Public not saving for retirement

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Tim18
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Public not saving for retirement

Post by Tim18 »

Just read this article in the Washington Post (08072014) online:

http://www.washingtonpost.com/blogs/won ... s/?hpid=z4

about the low level of interest or preparation for retirement. From the report from the Fed is this comment: "The lack of preparedness is not signaled by a lack of planning alone. Many respondents, particularly those with limited incomes, indicated that they simply have few or no financial resources available for retirement." I take this to mean financial knowledge, not money to invest, but perhaps not.

This brought a thought to mind. What if there was a Boglehead "army" that could be marshaled (in addition to the online "army" we have here on line, perhaps better thought of as the "reserves") that would go out in to the communities and present Boglehead thinking? Having recently signed up with the reserves here and looking back to years of confusion, it would have been a great thing to encounter Boglehead thinking 20-30 years ago out in the public and away from the big investment firms. Perhaps we all do this in small ways, but I wonder if an organized effort would impact how the public would think about the possibility of investing after learning that it does not take much for compounding interest to work wonders. I would have travel to such an event.

Just a thought.
bigfun
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Re: Public not saving for retirement

Post by bigfun »

I have wondered about the possibility of buying BH-minded books and donating them to public libraries, salvation army, or any other organization that accepts donations. But you're not just talking about the BH philosophy, but the "live beneath your means and compound interest works" philosophy, so it's a bit more general.

Then there is also the power of speech, for example writing letters to the editor in the old fashioned way, or commenting on blogs or youtube channels, or starting your own blog or channel.

Then there are other popular hosts/gurus that have been discussed here already, who are faithful to a LBYM message, but have other "deal breakers" contained in their messages. Some of the gurus can reach a wide cross section, and others cannot. For example, Mr. Money Mustache has a good basic frugality message, but some of the forums there read a little snarky. Nobody will find that blog who isn't already looking. Remember, calling someone else foolish doesn't make you any more frugal! (Stolen from the line "calling someone fat doesn't make you skinnier" from the movie Mean Girls.)

Then there are certain religions that encourage the concept of "preparedness", and religions certainly are great at organizing and getting their message out, but that's not for a general audience.

It's tricky to find the right messenger. One of my favorite books is Elizabeth Warren's All Your Worth, but since sought political office, I don't know if people will start to avoid her book.

I think these are all good ideas. But in the end I think we'll be up against the same challenge: it's hard to have a catchy selling magazine headline for a very simple concept/philosophy. The easiest thing is probably to lead by example. One of my coworkers had a new android phone, and I remarked on it saying "oh, new phone - neat!" She then shared that she had ditched her apple phone in favor of a lower priced plan. She was being frugal, and I noticed, and perhaps others did too. I'm still using that expensive apple phone plan!
bigfun
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Re: Public not saving for retirement

Post by bigfun »

I've spent some time volunteering in retirement homes on the entire spectrum from poor to rich. The poorer homes can be awful. So yes, I think they should try to save something. These seniors will be isolated, not able to attend a movie or concert, and will be at the whim of their poorly paid caretakers. I don't like to think of anyone living like that, though we can't ignore that it's happening.
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sdsailing
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Re: Public not saving for retirement

Post by sdsailing »

The chart in the article says 15.4 percent, in contrast to the 20 percent in the title. Some of the people have db pensions or are part of a couple with a db pension. Also as mentioned upthread, those in the bottom quintile of household income (less than 20k per year) cannot afford to save. For these people, LBYM is simply not possible.

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MnD
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Re: Public not saving for retirement

Post by MnD »

Oh well..............
That's means millions and millions of people in whatever age demographic you are in won't be able to compete with you on price when in retirement.
If everyone were Bogleheads the price of the post-employment good life would go through the roof.
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crowd79
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Re: Public not saving for retirement

Post by crowd79 »

People can also retire to places abroad such as Thailand or Vietnam and not have to pay an arm and a leg for housing, food and insurance. Anywhere else is cheaper than the U.S. (except maybe Europe)
flyingaway
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Re: Public not saving for retirement

Post by flyingaway »

Consumer spending makes up 70% of the U.S. economy. If everyone practices LBYM, a recession is coming. The public do not want, and are not encouraged, to save.
john94549
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Re: Public not saving for retirement

Post by john94549 »

The biggest issue is how (not if) folks who have saved adequately for retirement will need to subsidize those who have not.
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joe8d
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Re: Public not saving for retirement

Post by joe8d »

The lack of preparedness is not signaled by a lack of planning alone. Many respondents, particularly those with limited incomes, indicated that they simply have few or no financial resources available for retirement.
Yes and the reason why SS needs to be preserved and even improved upon.
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HardKnocker
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Re: Public not saving for retirement

Post by HardKnocker »

"The poor will always be with you..." -- Jesus
“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”--Warren Buffett
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Garco
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Re: Public not saving for retirement

Post by Garco »

The stereotypes and callousness of some of the comments here is appalling. Recommending effectively warehousing old, poor Americans in Southeast Asia? Blaming poverty on tobacco use, beer drinking, and tattoos? Let the poor be poor because Jesus said you can't do anything about it?

That is some crazy sh*t.

If you're thinking about things being shipped abroad, then just read the daily news: http://www.bloomberg.com/news/2014-08-0 ... broad.html.

There are more serious approaches to addressing poverty and inequality, if you really are really interested in doing it.
The Wizard
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Re: Public not saving for retirement

Post by The Wizard »

Maybe the question should be phrased as a change in lifestyle around age 65 or so.
Someone working minimum wage jobs all their life probably didn't live too luxuriously years ago and would be similar in "retirement"...
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Pizzasteve510
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Re: Public not saving for retirement

Post by Pizzasteve510 »

I read a very sad article in a journal devoted to financial planners that spoke of a financial planning crisis among our military. The story outlined an alarming rate of suicide among soldiers in debt who realized their military life insurance policy included payment for suicide. An alarming number of good people were committing suicide to raise money to support their families. The article explained that soldiers receive very limited time and ability to get good financial planning advice. They are also preyed upon by some ex-officers who get hired by the high expense insurance companies, who take advantage of the hierarchical nature of the army to sell costly products or self serving advice (buy this costly annuity soldier...).

These guys and gals certainly are not lazy and poor through lack of effort. They certainly could use the knowledge of this forum.

Access to our military can be a challenge. the army knows some folks take advantage so volunteer advice is viewed suspiciously on the bases. Perhaps we could promote this forum somehow to military boards?

One planner actually lost her job because after the maximum 15 min consultation, she feared the soldier was going to kill himself and so she found his address and on her own time built a comprehensive financial plan that showed hoe he could get out of debt, save and be fine. Since he had a job requiring clearance, this specific soldier was going to be demoted as a security risk due to the high debt (a family member had medical bills). Anyway, he said she saved his life.

I will try to find a link to the article, but the idea is great and perhaps could start with offering free service to our service men and women.
Pizzasteve510
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Re: Public not saving for retirement

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Crow Hunter
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Re: Public not saving for retirement

Post by Crow Hunter »

A large number of the people that currently work with and have in the past don't really think about retirement.

They don't think about anything other than the following weekend or maybe up until their next vacation. That includes both low and high income people.

I had an engineer that worked for me that too a 401k loan to by fishing equipment....

My wife's boss who is extremely high income director of a corporation keeps a 401k loan all the time.

Most of my wife's (HR Manager) interactions with employees relating to 401ks are loan related. They are constantly churning loans.

A woman I work with that lived down the road from me had a 401k loan as did her husband. She told me that she was "making money" because she was "earning" 6% interest by paying it back to herself... :oops: They wound up losing their house down the road from me because her husband was laid off and they had to pay back his 401k loan and they had a mortgage on their house (even though they built back in the early 1980's) which they could no longer make. His 401k loan was for a new truck and a ATV and a Zeroturn lawn mower. :( Hers was for a van. :shock: They both had decent paying jobs and have been employed for years. But she had a room in her house that was completely full of Christmas decorations and collectibles. :|

My draftsman and his wife (who works at an eye doctor) just recently bought a BMW. Granted it was used but even with me trying to talk him out of it and showing him that he could buy a new Toyota Corolla for the price he was going to pay and still buy another new Corolla in 5 years with the price difference and the maintenance difference. It was his wife's dream car.... :oops:

We usually get a fairly nice profit sharing bonus at the end of the year. You get $X based on your salary placed into your 401k and then you get $X based on your number of months of service. That amount can be either defferred into your 401k or you can take it as cash. 95% of the people I talk to take it as cash and a large number of them use it to go down to the casino's and blow it. Most of them gripe that they should be able to get the other bonus too instead of having it put in the 401k....

There needs to be a greater interest in teaching people, starting early, how to deal with money. My wife wants so much to try and help people but the law forbids her from giving them advice. (Like STOP serial 401k loaning).

I was lucky. I had parents that taught me well but even then, I didn't know as much as I should have.
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Garco
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Re: Public not saving for retirement

Post by Garco »

Great sad illustrations, Crow Hunter.

Borrowing from the 401k is like the home refinance drug that got so many homeowners in trouble before the 2008 crash. Neighbor (finance guy) across the street was urging me to refinance my home (which was paid off) so that I could benefit from the low interest rates on the equity tied up in my then-inflated home value. I didn't bite.
lhl12
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Re: Public not saving for retirement

Post by lhl12 »

If every grasshopper in the country became a Boglehead ant and started saving much more than they presently do (and spending much less than they presently do), it is an interesting question how much current Bogleheads would see their net worths decline due to corporate profits (and share prices) declining from the massive recession that would occur.

I'm not suggesting this wouldn't ultimately be a good thing. I'm just noting that a full conversion of this country to Boglehead-ism would cause MAJOR pain and disruption throughout the economy, and would likely throw into poverty many people who are not in poverty at present.
banjo
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Re: Public not saving for retirement

Post by banjo »

My comments about hard-working people who cannot save because of one disaster or another was not meant to start off a political discussion about saving the poor from themselves or throwing them to the dogs. There was no political statement at all. My point was that once your seed money has been taken by a financial disaster, the common investment advice ("you should have saved more") is irrelevant.

In my own personal case, losing my job in middle age caused me to "waste" my seed money putting food on the table and paying the mortgage. There were no swimming pools or Hummers in the mix.

We are still digging out from that situation but doing OK. However, the mainstream financial advice did not help much.

Perhaps we should start a forum for people who did not get the smooth ride and call it "Rocky Roads". :D It would contain ideas about how one might dig out of an undeserved financial hole.
KyleAAA
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Re: Public not saving for retirement

Post by KyleAAA »

In most cases, I'm pretty sure lack of financial knowledge isn't the problem. Even the vast majority of people who invest poorly end up doing okay in the end. The real problem is that so many people just don't have any money left over to save. The financial literacy movement has been, I think, mostly a failure. If lack of knowledge isn't the root cause of these problems, why would we expect teaching people about money would solve them?
Pizzasteve510
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Re: Public not saving for retirement

Post by Pizzasteve510 »

I don't agree that financial literacy efforts are a failure if they do not change all behavior instantly. One family doing better is worth the effort, even if 4 fail to learn. A plan can matter and it is harsh to paint all people with a broad brush.

For good ideas on how saving even one family can matter, take a moment to read the article link I posted above. It goes into some detail about how a financial planner helped military families manage their money better, especially those under deep financial stress. In one case she prevented a suicide.

Tracking spending is a good start for kids to learn. Once the cost of a daily Starbucks or Outback Steakhouse visit stares you in the face, you may make different choices. Anyway, I say financial planning should be taught early to children, which is when we form habits. The next generation has a greater opportunity to break out of destructive learned behavior. Kids need good tools to counteract the drum beat of buy, buy, buy from corporations.
Beliavsky
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Re: Public not saving for retirement

Post by Beliavsky »

Since many people have saved nothing or very little for retirement, and since Social Security and Medicare are consuming a larger share of the budget, some politicians will favor means-testing of Social Security. Means testing based on current retiree income makes little sense (should investors with high-yield bonds get smaller benefits than those with growth stocks?), so if it's done, it may be based on lifetime income or the level of retiree assets. I wonder how much a wealth tax on SS benefits would reduce outlays. If for example there is a progressive cut in benefits so that retirees with $200K of financial assets get slightly smaller benefits and retirees with $1mil got only 50% of their benefits, how much of a difference would this make to the federal budget? People are generally advised to save for retirement, but there is a chance that the after-tax reward for doing so will be reduced by wealth-based means-testing.

I know that political debate is discouraged, so I'd like to ask a factual question. What fraction of SS benefits is received by people at various levels of wealth (either including or excluding home equity). If (to make up numbers) only 20% of benefits are received by households with $200K or more of wealth, wealth-based means testing won't make much of a dent. If (unrealistically) 50% of benefits are received by households with $1mil or more of wealth, means testing can make a much bigger difference.

ETA: according to Net Worth and Asset Ownership of Households: 2011 the average net worth for the elderly is somewhere between $150K and $200K, with most of that in home equity. The average level of financial assets may be about $30K. Wealth-based means-testing would have to start at low levels of assets in order to make a big difference.
Last edited by Beliavsky on Fri Aug 08, 2014 11:52 am, edited 1 time in total.
Crow Hunter
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Re: Public not saving for retirement

Post by Crow Hunter »

KyleAAA wrote:In most cases, I'm pretty sure lack of financial knowledge isn't the problem. Even the vast majority of people who invest poorly end up doing okay in the end. The real problem is that so many people just don't have any money left over to save. The financial literacy movement has been, I think, mostly a failure. If lack of knowledge isn't the root cause of these problems, why would we expect teaching people about money would solve them?
In my experience it is almost always a "series of unfortunate events" that are usually preceeded or followed by poor decision making.

A guy I work with has a low income, however, it is even lower because he got a girl pregnant that he wasn't married to (twins). Then he bought a house using that was really more than he could afford using the the home first time home buyers "credit" that was really not a credit because he didn't understand it. Then his house was broken into 3 times in less than a year. His insurance dropped him and his mortgage company required him to have insurance so he just "let them" give him insurance rather than shopping for new insurance and/or installing a security system. It had outrageous premiums but "he didn't know" how much it would cost until he got the bill. Because he is having to pay a large portion of his pay as child support he decided to just declare bankruptcy and "let the bank have the house". Then he found out that the $8,000 "credit" that he got for buying the house had to be paid back. He found this out when the IRS siezed his tax refund this year and put him on a repayment plan. This is costing him an extra $50/month plus interest and he is complaining that he can't afford it but he has his W-2 set up as single no dependents so he gets a $3,000/year tax refund. I tried to explain to him how to reduce his witholding so that he could would stop giving the government a interest free loan so that he could pay them interest in but he won't do it.

If he had a better understanding so he could make better decisions, I don't believe that he would be in the situation he is now. He would have enough to make a decent living in our low COL area.

But I might be wrong.
technovelist
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Re: Public not saving for retirement

Post by technovelist »

Beliavsky wrote:Since many people have saved nothing or very little for retirement, and since Social Security and Medicare are consuming a larger share of the budget, some politicians will favor means-testing of Social Security. Means testing based on current retiree income makes little sense (should investors with high-yield bonds get smaller benefits than those with growth stocks?), so if it's done, it may be based on lifetime income or the level of retiree assets. I wonder how much a wealth tax on SS benefits would reduce outlays. If for example there is a progressive cut in benefits so that retirees with $200K of financial assets get slightly smaller benefits and retirees with $1mil got only 50% of their benefits, how much of a difference would this make to the federal budget? People are generally advised to save for retirement, but there is a chance that the after-tax reward for doing so will be reduced by wealth-based means-testing.

I know that political debate is discouraged, so I'd like to ask a factual question. What fraction of SS benefits is received by people at various levels of wealth (either including or excluding home equity). If (to make up numbers) only 20% of benefits are received by households with $200K or more of wealth, wealth-based means testing won't make much of a dent. If (unrealistically) 50% of benefits are received by households with $1mil or more of wealth, means testing can make a much bigger difference.
I don't have any figures, but I'm pretty sure that the proportion of SS benefits received by households with net worth of $200K or more is pretty small. Why? Because the proportion of households that have that amount of net worth is 32% (according to this: http://politicalcalculations.blogspot.c ... -T_JE3wtaR), and I'd bet most of those are not collecting SS.
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Beliavsky
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Re: Public not saving for retirement

Post by Beliavsky »

technovelist wrote: I don't have any figures, but I'm pretty sure that the proportion of SS benefits received by households with net worth of $200K or more is pretty small. Why? Because the proportion of households that have that amount of net worth is 32% (according to this: http://politicalcalculations.blogspot.c ... -T_JE3wtaR), and I'd bet most of those are not collecting SS.
Having updated my earlier post with data on the wealth of elderly, I agree.
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Re: Public not saving for retirement

Post by LadyGeek »

I removed a number of off-topic responses, continuity is lost. This thread has run its course and is locked (not actionable). See: Forum Policy
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This is a general discussion about saving for retirement, which is not significantly relevant to personal investing (directly impacting you personally, the intent of this forum). Several removed comments were political references (including means testing), others were socio-economic observations and their responses.
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