It’s even worse - if the Fed actions tank the markets, then millions of retirees who have been enjoying high market values are screwed and have no other source of wealth or income.
I do not envy the position the Fed is in.
I do not envy the position the Fed is in.
On the one hand, retirees bring nothing of real value to the economy. We serve them because of the obligations they built up over their working careers. But, they get the focus of attention because a) they have all the money, b) they have all the time to be engaged in politics, and c) they vote. But they're purely an extractive cost center. A kind of economic parasite that keeps getting bigger and bigger with the magic of compounding interest.
On the other hand, the younger working class generations, who are the real engines of the economy that keep us all fed and served, are legitimately suffering and failing to acquire a significant stake in the economy. Sure, employment is high but pay is low compared to their parents. When shit hits the fan, the young generations are largely gonna shrug, because who fights to defend something they don't have a stake in?
It really seems like a powder keg for revolution.
Sure they may not be producing anything, but is there any value to the idea they consumers still? A lot of FIRE philosophy is you work hard so you can earn retirement early too -- people aren't going to work all their lives either, there has to be a light at the end of the tunnel. It is saddening that it may not be the case for many.
https://www.kiplinger.com/taxes/601639/estate-tax-exemption-...
Mind you, this also avoids a ton of tax that would otherwise be due had they not died via the step-up in basis... it's a massive giveaway to the rich.
Which supports the claim that they are low, and, consequently that young people (who often stand to inherit from their elderly relatives) have a stake in the investments of old people not getting wiped out.
For a lot of people, what is even the point of living if there's no retirement to enjoy?
They are an extractive class insofar as their present contributions are net negative. But you are forgetting they likely spent their entire life building up that account, both in terms of an actual retirement and the broader accounting of total life's contributions. Indeed, it is something that hopefully you and I will enjoy one day, because we've earned it.
That idea reeks of short-term thinking, and a world of endless work for no reward as your worth goes to 0 once you stop contributing.
That is the normal human experience.
But also not what I'm suggesting.
But nearly every society has some form of elder care.
The point is you are supposed to be helping other people in some way. Not just being a useless turd and forcing young functional people pay rent to you so that you can do nothing but sit on your fat ass and shit in your diaper. They also lived in a society that was much more prosperous than any young person ever will. Considering that now everything is ruined, it's hard not to look at them and imagine they share some small part of the blame.
Maybe if people cared less about saving up a big sum for themselves to "enjoy their retirement", aka being a self-centered moron, then the world wouldn't be such a shithole today.
They own the house, which they bought and paid for. It is their property to rent or not rent as they see fit. You pay money for said privilege. They are not squatting on communal property, and short of returning it to the market the property would otherwise sit unused and wasted.
Are you saying that young "functional" people should have free housing? Most of you had some for 18, 20, maybe even 25+ years with your parents. Is it that you want that to last forever? Do you guys think you are Peter Pan or somethign?
> Considering that now everything is ruined, it's hard not to look at them and imagine they share some small part of the blame.
Don't let generational nihilism color your vision so much. There is a world of opportunity out there, especially here in the US, but young people think said opportunity looks like Twitch streaming or professional influencing or pretending that are innovating, but it's not. If those kids would pull their heads out of their asses and start learning how to be boring they will find there is lots of ways to get ahead in life, and that there aren't a lot of easy answers on YouTube.
"Everything is ruined"... like, c'mon, if that's really what you think then you've barely even lived
>but young people think said opportunity looks like Twitch streaming or professional influencing or pretending that are innovating
Physician, heal thyself
I guess the alternative is to not have any savings and rely on others to take care of them and that is somehow less self-centered?
Let's not forget that consumption is bringing in revenue to _someone_ which does provide value to the economy. Unbelievable
We can acknowledge the humanity of the humans who make up the constituent parts of the colossus while also saying that the colossus, the sum of those humans, is a potentially negative force on the stability and sustainability of the system.
And I speak as one of these retirees.
It's something I appreciate about this community, that we can express ourselves in such ways in order to convey a point without any fat on it. I still assume the person making the point understands that there the fat is there without needing to explicitly mention it. It's a sign of mature dialogue IMO.
[1] other working people once they too retire.
Not true. If retirees have money, that's money they got paid for doing actual contribution. If you devalue that money that's devaluing their life's work and contributions.
Not an advocate for crypto etc, but it feels wrong that a bunch of folks like Powell etc get to decide the fate of whole generation's peaceful retirement.
Because it is. Why did we start interest rate interventions again?
>"It really seems like a powder keg for revolution."
I would argue your entire post seems like a powder keg for some self-reflection.
You’re living in housing built by someone in the past, driving a car engineered years ago, on bridges and roads built decades ago. You enjoy technologies that people even 30 years ago could only dream of, things you did not create or contribute to.
And then you have the gall to whine about those builders, savers, investors, and innovators who created those things.
Kind of sounds like you’re the extractive cost center, to be honest.
As long as your stock assets aren’t touched for 3-5 years it doesn’t matter what the market does in the next few months.
As you get older 80% bonds 20% stocks.
Source: The intelligent investor (famous finance book)
People these days have 80% house, 15% crypto and 5% stocks
Using the suggested approach would demolish a bond portfolio. Assuming Barclays Aggregate index as a proxy, if interest rates rise to 7%, then half the value of the bonds would be lost.
Note that correlation of rising rates and rising stock market exists until about the 4-6% rate region before the market starts to be truly negatively correlated with bonds above that number.
Based on all my reading over the past several years, this is the first time in history that so many bonds have been priced at or near zero (including below zero rates). I think Benjamin Graham would be writing a supplement to his book if he were alive today.
Equity markets can take a hit at pretty much any time for completely unforeseen reasons. This is expected and should be factored into a "safe" withdrawal rate (see Bill Bingham and the 4% rule).
Anyone who was relying on an equity market that never tanked, to survive retirement, was doomed from the outset.
1 - holding bonds versus bond funds are very different, as in the first case, you control the timing of the sale, and in the second, the fund does. That has all sorts of implications about losses (as well as capital gains) in any particular year.
2 - Interest rates have been at zero (ignoring this week's interest rate hike). Using the Barclay's Agg duration of 6.7 (as of this week), then you are just asking for pain in your bond holdings. Stocks may or may not go up or down, but bonds are either going to go down or generate basically zero cash flow. Many people have embraced TINA as a result. [0]
[0] - https://www.ellevest.com/magazine/investing/tina-alternative....
Let's not be naive. The Fed put itself in this position. You're correct. Most of the rest of us will - once again - take a massive shot to the wallet. But to The Fed and its "fan base" it's simply another cycle in the process of moving more from the bottom to the top.
Put another way, you or me are simply not The Fed's priority. I'm not sure why we voted for them.
That last bit is sarcasm.
Plus, at least current US retirees have social security, which may not last another 20+ years in current form (unfortunately for people paying in today).
However, it would be prudent to assume that the social security benefits will have less and less purchasing power (since each USD will have less and less purchasing power), and the government will not increase the amount of the benefits sufficiently to offset the decrease in purchasing power.
The elite will eventually get their way because it represents such a vast source of untapped value to extract from. Will it be in my lifetime? (im in my 30s).
That I don't know but I do know that they are gunning for it as well as Medicare and Medicaid and if a US bankruptcy does not wipe it out then eventually they will find a way to take it.
And Social Security and other government benefits/services are continuously cut, at least where I live as far as I am concerned since they never keep up with price increases for the things I buy.
To be clear I do not expect a bankruptcy to be a likely outcome. I just consider it a non-impossible possibility. The only scenario I can think of is if some event moves so quickly that the government cannot respond in time before its too late. Even then, I still feel they probably have options.
>And Social Security and other government benefits/services are continuously cut, at least where I live as far as I am concerned since they never keep up with price increases for the things I buy.
Yes they are being devalued and thats the constant battle that is being fought. While the US continues to print money to give to the rich, they sneak things in such as small cuts here and there as well as further taxes on the poor (ie. You now have to pay an additional tax on more than 600$ worth of ebay sales. This was snuck into the relief bill.)
No, that is not a recent addition to tax liabilities. You have always had to pay tax on income. The only difference is eBay (and other facilitators) are required to report it now.
There are a lot of other nefarious things in the bill such as requiring manufacturers to install a device to monitor the driver if they are impaired(beyond 2026). This will lead to fines that will lead to further eroding of what little wealth the poor already have left. Was very smart of them to introduce it far off into the future so it can be slowly integrated into people new car purchases. This is why I believe the addition of the 600$ reporting requirement was no innocent ploy to just shore up this revenue stream. It was purposely introduced at an opportune time.
>In the end if your income is low enough you'll mostly be offset by the standard deduction anyway.
The point was that it is another barrier introduced to extract as much value from the lower classes as possible. In fact you had missed the original point completely.
[1] https://www.cnbc.com/2020/01/17/heres-where-most-americans-a...
Cry me a river.
Your elderly parents need to move in with you because they cannot afford to live on their own.
Can you have it both ways ?
On the other hand, as there’s effectively no border enforcement during this administration, I guess they’re already accomplishing their goals without needing the media to ram “Americans can’t/won’t do the jobs” down your throat.
Either of these effects on their own would hurt the younger generations, and together would make the already slow wealth building hit a brick wall. (I'm 25, for the record, and I don't expect to be debt-free or a homeowner until well into middle age)
While it really shouldn't be true, and at the level of financial mechanics probably isn't, the stock market has become the measure of the economy. Remember, pensions are dead and buried, and the nuclear family standard means that relying on your children (read: you and I) is not the bulwark it once was. That means 401(k) performance is really, really important, as terrible as that may be -- its just the reality right now.
The problem is... almost no financial instruments outside of stocks can provide a meaningful return any more, so even the target date funds are almost all stock.
I noted your other "time in the market beats timing the market" comment, which suggests you are an active investor. That's great! But very few Americans are active investors, and expecting them to become so is unrealistic.
Its a problem of realpolitik, which is why, going back to my original comment, you should still care, if only for how it will affect you.
[0]: Here is an example prospectus of a 2055 target date fund. Note the graph showing the changing allocation of stocks/bonds/money-market funds (or CDs). By retirement, nearly half the portfolio is still stocks. https://prospectus-express.broadridge.com/summary.asp?client...
This literally could mean the difference between living independently or not for a lot of people.
Not to mention everybody working today with a 401k as their retirement plan will lose value no matter their age, which means they have to work longer than planned. This is a real life impact to a lot of people.
Given that quality of assistive care matters, it could literally mean the difference between living and not for people.
Of course, on the other hand, so could runaway inflation for lots of people into the same age group (not every elderly person is self-sufficient on retirement income; many are supported by younger, working family members.)
Retirees who are fortunate enough to have substantial retirement assets should take precautions against risk. If they haven’t then that’s their problem. I’m retiring in 30 years, my retirement accounts are all stocks. If I was 65 I’d have my 401(k) heavily in bonds and fixed income.
Anything else is just greed.