The End of Retirement
harpers.org
harpers.org
Another issue it leaves unaddressed is what the proliferation of older Americans remaining in the job market is doing to job availability for younger Americans. Tech is obviously insulated, but in many other industries it is becoming very difficult to advance into the executive ranks because the current executives are staying in well past their retirement age.
[1] http://www.bloomberg.com/bw/articles/2014-11-20/millennials-...
Yes, Vietnam really sucked, and the S&L crash wasn't fun, either, but how hard would it really have been to set aside 5% of income every year instead of plowing it into ever bigger houses, more cars, vacations, etc.? I'll give you one thing - financial planning education in the US is absolutely awful and continues to fail millions of people every year. Without that, all you see is mass commercialization encouraging people to spend more money, and an ever increasing need to keep up with the Joneses.
At a 1 in 20 rate, if you have a 20 year career like your grandparents (although 20 year careers at the same employer disappeared generations ago, so you absolutely will not..) and with basically zero to negative investment return after deflation and taxation, one year after downsizing and offshoring you'll be down to the same $0 that the folks who didn't save at 5%, or were unlucky enough to get the economic death penalty a year before you. Meanwhile this happened 0 to 25 years ago and they have maybe 0 to 25 more years to live. Saving would have been a suckers game. You're not going to make it, you'll just be poorer along the way till you reach inevitable utter poverty.
Any medical condition affecting you, your spouse, or your child is a financial death penalty. All you need is you, your spouse, and kids, to avoid getting seriously ill or disabled for 40+ years. If anyone gets sick, all saving means in the long run is the hospital execs get your saved money before you go on the charity plan. You're not going to be spending money on around the world cruises or even a quiet middle class life; all that capital will be vacuumed up by the medical, real estate, legal/criminal, or educational sectors. Why should I save today to make some vampire fatter tomorrow? If I scrimp and save for my entire life, some hospital exec can buy a new Ferrari using my savings... whats in it for me? Surely I will not be permitted to actually keep or spend what I save.
Another way to put it is everyone in your cohort will get the economic death penalty and get the downward class mobility thing... but at different times. Many are banking on the idea that if they're happy, well fed, possibly educated, and entertained, they'll somehow get the economic death penalty more than a year after someone who has a bad attitude such that they'll run a net lifetime profit by not saving. They're probably correct... the guy who golfs and shares pro sports tickets with his boss is always the last downsized, the person who smiles the most seems the last fired, etc. Saving money does not necessarily correlate with maximized net lifetime income.
Historically there have been a lot of money poured into finding ways to convince people to long term thinking with short term gains. There are a reason why advertising quick loans and and credit cards have become popular. There is a reason why the US creditscore system forces you to take on debt to build you credit score (just think about how absurd that notion is) and there is a reason why people growing up in an environment where this is the norm become bad at saving up. It's systemic and it's done by the previous generations and not simply because the young generations are stupider or more careless.
You seem to believe that people in general rationalize far mor than they actually do. We are humans not rational machines.
To be clear, the US credit score system forces you to take on credit limits, not actual debt.
But granted, if for some reason the system scores you as not-auto-grant on the initial card application (in which case I have no idea what they base it on), then you might have to go with a fee secured in order to jump start the limit climb.
It's not just financial planning education -- it's financial planning policy.
Almost every policy we have is described as progressive, but isn't, and acts to discourage saving.
We have a graduated income tax. Where do the brackets start? ~$9000. That'll teach those fat cats making $15,000/year. And Richie Rich over there making over ~$37,000 will have to pay even more again -- even though the minimum wage fat cats were already paying the same marginal rate as investment bankers pay on capital gains. And the investment bankers don't pay into social security but you pay the full rate starting from dollar zero. Which money you won't get back unless you live long enough, can't dip into for emergencies (so emergencies get paid with high interest debt rather than reduced savings), and statistically will pay out less than investing the same money in an index fund.
But that's not the half of it. The thing that really gets you is all the programs designed to "help" you. If these programs were unconditional (i.e. not tied to income/savings) then they might actually do this, but they aren't. And the thresholds are low.
So two things happen. First you want to send your kids to college. Did you have some money saved up? We'll take that right out of your financial aid package thankyouverymuch, that'll teach you to save money. Same thing if you have to change careers and go back to school yourself. Then you realize that the amount of money you're making isn't going to cut it and look around for ways to make more -- which is where you get hit by the train.
They call it progressive because people who make more money are supposed to pay more. But they never bother to tell you "more money than what" -- and the number is less than minimum wage. You work part time stocking shelves at the Walmart and you get government subsidies for food, housing, healthcare, etc. You bust your hump going to night school for three years so you can get a $38,000/year job as assistant to the regional manager and the subsidies evaporate... leaving you pretty much back where you started, only now you have student loans. But try to save something for retirement, would you?
You are actually just proving my point.
Can you state clearly what your point actually is?
I think it's pretty obvious what my point is and I think you know it to.
But in case you don't.
The Indians and the Chinese will change this behavior over time. In fact I wouldn't even be surprised if you could already see this change in those who benefitted most from Chinese and Indian growth vs. those who aren't already benefitting.
They are after all humans.
However, I see no evidence that wealthy nations having a low savings rate is a universal behavior. Singapore (as wealthy as the US) has a 50% savings rate, while Hong Kong, Japan and Korea have a 20-30% savings rate.
The US isn't wealthy in any easily calculatable sense. They have been borrowing from it's grandchildren for a long time now. Most other western countries are doing the same. Some of those countries though have forced retirement savings but otherwise it's all borrowed money.
Blaming any specific generation for the framework the previous one set up for them is just flat out ignoring what it means to be a human being living in a society.
But I blame the person for it. I'm currently in the US for a short term work assignment, I may stay here for a while. And I will go back to India. A few things that I see here and in India. These are common things I see in both countries.
1. Most people don't seem to even have a concept of saving. This is unacceptable. Basic working knowledge of how money works(Savings and investments) should be important and be known to every person.
2. I've seen people splurging when get money and then struggling when they don't have money. There needs to be a middle ground. You don't have to buy every new phone that launches, every new thing that is there in the super market. Buy what you need, not every thing you want. Also that vacation you take every year, is pointless. Why are you doing that anyway? If you don't own a home, much less don't even have enough money to survive a lay off, or pay for your kids education, why are you spending on pointless stuff. You should be seriously be rationing the way your spend your money.
3. Every person could be helped with improving their skills or learning something new every some period of time. If you are in a low income job. If you are a ware house worker, or a waiter at a restaurant, or any such job for that matter. You should focus on using your free time(Spending time with your dog/cat can wait) in learning a new skill. Learning anything. Repairing cars, plumbing, software do anything but invest in learning skills that pay better.
4. Retirement planning/process begins in the first hour of your first job. It's not something optional or good to do. It's something you should do at any cost, no matter what it takes. It ends when you actually retire. If you are not investing to retire as soon as your start working, you are setting yourself up for failure. And nobody but you are to blame for it. Sorry its not the government, or society's job to help you in situations like these, simply because everybody else is having it equally if not worse than you do.
5. Don't lose your connections with grassroots. Even if you are doing good financially. Make it a point to look at how difficult poor people are having it. This will help you understand why your retirement project is so important.
The only issue I see in the US way of life is at time, mindless consumerism. I see yard sales and garage sales very often. Those are clear indications of people buying stuff they don't need. Lack of a middle ground in consumption.
In terms of policy, it seems like the Boomer's main investment strategy was to take it from their children via payroll taxes.
They voted to let the banks take their money. They now own the consequences of that.
Those were the same years that they weren't generating income, paying taxes or borrowing money. And what about the other 40 years?
This is a very American way of looking at the world. It's also deeply flawed.
You have far less control over your own destiny than you think. For example, people who get cancer don't choose to.
I find this kind of "fk 'em, throw 'em under a bus" mentality gross.
Parent poster is commenting on the general expense of medicine, but for your typical retiree, it shouldn't be too out of control with Medicare.
Edit - sibling poster pointed out that personal savings in approved retirement savings plans/schemes would not be put at risk for medical debts, which makes sense. The problem however with the folks described in this story is that a substantial amount of people _don't_ actually do this - they either have not saved anything, or their savings were in other forms (real estate, etc) which have been eroded/lost.
Your medical expenses should be a part of your retirement savings.
My employer recently had another round of meetings, trying to encourage people not to opt-out and extolling the benefits. At the moment, to put 1000 GBP into a pension pot will lower an employee's take-home here about 350 GBP - the company is doubling it (up to 5% of the salary), the government is giving the tax back, and the company is doing it by salary sacrifice so your take-home isn't so badly affected (tax etc. goes down a bit, offsetting a little the money the employee puts into the pension). They can choose what to put it in; stocks, funds, cash, treasuries. They can move it between providers, it's theirs. The only restriction is they can't have it back until they're at retirement age (not even retired; just at the right age, I think).
Even so, many people say they'll not bother, thanks. Some say they rather just save the money up themselves (costing them an incredible 1000 GBP for every 1000 GBP they save - three times the cost!). I know that putting it into a pension has risks and downsides, but given that the pension is basically tripling their money on day one, it seems incredible how many people aren't interested. Makes me fear that if people aren't interested even with (what seems to me) such a good deal, what are people without such sweeteners doing.
My sad example would be my 24 year old self didn't bother to bring the fully filled out 401k form upstairs to get the free money even though he vaguely understood it was the right thing to do. It was all set to go, I just had to carry the paperwork, but I didn't. Took a job change and another opportunity before I figured it out.
In startup land this is the difference between a 1 step funnel and a zero step funnel. Which would your company like to have?
Of course this isn't all cases but I've seen it. People generally want to feel important and connected and a job often provides that.
The problem is, as a persons mind and body starts to wear down there is less they can actually contribute. People talk about wisdom and experience and there is something to be said for that, but the world is changing so much faster than conceptual models which makes "wisdom" worth less than traditionally it has been. Besides, people start forgetting. So who actually hires old people? Who can afford too? It's hard enough to find good work when you are young and able.
I don't know what the point is. I guess I hope to actually never retire but to be able to do what I like at a pace I'm able until death. (With all the vacations I want of course). Even were I unfathomably wealthy I would want to live like this. Because sitting around doing nothing sucks. So does playing golf every day.
They were living off of social security and savings, which was possible because their houses were paid off and because the social security taxes while they were working were much less (2%) than they are now (14%).
So, they were getting a fantastic payoff from their social security 'investment' that no future generation can hope to get, while at the same time able to save more since much less was being skimmed off the top.
It's too bad that our generation and later generations have not been given the same opportunity that they were, and instead face the ruinous 14% social security tax with the disincentive that it is likely that getting any benefits will probably be 'means tested' by the time we retire. Most of my peers that I've talked to don't expect to get any social security when they become of age.
Socking 15% - 20% away after 14% is taken off the top is difficult, but the benefit from it will far surpass anything I'll ever receive from social security.
From your link:
The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.
No it isn't. If your employer can spend less to employ you then they will keep the profit for themselves, not share it with you.
There is at least some competition for your labor, and making it dramatically more expensive to employ you will have some effect on how much money you can get.
At the same time, given the drastically worse quality of life from age 65+ relative to ages 30-60, I'm not particularly interested in plans that enable/force me to save a lot of money for that stage.
This isn't a simple case of hyberbolic discounting (overvaluing the present relative to the future)--I value those age 35-60 years quite highly and have been willing to sacrifice some immediate benefits to optimize them. I just think it's important to be realistic about the fact that certain periods of life are superior to others, and I'd rather stack my enjoyment in those periods.
But you know what? In many ways the opportunities that these retirement-age workers have sounds like an adventure. What's the alternative? Sitting at home watching soap-operas on TV or feeding pigeons at the park? No matter what, getting old sucks and you'll be popping Advil and aspirin for aches and pains. But companies like Amazon and the Park Service give these folks something to do and a way to keep contributing to society.
At the start of the article May was out of money, living in a trailer with no electricity or water, contemplating suicide. But by the end, thanks to Amazon and other companies she had turned it around and she was having a ball. Obviously work at these companies can be hard or boring, but we get quotes like the following:
Despite the boredom, May was grateful for one part of her job. “The best thing was the camaraderie,” she said. “I made friends there.”
“Oh my God,” she said, explaining that it was a relief to be around people who she felt understood her. “The other day, for the first time in years and years, I felt joy. Joy! That’s better than being happy.” Before long, May was helping two of her neighbors...
May told me she was doing fabulously. “My whole life has been ups and downs,” she said. “The happiest I’ve been is when I have very little.”
Sounds to me like Amazon and the others were a god-send for May and her friends.
We have to do away with this moronic idea that people must be productive. A man's life is more than what he produces.
for the first time in years and years, I felt joy. Joy!
http://portfoliocharts.com/portfolio/permanent-portfolio/ and http://portfoliocharts.com/portfolio/total-stock-market/
Additionally, the quality of 401k plans varies from employer to employer. Some employers provide generous matches (I've heard of one that matched dollar for dollar up to the limit), most offer modest matches (up to 3% to 6% of your pre-tax pay) and some do not match at all. Some plans have very low fees (under 0.1% of assets annually) while others can have huge fees (over 1.5% of assets annually). To complicate this many HR departments (who contract for the 401k plans) do not understand how damaging high fees can be[0] and so choose 401k providers who shift the cost burden from the employer to employees (via high fees). Recent court cases have ruled that excessively high fee plans are actually illegal but it will likely take decades and many more court cases before they go away entirely.
[0] https://personal.vanguard.com/us/insights/investingtruths/in...
There are two main schemes for creating a pension system like social security: Pay-as-you-go (PAYGO) and Fully-funded.
Under the PAYGO system, contributions from the current labor force are shared among retirees.
Under the Fully-funded system, current earnings are collected as taxes from workers when they are young and invested by the government on their behalf, then paid out at retirement age.
Social Security in the US is a PAYGO pension system. PAYGO works great when 1) the working-age population is increasing relative to the retiree-population (tax-base is increasing relative to tax-drain) and 2) worker productivity is increasing (more taxes extracted from tax-base).
Fully-funded doesn't depend on population growth as the rate of return is generally determined by return on private investments, such as bonds and equities.
There are benefits and drawbacks to both systems, but with the shift in employment dynamics (less young, more old), the slowdown in the growth rate of the US population, and observed 6-7% market returns over the long-run [1] it seems like it would be worth considering phasing out PAYGO and switching to a Fully-funded system, or a hybrid of the two.
Here's more info for those who are interested (article is from 1998 but seems even more prescient now): http://www.frbsf.org/economic-research/publications/economic...
[1] http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1.ne...
While people are working, they are reducing consumption and directing some of their productive capacity into investment. This raises future production, resulting in more future surplus to go around.
The federal reserve can't even raise rates above zero today, let alone us assuming future productivity or production gains.
I'm also not sure what the federal reserve has to do with anything, or why you believe the fed can't raise rates.
I believe that we've tapped out as much consumer demand as we can in the first world, and that emerging economies (China, clearly from recent events) is unable to bootstrap their own local demand.
It doesn't matter if production is higher if there's no consumer demand; you're "pushing the string" as it were.
> I'm also not sure what the federal reserve has to do with anything, or why you believe the fed can't raise rates.
The Federal Reserve is the level by which the US (and through it, the world) economy is governed. Rates go lower, you (supposedly) throttle up the economy. Rates go higher, you throttle it down.
The Federal Reserve won't raise waits until there are enough positive economic indicators that their actions won't push us back into recession; if you want to see what I believe the Fed can't raise rates, look at Japan:
http://www.bloombergview.com/articles/2013-04-25/zero-rates-...
Now, I'm not one to hold Japan up as a failed experiment. Even with interest rates at zero, everyone has a fairly high quality of life. I'm saying: Once consumer debt is sapped, either because of a populace aging (which reduces demand), stagnant wages (which also reduces demand), and so forth, there is no economic driver.
Then again, the consumption of retirees is also not really a problem.
I don't know China well, but the idea that the emerging world doesn't have unmet demand is insane. Indians (a nation I know much better) certainly want to consume vastly more than they currently do.
I agree with this. We're almost there, not quite yet though. The renewables push and electric vehicles get us over the hump (although housing is going to be something we'll need to figure out).
Although, if you don't have consumer demand, you don't have any need for investment (except perhaps infrastructure, which the government can do; that leaves bonds/treasuries intact as an investment vehicle).
> Then again, the consumption of retirees is also not really a problem.
Ahh! But it is! Retirees consume much less, especially with most of them not having saved enough for retirement. They'll have enough to survive, and that's it (and those who need to depend on their families will be sapping away disposable income that's now re-purposed as non-discretionary living expense).
> I don't know China well, but the idea that the emerging world doesn't have unmet demand is insane. Indians (a nation I know much better) certainly want to consume vastly more than they currently do.
Yes, true. But do they have the income to do so? Without income, you cannot have consumption.
Every generation appears to become more hedonist and think less about retirement. Many of my friends(millennials) make six figures and barely save any money for retirement.
Carpe diem is failing on people.
This is quite funny when you think that "Carpe Diem" originally means literally the opposite of what people use it for nowadays.
The original quote is "carpe diem, quam minimum credula postero" i.e. "Seize the day, put very little trust in tomorrow (the future)". Meaning that one should do everything today to ensure a good future and be prepared.
Well, maybe I am too unimaginative but not being an American, I am curious where does all the money go. Reading Paul Graham's article about Ramen Profitability, I get the idea that a bare minimum lifestyle can burn as low as ~$1000 - 1500 / month [1]. Now a person is earning 6x this figure, how you don't end up saving something. Bars, clubs would only be fun to a certain extent. The only reasonable explanation I can think is, people buy everything that they don't need.
With a 'humble' example:
$3000/month SF/NYC apartment,$1000/month on clothing(specially bankers), $1500/month on food(no time to cook, so $50/day), $2000/month on entertainment($500/week), $1500/ month on a decent car +gas. That's already ~110k a year. It's really easy to go beyond that.
Suppose I'm dropping $3000/month on a spacious 2 bedroom east village flat. If I'm spending $1000/month on clothing, I'll very quickly run out of space to store it in my second bedroom. $50/day on food is quite a feat even eating eggs and kale on artisanal toast 3x/day. Maybe if you are eating bodybuilder type meals at only the finest restaurants?
I'm trying to imagine how to do $500/month on entertainment. Fri/Sat/Sun bars with a $25 cover charge, plus 42 $10 cocktails every week? With that kind of a drinking problem, money is the least of one's worries.
Spending both $3k/month on a flat in NYC and $1.5k/month on a car makes no sense (the whole point of the flat is to never drive).
Not to mention if we quit capping the income paying into social security it would be in the black regardless of the theft.
The thing that is evident here is the stock market is a method for the fleecing of the people by forcing them to invest or lose money saving.
That's also a good point as to why people aren't saving money....
> The overall median income for all 155 million persons over the age of 15 who worked with earnings in 2005 was $28,567
Which, divided by 12, is $2380.
https://en.wikipedia.org/wiki/Personal_income_in_the_United_...
It could be pretty adequate if the potential retiree has planned well and has already paid off their home (a typical house payment in an area of the country with a sane cost of living would probably be between $1k-$1.5k). It'd really help to have some decently-sized retirement accounts.
Basically, $3600/mo is adequate maintenance money, but add one or two major expenses to that (like a house, car, or major medical bill), and it gets dicier. If you want to travel during your retirement, or do anything besides buy groceries, you'll need significant savings to draw from.
Hell, five years ago, I was supporting myself, my wife and a kid on about something like that.[1] It was rough, but just barely manageable.
[1] "Something like that" because I was making significantly less, but had some familial advantages (I was driving a car in decent condition that I got from parents when I was younger, parents bought the kids lots of clothes, and of course I had a safety net, which is huge--not having that would've moved me from constant stress to full blown panic).
Edit: Ohhhh, I forgot the EITC, which makes a big difference. That nudged us a lot closer to that line back then.
Still, where I live, $3600 a month would be fine for a single person who didn't have enormous health care costs (and I know that's a real "aside from that, Mrs. Lincoln?" comment. Retirees are pretty likely to have big medical bills).
I grew up in north-central Arkansas. The median household income there is substantially less than that.
In the world just a few decades from now in which the old are becoming just as healthy, active, and capable as the young, social security programs are just not needed. Not that I think they are a good plan in the first place - enforced wealth transfers from the young to the old are generally enforced wealth transfers from the poor to the rich. Not to mention the fact that it encourages people to rely on the (inherently inefficient, unreliable) government for services that are quite capably handled by planning ahead (very underrated in the present time!), insurance, family, investment, and standard banking.
Retirement in the future will become something quite different from what it is today. I think we will see two forms of retirement in this future without aging. Firstly, there will be the extended vacation. A worker will finish a career with enough money saved to go on vacation for a few decades. That should be more than enough time to decide on a new direction in life. Secondly, an ambitious worker could save enough wealth to remove the need for income - they could live on capital gains, the return on investments, and all the normal methodologies of the well to do in the present day. Given enough time, even the most lowly of jobs could produce this sort of wealth, necessary for a permanent vacation.
Of course, this won't result in a world of perpetually vacationing people. If everyone is resting on their laurels, there would be no one to produce goods and provide services. So a dynamic equilibrium would arise between the vacationers and the working - too few workers and prices rise, so more vacationers return to work (out of necessity, or looking to make a killing in a hot market). If many people are working, prices fall, so more can afford to become long term vacationers.
A future in which we have decided to treat aging as the medical condition that it is, and implemented SENS or similar approaches of periodic repair of cell and tissue damage that causes aging, will be one in which everyone who is prepared to work can be wealthy. This wealth will bring vastly greater choice and freedom. It would be a terrible shame if political concerns and simple human selfishness mess up, prolong, and cause unnecessary pain in the transition from the current state of affairs to a better tomorrow.
A sentiment shared by the young. Until they get old.
So I don't think this is something historically people have believed in youth and rejected in adulthood. It's only coming to a head now. Of course, it's reasonable to expect that the current entrants to the scheme will continue to try to perpetuate it once they've committed significant resources to it, despite complaining loudly about the scheme now, not least because many will have little choice (they will be in a worse place than prior entrants, having had to commit proportionally more resources prior to drawing their benefits, and generally be expected to receive fewer benefits when they do, as the schemes adapt to the situation).
What this rhetoric really boils down to, AFAICT, is trying to push some of that burden back up the pyramid earlier, so that the bust is perhaps shared a little more evenly. i.e. by reducing the benefits of current recipients so that they are more inline with what future recipients can be expected to receive. I suspect it is a fools errand, though, since these are typically legal obligations, so would need very controversial legislation to enact. I can't see "stealing from grannies" ever passing a democratic legislature.
Instead, I fully expect both parties will keep doing what they have been doing which is colluding to slowly raise the retirement age. By doing that, they'll ensure that current beneficiaries continue to get their payments while also ensuring enough people die before drawing a significant amount of benefits to keep the pyramid scheme running just fine.
This isn't about "youth" vs "adulthood", most of the people who wish to deny the old their due are adults themselves. But I believe historically, when resources get tight, the "community" doesn't mind putting their elders on an ice floe and letting them go, so that the current generation can have more.
No, we just need to just accept and heroically deal with the fact that the poor will be with us always.
I have some news for you - saving up now to pay for your retirement is also a transfer from young people to old people. The primary difference vs a tax and spend mechanism is that poor people suffer far more under a savings-based scheme, because they typically live hand to mouth and savings, if any, are for emergencies, not retirement.
Look at this way: if we're not going to euthanize old people, then they need to be supported somehow. In practical terms, that means a certain proportion of current production needs to be diverted to sustaining these old people. Whether this production is triggered by taxing or savings doesn't really make a difference to the physical distribution of stuff; a certain proportion of production will need to be diverted away from younger people and towards older people. It's either that or kill all the old people. And yes, this reduction in supply of stuff for younger people will also push up prices for younger people. In fact, the more savings older people have, the more expensive stuff is going to be for younger people in the future.
The primary benefit of the savings approach vs the taxing approach is that high-income people are much better off, and low-income people suffer far more. If that is indeed a benefit.
a 75 year old capable of sitting at a desk and cranking out code as well as a 25 year old, sure, a 75 year old capable of working as a roofer or construction worker all day as a 25 year old I am not so sure...