An Incomprehensible Retirement

https://medium.com/money-banking/875282f4fd57

by extremecake • 13 years ago

43 52 13 years ago

PaulHoule• 13 years ago

Sometimes I wonder if the way out of the recession is to declare 401K and IRA failed policies and just let people have the money and spend it now to get the economy moving.

saryant4• 13 years ago

And then what will those people fund their retirements with?

scarmig5• 13 years ago

The money that is moved from a 401k to the market, so they can spend and save it as they wish. You don't have to spend all the money you make that doesn't end up in a 401k; in fact, if you do, you're doing it wrong.

The only people whose retirement would be adversely affected are mutual fund managers.

jmillikin2• 13 years ago

People with 401Ks or IRAs are people who have taken active measures to improve their own financial security decades from now in exchange for lower in-pocket funds at this moment.

If retirement accounts were ended tomorrow and all that money was deposited directly into their checking accounts, they wouldn't go out and spend it on televisions and new rims. They would invest it, probably into the same low-risk ETFs or mutual funds that were being held in the retirement accounts.

The only difference would be a change in when the money is taxed.

jkldotio• 13 years ago

Isn't there substantial evidence that Goldman Sachs were telling clients to make investments into areas they were themselves betting against? I am not sure if they are the best people to use as support for any economic argument, but especially given the wealth of other critics of pension sustainability who don't have such a track record.

xradionut• 13 years ago

They are also one of the players in rise in the price of oil.

It's good to be the king. (Or at least deep capture the media, the administration and the Congress.)

ChuckMcM2• 13 years ago

I think the Money Moustache guy has a much better take on this than someone trying to figure out the complexities of finance.

Yes there is a limit to how much you can put into a retirement account that isn't taxed by the government, but there is no limit on how much of your income you can save, caveat you need some of it to live on.

And while saving and investing can get as complicated as you want it can also be greatly simplified with funds investing.

saryant4• 13 years ago

I'm a big fan of the "lazy portfolio." Three funds, nothing more: Vanguard total domestic stock, total international stock and total bond market. Buy and hold forever (rebalancing towards more conservative assets as you near retirement).

philwelch3• 13 years ago

Vanguard even has target funds that do exactly this, rebalancing included.

scarmig5• 13 years ago

MMM gets so much right it's not even funny. I question some aspects of his plan--my time discount is higher than his, so I think it makes more sense to save up less and transition to part time labor more quickly, which is what he did de facto anyway except with a couple extra years of unnecessary shitty corporate work.

The guy in this article talks about how to safely retire you must have saved up eleven times your annual income. Which is wrong: the key value is about thirty times your annual consumption if you want to transition to full time retirement (with no market labor involved). And if you add in maybe $10k of market labor a year, that amount of required savings drops very sharply. $20k, and hell, you're probably able to increase your nest egg if you watch your consumption at all.

nilkn• 13 years ago

I think the limit on IRA and 401(k) contributions was just a passing comment in the article, not the main point.

The main question he seems to be asking is how the average American is expected to effectively plan for retirement when companies no longer feel they can manage pension funds with professional investors.

The real answer to this, IMHO, is that companies definitely could provide pension plans. Some do (Chevron comes to mind). They just don't want to because it's cheaper to just give your employees a 401(k) and only put company money into it if your employees contribute.

Companies didn't transition to 401(k)s because pensions were impossible to pull off. They transitioned to 401(k)s because they realized they could still sell their benefit plan as offering a "retirement plan" to their employees, but the majority of their employees wouldn't even utilize the matching, thereby saving them tons of cash.

patio11• 13 years ago

That's the Snidely Whiplash version. Some other reasons:

+ The character of work and the workforce changed markedly in America over the years, from an economy where a man employed by BigCo could reasonably be assumed to work for BigCo until the day he died, to an economy where men and women work, labor force participation is often interrupted, and stints exceeding 3 to 5 years at a company are unusual enough to be remarked upon, to say nothing of 40+ years.

+ Defined-benefits pensions come bundled with a few other expectations, such as lifetime employment and tenure, which are sort of on the outs at US companies.

+ Defined-benefits pensions are highly correlated to workplaces which are toxic to work in, because you'll frequently find yourself surrounded by clockpunching deadwood whose sole goal in working is not doing anything to upset their chances of making pension. If you've worked in government or a union shop, you know what I mean. If you haven't, try doing software development for a week in a union shop, then evaluate whether receiving a pension is sufficient to have yourself sentenced to doing that for 40 years.

greenlander• 13 years ago

Agreed. I only found the Money Moustache guy a few weeks ago, but somehow I was born with the same mentality of him.

I always saved the majority of my income. Last year I retired from my corporate job at the age of 40. It really is possible to do.

ChuckMcM2• 13 years ago

As long as you don't have kids :-) Or perhaps you're counting on them to pay for their own education. But yes, if you save your money and budget well, retirement is simply an 'if condition' rather than a 'when.'

That said, he doesn't cover variable costs as much as he should (rent changes, taxes, sudden medical issue) this is something that fixed income folks have lived with so there is a lot of stuff out there for managing those events as well.

CleanedStar• 13 years ago

"The occupy movement rallied against what they perceived to be a rigged game: a financial system that required their participation but did not offer them a seat at the table. Then they went home - maybe because the weather got bad"

Occupy Wall Street was cleared out by police starting at 1 AM on Tuesday, November 15th, 2011. It was done at 1 AM as they only had to deal with people staying at the park at that time. They arrested 200 people in a well-planned operation. One of the reasons given for clearing the park was unsanitary conditions, which I can personally attest was BS - OWS was always sanitary, and when the mayor began using sanitation as a reason to clear things out OWS became fanatical about cleanliness. I watched people sweep the same spot of ground multiple times an hour. Compare that to the parks and recreation cuts where some NYC parks can go more than a week without any cleanup.

The police pushed back attempts to re-occupy the park in the day of November 15th and November 16th. A more organized effort to get back in the park was tried on New Year's Eve, and was met by pepper spray, dozens of arrests etc.

While this is the reality, which can be easily verified, I realize there is this hegemonic false way of thinking. I realize this requires reporting that OWS were a bunch of trustafarians not affected by Wall Street shenanigans, and who went home when it got cold. Because to talk about what really happened, as opposed to the invented ideas of what would happen from someone embracing a propagandistic model of explanation, would require revealing things which are not allowed to be revealed.

While I embrace ideas that came out of OWS, I didn't go for the first week or two even though I knew about it before it happened, because I didn't see how occupying an area would do anything, and I didn't think people were interested. On that latter point I certainly misjudged - people from NYC and surrounding areas who had pent-up frustration about unemployment and the economy came flooding into OWS. Any how, it's funny how Russian governments or Chinese governments and their press organs lied, and much of the population knew its BS, yet the corporate press organs in the U.S. lie and say it got too cold so OWSers went home, and it is accepted as fact by so many. That the press lies is not surprising, that Americans are so credulous is what's surprising. I guess with so much fundamentalist religion among the working class and a different sort of warped thinking among professionals in the US, I shouldn't be continuously surprised by this, but I am.

scarmig5• 13 years ago

Of all the things that piss me off about OWS, what's probably the worst is this: our corporate media have somehow foisted some kind of collective amnesia on us. People ask, "Ugh, I hate our financial sector, and OWS had some good rhetoric but they just gave up because they were cold, lazy, and bored." As if one of the biggest domestic displays of government violence in recent times didn't even happen!

There are plenty of other critiques of OWS that I embrace wholeheartedly--sites became gathering points for the homeless and hurt more widespread appeal, new people who went in were not on-boarded effectively--which we can debate on end. But the idea that one day people just got bored and gave up... that drives me nuts.

tptacek5• 13 years ago

Am I understanding properly that all it took to destroy OWS in the popular consciousness was to deny them access to a single park?

to3m• 13 years ago

What does FED stand for?

harryh2• 13 years ago

The Federal Reserve which is the Central Bank of the United States.

http://en.wikipedia.org/wiki/Federal_Reserve_System

tunesmith• 13 years ago

We can't really even match the long-term stock market averages. We tend to make more money when times are good (when the market is high), and less money when times are bad (when the market is low), so if we invest money as we save/earn then we're generally buying high.

At some point you wonder if you should just give up on saving and instead invest it into a business or a duplex or something.

ISL• 13 years ago

Buying a duplex is saving. You're placing your wealth in a physical structure (and tenants, perhaps) instead of a bank.

Different, but not so different.

saalweachter2• 13 years ago

Is it just me, or is this article incredibly full of crap? First he goes on about how the Fed is lying about inflation, then he kicks OWS. If he threw in a claim that Fannie Mae caused the housing bubble, we'd have the insider trifecta.

sxcurry2• 13 years ago

Not just you, there's so much wrong about this article that I don't know where to begin. My father is a retired Statistician, and I know that the computation of inflation is a seriously considered matter by a lot of smart people. The statement that "What’s important to note is that the government is incentivized to report as low of an inflation number as possible and to keep real inflation as high as tolerable." is completely false.

beagle33• 13 years ago

You appeal to vague authority. Inflation is looked at by smart people, but many of the smart people whose job it is to define inflation computation are appointed, paid and appreciated according to the perception of inflation.

Bernanke is destroying the USD. It might even be the right thing to do, but he is definitely not frank about what and why he is doing it. Similarly, there might be good reasons to overinflate and underreport - but the official explanation and methodology around things like owner-equivalent-rent and hedonistic correction are ad-hoc, not verifiable or repeatable, aquifer random and somehow mostly reduce reported inflation.

jupiterjaz• 13 years ago

betterment.com their you're done.

harryh2• 13 years ago

there

philwelch3• 13 years ago

The reason retirement doesn't work the same way as a bicycle shop is because the incentives can get badly misaligned. With a bicycle shop, the better you are at fixing bicycles, the more money you make, at least to a good-enough order of approximation. Taking your customer's money just isn't possible unless you give them back a working bicycle. But retirement--especially "defined contribution" retirement--has a much weaker requirement. You give money to a mutual fund, and then who knows what'll happen? The mutual fund takes their fee off the top regardless. You let the company that's servicing your 401k or IRA pick funds for you and they'll just pick some plausible combination of their own funds. At least with pensions they have to maximize their return to have any hope of profiting.

Probably the closest analogy to retirement is auto repair and maintenance. You go in for an oil change and you get back a hundred-something-point inspection where they want to do a thousand dollars worth of work on your car. If you don't know anything about cars, there's no way to tell whether they're ripping you off. With retirement it's even worse, because you started off by giving them the money without any guarantee of how much money makes its way back to you. And the only solution is to actually know something about investing, which was pretty much what you were paying these companies for in the first place.

nazgulnarsil• 13 years ago

While I don't agree with everything this article says, this is the money quote: "If professionals who benefit from the economies of scale cannot reasonably be expected to provide me with a stable retirement without outside intervention, how can I be expected to do that for myself?"

And is spot on IMO. Whatever else is going on, we as a society are doing poorly at this particular type of specialization. We have done insufficient incentive engineering to make sure people don't regularly get scammed. It is not a solved problem, it is not an easy problem. But it looks like we aren't even working towards a solution right now.

rmc• 13 years ago

As our society discovers and creates, we must cope with our combined knowledge growing faster than our individual capacity to know things. Our solution - thus far - has been to specialize. When what is known expands, each individual becomes responsible for less breadth and more depth.

Back in the olden days there was only one kind of computer scientist. Before that there was only one kind of car mechanic. And even before that there was only one kind of doctor, who was also a barber. We used to know a lot less about cutting hair.

Except that there has also been a trend away from specialisation. e.g. food: instead of a baker, butcher, grocer and fishmonger, you now have a supermarket. e.g. household goods: instead of a chandler, tailor, cooper or haberdashery, we have clothing & household shops.

An Incomprehensible Retirement

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