Author Topic: This Is What Life Without Retirement Savings Looks Like  (Read 12403 times)

elysianfields

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This Is What Life Without Retirement Savings Looks Like
« on: May 20, 2018, 04:44:55 AM »
Just came across this article from February 2018:

https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/

A few choice quotes:

Quote from: The Atlantic
More and more older people are finding themselves in a similar situation as Baby Boomers reach retirement age without enough savings and as housing costs and medical expenses rise... Many people reaching retirement age donít have the pensions that lots of workers in previous generations did, and often have not put enough money into their 401(k)s to live off of; the median savings in a 401(k) plan for people between the ages of 55 and 64 is currently just $15,000, according to the National Institute on Retirement Security, a nonprofit.

Quote from: The Atlantic
Two-thirds of Americans donít contribute any money to a 401(k) or other retirement account (emphasis mine), according to Census Bureau researchers. And this could have larger implications for the economy. If todayís middle-class households curtail their spending when they retire, the whole economy could suffer.

This is a disaster in the making...Would it make more sense to get employers out of the retirement-plan business, and have the Federal Government establish a 401(k) for all, with a mandatory minimum contribution from the employee/taxpayer, optional contributions/matching from the employer, and some sort of matching from the USG?

craiglepaige

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #1 on: May 20, 2018, 05:49:03 AM »
Just came across this article from February 2018:

https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/

A few choice quotes:

Quote from: The Atlantic
More and more older people are finding themselves in a similar situation as Baby Boomers reach retirement age without enough savings and as housing costs and medical expenses rise... Many people reaching retirement age donít have the pensions that lots of workers in previous generations did, and often have not put enough money into their 401(k)s to live off of; the median savings in a 401(k) plan for people between the ages of 55 and 64 is currently just $15,000, according to the National Institute on Retirement Security, a nonprofit.

Quote from: The Atlantic
Two-thirds of Americans donít contribute any money to a 401(k) or other retirement account (emphasis mine), according to Census Bureau researchers. And this could have larger implications for the economy. If todayís middle-class households curtail their spending when they retire, the whole economy could suffer.

This is a disaster in the making...Would it make more sense to get employers out of the retirement-plan business, and have the Federal Government establish a 401(k) for all, with a mandatory minimum contribution from the employee/taxpayer, optional contributions/matching from the employer, and some sort of matching from the USG?


People would lose their shit if they were forced to pay into a retirement account by the government.

pecunia

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #2 on: May 20, 2018, 05:59:34 AM »
Quote
People would lose their shit if they were forced to pay into a retirement account by the government.

I hope not.  I've been paying into Social Security since I was 14 and expect to get some money from it in a few short years.  I'm rather confident I will.  We old geezers vote.




craiglepaige

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #3 on: May 20, 2018, 06:03:07 AM »
There's a difference between SS and a 401k (investment) type of account. Unless said investment had a guaranteed return, I don't see how the public can be forced into it by government.

I'm sure someone way more intelligent than me will chime in with a better response. Maybe it's doable and I just don't understand it.

CrustyBadger

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #4 on: May 20, 2018, 07:32:04 AM »
In the past few years there has been some discussion of state run private retirement accounts.   Not mandatory, but employees would have to opt out instead of opting in. But it doesn't look like it went anywhere. 

http://www.governing.com/topics/mgmt/gov-401k-states-retirement-private.html

freya

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #5 on: May 20, 2018, 07:41:53 AM »
Just came across this article from February 2018:

https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/

A few choice quotes:

Quote from: The Atlantic
the median savings in a 401(k) plan for people between the ages of 55 and 64 is currently just $15,000, according to the National Institute on Retirement Security, a nonprofit.

Quote from: The Atlantic
Two-thirds of Americans donít contribute any money to a 401(k) or other retirement account (emphasis mine), according to Census Bureau researchers.

These stats are being cherry-picked and presented out of context.  Since people change jobs frequently, it's not surprising that a particular 401K plan has a low balance.  I haven't changed jobs that often, but I have 11 accounts and I expect many people have more.  Also, I don't buy the $15,000 number.  The average 401K balance is $92,000 per a GAO study.

Regarding the 2/3 of Americans that don't contribute to retirement savings:  Out of all people living in the US, about 1/3 are outside the working age range of 15-64.  Of those in the 15-64 range, many don't work for a variety of reasons (in school, unemployed, disabled, stay at home parents, early retired).   There's also the fact that the Census includes our rather large population of illegal immigrants and temporary (e.g. H1b) workers, and I am guessing very few of these have retirement accounts.

There are undoubtedly people out there who aren't saving as much as they should, e.g. new college graduates burdened by student loans, but I think the problem is very much overstated.

maizeman

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #6 on: May 20, 2018, 08:02:11 AM »
Would it make more sense to get employers out of the retirement-plan business, and have the Federal Government establish a 401(k) for all, with a mandatory minimum contribution from the employee/taxpayer, optional contributions/matching from the employer, and some sort of matching from the USG?

That seems like overkill and something that would be very difficult to implement given the current membership of congress.

If we wanted to increase dramatically increase retirement plan participation rates, we already know how to do it doesn't require anything as drastic, just:

A) Switch from opt-in 401(k) participation to opt-out
B) Have contribution rates automatically increase by 1% of total salary per year until participants either hit the deferment cap or 15% of salary, unless the employee files a form either opting out for that year, or to defer some other amount.

Just item A has been shown to increase the proportion of new employees participating in a 401k plan from 34% to 90%.*

If that still isn't high enough participation/contribution, there are plenty of other similar tricks which still cost almost nothing and don't require major changes to our retirement system. One interesting approach people have been experimenting with that apparently looking at a digitally aged version of yourself before making a decision about how much money you want to save for retirement can more than double the amount of money people put aside for retirement savings.**

*Source: https://www.nber.org/papers/w10486

**http://www.dangoldstein.com/papers/Hershfield_Goldstein_et_al_Increasing_Saving_Behavior_Age_Progressed_Renderings_Future_Self.pdf

Quote from: The Atlantic
Quote from: The Atlantic
the median savings in a 401(k) plan for people between the ages of 55 and 64 is currently just $15,000, according to the National Institute on Retirement Security, a nonprofit.

These stats are being cherry-picked and presented out of context.  Since people change jobs frequently, it's not surprising that a particular 401K plan has a low balance.  I haven't changed jobs that often, but I have 11 accounts and I expect many people have more.  Also, I don't buy the $15,000 number.  The average 401K balance is $92,000 per a GAO study.

Good catch on the difference between "the amount an american between the ages 55-64 has in 401k savings" and "the amount in a 401k account belonging to an american between the ages of 55-64." That is indeed likely to be a misleadingly low statistic.

However, the other difference you point out ($15k median 401k balance vs $92k average 401k balance) doesn't seem necessarily contradictory to me. 401k balances are going to have an extremely right skewed distribution with a few folks having 4-5 million in theirs and most people having a few thousand, so you'd expect the average balance to be a LOT higher than the median balance.

Kimera757

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #7 on: May 20, 2018, 08:16:24 AM »
In Canada we have two government retirement plans, Old Age Security and the Canada Pension Plan. The first comes from tax revenues and is generally underfunded. The second is completely contributory; it pays for itself from contributions from employees and employers, has enough money to last 70+ years (if contributions were to suddenly stop), and made an 11% profit last year. It pays a sustainable rate relative to contributions, but since Canadians don't have to contribute much they don't get paid much. CPP pays a very rough 25% of your average pay in retirement. (OAS pays about $7,000.) So your retirement income, if you didn't save, is about $7,000 plus 25%. The typical working income is around $35,000, so in retirement you could expect $15,000 to $16,000 per year, per person, which isn't much.

(I looked at the rates in Germany, US and even Greece. The Canadian contribution rate is currently 4.95% for employees outside of Quebec, with a small exemption; employers have to match the contribution. Greece paid 6.67% for employees before 2010's pension crisis, but paid 40% of the original income, which wasn't sustainable. In Germany the contribution rate is 9.8% (19.6%, apparently half for employees), basically double what we have in Canada.)

The completely contributory part is how Social Security "should" work, but doesn't (Social Security is more like a combo of OAS and CPP; not enough money goes in via contributions so the US government has to dip into its reserves to pay seniors).

Next year the Canadian government will gradually increase contributions and payouts from this well-run CPP (this was announced a few years ago). Needless to say, this drew lots of ire and controversy in Canada. Many Canadians cannot distinguish between Old Age Security, the Canada Pension Plan and Social Security, so if they heard that Social Security is a "Ponzi scheme" they think the Canada Pension Plan must be too! I imagine if the American government were to increase Social Security contributions or create a new retirement plan it would create even more rage.

This is almost a psychology site. It's not just about managing money better, but thinking better about money. Unfortunately getting other people to agree to this kind of thinking is very difficult.

Just came across this article from February 2018:

https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/

A few choice quotes:

Quote from: The Atlantic
More and more older people are finding themselves in a similar situation as Baby Boomers reach retirement age without enough savings and as housing costs and medical expenses rise... Many people reaching retirement age donít have the pensions that lots of workers in previous generations did, and often have not put enough money into their 401(k)s to live off of; the median savings in a 401(k) plan for people between the ages of 55 and 64 is currently just $15,000, according to the National Institute on Retirement Security, a nonprofit.

Quote from: The Atlantic
Two-thirds of Americans donít contribute any money to a 401(k) or other retirement account (emphasis mine), according to Census Bureau researchers. And this could have larger implications for the economy. If todayís middle-class households curtail their spending when they retire, the whole economy could suffer.

This is a disaster in the making...Would it make more sense to get employers out of the retirement-plan business, and have the Federal Government establish a 401(k) for all, with a mandatory minimum contribution from the employee/taxpayer, optional contributions/matching from the employer, and some sort of matching from the USG?

I don't know if that would work, if we could somehow avoid the political issues. That sort of plan would allow employees to make the investment decisions, right? Most people are bad investors. They would invest in fixed investments to avoid any risk, or take loans out against the money, or withdraw early despite penalties, or find some excuse not to contribute in the first place.

The United Kingdom did something similar, where there's less political rage about it. Of course this still drew some heat. Link for info: https://www.autoenrolment.co.uk/knowledge-bank/in-depth-articles/pension-changes

WhiteTrashCash

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #8 on: May 20, 2018, 08:40:40 AM »
The American public has been brainwashed by the corporate media and their advertising arms to think it's necessary to spend absolutely every penny they earn on frivolous bullshit. Only recently have the tools been created to escape from the invisible net that has trapped Americans into that kind of thinking for nearly a century. I tend to be a little gentler with people who don't save for retirement because of that.

MarciaB

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #9 on: May 20, 2018, 08:53:57 AM »
In the past few years there has been some discussion of state run private retirement accounts.   Not mandatory, but employees would have to opt out instead of opting in. But it doesn't look like it went anywhere. 

http://www.governing.com/topics/mgmt/gov-401k-states-retirement-private.html

Oregon's got one:

http://www.oregon.gov/retire/Pages/index.aspx

It's fairly new though, so I'm not clear how it's going at this point. I'm impressed that it got done.

pecunia

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #10 on: May 20, 2018, 09:31:27 AM »
Quote
In the past few years there has been some discussion of state run private retirement accounts.   Not mandatory,

Some employers don't have a 401K plan.  I think the intent in some states was to set something up for those people.  This would enable the use of pre-tax dollars.   Otherwise, you have your Roth which may not be enough.  Those pre-tax dollars may go further in the long run.

I think a lot of people do not want to believe the fact that folks save little for retirement.  However, doesn't it fit with the times we live in?  Employee pay has been stagnant for many years.  There still has been some inflation.  Many people used to have good jobs and lost them due to outsourcing for cheaper labor abroad.  Even more jobs have been lost due to automation as PLCs have become extremely prevalent.

As WhiteTrashCash said:

Quote
The American public has been brainwashed by the corporate media and their advertising arms to think it's necessary to spend absolutely every penny they earn on frivolous bullshit

I think he is right.  In fact I saw a documentary detailing the origin of this.  In the 1920s production line production began to outstrip demand.  The tactics used to get people to buy Liberty Bonds in World War One were used to convince people they needed stuff they saw no need of previously.  It's never stopped since.  There is a lot of psychology in advertising.  We are exposed to it from birth.  I see very few ads telling you to be frugal and invest.  They never tell you to save up for your next car and pay cash.

There is no immediate gratification from saving for retirement as the ads promise for all the stuff they are selling.  It is a good thing there are websites like this one that provide a counterbalance to all that advertising.

Here's another article on the same subject.

http://time.com/money/4258451/retirement-savings-survey/

It gives the figure that 28 percent of those 55 and over have no retirement savings.  Perhaps once again they are lying and cheating with how they deliver the statistics.  However, I think there's a lot of people out there that are like the Ostrich with his head in the sand when it comes to retirement savings.  They may be eating cat food suppers.


CrustyBadger

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #11 on: May 20, 2018, 09:53:35 AM »
However, the other difference you point out ($15k median 401k balance vs $92k average 401k balance) doesn't seem necessarily contradictory to me. 401k balances are going to have an extremely right skewed distribution with a few folks having 4-5 million in theirs and most people having a few thousand, so you'd expect the average balance to be a LOT higher than the median balance.

Yes.  See chart 7 here:

https://www.epi.org/publication/retirement-in-america/#charts

"Nearly half of working-age families have nothing saved in retirement accounts, and the median working-age family had only $5,000 saved in 2013. Meanwhile, the 90th percentile family had $274,000, and the top 1 percent of families had $1,080,000 or more (not shown on chart). These huge disparities reflect a growing gap between haves and have-nots since the Great Recession as accounts with smaller balances have stagnated while larger ones rebounded."

MgoSam

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #12 on: May 21, 2018, 09:23:44 AM »
"the median savings in a 401(k) plan for people between the ages of 55 and 64 is currently just $15,000"

I don't know what to say. I add more than $15k to my investments annually.

golden1

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #13 on: May 21, 2018, 01:01:02 PM »
Our company doesnít force you to invest in a 401K, but they make you opt out if you donít want to participate.  I like this idea because it uses peoples ignorance and laziness to their advantage. 

jinga nation

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #14 on: May 21, 2018, 01:31:12 PM »
The American public has been brainwashed by the corporate media and their advertising arms to think it's necessary to spend absolutely every penny they earn on frivolous bullshit. Only recently have the tools been created to escape from the invisible net that has trapped Americans into that kind of thinking for nearly a century. I tend to be a little gentler with people who don't save for retirement because of that.
Even worse, consumerism has been exported overseas, people in cultures that were saving-oriented are going full-throttle on their spend.
Vicious financial schemes tried and failed/stopped in US are being peddled in South East Asian countries by "financial advisors". Just helped a relative evade one.

Consumerism is USA's official religion. (hat tip: Dell De Chant's book http://a.co/1CTy6V6).

MgoSam

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #15 on: May 21, 2018, 02:06:40 PM »
The American public has been brainwashed by the corporate media and their advertising arms to think it's necessary to spend absolutely every penny they earn on frivolous bullshit. Only recently have the tools been created to escape from the invisible net that has trapped Americans into that kind of thinking for nearly a century. I tend to be a little gentler with people who don't save for retirement because of that.
Even worse, consumerism has been exported overseas, people in cultures that were saving-oriented are going full-throttle on their spend.
Vicious financial schemes tried and failed/stopped in US are being peddled in South East Asian countries by "financial advisors". Just helped a relative evade one.

Consumerism is USA's official religion. (hat tip: Dell De Chant's book http://a.co/1CTy6V6).

At the same time people really should learn to either

a. Stop watching TV if they are that impressionable

or

b. Be a @#$@# adult and not spend every single dime that they have.

Yes there is a ton of shit out there but that doesn't mean that individually can ignore any responsibility and instead just live way beyond their means.

Jrr85

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #16 on: May 21, 2018, 02:21:57 PM »
Just came across this article from February 2018:

https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/

A few choice quotes:

Quote from: The Atlantic
More and more older people are finding themselves in a similar situation as Baby Boomers reach retirement age without enough savings and as housing costs and medical expenses rise... Many people reaching retirement age donít have the pensions that lots of workers in previous generations did, and often have not put enough money into their 401(k)s to live off of; the median savings in a 401(k) plan for people between the ages of 55 and 64 is currently just $15,000, according to the National Institute on Retirement Security, a nonprofit.

Quote from: The Atlantic
Two-thirds of Americans donít contribute any money to a 401(k) or other retirement account (emphasis mine), according to Census Bureau researchers. And this could have larger implications for the economy. If todayís middle-class households curtail their spending when they retire, the whole economy could suffer.

This is a disaster in the making...Would it make more sense to get employers out of the retirement-plan business, and have the Federal Government establish a 401(k) for all, with a mandatory minimum contribution from the employee/taxpayer, optional contributions/matching from the employer, and some sort of matching from the USG?

We had plenty of opportunities to do this.  Could have made social security look like this and not be looking at a ~25% cut to SS or a ~33% increase in SS taxes (or other taxes or debt used to pay for SS).  The temptation to screw future taxpayers who don't vote yet was too much.

BDWW

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #17 on: May 21, 2018, 02:56:15 PM »
Quote
1979, 28 percent of private-sector workers had participated in defined-benefit retirement plansóby 2014, just 2 percent did, according to the Employee Benefit Research Institute, a nonprofit. By contrast, 7 percent of private-sector workers participated in defined-contribution plans in 1979óby 2014, 34 percent did.

So if my math is right, in 1979, 35% (7+28) contributed to a retirement plan.
In 2014 36%(34+2) did.

Of course, the catch is likely that people aren't contributing as much to their 401K(defined-contribution) as their pension plan required.

But if that's the state of things with an opt in vs opt out approach, it doesn't seem that bad. If we could switch all 401Ks to opt out it seems like we would probably be significantly better off.

Not that it's a good thing, but I suspect the "retirement crisis" is largely the same as it ever was. I'd like to know what percent of people in previous generations actually "retired" vs now? Is it actually worse, or are we just expecting it to be better?*

*My impression is it's likely very similar, but perhaps worse in effect because of reduced family support, more expensive living, and SS not keeping pace with a true cost of inflation.
« Last Edit: May 21, 2018, 04:48:11 PM by BDWW »

gooki

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #18 on: May 21, 2018, 04:46:33 PM »
The American public has been brainwashed by the corporate media and their advertising arms to think it's necessary to spend absolutely every penny they earn on frivolous bullshit. Only recently have the tools been created to escape from the invisible net that has trapped Americans into that kind of thinking for nearly a century. I tend to be a little gentler with people who don't save for retirement because of that.
Even worse, consumerism has been exported overseas, people in cultures that were saving-oriented are going full-throttle on their spend.
Vicious financial schemes tried and failed/stopped in US are being peddled in South East Asian countries by "financial advisors". Just helped a relative evade one.

Consumerism is USA's official religion. (hat tip: Dell De Chant's book http://a.co/1CTy6V6).

At the same time people really should learn to either

a. Stop watching TV if they are that impressionable

or

b. Be a @#$@# adult and not spend every single dime that they have.

Yes there is a ton of shit out there but that doesn't mean that individually can ignore any responsibility and instead just live way beyond their means.

Yes personal responsibility plays a party, but the issue is balance in society. There needs to be positive financial message put out there to balance the spend, and spend money you don't have messages. Unfortunately there's more money to be made from debt so that is what gets pushed in peoples faces, and causes the great unbalance.

neophyte

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #19 on: May 21, 2018, 05:05:37 PM »

Yes.  See chart 7 here:

https://www.epi.org/publication/retirement-in-america/#charts


Reading things like that makes me worried about how I'm going to support all those people.  :(

Miss Piggy

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #20 on: May 21, 2018, 06:40:08 PM »
The American public has been brainwashed by the corporate media and their advertising arms to think it's necessary to spend absolutely every penny they earn on frivolous bullshit.

I have tremendous cognitive dissonance over this. For my part, I have stopped the insanity of the frivolous bullshit in my house. But with the stock market, aren't we (MMMers) all making a crap ton of money because of others' spending on the frivolous bullshit?

Maybe I think about this too simplistically.

nnls

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #21 on: May 21, 2018, 06:47:04 PM »
There's a difference between SS and a 401k (investment) type of account. Unless said investment had a guaranteed return, I don't see how the public can be forced into it by government.

I'm sure someone way more intelligent than me will chime in with a better response. Maybe it's doable and I just don't understand it.

In Australia we have Superannuation
Quote
For most people, your employer must pay an amount equal to 9.5% of your salary into your super fund account. This is on top of your salary or wages.

People can also contribute more on top of the compulsory super payments made by their employer. We also have social security for people who do not have enough money in their super.

There is no guaranteed return but everyone must have a super account, and you generally cant access it until retirement age

ixtap

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #22 on: May 21, 2018, 06:51:40 PM »
The American public has been brainwashed by the corporate media and their advertising arms to think it's necessary to spend absolutely every penny they earn on frivolous bullshit.

I have tremendous cognitive dissonance over this. For my part, I have stopped the insanity of the frivolous bullshit in my house. But with the stock market, aren't we (MMMers) all making a crap ton of money because of others' spending on the frivolous bullshit?

Maybe I think about this too simplistically.

This is a common theme of conversation in our house. We have Apple stock, but our newest Apple product is 4 years old and we mock the in laws for constantly upgrading.

On the one hand we are model tax payers who take the standard deduction in a fairly high tax bracket, on the other we suuuuucccckkkk at supporting the consumer economy that is strongly represented in our portfolios.

elysianfields

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #23 on: May 22, 2018, 03:07:59 AM »
There's a difference between SS and a 401k (investment) type of account. Unless said investment had a guaranteed return, I don't see how the public can be forced into it by government.

I'm sure someone way more intelligent than me will chime in with a better response. Maybe it's doable and I just don't understand it.

In Australia we have Superannuation
Quote
For most people, your employer must pay an amount equal to 9.5% of your salary into your super fund account. This is on top of your salary or wages.

People can also contribute more on top of the compulsory super payments made by their employer. We also have social security for people who do not have enough money in their super.

There is no guaranteed return but everyone must have a super account, and you generally cant access it until retirement age

There's no reason why the US couldn't do something like this, other than the existing interests in the current status, which evolved through unintended consequences rather than by design. 

In a way, this issue strongly resembles health care in the US as a benefit that is often, but by no means absolutely, provided by one's employer.

401(k)s were meant to be an additional way for employees to save for retirement and as a complement to pensions, not a replacement for them.

Health care became a fringe benefit when GM and Ford wanted to give the unions something other than a wage increase, and convinced their Senators to support a tax break for employer-paid health plans.

Why should Amazon, General Electric, Joe's Hardware, or Mary's Bakery waste time providing retirement or health care plans?  Shouldn't they focus on their core business, rather than learning all the ins and outs of tax law, retirement law, health care law, &c. so that they can provide these benefits to their employees?

Is it fair that only some persons have access to 401(k) plans based on their employment?

The USG could very easily set up a "TSP for all", just as some have proposed a "FEHB for all" health program, with accounts funded by employees, employers, and the USG.  I certainly would propose it as an addition and complement to SS, not as a replacement.

I wouldn't allow loans or withdrawals before retirement either - the purpose of retirement accounts is to save for retirement, not to cash it out and buy a new Clown Truck or house.  If you want a loan, find a bank that will give you one.

nnls

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #24 on: May 22, 2018, 03:18:14 AM »

I wouldn't allow loans or withdrawals before retirement either - the purpose of retirement accounts is to save for retirement, not to cash it out and buy a new Clown Truck or house.  If you want a loan, find a bank that will give you one.

so the Australian super can only get early withdrawals but only for the below reasons, so not to buy a car but there are some reasons

Quote
Severe financial hardship
Compassionate grounds
Permanent departure from Australia
Terminal illness
Permanent incapacity
Balance of $200 or less

pecunia

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #25 on: May 22, 2018, 06:33:41 AM »
elysianfields:

Quote
Why should Amazon, General Electric, Joe's Hardware, or Mary's Bakery waste time providing retirement or health care plans?  Shouldn't they focus on their core business, rather than learning all the ins and outs of tax law, retirement law, health care law, &c. so that they can provide these benefits to their employees?

Another point is that the extra cost of a company providing health care is a significant disadvantage in world trade to the at company.  This is from memory, but I once read that that 20-30 percent of the cost of a US car is in healthcare benefits to their employees and retirees.

Think of all the human resources engaged in the negotiations on health care by the employer, by the insurer, by the person receiving the health care, by the institution that has to provide the health care, etc.  All of this "negotiation" time has to be paid for.  This is separate and apart from the actual work being performed.  And,......for those people so afraid of government involvement, they are already involved.  I'm sure they audit the paperwork of all these other folks.  Gosh,  it's even a bigger mess than big government.

shipright

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #26 on: May 22, 2018, 07:52:10 AM »
I have a hard time feeling sorry for most of these people because I would have loved to have had a family boat, a Disney vacation a year, a car bought for me in HS and fancy clothes as a kid but my boomer parents where what I called cheap back then but responsible now. In fact I got a peek at their finances when they retired this year and they could have been FIREed mustachians if they were not workaholics (both retired in their mid sixties).

So when people say boomers are going to retire poor, I say the candle that burns brightest burns the least long. They front loaded their lives, and my parents who denied themselves that care free life style shouldn't suffer under some government bail out scheme because their contemporaries want to have their cake and eat it too. To say nothing of my generation and my son's.

I don't advocate letting anyone starve, but watching these boomers struggle in old age is probably the only lesson that can reverse the trend of financial responsibility in American culture.

Jrr85

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #27 on: May 22, 2018, 08:21:49 AM »
I have a hard time feeling sorry for most of these people because I would have loved to have had a family boat, a Disney vacation a year, a car bought for me in HS and fancy clothes as a kid but my boomer parents where what I called cheap back then but responsible now. In fact I got a peek at their finances when they retired this year and they could have been FIREed mustachians if they were not workaholics (both retired in their mid sixties).

So when people say boomers are going to retire poor, I say the candle that burns brightest burns the least long. They front loaded their lives, and my parents who denied themselves that care free life style shouldn't suffer under some government bail out scheme because their contemporaries want to have their cake and eat it too. To say nothing of my generation and my son's.

I don't advocate letting anyone starve, but watching these boomers struggle in old age is probably the only lesson that can reverse the trend of financial responsibility in American culture.

Well, the good news is that your parent's life style won't suffer (provided we don't do something crazy like vote to be Venezuela). 

As for you and your kids...what do you think the chances are that it won't be a winning platform to argue that irresopnsible boomers need to be bailed out at the expense of younger generations?  Seems pretty unlikely the boomers themselves won't all the sudden decide they should be personally responsible.  And there are going to be a lot of young people too dumb to think beyond, "it sounds nice that old people should get lots of money".  Even the reasonably intelligent young people, if they realize what bailing out the boomers means for younger generations, will also likely have a personal interest in shifting the responsibility to younger people in general because they will have to help support a boomer parent or parents otherwise.

maizeman

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #28 on: May 22, 2018, 08:29:55 AM »
And there are going to be a lot of young people too dumb to think beyond, "it sounds nice that old people should get lots of money".  Even the reasonably intelligent young people, if they realize what bailing out the boomers means for younger generations, will also likely have a personal interest in shifting the responsibility to younger people in general because they will have to help support a boomer parent or parents otherwise.

I would propose that you may be underestimating the general antipathy between the boomer and millennial generations.

Now it's still quite possible some sort of major tax increase to bail out irresponsible boomers who have accumulated little or no savings for in the last 1/3-1/4 of their lives would pass, simply because young people vote at much lower rates than old people. However, I'm reasonably confident it wouldn't pass with significant support from those under 35 who just think it seems nice to give old folks more money.

jinga nation

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #29 on: May 22, 2018, 08:44:32 AM »
The American public has been brainwashed by the corporate media and their advertising arms to think it's necessary to spend absolutely every penny they earn on frivolous bullshit. Only recently have the tools been created to escape from the invisible net that has trapped Americans into that kind of thinking for nearly a century. I tend to be a little gentler with people who don't save for retirement because of that.
Even worse, consumerism has been exported overseas, people in cultures that were saving-oriented are going full-throttle on their spend.
Vicious financial schemes tried and failed/stopped in US are being peddled in South East Asian countries by "financial advisors". Just helped a relative evade one.

Consumerism is USA's official religion. (hat tip: Dell De Chant's book http://a.co/1CTy6V6).

At the same time people really should learn to either

a. Stop watching TV if they are that impressionable

or

b. Be a @#$@# adult and not spend every single dime that they have.

Yes there is a ton of shit out there but that doesn't mean that individually can ignore any responsibility and instead just live way beyond their means.

Yes personal responsibility plays a party, but the issue is balance in society. There needs to be positive financial message put out there to balance the spend, and spend money you don't have messages. Unfortunately there's more money to be made from debt so that is what gets pushed in peoples faces, and causes the great unbalance.

Shoulda, woulda, coulda.
The human condition is highly susceptible to entropy and too damn lazy to fight it.
Just easier for the masses to succumb by swiping the card.
Positive messages from statistical outliers like this forum's members get lost in the noise created by marketing and mainstream media.
Might as well make money while the equity markets shine; make the masses' follies our gains towards FIRE.

pecunia

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #30 on: May 22, 2018, 11:57:12 AM »
jinga nation:

Quote
Positive messages from statistical outliers like this forum's members get lost in the noise created by marketing and mainstream media.
Might as well make money while the equity markets shine; make the masses' follies our gains towards FIRE.

I received an answer to one of my silly postings on this forum with the response that it is not a zero sum game.  I had to think about that a little bit.  In fact, I'm still thinking about it.  Why is this retirement thing a zero sum game?  Why should the boomers suffer?  (The other boomers that is, I fall into that silly name.)  Technology is increasing at an incredible rate.  Production of goods requires less people than ever to produce more.  The number of people it takes to produce food is far less than a century and a half ago.  The pie has grown.  There should be plenty to go around to keep the boomers in a lifestyle that for nearly all of the history of mankind would have been envied.

It's not a zero sum game.  I don't think it is question of resources.  It is a question of distribution.  There should be enough for the boomers and all the other silly named generational groups.

Technology continues to make leaps and bounds as permitted by the system.  That pie should continue to grow and should support your equities in your quest for FIRE.

Jrr85

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #31 on: May 22, 2018, 01:10:07 PM »
And there are going to be a lot of young people too dumb to think beyond, "it sounds nice that old people should get lots of money".  Even the reasonably intelligent young people, if they realize what bailing out the boomers means for younger generations, will also likely have a personal interest in shifting the responsibility to younger people in general because they will have to help support a boomer parent or parents otherwise.

I would propose that you may be underestimating the general antipathy between the boomer and millennial generations.

Now it's still quite possible some sort of major tax increase to bail out irresponsible boomers who have accumulated little or no savings for in the last 1/3-1/4 of their lives would pass, simply because young people vote at much lower rates than old people. However, I'm reasonably confident it wouldn't pass with significant support from those under 35 who just think it seems nice to give old folks more money.

Possibly.  I believe as recently as a few years ago, the under 30 crowd was more likely to support raising taxes to pay social security than any age group other than those nearing retirement age. 

But we have had a few years of news stories talking about millenials ruining 'x' business and being lazy and eating avocado toast, etc., so maybe some more antipathy has built up.  And maybe as we get close to the cuts that will take place when the "trust fund" shows zero, and millenials and younger people realize relatively rich boomers want them to pay higher taxes than boomers themselves were willing to pay in order to give money to boomers, there will be a backlash.  But I'm not optimistic.  I suspect instead of a backlash, there will just be some class warfare to ensure somebody other than "me" bears the burden. 

pecunia

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #32 on: May 22, 2018, 03:52:58 PM »
Jrr85:
Quote
But we have had a few years of news stories talking about millenials ruining 'x' business and being lazy and eating avocado toast, etc., so maybe some more antipathy has built up.

Until you actually go out and talk to them and find they have two or three jobs to get by.

Maybe there is a lot of "fake" news.

dogboyslim

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #33 on: May 23, 2018, 06:49:31 AM »

https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/

Quote from: The Atlantic
Two-thirds of Americans donít contribute any money to a 401(k) or other retirement account (emphasis mine), according to Census Bureau researchers.

In 2017, ~126 M people were working out of a US population of 325 M.  Seems like most people working must be contributing money to their 401(k) unless this is meant to say that 2/3 of American workers don't contribute.  I'm also amused by the continual lamenting of the loss of DB Pensions.  Those don't work for a mobile workforce.  You pretty much are stuck at a single company.  The DC Pension plans are vastly superior to those that want to move around and find the best employment opportunity.  That said, they only work for people that USE them, and have a sense of how to manage the risks associated with the investments.  That's not most people.

jinga nation

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #34 on: May 23, 2018, 07:00:58 AM »
Jrr85:
Quote
But we have had a few years of news stories talking about millenials ruining 'x' business and being lazy and eating avocado toast, etc., so maybe some more antipathy has built up.

Until you actually go out and talk to them and find they have two or three jobs to get by.

Maybe there is a lot of "fake" news.

I graduated college in the early 2000's. The internet as we know today was in it's infancy, plenty of search engines, etc. The common theme from my parents' generation was, why are you sitting around all day on the computer? Get your lazy ass to work. You know, real work... none of this bumming faffing around. My grandparents wondered how I was doing financially. Especially on weekends when I'd be out at clubs with friends (one drink max, don't like when they make drinks) or buying a 6-pack of imported beer and watching drift/rally with a buddy or doing maintenance on my 10 year old car or just sleeping late on mornings and disappearing on Sundays after lunch (I'd be in the college library or doing undergrad/grad research or projects).

One day, I sat down with my parents and grandpa in front of the computer and showed them what I did for 8-10 hours a day: undergrad and grad assignments (engineering classes, RF design and simulation, etc.), learning and trading stocks (I sucked and broke even at the end of the dotcom bust) and decided to get into index/balanced/target date funds, playing with credit card app-o-ramas and CD ladders to generate passive income to pay for grad school (oh boy was Gramps impressed and then freaked out when I had over $100k sitting in CDs earning 6.5%), applying for jobs, getting freelance gigs, creating coursework for online computer classes for senior citizens, and some other stuff. Then told them why they never got utility bills as I'm paying for them, plus paying for the flooring and installing it myself in the 4 bedroom house and the patio too.

As immigrants, my family was: OK so what, big deal hotshot, when are you getting a job and getting married? Grandma was: When are you having kids?

The young can't catch a break, there's enough pressures trying to get a job, get out of the house, trying to move on up. There's no need to rub salt in the wounds.

CrustyBadger

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #35 on: May 23, 2018, 02:24:37 PM »

https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/

Quote from: The Atlantic
Two-thirds of Americans donít contribute any money to a 401(k) or other retirement account (emphasis mine), according to Census Bureau researchers.

In 2017, ~126 M people were working out of a US population of 325 M.  Seems like most people working must be contributing money to their 401(k) unless this is meant to say that 2/3 of American workers don't contribute. 

Here's more information on that quoted statistic.  I think it means, of workers who work for an employer that offers retirement programs.

Although nearly 80 percent of Americans work for an employer that offers retirement programs ó whether a 401(k), 403(b) or something else ó only 32 percent of workers sign up for such accounts, according to a working draft of the study by Michael Gideon and Joshua Mitchell. The researchers studied W-2 tax forms from 2012 from 155 million American workers for their findings, which help shed light on just how ill-prepared many Americans are for the future.

Apples

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #36 on: May 28, 2018, 06:15:18 PM »

https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/

Quote from: The Atlantic
Two-thirds of Americans donít contribute any money to a 401(k) or other retirement account (emphasis mine), according to Census Bureau researchers.

In 2017, ~126 M people were working out of a US population of 325 M.  Seems like most people working must be contributing money to their 401(k) unless this is meant to say that 2/3 of American workers don't contribute. 

Here's more information on that quoted statistic.  I think it means, of workers who work for an employer that offers retirement programs.

Although nearly 80 percent of Americans work for an employer that offers retirement programs ó whether a 401(k), 403(b) or something else ó only 32 percent of workers sign up for such accounts, according to a working draft of the study by Michael Gideon and Joshua Mitchell. The researchers studied W-2 tax forms from 2012 from 155 million American workers for their findings, which help shed light on just how ill-prepared many Americans are for the future.

Interesting.  FWIW, I work for an employer that has a SIMPLE IRA instead of a 401k.  But if you looked at our tax returns, you'd see that 9/25 or 9/85 contribute to the retirement account.  We have 25 year-round workers.  We have an additional 60 seasonal workers.  In our blue collar work, the retirement account is only actually offered to 10 people.  So we have a 90% participation rate when the employer offers a 3% match, but the stats wouldn't show that.  I wonder how our business would look in the stats, based only on the tax forms.

I wonder how much of those stats are influenced by the % of the workforce that is offered access to the retirement plan.  In a lot of blue collar jobs, the non-union ones, the lowest people on the totem pole are usually offered an hourly wage and no benefits.  So that would throw things.

Zamboni

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #37 on: May 28, 2018, 07:27:57 PM »
I believe what I am reading in this article.

I get a front row view watching my parents. Both were college educated and had decent paying jobs. Neither really saved for retirement (I think my dad managed to get $17K into an IRA), and both made other bad financial decisions. For example, both jumped at the chance to start drawing social security the first moment they could at 62. Now in their mid and late 70's, they complain about the small sizes of those checks. They should have waited until they were older to start drawing those checks. I once tried to tell my Mom this as she was the first to reach that age. Neither wanted to hear it.

For now, they seem to be keeping their heads above water without my help. Dad still works about 70% time (at age 75) and Mom just lives like a pauper hermit. Dad has no saved money and still has a hefty mortgage and Mom has told me she anticipates running out of savings. Both have had some windfalls like inheritances, and both have frittered those away . . . it's psychologically painful to have a front row seat to it, but it is too late to change course for them and there's nothing I can do to intervene other than just throw good money after bad.

They are adults who have made their own choices.

That's how I feel about most of the folks in this predicament. Some were always too poor to ever save a dime, and I do feel for that group, but most had a chance to do more for themselves and just plain blew it.

pecunia

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #38 on: May 28, 2018, 08:38:30 PM »
Zamboni - iceman
Quote
That's how I feel about most of the folks in this predicament. Some were always too poor to ever save a dime, and I do feel for that group, but most had a chance to do more for themselves and just plain blew it.

I just wonder if there are people who just can't or won't think about the future. 

I guess the present has been s precarious in the last few years that the future has been on the back burner.  I worked in Northern Ohio last Summer doing a fill in job doing electrical data collection.  It seemed like all the factories we visited were shut down permanently or vastly curtailed.  And,......these are supposed to be the times of economic recovery.  I guess it is the German economic recovery.

freya

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #39 on: May 29, 2018, 06:33:15 AM »

Why should Amazon, General Electric, Joe's Hardware, or Mary's Bakery waste time providing retirement or health care plans?  Shouldn't they focus on their core business, rather than learning all the ins and outs of tax law, retirement law, health care law, &c. so that they can provide these benefits to their employees?

Is it fair that only some persons have access to 401(k) plans based on their employment?

The USG could very easily set up a "TSP for all", just as some have proposed a "FEHB for all" health program, with accounts funded by employees, employers, and the USG.  I certainly would propose it as an addition and complement to SS, not as a replacement.

Well said!!!!

Just as in healthcare, the patchwork of solutions carries a ton of unnecessary overhead.  The equivalent of putting the entire population on Medicare and permitting Medicare to negotiate drug prices (instant $700 billion saved annually) is to get rid of all tax-deferred options except personal traditional IRAs with limits increased to that permitted for 401Ks.  No need even for a government TSP, but keep the saver's tax credit and extend the income limits to cover the entire middle class.  I wouldn't do mandated contributions, because it would be far simpler to increase Social Security taxes and accordingly increase benefits.

pecunia

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #40 on: May 29, 2018, 06:54:17 PM »
Freya:

Quote
The equivalent of putting the entire population on Medicare and permitting Medicare to negotiate drug prices (instant $700 billion saved annually)

Wow!  And I believe true.

Medical bills can cause stress.  Lots of money involved.  You are already sick and then get stress on top of that.  This is an intangible, but what's that worth?

freya

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #41 on: May 30, 2018, 07:13:59 AM »
It is true, indeed.  The $700 billion was calculated by an online advocacy group, based on some conservative assumptions (sorry forget which one).  It's the additional overhead incurred by private insurance corporations.

I have no idea how much cost is incurred by the equally crazy patchwork of retirement plans, but I imagine it could be in the same ballpark.  Just imagine turning our current federal deficit into a surplus, almost overnight.

If only our government could learn a few Mustachian principles!

maizeman

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #42 on: May 30, 2018, 07:49:41 AM »
I have no idea how much cost is incurred by the equally crazy patchwork of retirement plans, but I imagine it could be in the same ballpark.  Just imagine turning our current federal deficit into a surplus, almost overnight.

What would the mechanism for saving something on the order of $700B/year from federalizing retirement plans be?

For medicare/medicaid it is pretty clear where the big savings come from. They could use their power as a major buyer to negotiate lower prices with drug companies, and medical providers than many smaller insurance companies can manage.

But even the largest retirement plan cannot negotiate better pricing with the stock or bond markets, nor (should we want them to) negotiate lower payouts to retirees, so it's not clear how they move the need substantially.

I suppose that they might be able to save some money on management fees, but even if all the management became free I'm not sure that gets you anywhere close to $700B/year.

Now Piketty argued that larger endowments actually achieve better rates of return than smaller ones because they can hire better investment advisors and invest in opportunities that wouldn't be open to smaller investors. However once you get too big it becomes harder and harder to find deals big enough to move the needle (Warren Buffett has talked about having this issue with Berkshire Hathaway which is much much smaller than an aggregated retirement plan for all americans would be). In addition, the history of government run investment funds specifically isn't particularly positive, and they tend to lag market indices:

Norwegian Soveriegn Wealth Fund: https://www.bloomberg.com/view/articles/2017-12-04/how-not-to-run-a-sovereign-wealth-fund
CalPers: https://www.barrons.com/articles/calpers-is-doing-alright-but-not-great-1500313513

Anyway, it's quite possible I'm missing something obvious here, so please do jump in to point it out if so.

freya

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #43 on: May 30, 2018, 08:20:37 AM »
Yes, I'm afraid you are :-)

The $700 billion assumes that net incomes to providers and hospitals stays the same, and that drug prices are reduced to the prices that Canada negotiates.  The rest of the savings comes from the overhead incurred by a crazy patchwork billing system with tons of unnecessary work imposed by private insurance companies that greatly increases costs to providers.  Medicare's overhead by comparison is minimal.

Now consider the enormous amount of money and effort that goes into managing and optimizing all the various retirement vehicles that we have.  Look a few posts back...why should your employer waste time and money managing your retirement accounts, when you could just have your own IRA at Fidelity and call it a day?
« Last Edit: May 30, 2018, 08:23:50 AM by freya »

pecunia

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #44 on: May 30, 2018, 06:06:24 PM »
maizeman:

Quote
The ministryís near-religious belief in the virtues of passive index tracking mean NBIM is not allowed to leverage the fundís real strength Ė that it can make illiquid investments in line with secular trends anticipating the evolving shape of the global economy. Limits on developing-country and illiquid investments mean that fund investments reflect outdated weights in the global economy, not even its present shape where emerging economies already account for about half of global economic activity.

The Norway investment strategy almost sounds like Index Funds.  In any case, I still congratulate the Norwegian people for not squandering the oil money as other countries have done.  I have been talking with a person from Venezuela which has had a far sadder picture of what can be done with oil wealth. 

freya:

Quote
Now consider the enormous amount of money and effort that goes into managing and optimizing all the various retirement vehicles that we have.  Look a few posts back...why should your employer waste time and money managing your retirement accounts, when you could just have your own IRA at Fidelity and call it a day?

A little imagination shows that there is a great duplication not only for the employers but look at all the many firms who do nothing but sell stocks and other investment vehicles.  I've seen many offices in close proximity who are selling the same stocks under a different banner.  I ponder whether these service companies actually contribute to the economy since all they are doing is selling off little pieces of said economy and taking their cuts.

One generally thinks of efficiency in terms of mechanical equipment, but there are certainly other forms of waste.

maizeman

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #45 on: May 30, 2018, 07:02:57 PM »
The key quote about Norway's sovereign wealth fund is this one: "It has generated an annual net real return of just 4.06 percent since its inception in 1996."

An investment in a simple S&P index fund would have produced a real annual return of 6.6%.

That's the difference between an investment growing from $10,000 in 1996 to $40,800 today (simple index fund in my 403b), and growing to only $24,020 (in the Norwegian sovereign wealth fund).

So clearly they don't believe in the virtues of indexing enough.

maizeman

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #46 on: May 30, 2018, 07:23:43 PM »
Yes, I'm afraid you are :-)

The $700 billion assumes that net incomes to providers and hospitals stays the same, and that drug prices are reduced to the prices that Canada negotiates.  The rest of the savings comes from the overhead incurred by a crazy patchwork billing system with tons of unnecessary work imposed by private insurance companies that greatly increases costs to providers.  Medicare's overhead by comparison is minimal.

Now consider the enormous amount of money and effort that goes into managing and optimizing all the various retirement vehicles that we have.  Look a few posts back...why should your employer waste time and money managing your retirement accounts, when you could just have your own IRA at Fidelity and call it a day?

I just don't think there's nearly as much overhead in the retirement plan space as in healthcare. When we were looking to set up a 401k plan for one of the startups I was involved in, it was going to cost $2,000/year + $25/employee.

So let's say $250 per person per year spend on having retirement plans. The US has about 125M workers. So call it $30B a year. You could talk me into my back of the envelope number being off by 2x or even 4x.

Now the fees aren't the only money that goes to support dedicated retirement accounts. There is also the money that's taken in expense ratio fees from all the money in those accounts. There are something like $28 trillion in total retirement assats in the USA.* The asset weighted average expense ratio of mutual funds was 0.63% in 2016.** So total expense ratios paid were likely on the order of $175 billion. That's a lot more than the plan management fees. It's a lot of money by any rational definition.

But even adding both of them together, and allowing for a sizable margin of error, and assuming no costs for the government run plan at all, I don't see how we get to $700B/year.

*Source: https://www.ici.org/research/stats/retirement/ret_17_q4

**Source: http://www.icifactbook.org/ch5/17_fb_ch5

freya

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #47 on: May 30, 2018, 09:06:53 PM »
OK, let me take a stab at it (not that I've really thought about this much or anything)....

Paying fees for a company retirement program is just the tip of the iceberg for expenses.  The cost of managing it is undoubtedly far higher.  Here are a few of the things that have to happen:

- HR becomes a lot more complicated because you now have to decide who is eligible for what plan, keep track of employee eligibiity, and provide a route for people to sign up - either paper forms or a website that must be maintained.
- HR has to manage its side of the plan, deal with requests from retired/former employees for rollovers or withdrawals, inform employees about benefits, keep track of overall costs/look for cheaper options, and respond to changes in tax policy or plan rules by the institution.
- Finance dept has to arrange automated deductions, $$ transfers to the 401K institution, and deal with tax implications

For a large-ish company, this is a few full time employees plus legal services, website maintenance, educational costs etc.  You get the idea.

One wonders how we managed to get into this mess, and if anyone is ever going to be brave enough to suggest reducing to a simpler (and cheaper) approach.

Daisy

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #48 on: May 30, 2018, 09:16:32 PM »
This is a disaster in the making...Would it make more sense to get employers out of the retirement-plan business, and have the Federal Government establish a 401(k) for all, with a mandatory minimum contribution from the employee/taxpayer, optional contributions/matching from the employer, and some sort of matching from the USG?

I think personal financial education in grade school and high school would be a better investment.

Some people may not be saving for their retirement for different reasons:
- Make such a low salary that saving for retirement would remove funds from being spent on mere survival
- Inherited money or have other savings that make retirement saving unnecessary
- Expecting a shorter life span based on family health history
- Variable expenses throughout one's lifetime and don't want to be forced into a set retirement savings plan (for example, some years may want to save up money to buy a house, saving up for upcoming children)

Although I do agree that most people that don't save for retirement are basically ignorant of the retirement math and just expect Social Security to carry them through. This is why I think personal financial education in school is a much more effective method to solve this problem.

maizeman

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Re: This Is What Life Without Retirement Savings Looks Like
« Reply #49 on: May 30, 2018, 09:22:00 PM »
Alright, that's fair. So based on this study* it sounds like total HR/accounting/payroll costs per employee in most companies is going to be somewhere between $1,500 and $2,000/year. Now I'm pretty sure HR departments don't spend even a quarter of their time on work related to dealing with the impacts of retirement plans. But let's still say it's $500/year per employee just to offer and service retirement plans. With our estimate of 125M working americans, that would mean the issues you brought up are good for another $62.5 billion dollars. Again, that's not chump change (and it's about twice what I estimated based on what it was going to cost us to outsource a 401k for 10 employees, so I'm guessing it may be an overestimate). But we're still nowhere close to $700 billion total.

*Specifically looking at Figure 2 from this survey: https://www.adp.com/~/media/Solution%20Builder/Documents/PWC%20TCO%20Study%202011.ashx