Spanked on Retirement, Gen X Still Doesn't Get It

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Re: Spanked on Retirement, Gen X Still Doesn't Get It

Postby Candor » Sat Jun 29, 2013 10:32 pm

At 45, single and no kids, I've recently paid off my modest house and currently save approx. 50% of my gross salary. I max out the 401k and have a sizeable emergency fund (for me) and still I'm not particularly confident about my retirement. I haven't always saved this much but generally I have lived a LBYM lifestyle. There are too many unknowns for me to be confident although when I look around at my peers I see that I'm ahead of the curve but this place gives me pause.
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Re: Spanked on Retirement, Gen X Still Doesn't Get It

Postby NorCalDad » Sun Jun 30, 2013 12:22 am

Candor wrote:At 45, single and no kids, I've recently paid off my modest house and currently save approx. 50% of my gross salary. I max out the 401k and have a sizeable emergency fund (for me) and still I'm not particularly confident about my retirement. I haven't always saved this much but generally I have lived a LBYM lifestyle. There are too many unknowns for me to be confident although when I look around at my peers I see that I'm ahead of the curve but this place gives me pause.

This place is like the 99th percentile of savers. That's one of the things I like about it. If I were just to compare notes with peers, I'd think I was way ahead of the game and rest on my laurels. But this place makes me feel like I can always improve and learn.
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Re: Spanked on Retirement, Gen X Still Doesn't Get It

Postby YDNAL » Sun Jun 30, 2013 9:25 am

MnD wrote:Wait.......
32 to 52 is Gen X????
I've been claiming that I'm a tail end baby-boomer (1962) for decades.
I feel so young and slackerish all of a sudden! Crack out the XBox 8-)

I'm a 1952 baby and always feel young and slackerish. :D
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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Re: Spanked on Retirement, Gen X Still Doesn't Get It

Postby baw703916 » Sun Jun 30, 2013 9:51 am

YDNAL wrote:I'm a 1952 baby and always feel young and slackerish. :D


Are you retired? That could be considered permanent slackerdom! :happy
Most of my posts assume no behavioral errors.
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Re: Spanked on Retirement, Gen X Still Doesn't Get It

Postby YDNAL » Sun Jun 30, 2013 10:16 am

baw703916 wrote:
YDNAL wrote:I'm a 1952 baby and always feel young and slackerish. :D

Are you retired? That could be considered permanent slackerdom! :happy

I retired at 50 (slacker) and un-retired at 52 (semi-slacker) and will [maybe] permantenly retire next year at 62 (slackerdom!). :D
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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Re: Spanked on Retirement, Gen X Still Doesn't Get It

Postby Default User BR » Sun Jun 30, 2013 2:50 pm

YDNAL wrote:I'm a 1952 baby and always feel young and slackerish. :D

Image
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Re: Spanked on Retirement, Gen X Still Doesn't Get It

Postby ladders11 » Sun Jun 30, 2013 3:31 pm

Luke Duke wrote:
ladders11 wrote:Honestly when you have employer matching funds, the 401k can be considered "optional salary" where you need to elect how much of your employer's money you're going to take.

Especially when you have a wide option (2-30% of gross pay 66% matched), it is tempting to have this 401k invest into a money market, in order to protect this income like anyone would protect their paycheck, and use it like a bank account, because you're redirecting money from your bank account into the 401k just to get the match.

Let's say you need 80% of your income and want to save 20% - you would want to choose the 30% savings in order to get a 20% match bonus, and then borrow the other 10%.

Rationally, some of my paycheck should go towards retirement, some towards monthly expenses, and some towards short term savings goals (car purchase, travel, insurance, property taxes, christmas shopping, etc) - so there's always a need for savings that is not retirement. What makes sense is to take as much of the employer dollars as possible and then find a workaround to use it to deal with the other savings needs.

In no way would I agree with the "still doesn't get it" assertion. Savings rates are minimal; credit is easy; real estate has gone badly; tuition is a hardship. People respond to the incentives they're given and deal with the circumstances they fall into.


Please tell me where I can find a company that provides a 401(k) that will match up to 20% of my gross pay.


That's a real plan (2-30%, 66% matched) at a large company with tens of thousands of employees. It can't be a unique plan. FYI it doesn't vest upfront, it takes 5 years to get to 100% vested.

My point was, you fund a 401k for two big reasons:
1. To get employer matching funds
2. To reduce your tax burden this year

These two reasons are completely independent of retirement. If you're not maxing your 401k for retirement purposes (don't need/want to, can't afford it), you can still max it out for short term purposes, pay the penalty at some point, and come out way ahead.

One cannot just say that withdrawing funds is bad, when people are responding to their incentives.
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Re: Spanked on Retirement, Gen X Still Doesn't Get It

Postby mamarachel » Mon Jul 01, 2013 4:51 pm

^^ Very interesting thoughts. What I fail to see is how you end up ahead if you contribute more than you can technically afford, then withdraw it with a 10% penalty + marginal rate. Unless you are not receiving the full match with what you can afford, the account return will not cover your losses would it?

Maybe it would and I'm not doing the math right.

28% FIT + 10% penalty is > 28% FIT for not contributing it for example. If you can over-contribute to buy down for credits you are otherwise phased out of ... "maybe". But there is a whole lot of risk in that scenario and risk = money to me.

Can you explain how this would work for a more "normal" plan with only a 3% or 4% match?
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Re: Spanked on Retirement, Gen X Still Doesn't Get It

Postby MnD » Mon Jul 01, 2013 5:17 pm

Epsilon Delta wrote:
MnD wrote:I'm really glad in a way that most people forget to save for retirement.
Imagine if everybody saved one or multiple millions, plus social security plus XX% had a DB pension. I doubt I could afford even a tiny fraction of what I plan to do in retirement.
You would have 10's of millions of well off retirees chasing a very limited pool of resources for housing, recreation, travel, entertainment etc.
The retired household with $60K in investment net worth is not going to be booking the last oceanfront room at the Hilton ahead of you.

If everybody had saved enough for retirement you would have been able to get a better deal on goods and services during your working life, and of course you'd have less competition from the next generation. So this rather dark view doesn't hold too much water. It's not a zero sum game, unless you choose schadenfreude as your main emotion.


It's not a zero sum game and that's an important benefit of being financially well prepared in retirement when the vast majority of your peers are not. The saver/investor will have more overall due to real investment gains and decades of compounding. Spenders will have less overall due to the lack of any significant real investment returns, no compounding and other real and substantial costs such as credit card interest and higher costs for identical items (such as mortgages and auto/home insurance which can vary with credit score). And as someone else mentioned, age cohorts tend to desire the same things. So if everyone saved like a Boglehead, the price for specific goods and services in high demand by retirees would be very inflated. True a younger "spender" might compete for some things against a well-funded retiree, but they have less "ammo", and might not even have any interest in many of the same items. Tastes in housing, food, music, vacation destinations, recreation do vary quite a lot by age.
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Re: Spanked on Retirement, Gen X Still Doesn't Get It

Postby Epsilon Delta » Mon Jul 01, 2013 6:13 pm

There can be ways around the 10% penalty. If you have a Roth IRA and a traditional IRA, possibly from rollovers of a 401(k) at a former employer, you can:
  • over contribute to the 401(k) (getting a tax deduction)
  • withdraw contributions from the Roth (paying no taxes or penalty)
  • and convert from the traditional IRA to the Roth(paying tax but no penalty)
Everything nets out, so it's pointless unless you get some extra advantage. Picking up an employer match you would otherwise forgo would be a plus. In some cases you might be able to shift income from a high income year to a low income year, which would also be a gain.

There's a lot of moving parts, and it only applies to a few people, but if I see hundred dollar bills laying around I pick them up.
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Re: Spanked on Retirement, Gen X Still Doesn't Get It

Postby ladders11 » Thu Jul 04, 2013 6:12 pm

mamarachel wrote:^^ Very interesting thoughts. What I fail to see is how you end up ahead if you contribute more than you can technically afford, then withdraw it with a 10% penalty + marginal rate. Unless you are not receiving the full match with what you can afford, the account return will not cover your losses would it?

Maybe it would and I'm not doing the math right.

28% FIT + 10% penalty is > 28% FIT for not contributing it for example. If you can over-contribute to buy down for credits you are otherwise phased out of ... "maybe". But there is a whole lot of risk in that scenario and risk = money to me.

Can you explain how this would work for a more "normal" plan with only a 3% or 4% match?

Firstly, I can second the comments above by Epsilon Delta about getting around the penalty.

Secondly, I can tell you that many people matter-of-factly don't want to save for retirement - their reasons vary (some don't plan to live that long, some expect an inheritance, some are being taken care of by others, etc). People in this group can still put 3% into the 401(k), receive the 3% match, and then withdraw this later. It's their money. If we assume equal marginal tax rates, they gain 100% and lose 10%.

Point being, their individual withdrawals have nothing to do with anything and are useless in aggregate, reflecting nothing about Gen X, other than these employer matching funds have gotten popular and are forcing people to save "for retirement".

A lower cap like 3% seems like it should be affordable - or if one can afford 2% why not 3% - it's hard to think of someone deliberately oversaving by 1-3% and needing to borrow the equivalent money elsewhere. Now when you talk about a plan that goes to 20-30%, there is all the more room for strategy. Of all the people with 401(k) plans, how many carry credit card debt or car loans? I'd say many - these people are oversaving and many are benefiting from it.

The obvious potential backfire of oversaving would be if the matching money doesn't vest immediately, and you lose your job before it does. Or if the investment returns are negative. You essentially are betting on your own longevity at your company.

There are always individual circumstances too - you could plan to save money in your 401k and quit in December with money fully vested after 5 years. Then take a year off living off the 401k and receiving no income aside from the 401k withdrawals. You've lowered your effective rate, banked the matching funds, paid the 10%, invested in a tax shelter, etc.
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