Author Topic: Social Security canít save us from the poorhouse  (Read 9716 times)

Mister Fancypants

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Social Security canít save us from the poorhouse
« on: April 04, 2014, 07:58:29 AM »
I read this article and once we look passed the obvious issue that people live above there means and that is why they don't save... So after we get passed the obvious cause of the problem...

http://www.marketwatch.com/story/social-security-cant-save-us-from-the-poorhouse-2014-04-04

Once you delve into the fact a bit on the stats they compile on the assets the majority have accrued for retirement, it is actually kinda sad the predicament that most people have created for themselves.

FIRE on good Mustachians :)

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hedonismFTW

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Re: Social Security canít save us from the poorhouse
« Reply #1 on: April 04, 2014, 09:47:22 AM »
That was a pretty depressing read, but I know how prevalent this mindset is. Office speak is a whirlwind of comedy and tragedy as people go on spending sprees and immediately follow it with moans about taxes and retirement and how the stress is destroying their families...

I often actually forget about social security benefits when thinking about retirement. I'm pretty sure it will be around, but it's definitely not something you should (or need to) count on. I'm happy thinking about my current investments and savings, so SS really WILL be the icing on the cake :D.

Jamesqf

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Re: Social Security can’t save us from the poorhouse
« Reply #2 on: April 04, 2014, 01:57:36 PM »
I often actually forget about social security benefits when thinking about retirement. I'm pretty sure it will be around, but it's definitely not something you should (or need to) count on. I'm happy thinking about my current investments and savings, so SS really WILL be the icing on the cake :D.

Exactly.  Barring some sort of major financial crash, I should be able to live in modest comfort on my stash.  SS, if I get any, will just be the gravy.

Cassie

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Re: Social Security canít save us from the poorhouse
« Reply #3 on: April 04, 2014, 04:16:15 PM »
People will start having to downsize their big homes, sell their toys, etc when it becomes unsustainable.  It really is sad.

CarDude

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Re: Social Security canít save us from the poorhouse
« Reply #4 on: April 05, 2014, 09:28:21 PM »
People will start having to downsize their big homes, sell their toys, etc when it becomes unsustainable.  It really is sad.

It's hard to be the ant when you're surrounded by grasshoppers.

daverobev

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Re: Social Security canít save us from the poorhouse
« Reply #5 on: April 06, 2014, 07:05:59 AM »
People will start having to downsize their big homes, sell their toys, etc when it becomes unsustainable.  It really is sad.

Biggest problem with that is, if everyone is selling 8 year old, well maintained Ford F150s, snow mobiles, 6-bedroom houses and so on... what do you think they'll get for them? Gotta sell before everyone else (or don't buy in the first case, of course).

johnintaiwan

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Re: Social Security canít save us from the poorhouse
« Reply #6 on: April 06, 2014, 07:12:06 AM »
Quote
It's hard to be the ant when you're surrounded by grasshoppers.

Do you think most people don't understand this story? or do they think it comes to a false conclusion? or it just doesn't apply to them?

It is a pretty simple story that I am sure nearly everyone has heard growing up, so why do so few people follow its advice?

Roland of Gilead

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Re: Social Security canít save us from the poorhouse
« Reply #7 on: April 06, 2014, 07:50:46 AM »
As the article points out, the SS benefit is equal to an annuity of $600,000 or more.

I envy those of you who don't think $600,000 is worth counting in your plans.

Zamboni

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Re: Social Security canít save us from the poorhouse
« Reply #8 on: April 06, 2014, 07:55:04 AM »
I would guess most people have heard that story.  But then they don't actually suffer in the winter because they can keep borrowing.  So the story is ignored.

What many people don't realize is that eventually they will be old and infirm enough that no one will loan them anything.  It's too far off on the horizon for most people to even think about. 

Even shorter term calamities are harder for people to imagine.  For example, my friend got 6 months notice that he was going to lose his job.  I asked if he had a cushion and he said he was already having "a cash flow problem," so my response was "holy moly save all the cash you can while you are still working!"  His response was "why?  besides I feel like buying new stuff to keep busy while I'll be unemployed."  Within the next week he had bought a new $1K+ laptop for personal use even though his wife had a laptop and he already had a functional desktop computer at home.  He also got new iphones for his entire family before his job ended, bought the next year's season tickets for the local professional sports team (best seats in the house, of course, which he can't use half the time so he gives them away because it's almost never a sellout so no one is looking to buy), and this is the icing on the cake:  he spent $2K on a purebred puppy because he wanted it to keep him company while he was out of work.  When he was contemplating this I suggested a puppy from the shelter and he scoffed:  he was going to get the dog that he had always wanted.  He had no cash or investments at all beyond his retirement account, but he said he could rely on his HELOC for emergency money while he was out of work.  Then his financial advisor told him that the HELOC bank would cut the amount of the line down to what he already owed if they found out his employment circumstances changed.  Whoops.  After being on unemployment for over half a year he did find another high paying job . . . and so the cycle continues I am sure.  He will tell you a story of woe about how he just never catches a break, but in reality he makes a quite large salary and yet finds ways to piss it all away and then some.

I know all of the above sounds judgmental, but really I am just amazed and I have no idea how his brain works when it comes to money.  He's a talker and so I regularly hear him justify what he does with money although it makes no sense to me . . . at least he contributes to his 401k.

Roland of Gilead

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Re: Social Security canít save us from the poorhouse
« Reply #9 on: April 06, 2014, 08:02:23 AM »
A flaw in the argument though about the family of four budget.

He claims a family of four pays $3600 in federal tax on $50,000

Not even close.  Consider if they save $5500 in an IRA or 401K that gives them a MAGI of $44,500.

Subtract the standard deduction of $12,200 plus exemptions of $15,600

Now your taxable income is $16,700.  The tax table says you pay 10% or $1670

But wait, you have $2000 in child tax credits so you get a refund of $330.

pachnik

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Re: Social Security canít save us from the poorhouse
« Reply #10 on: April 06, 2014, 08:08:45 AM »
I would guess most people have heard that story.  But then they don't actually suffer in the winter because they can keep borrowing.  So the story is ignored.

What many people don't realize is that eventually they will be old and infirm enough that no one will loan them anything.  It's too far off on the horizon for most people to even think about. 

Even shorter term calamities are harder for people to imagine.  For example, my friend got 6 months notice that he was going to lose his job.  I asked if he had a cushion and he said he was already having "a cash flow problem," so my response was "holy moly save all the cash you can while you are still working!"  His response was "why?  besides I feel like buying new stuff to keep busy while I'll be unemployed."  Within the next week he had bought a new $1K+ laptop for personal use even though his wife had a laptop and he already had a functional desktop computer at home.  He also got new iphones for his entire family before his job ended, bought the next year's season tickets for the local professional sports team (best seats in the house, of course, which he can't use half the time so he gives them away because it's almost never a sellout so no one is looking to buy), and this is the icing on the cake:  he spent $2K on a purebred puppy because he wanted it to keep him company while he was out of work.  When he was contemplating this I suggested a puppy from the shelter and he scoffed:  he was going to get the dog that he had always wanted.  He had no cash or investments at all beyond his retirement account, but he said he could rely on his HELOC for emergency money while he was out of work.  Then his financial advisor told him that the HELOC bank would cut the amount of the line down to what he already owed if they found out his employment circumstances changed.  Whoops.  After being on unemployment for over half a year he did find another high paying job . . . and so the cycle continues I am sure.  He will tell you a story of woe about how he just never catches a break, but in reality he makes a quite large salary and yet finds ways to piss it all away and then some.

I know all of the above sounds judgmental, but really I am just amazed and I have no idea how his brain works when it comes to money.  He's a talker and so I regularly hear him justify what he does with money although it makes no sense to me . . . at least he contributes to his 401k.

Wow.  I am a middle-income earner not a high income earner like the above person so my circumstances are very different.  I mean, it would never occur to me to buy a $2,000 puppy, especially if I knew i was going to be losing my job.  I was quite shocked when i read this and the only thing I can think is that people get used to living large?  I guess too, I am getting older and I know that people sometimes have trouble finding work when they get older.  This concept in particular really helps me when I get spendy thoughts and need to reign myself in.

Anyway, I am in Canada where we have CPP/OAS which I am counting on to be there for me when I retire. 
« Last Edit: April 06, 2014, 08:11:58 AM by pachnik »

Argyle

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Re: Social Security canít save us from the poorhouse
« Reply #11 on: April 06, 2014, 11:46:35 AM »
I think that most people are just sticking their fingers in their ears and saying "Nyah nyah, can't hear you!" whenever anything about retirement savings and Social Security comes up.  I think that's their "plan."

I pinned down one guy about what he was really going to do, after making a six-figure salary for years, saving zero of it, and even opening up and spending the retirement account his company had set up for him.  "Really, what are you going to do when you're 70?" I pressed.  Come to find out that when he was too old and could no longer get a job, his plan was to kill himself.  "That would be better than having to live on peanuts," he said.  I think this was crazy big talk and when the time comes, he's going to be a lot less willing to put the plan into action.  At least I hope so.  But who would want to buy stupid toys so much that if they couldn't they'd kill themselves?  And with all his crazy toys (boats, trips, fancy new cars with fancy options), he didn't seem any happier than your average joe ó definitely not worth killing yourself to preserve.

SwordGuy

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Re: Social Security canít save us from the poorhouse
« Reply #12 on: April 06, 2014, 02:26:40 PM »
I'm constantly amazed by the crap stories that people tell themselves to make themselves feel better.


CarDude

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Re: Social Security canít save us from the poorhouse
« Reply #13 on: April 06, 2014, 05:39:31 PM »
Quote
It's hard to be the ant when you're surrounded by grasshoppers.

Do you think most people don't understand this story? or do they think it comes to a false conclusion? or it just doesn't apply to them?

It is a pretty simple story that I am sure nearly everyone has heard growing up, so why do so few people follow its advice?

I think the third; most folks just don't think certain warnings apply to them. I mean, it's been known for decades that driving drunk is a really bad idea, yet year after year, 1/3rd of all fatal car deaths in the US are directly attributable to alcohol. Similarly, I think most people just see retirement as something they'll worry about some other day; today, they've got things to buy.

Zamboni

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Re: Social Security canít save us from the poorhouse
« Reply #14 on: April 06, 2014, 08:53:43 PM »
^It's still that high?  Sheesh, I would not have guessed that still happened so much.  Then again, I don't exactly hang with the "get drunk" crowd anymore. 

jdoolin

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Re: Social Security canít save us from the poorhouse
« Reply #15 on: April 07, 2014, 07:49:56 AM »
The statement that always gets me in these articles is this (paraphrased):  "It's SO HARD for anyone to save for retirement if your company doesn't have a plan you can contribute to."

Just what... why..... I mean... WHAT?   Why do these articles always bemoan that situation?  You don't have one available through your employer?  Just go sign up for a frickin' IRA somewhere else.   An 18 year old selling hot dogs at Sheetz can do this.  OK, so you don't get employer matching.  But not even all employer plans offer that anyway.

Cheddar Stacker

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Re: Social Security canít save us from the poorhouse
« Reply #16 on: April 07, 2014, 09:15:07 AM »
The statement that always gets me in these articles is this (paraphrased):  "It's SO HARD for anyone to save for retirement if your company doesn't have a plan you can contribute to."

Just what... why..... I mean... WHAT?   Why do these articles always bemoan that situation?  You don't have one available through your employer?  Just go sign up for a frickin' IRA somewhere else.   An 18 year old selling hot dogs at Sheetz can do this.  OK, so you don't get employer matching.  But not even all employer plans offer that anyway.

Even when employers offer a 401K match they struggle to get people to participate in the plans, or to contribute enough to get the match. I see plenty of high earners who are not allowed to contribute much to their 401K plan because of lack of participation at their employer. It's amazing people won't at least contribute enough to get a match.

eil

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Re: Social Security canít save us from the poorhouse
« Reply #17 on: April 07, 2014, 10:10:08 AM »
I was agreeing with the author on every point, until I got to this part:

Quote
"But the biggest obstacle may be that in an era of stagnating incomes, many people just donít make enough money to build retirement nest eggs."

Oy, wat?! You can save for retirement on pretty much any income level greater than 0. It's just a question of how you spend your money now and plan to spend it in retirement. As the MMM credo goes, the path to any retirement (be it early, normal, or late) is that it's not what you make, it's what you spend vs what you save.

I also take issue with the tone of the phrase, "many people just don't make enough money." As if to imply that here in the free world, nobody has any control over how much money they make. Excepting those very rare individuals with certain physical and/or mental disabilities who are dependent on others, this is utter hogwash. The rest of us are only cogs in the machine if we choose to be.

And then the final straw for me was listing superfluous luxuries like cable TV, internet, cell phones, movies, restaurants, family vacations, car loans, and a rather large grocery bill as "necessities." Well no shit people can't save for retirement, if this is truly representative of the average American family, they're throwing it all down the crapper to begin with!

Forcus

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Re: Social Security canít save us from the poorhouse
« Reply #18 on: April 07, 2014, 10:54:11 AM »
I envy those of you who don't think $600,000 is worth counting in your plans.

I don't think it's that, I think it's the realization that without substantial reform there won't be anything, and if there is anything, it won't be what is "promised". So discount it all and consider it a bonus if it does happen. Note that age does play in to it here. I am 32 and therefore a lot more jaded than someone just a few years from receiving SS. They probably won't get pinched (as badly).

Jamesqf

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Re: Social Security can’t save us from the poorhouse
« Reply #19 on: April 07, 2014, 11:41:53 AM »
I envy those of you who don't think $600,000 is worth counting in your plans.

I don't think it's that, I think it's the realization that without substantial reform there won't be anything, and if there is anything, it won't be what is "promised". So discount it all and consider it a bonus if it does happen.

Exactly.  It's redundancy.  Suppose I make my plans depending on the $2000 or so that SS promises to give me each month, and then they don't follow through on the promise?  Then I'm in deep doo-doo, no?  But if I plan so that I can live in modest comfort without SS money, then two separate income streams have to fail.  Indeed, since I have no intention of completely retiring, I have three independent income streams, all of which must fail before I'm in trouble.

NumberCruncher

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Re: Social Security canít save us from the poorhouse
« Reply #20 on: April 07, 2014, 11:45:45 AM »
As the article points out, the SS benefit is equal to an annuity of $600,000 or more.

I envy those of you who don't think $600,000 is worth counting in your plans.

Well, if most of us aren't working for 35 years, our benefits will be much less (as benefits are based on highest 35 years of wages). A $100,000 salary for 10 years is suddenly an average salary of $28,571, well below the average salary.

I tend not to think about it just because I am very cautious in general, and have an even more conservative spouse in this regard. Having Social Security there gives an extra buffer, especially if something like assisted living was needed in later years.

Exflyboy

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Re: Social Security canít save us from the poorhouse
« Reply #21 on: April 07, 2014, 01:00:25 PM »
The statement that always gets me in these articles is this (paraphrased):  "It's SO HARD for anyone to save for retirement if your company doesn't have a plan you can contribute to."

Just what... why..... I mean... WHAT?   Why do these articles always bemoan that situation?  You don't have one available through your employer?  Just go sign up for a frickin' IRA somewhere else.   An 18 year old selling hot dogs at Sheetz can do this.  OK, so you don't get employer matching.  But not even all employer plans offer that anyway.

Even when employers offer a 401K match they struggle to get people to participate in the plans, or to contribute enough to get the match. I see plenty of high earners who are not allowed to contribute much to their 401K plan because of lack of participation at their employer. It's amazing people won't at least contribute enough to get a match.

Agreed, My last job I was the manager in a group of engineers ( most making 6 figures)  and the note came from HR that about 5% of our staff contributed to their 401k plan....Holy cow.

Then I announced my retirement at 52, a few of the wiser ones asked me privately how on earth I was able to do this.. like it was magic or something.

Answer #1 was.. Max out my 401k savings every year for the last 12 years for a start!

2) Have zero debt and pay off house.

3) Save the same I got in my 401k on after tax savings.

I might as well have been speaking Greek to most of them.

Very sad.

Frank

BigRed

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Re: Social Security canít save us from the poorhouse
« Reply #22 on: April 07, 2014, 02:40:57 PM »
A flaw in the argument though about the family of four budget.

He claims a family of four pays $3600 in federal tax on $50,000

Not even close.  Consider if they save $5500 in an IRA or 401K that gives them a MAGI of $44,500.

Subtract the standard deduction of $12,200 plus exemptions of $15,600

Now your taxable income is $16,700.  The tax table says you pay 10% or $1670

But wait, you have $2000 in child tax credits so you get a refund of $330.

Medicare and SS taxes on $50,000/yr are $3825.  Subtract the refund you describe, and it's within a few dollars of the $3500 total federal tax burden in the article.  Payroll taxes are very significant for middle class earners.

Roland of Gilead

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Re: Social Security canít save us from the poorhouse
« Reply #23 on: April 07, 2014, 04:12:26 PM »
Medicare and SS taxes on $50,000/yr are $3825.  Subtract the refund you describe, and it's within a few dollars of the $3500 total federal tax burden in the article.  Payroll taxes are very significant for middle class earners.

You don't normally refer to those as federal taxes.  SS is a pension...well some public workers don't even pay SS.

Roland of Gilead

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Re: Social Security canít save us from the poorhouse
« Reply #24 on: April 07, 2014, 04:16:10 PM »
As the article points out, the SS benefit is equal to an annuity of $600,000 or more.

I envy those of you who don't think $600,000 is worth counting in your plans.

Well, if most of us aren't working for 35 years, our benefits will be much less (as benefits are based on highest 35 years of wages). A $100,000 salary for 10 years is suddenly an average salary of $28,571, well below the average salary.

I tend not to think about it just because I am very cautious in general, and have an even more conservative spouse in this regard. Having Social Security there gives an extra buffer, especially if something like assisted living was needed in later years.

Maybe for 10 years but the difference between working 20 years and working 35 years amounts to about $200 a month (say $1800 vs $2000 in SS benefits).  The formula is very skewed.

BigRed

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Re: Social Security canít save us from the poorhouse
« Reply #25 on: April 07, 2014, 07:02:16 PM »
Medicare and SS taxes on $50,000/yr are $3825.  Subtract the refund you describe, and it's within a few dollars of the $3500 total federal tax burden in the article.  Payroll taxes are very significant for middle class earners.

You don't normally refer to those as federal taxes.  SS is a pension...well some public workers don't even pay SS.

Baloney.  Of course SS and Medicare are federal taxes.  Regardless, they are still an expense in computing how much is left over to save for the typical family, so you'd just have to put them in a separate line in the calculation.  This idea that there's a huge number of people who have no federal tax burden because their income tax is low, while ignoring significant payroll taxes is insidious and wrong.

NumberCruncher

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Re: Social Security canít save us from the poorhouse
« Reply #26 on: April 08, 2014, 07:15:47 AM »
As the article points out, the SS benefit is equal to an annuity of $600,000 or more.

I envy those of you who don't think $600,000 is worth counting in your plans.

Well, if most of us aren't working for 35 years, our benefits will be much less (as benefits are based on highest 35 years of wages). A $100,000 salary for 10 years is suddenly an average salary of $28,571, well below the average salary.

I tend not to think about it just because I am very cautious in general, and have an even more conservative spouse in this regard. Having Social Security there gives an extra buffer, especially if something like assisted living was needed in later years.

Maybe for 10 years but the difference between working 20 years and working 35 years amounts to about $200 a month (say $1800 vs $2000 in SS benefits).  The formula is very skewed.

http://www.ssa.gov/pubs/EN-05-10070.pdf  ah, I see. I definitely need to play with that a bit - much more useful than the calculators.

nawhite

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Re: Social Security canít save us from the poorhouse
« Reply #27 on: April 08, 2014, 04:40:06 PM »
http://www.ssa.gov/pubs/EN-05-10070.pdf  ah, I see. I definitely need to play with that a bit - much more useful than the calculators.

That is an awesome spreadsheet! Thanks. My take away: Sticking at my job for "just one more year" is only worth an additional $80/month in social security benefits. Well there goes that reason to stick around.

gillstone

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Re: Social Security canít save us from the poorhouse
« Reply #28 on: April 09, 2014, 12:02:29 PM »
Even if there is a 401(k) or similar plan fo a workplace, most workers do nothing to allocate funds.  This could mean they are putting cash into a money market, a bond fund, a balanced fund, or whatever else is the default.  Even with all the match, if they aren't doing anything to ensure they get some kind of return they will never save enough if they don't pay attention. 

quilter

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Re: Social Security canít save us from the poorhouse
« Reply #29 on: April 10, 2014, 09:06:21 PM »
I feel lucky that my thirties kids and their spouses are all aware of the need to fund 401's, emergency funds, and understand about interest that compounds from savings, as well as interest when you purchase something.

So instead of patting ourselves on the back because we get it,  how can we help spread the message?  It is a very simple one. Live below your means, manage debt, save. How can story after story in the media, as well as personal accounts here, show such a disconnect from reality?  And what can we do about it?