked in what is a safe investment, it doesn’t pay any interest. So the Federal Reserve are helping banks regain their riches but are really harming people who are looking for safe assets for their retirement money. If you have inflation at 2%, treasury bills should at least pay you a few points over inflation, but instead ten-year bills are paying inflation rate, which is ridiculous.

LS: How do you buy them?

MS: You can go through a broker, but if you’re smart you’ll go to the treasury and open your own account. I had some at one point, but when the interest rate got crummy, I moved them to mutual funds or stocks.

You have to make sure you’re earning more money than you’re spending every month. You need to spend less than you make, and that involves daily decision making. And you have to view purchases like a six dollar cappucino is $180 a month for cappucino, a $15 lunch is $480 you’re spending on lunch. You have to decide. At the end of one month, if you can save enough to go have a cappucino the next month on your savings, then do it. But you can’t have a cappuciono if you can’t get to the end of the month and buy groceries without someone sending you a grocery store gift card. You can’t go to the bar—

LS: I stopped going to the bar.

MS: I’m not talking about you.

LS: You are talking about me.

MS: I’m not talking about you. I thought we were having a conversation about—

LS: You are talking about me! You are using this as an opportunity to yell at me!

MS: I’m not yelling. Now if you want to talk about you, we can talk about you.

LS:

MS: I don’t think you want to talk about you, and I don’t blame you.

LS: I don’t think there’s anything to talk about right now. I’m doing what I have to do.

MS: One comment. I think you’re going through this transition where you think you have this weakness in not being able to manage money, and I think that you’re slowly learning how to manage your money, and it’s empowering when you do. It’s taken you a long time to learn how to live poor. That’s what it is.

LS: You never lived poor.

MS: Well, you know. I never tried to compete with friends who had higher salaries and more stuff. And I never used credit cards to try to maintain some lifestyle. I charged over $50,000 in credit cards last year and paid zero interest and got money back for the effort.

LS: I think we’ve established that I’m not a person that will ever work for.

MS: Not if you carry a balance, it won’t. They reformed credit cards so on the credit card statement, they will show you every month what a sucker you are. But people don’t look at their statements, I guess. Or people without money don’t see the value. Or don’t see they’ll be spending $2,000 in interest on the cappucinos they bought in the last year. Credit cards cannot be used for credit. They should only be used for convenience.

LS: I don’t understand why you even have them.

MS: To get reduced-price trip to Europe. I have them to get money back. I have an American Express that gives me 3% on gas, 2% when I go out to dinner, 1% for everything I charge. So I get a check for $300 at the end of the year. And I paid no interest. That check wouldn’t feel very good if I paid $2,000 in interest in the last year.

The convenience is that the stores pay the credit card company to use the card. They don’t need your money, to use as fake money. I hope you’ve learned by now that it’s not your money. It’s your future money.

LS: Did you ever have credit card debt?

MS: No. Never.

LS: Well aren’t you something.

MS: I am.

LS: What are your worries about me?

MS: My worry is that you have this credit card debt. And you have nothing to show for it.

LS: That always confused me. If I had a closet full of designer clothes and shoes, that’d be better?

MS: No. No. That would be the same thing. It wasn’t a big emergency. I would use a credit card for a big emergency. But you just used it to increase your monthly income without thinking about how you’d pay it back. Compound interest works both ways. When you’re paying for stuff on a revolving credit card, the amount it costs goes up a lot. When you’re saving money, you want to go the longest period of time. And when you’re using credit, you’re doing just the opposite. You’re stealing from yourself and your future.

LS: So your biggest worry about me is about something I did in the past. Because I’m not doing it anymore.

MS: When are you going to have all your credit cards paid off?

LS: I have no way of knowing that. If my income stayed stagnant … forever.

MS: You need to look at your statements. You need to have an idea of what it’s costing you to continue holding that credit. So that when you do get more money, it’s your highest priority to pay that off. Because if you’re just making the minimum payment plus $5 and thinking you’re really cutting into it, you’re not.

LS: I could have enough money to have a nice life, if I didn’t have the payments. Like I’d have some disposable income. I’d be alright.

MS: I’m glad you finally admit it. In other words, what you did to get yourself in that position, before you went to New York, you doing that then, look at the detriment it had on your future, your current life.

LS: Looking back is totally pointless though.

MS: Not if you’ve learned from it. But you’ve already had two strikes with credit card debt. You got it down to zero twice. This was the third time and you didn’t learn anything. You had me pay it off. You refinanced your car, which thankfully you had enough equity in it, again, me, and you still didn’t learn a lesson. Why? But I wasn’t aware when you were building up your huge credit card debt. I had no idea. And we don’t talk about your finances, I don’t know how you’re doing, except that I know you can’t pay your taxes. So I know the hole is getting deeper. You can’t ignore the fact that you have to pay taxes as an independent contracter, and at some point you’ve got to start doing something about it. So yeah I’m worried about you.

So you keep working hard. Your income comes up. And you live the same lifestyle until you cover all this debt. That’s the way out of this. That’s the only way out of this for you. You can’t grow a lifestyle with your income until you erase that debt. And then you will have learned your lesson. Maybe.

LS: I’m not a person who has ever thought about the future much, obviously. But when I look at you and mom, I’m not going to have a pension. And I’m not going to have investments like you do.

MS: You don’t know that. You take care of your debt, and then you can start saving for retirement. You’re not going to have a pension, but most people in this country don’t have a pension. We were fortunate enough to work for a state that at least in the past was fiscally responsible.

LS: So you don’t think it’s too late for me.

MS: Of course I don’t think it’s too late for you. When your mom and I were married, I was 32 years old. I didn’t have any money.

LS: But you had a house.

MS: I had a house. But it wasn’t much.

LS: Back to investing. Is that something you have to do?

MS: You have to do it.

LS: But how do people do it who didn’t get MBAs?

MS: You’ll start a retirement fund and you can have somebody manage it for you. There are ways, companies will manage your money for you and pick your investments.

LS: So there’s no way to opt out of that game.

MS: Yeah, but it’s foolish to opt out of that game. Logan, let’s say you’re 40 years old when you’re in a position to start saving for retirement. And you put away 10% of your gross income, because when you start at 40 you need to save that much. And you do that until you stop work and between social security—there will be some kind of social security—and your savings, you’ll be able to support yourself in some way. But if you have nothing but social security, you’re going to be in a big trouble when you’re 68.

LS: But there will be a lot of people like that.

MS: So. There are going to be a lot of poor people. Why do you want to be in that boat? Why would you think that’s a good future? There’s a lot of people who aren’t going to save a penny! It’s time for you to start thinking about the future. If you had started thinking about the future four or five years ago, you’d have such a better lifestyle right now.

LS: So, let’s pretend I’ll do exactly what you say. What would you tell me to do right now.

MS: I think you’re doing the right thing, taking steps to increase your income. That’s the biggest thing you have to do now.

LS: Do you think it’s stupid that I’m living in New York?

MS: No, with what you’re doing for a living, that’s where you need to be.

LS: Do you think my generation is screwed? Do you think my future is dark?

MS: No. The answer is no. But I think looking for a job in the economy of the last four years is tough. I think the path to getting good jobs is a longer one. I think you, your generation, is having to start out with a job that is less than what you had imagined for yourself. You have to take what you can find, but you don’t have to settle for that. Use that as a starting point. I’m glad you have a job.

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56 Comments / Post A Comment

MaxBraverman (#3,273)

Logan, the one thing you need to do to help you with your debt is to STOP comparing yourself to everyone else. Your friends, your parents, what they have that you don’t, etc… You don’t have their life, their job and you aren’t going to. Worry more about taking care of yourself than having what everyone else and doing what everyone else is doing.

LDW@twitter (#1,216)

@MaxBraverman Yes! But also don’t let the “So many people are in the same boat as me,” be an excuse for not trying. I like the way your dad is pushing against your tendency to do that.

MaxBraverman (#3,273)

@LDW@twitter It’s just something I noticed her say in other posts too. Like, she feels guilty if she can’t go out for drinks with her friends because she doesn’t have money or she doesn’t have something Mike Dang has and will make a joke about it. It’s hard not to compare ourselves to others, but Logan has more to offer than what’s in her bank account and she should focus on that.

lalaland (#437)

Logan! Your dad is like Mike Dang.

pizza (#599)

@lalaland I thought the same thing.

dotcommie (#662)

@lalaland Mike Dad

Your dad is RIGHT ON, I’d say. Especially the part about how, in addition to controlling your spending and saving more, you ALSO have to increase your income. Like think about it this way: if you save 5% of your income, and you earn 5% on that, AND your income goes up by 5% a year, you’re triple-compounding right there!

lalaland (#437)

Also, I think given the readership of The Billfold, people definitely think about retirement, but how much does it stress everyone out?

I have a decent amount of savings socked away in various brokerage and money market accounts, but given the low interest rates, and you know, 2008-2010 or so, it’s not where it could be. My parents have pensions, but that’s a thing of the past, and it just seems like my generation is going to face a rougher retirement than the ones before us.

Just thinking about all the costs ahead of me (turning 28 this year), like potentially buying a house, future kids, illnesses, etc. etc. is kind of terrifying.

highjump (#39)

@lalaland I recently got an amazing union job that (did not even know this was a thing!) just puts a percentage of your salary into a 403b without you having to match any of it. Considering the percentage, my age, and recent market trends I should be able to retire at 65 or 67 comfortably. BUT if you leave or get fired before you’ve worked here for three years then you get none of that money that has been contributed for you. So now I live in fear of getting fired. Talk to me in 2.75 years.

whoaisme (#3,158)

@lalaland It stresses me out a lot, really. I put money in my 401(k) and an IRA but I’m always nervous I’m not doing enough.

lalaland (#437)

@highjump That’s awesome! Congratulations!!! I *think* that’s just standard vesting time, it’s more protection for the employer so that you don’t leave THEM and take all the moneys…so I think/hope you should be okay.

Runawaytwin (#2,693)

@lalaland ugh this is actually my obsessive thought process of the day. I receieved a small bonus at work and am debtaing putting it into a roth IRA (for 2012). I know I should BUT im also not sure how stable my job is (yes odd considering i got a bonus) and if i should keep the money in a more liquid form.

I also, not so wisely, want ot just actually enjoy my money and spend it on something i want —>note i *probably* wont do that.

highjump (#39)

@lalaland Oh? Thank god. My last job was a (fairly generous, not complaining) percentage match situation and I started contributing right away but if I had left before a year they said I couldn’t take their money with me. So I assumed a year was standard. Still! Love this job, don’t want to be fired.

lalaland (#437)

@highjump I think it depends on the field/type of match (well, I guess maybe not applicable since this is union). My 401k % match became vested after a year, but I also got some company stock that took 3 years to become 100% vested.

Sorry, I’m definitely not an expert on this, so hopefully I didn’t say anything completely wrong. But I think you should be okay as long as most people in your company seems to be sticking around after the third year. In any case, congrats on the job!

lalaland (#437)

@Runawaytwin Maybe half and half? You could also keep it more liquid (and sadly earn basically nothing on it) until you feel more stable too, and then put it away in a 401k. Congrats on the bonus!

Runawaytwin (#2,693)

@lalaland half and half is a good idea and yet I dont know why but with the roth i feel like i should be trying to get as close to the max (5,000)as possible. Like, as the article says, I am stealing from my future self if I dont. Last year I did nto contribute to my 401k. This year I am.

(as an aside- i did use a small amount of the bonus to take my very supportive boyfriend out for dinner since he is always so generous in treating me)

Mike Dang (#2)

@Runawaytwin Why not put it in the Roth? Remember that you can withdraw any amount you invest into a Roth IRA for any reason without incurring a penalty—the penalty is only for withdrawing earnings. (See here).

@highjump @lalaland I think vesting periods vary a lot. My employer’s 401k match vests annually on a certain date, while my boyfriend’s is 100% vested immediately, and I have one friend who I think has a similar situation to you, her employer puts a certain percentage of her salary in a 403b regardless of her contribution, and has to wait 5 years for it to vest. It might depend on the overal financial situation and turnover issues, plus what’s common within similar companies/orgs.

I am sort of surprised I don’t worry about retirement more than I do? I make sure I’m putting at least 10% of my gross income in retirement accounts because that’s what all the advice says, and beyond that I don’t think about it. I tend to plan obsessively for the near future and then anything past maybe a year out just seems too far away and uncertain to deal with.

@runawaytwin at first I was going to be all “IRA! IRA!” but if you’re worried about job security and don’t have a decent emergency fund, that should be your first priority. The advice on how much is enough is all over the place, but ideally enough to cover the time you’d need to find a new job. Mine is 6 months, rounded up a bit.

@Mike Dang ok I thought that Roth penalty-free thing was true, but when I looked it up I got confused and thought the only way to avoid early withdrawal penalties was to use the money for a house. Your link is much clearer So, runawaytwin, put it in the IRA!

sony_b (#225)

@Lorelei@twitter @Mike Dang

I’ve been having adventures on this front this year. I have a condo I bought a decade a go that is currently in some state of being foreclosed upon (I haven’t paid the mortgage since June after they refused to do a short sale, and I couldn’t rent it without losing $300 per month that I can’t afford). I bought a new place with my boyfriend right before I stopped paying the mortgage (intentionally – condo was awesome for me as a single, but it’s 500 square feet and we both work at home. Continuing to live there is not an option).

I also took 20k out of my 401k to help with new house costs. Fidelity advised me to roll it into a Roth IRA and then take the distribution because the tax consequences could be better but would definitely not be worse. Looks like they were right, according to my accountant the timing works out so that I’m considered a first time buyer again and can take the money penalty free. She’s double-checking that right now, but expects it go through. The difference is between me getting $500 back on my taxes or paying $700.

Your dad sounds exactly like my dad. He once had to explain to me that money doesn’t live in the bank in neat piles in labelled boxes. This was like, last year.
(Also, you’re doing great.)

@Meghan Nesmith@twitter Wait, so where do all the spent dollar bills live? This is a serious question.

siege91 (#1,738)

yeah the whole retirement at 59 thing…that’s never going to happen for this generation. Logan’s dad was extremely responsible about the whole thing, is a knowledgable investor, started saving early in his life, and had a stable dual-income household for 30+years and STILL his pension is going to make up a big part of the retirement budget. Typically 30-year state pensions max out at the full amount of final-year pay (for CA anyways – though CA is not really a model of fiscal prudence), which is an amount that would be completely unfeasible to save in a 401k scheme even if the employer was matching (which the vast majority do not). Even assuming the pension is on the low end and maxes out at, say, 40% of final pay, that is way more money than anyone can save individually as wages have definitely not risen as companies drop pension plans and/or matching 401k contributions.

So: doom/gloom/spectre of poverty/soak the rich.

lalaland (#437)

@siege91 That’s the thing, right? You can do everything “right” and be as prudent as Logan’s dad was, but the rules have changed (and not in anyone’s favor but essentially the 1%).

JanieS (#1,826)

@lalaland Exactly!

frenz.lo (#455)

@siege91 it’s cool, though, because I also do not plan to die at 70.

Abe (#3,483)

@siege91 Except “soak the rich” does nothing to solve this problem. What we need more of is what Logan’s dad preaches…people not spending like idiots.

AitchBee (#3,001)

I tried to imagine having this conversation with my dad (not about money, probably, but about, I don’t know, having a career. Or using power tools with care and precision) and I had to put my head between my knees for a while, and then I imagined publishing it on the INTERNET for PEOPLE TO READ and now I’m trying to crawl between my filing cabinet and the wall.

eagerber (#1,958)

“And when you’re using credit… you’re stealing from yourself and your future.”

What a great, great conversation. THIS is why I read The Billfold.

EM (#1,012)

@eagerber Yeah that quote was a really clear, simple way of why credit card debt is bad.

@eagerber Agreed. Also “compound interest goes both ways”. So simple and obvious, yet I had never thought of it that way.

whoaisme (#3,158)

I never tried to compete with friends who had higher salaries and more stuff. And I never used credit cards to try to maintain some lifestyle.

Thank you, Logan’s dad. I recently got a promotion and have been waffling between staying in my current apartment and putting my raise towards savings and using the money towards renting in a hipper neighborhood. Honestly, saying it like that seems silly… if I stay in my less cool/expensive neighborhood for 1 or 2 years, I could save for my future rather than throwing money away on renting right now.

Also, this article has me Googling “stock market for dummies”… future article? Please? Help?

@whoaisme OK, this is one place where I really disagree with Logan’s dad, you should not ever pay for an actively managed mutual fund! If you don’t pick individual stocks yourself (which, frankly, the average individual investor shouldn’t bother to do either unless you find it a really entertaining hobby), invest in index funds! My parents gave me this book as a graduation present, because they’re like that, and here is the entirety of the stock market for dummies info that you need to know:
1) actively managed funds charge higher fees than index funds, sometimes a LOT higher
2) on average they earn less money than index funds, and there’s no way to predict which ones will earn more or less.

I have a Roth IRA with Vanguard in one of their targeted retirement funds, and it’s the best because they do all the work for me for very little money, including automatically shifting the balance of investments to reduce the risk over time. If you have like, tons of money to invest, it’s not always the best choice, but if you have enough money that you’re investing in a bunch of mutual funds above and beyond your 401k/IRA, you probably also have enough money to hire a financial planner who can give you more tailored advice. The other issue with Vanguard IRAs is you have to have at least $3,000 to open one (the other part of that graduation present from my parents was enough money to get me to the $3,000 mark, because, well, they’re like that).

@Lorelei@twitter THIS. Trying to time the stock market is also a poor idea. Low-cost ETFs (which can be proprietary to where you put your money to save more on trading costs) are where it’s at. Both stocks and bonds. Diversity and low cost. Logan’s dad is wrong in buying individual stocks, paying commissions for them, and trying to beat the regression to the mean.

laurahb (#3,558)

Oh my god, powerful stuff. Thank you.

kellyography (#250)

Reading this made me change my withholding (so I can take more freelance jobs and not have to pay out thousands of dollars next April, like I did this year) and bump my 401(k) contribution to the full matching 5%. I’m still not ever going to be able to retire, but these things make me feel like I am at least trying.

This was really great and fascinating. Also, I found myself oddly scandalized that you said the f word to your dad.

Clara (#3,450)

@Michelle LeBlanc@twitter Same here!

KittyConner (#3,108)

A pension thing:

This is going to come off as a Rich Person Problem (not rich!) or maybe a lucky person problem, but I have a pension and it is … making me make (really, not make…) life choices I might otherwise choose.

My husband and I both work in state affiliated jobs, much like Mr. and Mrs. Mike Dad. I started full-time with the university when I was 21 and am approaching 10 years of service. He’s been in a county position for over 7. Which means we are both fully vested in our (fiscally conservative and stable) state’s pension fund. In addition, both of our employers chuck in a percentage of our salary to another retirement fund, plus we both contribute 3% to our 403(b)s. If we remain employed at these places continuously, we would be able to retire at age 55, with full health benefits and all. And based on the ‘Estimated Retirement Outlook’ I received in the mail last week, if inflation isn’t the worst ever, the amount we would receive would be …. comfortable. Especially if we kicked up our 403(b) savings like we were planning on doing before we knew how cushy the pension was. Like bringing in more monthly in retirement then we are now comfortable.

So, so awesome! Really! The luckiest EVAR. How dare I have any complaints about this!

The problem is, it’s kind of so so awesome we feel like we’d be idiots to ever ever leave our jobs. Even though there are things we’d maybe like to do that would necessitate leaving. (Moving closer to my family in a different state, for example.)

The awesome is creating paralysis. Because on one hand, 55 is so young! We like our jobs! We can totally wait it out and do the things we might want to do then! We’d be idiots to pass up financial security in a very insecure world! On the other hand? Getting to 55 isn’t a guarantee. Shit happens, life can be short. Is the security worth it? I missed huge parts of life with my family these last 10 years and as a likely childless couple, I’d kind of like to see my nieces, nephews and assorted cousins grow up. I’d like to be there for my mom as she ages. Maybe we’d both like to nudge our careers a little, down a slightly different path?

But is any of that really worth the comfort and stability we’ve been promised? Arrrrgh.

Conservative stability vs insecure heart-following.

Catface (#1,106)

@Ash@Work Since you ask (I am enrolled in a pension fund too, and live far from my people), my vote is for conservative stability. But that’s all it is, my vote. The “full health benefits” you mention alone are a phenomenal win — a lot of public-sector jobs don’t offers that anymore or never did. Does your employer, like mine, ratchet up your number of vacation days per year based on years of service? If yes, maybe you can dedicate a certain number of them to visiting family.

@Ash@Work If you want to move and you find work with another university, you might be able to transfer your balance to your new pension plan.

@Ash@Work I think your conundrum is exactly why these pension plans are often called golden handcuffs.

@Ash@Work I would just be very choosy about what you move for. And since you have a ogod set-up where you are, you can afford to place some pretty high demands on an employer if you will be a valuable asset to them. I am sure in the university recruiters know that recruiting employees with experience from other universities is going to be a challenge because of exactly this. As someone else mentioned, they may be able to effectively transfer your pension benefits or give you some other added benefit to make changing jobs worth your while. It might take some time, but I would watch for positions in my field in the area I want to move to and apply. If you get an interview go, and if they offer you the job then you can negotiate your benefits. If it doesn’t work out, what have you really lost? A little travel expense maybe but nothing major.

Human Centipaul (#3,559)

Dad advice is great advice. I am crazy fortunate to have a dad who always pointed me in the right direction and tried to explain how all this stuff worked. Regarding the comment about the stock market for dummies: the best advice my dad gave me on money was to buy index funds. That’s the simplest way to capture the historic 8-10% annual rate of return in the market that Logan’s dad mentions. A total market mutual fund from Vanguard or Fidelity or any of those big fancy names attempts to invest in an equal distribution of funds from the S&P500, or the total international stock market, and so on. What’s key is that they tend to have very minimal expense ratios because they’re minimally managed–e.g., you only have to give Vanguard 0.1% of your earnings on their S&P500 index, whereas actively managed fancy funds can be in the 1-2% range. It’s like the vig in Vegas, so you want to keep it low. Trying to pick stocks is generally not productive, and risky. Even trying to pick mutual funds can be hard. Index funds are the fire-and-forget of mid- and long-term investing, whether in your 401k/IRA or a regular stock portfolio.

@fo (#839)

@Human Centipaul: “you only have to give Vanguard 0.1% of your earnings ”

NOT ‘of your earnings’, of *all* the $$ you have invested. You put in $1000, they take 0.1% (or 1% or 2%) of that $1000 (or $900, if it loses 10%, or $1100 if it gains 10%).

Clara (#3,450)

This was one of my favorite posts on The Billfold. I’m wondering whether Logan’s dad could write a post on his views on teaching kids about money (can it even be done?) and what if anything would he do differently if he he could do it again.

My dad is basically Logan’s dad, but he NEVER talked to us about money. He did all the right things himself, but when it came to his kids we never really learned how to manage money well. I don’t think we were overly spoiled – we never had big luxuries as a family or individually – but we certainly didn’t learn the value of a dollar. My dad also had the government pension, worked at the same place for >30 years and retired before 60. He and my mom saved and we lived in a modest house were they still live.

But I guess it was like they expected we’d learn these things by osmosis? And … we didn’t. My brother and I are both terrible with money, though we are now much better than we were in our 20s and early 30s. But I’m just over 40 (admitting it! in public!) and I’m only now getting close to managing money well and am very behind on things like savings and retirement and I find it all very painful. I make probably 2x what my father ever made at the height of his career (and I support myself and 2 very hungry cats, he had a family of 4) and while I work hard and expect to work hard for a very long time to come, I’m just a little pissed off that he KNEW what to do but never opened his damn mouth.

So I’m sure it’s annoying for Logan to keep hearing it but I’m glad your dad keeps saying it Logan – for you and for lots of other young women to learn a lot earlier than I ever did.

sophia_h (#3,049)

@Mary-Lynn Bragg@twitter Yes, exactly this. My dad has a government pension coming, owns a house, and does all kinds of refinancing and financial things and has never talked about any of it with me. I have been embarrassed to tell him anything about my poor finances (mostly law school loans and credit card debt over unavoidable expenses, like dental work, but also back taxes from being a contractor and a car payment that’s bigger than it should be because we didn’t bargain), but I’m also getting kind of resentful that he apparently knows how to deal with money and just never thought about educating me on it growing up.

TARDIStime (#1,633)

@Mary-Lynn Bragg@twitter I agree. I notice that it is all Ladies in this particular thread – do you think maybe Dad assumed when you were kids that a future husband would manage your finances for you as an adult so it was not necessary to teach you about managing your own money?
I would be interested to know if either of you had brothers that were taught the Financial Ways?

julnyes (#2,807)

Though Logan’s Dad said Treasury Bills are a bad investment, I am still going to look into them as a potential way to diversify my savings.

And as a person who paid off her credit card debt once and then dug myself a new whole again, I am sympathetic to Logan’s situation. I think paying it off in increments as I am now instead of as a lump sum may help me not make the same mistake again.

@fo (#839)

@julnyes: “I am still going to look into [T-Bills] as a potential way to diversify my savings”

Honestly, unless you have sooo much cash that you’re over the FDIC limits, my view is you are 1,000% better off finding the best savings account rate you can. The *maybe* 1% (if you buy 10 year notes) gained is just not worth the hit to your liquidity, and you effectively take on some capital risk (bc, if rates go up, you cant sell your note for par).

You remove the capital risk if you buy TIPS (treasury “inflation-protected” securities), but then you lose almost all of the first year interest gain vs the highest rate savings accounts.

Basically, I agree that they are a *horrible* investment as a diversification for someone without a *LARGE* pile of cash.

inspector_tiger (#2,651)

I just wanted to say: Logan, you’re so very brave for posting this. I don’t want to sound condescending, I just really admire your openness.

If Logan’s dad is looking to get to Europe with his credit card rewards, he’s better off getting airline miles back than cash back. As he’s retired he has flexibility in booking dates and it’ll take fewer $ in credit card spending to get to a free trip.

Great play. I am a grandfather in this stunning commentary. My role is to keep the family cemented together until I die. My story is a private sector tale with the same ends in mind. I retired in 1985 with $102,000 which I put into a self directed IRA and vowed to go back to work if I ran out of money. I haven’t yet. My rational; house paid for and children all educated at my expense. It would be nice to know what happened to their G&G’s wealth.

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