On the plus side, we got our family photos back from Yana and they turned out well! I’m posting some over on Instagram (@lvanderkam). As predicted, wrangling the children was stressful but also as predicted, I’m really happy to have the pictures. Now we need to make the Christmas card!

I started holiday shopping in earnest this week. Some children are easier to shop for than others. I am really struggling with what to get the 12-year-old. He has promised to think about it and help me out. I should note that he has about $60 in birthday gift card money that he has yet to spend. Contentment is good but this does make gift giving challenging! I welcome ideas on what anyone buys pre-teen boys.

Also in financial news: We set the 10-year-old up with a bank account. Our family policy is to get the kids an account at age 10 so they can start learning about saving and investing. This has been fun to watch. The 14-year-old bought Disney stock on the dip of the pandemic when the theme parks were closed. He was bullish on them coming back and has been rewarded for that bet. I should note that in general we are index-fund-oriented investors who don’t try to time the market, but that is a lot less interesting for kids starting out.

I’ve been pondering what to choose as my 2022 year-long read. I have really enjoyed reading through War and Peace at the pace of one chapter a day during 2021. Right now I’m having to restrain myself from just finishing the darn thing (only about 150 pages to go). After some thought, I’m pretty sure that I will spend 2022 reading through all the works of Shakespeare. I found a reading plan that assigns the plays and poems and sonnets to appropriate times of the year (we start with Twelfth Night, of course, for early January!) and I have a copy of the collected works, so I think that should work well. Humorously, the front of the book notes that it was “purchased at Stratford on Avon, England,” by my husband, during the summer of 1988, back when he was bumming around Europe as a student.

And speaking of books — though not quite so classic…the Kindle version of 168 Hours is on sale for $1.99 today over at Amazon. If you haven’t read my first time management book and were thinking about doing so, today would be a good day to get a copy!

Photo: I think of this as the album cover image. There are some with our faces over on Instagram (@lvanderkam). Photo credit Yana Shellman.

What I was attempting to say is that a common theme of personal finance books is to tell people that saving and investing small amounts of money over time adds up, due to the miracle of compound interest. This is true, to a degree. For instance, if you invested $3000 a year in the S&P 500 from 1970 to 2009, you would have achieved a rate of return of 10.38%, and the $120,000 you’d invested would have turned into $1.625 million. Investing $6000 per year — just $500 a month — would give you $3.251 million.

This is a fair chunk of change. But there are a few things to keep in mind. Most notably, this doesn’t take into account inflation. Investing $3000 a year seems relatively doable now, in 2010. This is less than $10 a day. Cut out a few coffees, lunches, movies and mall trips and you could probably find the cash. Saving $6000 a year would be more of a stretch, but this is still only 12% of the average household income of $50,000.

Saving $3000 a year back in 1970, however, would be an entirely different matter. The average household income then was less than $9000 per year. Telling a young person then to invest $3000 a year would be like telling a young person now “Hey, all you have to do to have a secure retirement is invest $17,000 per year!” True, but not particularly helpful. In terms of household income, $6000 would have the sticker value of about $34,000 today. Very few 25-year-olds can sock that away.

That doesn’t mean that people shouldn’t save for retirement. The best reason is that most retirement funds are tax advantaged, plus many employers match contributions. So that’s easy money. Which is why it’s fascinating to learn how little most people have saved up. I’ve spent some time today reading the Employee Benefits Research Institute’s 2010 Retirement Confidence Survey. Some 54% of workers have less than $25,000 in savings and investments. Only 18% of workers who are older than 45 have more than $250,000 in savings. The survey notes that many people underestimate how much money they’ll need for retirement, though this is partly a matter of how you calculate it. If you use the rule of thumb that you can pull out 4% of your assets per year, pulling out just $2000 a month ($24,000 a year) would require you to have at least $600,000 in assets.

Anyway, what all this points to is that most people would find it very difficult to save up enough of their income from ages 25-65 to live for 20-30 years with no new money coming in. I don’t want to get much into Social Security, but far from being an argument for the program, I’d note that Social Security has the same problem in that it’s not clear that overall payroll taxes are enough to support multi-decade retirements either. That’s why people are worried about its solvency.

But here’s a different question: why are we so into the idea of retirement? The whole financial planning industry is based on this idea of having enough money to not work, and yet surveys of Americans find that two-thirds of adults say that they would continue to work if they won the lottery. Perhaps people are thinking that, if they were financially secure, they’d be able to do work they loved and not think about money first. But then that suggests this idea: instead of fixating on retirement, we should put that same mental energy into figuring out what kind of work we’d never want to retire from.

To be sure, we will probably all reach some age where we will not be capable of working. But for many of us, that is not 62. Indeed, given that I’m home with a 1-year-old today due to a babysitting issue, I’d wager that I will find it easier to focus on my career at 62 than I do at 32!

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