A Path to Retirement, for Those Far From It

http://www.nytimes.com/2014/05/04/your-money/a-path-to-retirement-for-those-far-from-it.html?smid=pl-share&_r=0

by jbae29 • 12 years ago

41 18 12 years ago

The article as a whole seems fairly sound to me, but in the second paragraph it says "strengthen Social Security". That implies, to me, that Social Security, is something worth saving. Social Security, as a program is not just close to bankrupt finacially, but also morally.

That's because, unlike the other government programs, Social Security (and Medicare), are neither investments in the future (education, roads, defense), or helping the needy (Medicaid, SNAP). Social Security, is in the simplest sense of it, taxing the young, and giving it to the old. That's despite the fact that the old are doing far better than young people economically. [1]

[1] http://www.usatoday.com/money/economy/income/story/2011-11-0...

Swizec• 12 years ago

The idea being that our young will do the same for us.

throwaway3442• 12 years ago

Yeah, but the fact is that today and into the future, people will be having fewer children. Therefore, as the amount of retiring people increases, and the number of people working decreases, the ponzi scheme collapses.

dropit_sphere• 12 years ago

Honestly I wish we'd just admit that it's going down. I have no illusions that I'll ever receive any SS; can't we just phase it out so that anyone who's say, 30, won't receive any, and tell them now?

pravda• 12 years ago

I think what you mean is, we'll do the same to our young. Two Wrights might have made an airplane, but two wrongs don't make a right.

pdonis3• 12 years ago

Social Security, is in the simplest sense of it, taxing the young, and giving it (without strings at all) to the old.

Except that that's not how Social Security was originally intended to work except at the very start, when there was no trust fund built up. The original intent was that people's contributions would go into a trust fund which would appreciate in value over time, so that payments to current retirees would come largely from the trust fund, not from current receipts from workers.

The problem was that the trust fund appreciated in value so well that our statesmanlike politicians decided they could siphon money from it in exchange for IOUs. Which is why the trust fund is now close to insolvent, because instead of being full of the earnings from past contributions, it's full of IOUs from the Treasury that, as the fraction of the population that's retired continues to increase, the Treasury won't be able to pay back fast enough.

In short, what's morally bankrupt is not Social Security as it was intended, but our politicians who could not resist stealing the money from it instead of using it as it was intended.

panarky2• 12 years ago

Are you sure you understand how pension funds work?

politicians decided they could siphon money from it in exchange for IOUs

No funds have been "siphoned" out of Social Security. It's not a bank account. When contributions exceed payments, the excess is invested in US Treasurys. When payments exceed contributions, those assets are sold to make up the difference.

instead of being full of the earnings from past contributions, it's full of IOUs from the Treasury

Is your argument that instead of purchasing Treasurys, some other asset should have been used? Like what, municipal bonds? Corporate bonds? Real estate? Gold?

How do companies and other countries manage their pension funds? Do they not invest in IOUs of governments or corporations?

firstOrder• 12 years ago

I see, "defense" is an "investment in the future", but Social Security and Medicare are "morally bankrupt".

I guess the US military bases ringing the world are an investment in some kind of future. US arms shot up El Salvador in the 1980s, and now MS-13 gangs float throughout US cities, so these things are investments of a sort.

I gain nothing by having the boot of US imperialism on the necks of people over the world. I will get Social Security and Medicare though. It's the one thing I'm paying into that I'll benefit from.

People would have to help out their retired parents any how. This just happens collectively.

As far as investments - have you been reading about how corporations balance sheets are flush with cash? Or about factory overcapacity rates? There is no lack of capital, the country is more awash with capital then it has ever been. There is just a lack of places to invest it. Because people aren't buying commodities, there is underconsumption - at least according to Jack Welch and many others.

But putting money in the hands of retirees helps consumption. It keeps the economy moving.

Also, the metric is GDP growth divided by the number of retirees. The US was able to pay Social Security in 1940, when GDP was $100 billion, but now it can't, with a $15 trillion GDP? That makes no sense.

The US has military bases in Cuba (which Cuba has asked to be removed for decades), Djibouti, and many other godforsaken places - the US is spending a fortune to get back into the Phillipines. Never mind bailing out the banks which had lobbied to be deregulated.

Yet the one program I've paid into my whole life and which I will benefit from they want cut. I don't think so.

jksmith• 12 years ago

Exactly what is %15 for 30 years going to get me but delayed poverty? The standard retirement language in this piece is just bs peddled by money managers that I've been hearing all my working career.

lumberjack2• 12 years ago

$1.9M assuming you start at 25 with 15% on a $100K salary ($15K stashed away) and retire at 65. I'm assuming real returns of 5%.

You have a point. That is not even safe retirement money today and definitely not in 40 years time.

lumberjack2• 12 years ago

Interesting. At a first glance it looks like a condensed version of boogleheads. [1]

Also I didn't know who William Bernstein was but I found this interesting Google Talk he gave on the macroeconomics of global prosperity. [2]

[1] http://www.bogleheads.org/ [2] https://www.youtube.com/watch?v=fTUZXwQwUJM

jtolle• 12 years ago

I've liked other stuff by William Bernstein. His book "The Birth of Plenty" is excellent. I haven't read the pamphlet mentioned in the article, but I just downloaded it.

I'll be interested to see what his advice is to younger people now. At least in the past, he was not quite the typical scold. I always liked this quote:

'An optimist might cite this as an example of the "magic of compound interest." Too much is made of this phenomenon. A pessimist would note that our industrious saver died an old man without enjoying his fortune; had he consumed even a few percent of it each year his estate would have been vastly smaller. Personally, I’d rather be a 26 year old roaming the boulevards of Paris with a few francs in my pocket than a rich old man. Everyone cannot be rich, but perhaps their grandchildren can.' (from: http://www.efficientfrontier.com/BOOK/chapter2.htm)

tempestn• 12 years ago

If you haven't read it already, I highly recommend The Four Pillars of Investing by Bernstein. Goes into a bit more depth than his newer books, but it's still very readable.

carsongross• 12 years ago

You have to laugh at the same old investment advice, as if real interest rates haven't been slammed to zero/negative and won't be held there for the foreseeable future, as if stock returns haven't become almost completely cap gains driven on dubious earnings multiples, as if real wages aren't flat to down and as if housing, education and healthcare haven't all run out dramatically far ahead of what our friends in Washington are calling "inflation".

That's not to say the advice to save as much as you can and invest in index funds isn't sound, but look around guys...

noisy_boy• 12 years ago

The only path to retirement I can see is to work in an developed country (or relatively more developed than the country of origin), save like crazy and go back the country of origin/a cheaper country (in case your country of origin is already developed), when the sun no longer shines or the target cut-off date arrives, whichever is earlier.

A Path to Retirement, for Those Far From It

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