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Comment by chollida1 | Hacker News Reader

This is, IMHO, a serious problem for the markets and regular investors.

Microsoft went public for a valuation of around $300M and is trading over a $1T now. This means that regular investors had a chance at all this growth.

Newer companies like AirBNB and Uber went public at what could be their max market cap valuation of billions so investors wont' get much of a chance to make money from these companies.

In addition to this problem of private investors(VC's) taking most of the profits, we now have such concentration of wealth that the big PE firms can buy alot of what used to be small businesses and roll them up.

Vet clinics, medial practices, engineering firms, etc all use to to thrive on being 20 person shops are now routinely being bought up by PE firms and rolled into larger companies which means far fewer entrepreneurs or chances for up and coming employees to buy into the firm from the founders, which helps stall careers.

Heck you see it now with these firms buying up single family housing in US cities now and then renting them back to people, transforming regular middle class people from home owners to renters, and transferring the home appreciate from the middle and lower class to the PE limited partners ensuring the rich get richer and the middle class disappears even faster.

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It's worse than that. The 401k generation will begin think about retiring in the next few years. Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on.

This will either keep older workers in the workforce longer, preventing younger workers for getting into positions, or it will result in discrimination against older workers who will find themselves unable to get jobs, let go, or laid off to make room for younger, cheaper workers.

The expectation for your 401k is that it's going to grow by 6-8% each year. If there isn't any room for growth in the market then it's going to be hard to deliver that going forward, compounding the problem for later generations who probably won't be inheriting anything from their parents.

> Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on.

How will that happen when there has been so much growth in the S&P?

https://www.nerdwallet.com/article/investing/the-average-401...

https://www.gao.gov/blog/growing-disparities-retirement-acco...

https://www.gao.gov/financial-security-older-americans

(401k plans were a way for capital to con Americans that ditching pensions was the way to go; pension contributions became shareholder profits, and most did not or could not contribute to 401ks in any meaningful fashion)

Thanks for this pile of links...

I don't believe what you're saying that 401k's are somehow not going to be enough to retire.

Unless you meant retire where housing prices are rising the fastest.

You didn't read the links then. Median 401k balance is no more than $71k across all age cohorts. Assuming a 4% perpetual withdrawal rate (Trinity study), that is ~$2840/year in income.

Per the GAO:

> Even for those who do have access, traditional defined benefit pensions have become much less common as defined contribution plans, such as 401(k)s, have become the primary type of retirement plan. This shift has increased the risks and responsibilities for individuals in planning and managing their retirement. Yet research shows that many households are ill-equipped for this task and have little or no retirement savings. As of 2016, about half of households with a worker age 55 and older had no retirement savings, and 29% had no retirement savings or a defined benefit plan. Policymakers will need to consider how to best encourage expanded pension coverage, adequate and secure pension benefits, and more effective use of tax preferences to foster workers’ retirement security.

40% of Social Security recipients have no other income.

https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf

https://web.archive.org/web/20231028173718/https://www.nirso...

I'm not following your reasoning

Regardless of whether and how much private equity is affecting growth in prices of stocks for public companies, the S&P in which people's 401ks are invested has grown a lot, and will probably continue to

Low balances in 401k's are therefore due to insufficient contributions and not insufficient growth in S&P prices

This thread started as a response to:

> The 401k generation will begin think about retiring in the next few years. Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on.

The maximum individual contribution—not counting employer contributions—is $22,500. Or if you’re over 50, it’s $30,000. If You’re maxing out your 401k, you’ll pass $71k after working just a few years.

To retire with just $71k after working a typical career of 40 years, you’d have to save less than ~$600/year. In other words, saving $600/year—~4% of a minimum wage salary—is enough to surpass this median $71k number after a 40 year career and a conservative 5% avg return.

I suspect most of these people have other savings.

> I suspect most of these people have other savings.

Please show me the data, because all available public sources indicate this is not the case, and in my travels, the data confirms my conversations with these cohorts (because I am very curious). If they have other savings not showing up in the data, what and where is it? We cannot simply assume it exists. Hope is not a strategy.

Well, for starters, we can look at the median net worth of Americans, which in 2019 was between $250k and $310k for the age groups we’re talking about here. Is that enough? Still probably not, but it’s a heck of a lot more than just $71k.

https://www.federalreserve.gov/econres/scf/dataviz/scf/chart...

If your net worth includes your primary residence, and you can't live off the equity, it is not retirement savings. It is dead capital, as you must live somewhere. Certainly, we can include it in your estate and net worth, but that's more pertinent to whomever is next of kin, not the person who needs cashflow for groceries, fuel, utilities, healthcare expenses, and so on. What the metrics represent is important, otherwise we are blinded to ground truth.

I must strongly emphasize that vehicle equity is not retirement savings if you must keep the car for mobility. Home equity is not retirement savings if you must have a place to live and there is nowhere to downsize to, unless we are expecting 55+ to sell their homes and live in a van down by the river, burning through their housing proceeds and hopefully dying before it is exhausted.

I think it’s still perfectly relevant. Retirees who own their homes have lower expenses than those that must pay rent. If your net worth is 100% equity in your wholly owned home, social security will go a much longer way than someone with $71k in a 401k who must still pay rent.

I don’t know what point you’re trying to make here. Is US retirement a mess? Yes. But I don’t think the magnitude of bleakness is quite as high as you’re describing.

While hardship exists, and I think we’d probably agree that there needs to be a much better safety net in place for people, I think it’s also true that many capable people neglect to save enough for the future. And, to be honest, I think often it’s because of rhetoric like yours. People are hopeless, and just give up trying. Reality is not that grim. Saving even $1M in a 401k over 40 years has been attainable for most people by following the boring “save 10%” strategy.

But a higher net worth due to having equity in a home is not the same as having fully paid off your home. There's just not enough information in such statistics to make such a determination one way or another.

You're welcome to assume that retirees have paid off their mortgages, but it's a wholly unsupported assumption, given just the information in this thread. If you want anyone else to give it credence, cite some sources for it.

https://fivethirtyeight.com/features/how-many-homeowners-hav...

Most Americans over 65 own their homes outright without mortgages.

Equity is equity. It's net worth that matters regardless of any mortgages. If a retiree has a mortgage payment then that's just one more housing expense to factor into retirement planning along with property taxes, maintenance, etc. For retirees with low interest mortgage it would be foolish to pay those off. And retirees who have substantial equity but need cash for living expenses can always take out a reverse mortgage.

That's completely backwards.

In order to determine whether you can afford to retire, you need to be looking at recurring expenses, not illiquid assets. If you have an expected monthly income from your 401k of, say, $1200, but your mortgage payment is $800/month, it doesn't matter that you've got $150k already paid into it and only another 10 years left to go; you can't afford to retire now![0]

Yes, it's theoretically possible (depending on how much equity you actually have, and your credit score) to take out a home equity loan to provide you with money to live on in your retirement, but a) there's interest payments to think of, which put you right back at the top of this post looking at monthly expenses, and b) if this is a significant part of your net worth (which, for many of these people, it absolutely will be), this means that at best you're leaving your heirs with a bunch of debt and no house, and at worst the bank just won't let you do it in the first place. And while there is certainly a perfectly reasonable discussion to be had of whether it's better to use the money for yourself now, and not care about your family, making that selfish choice is far from universal.

[0] No actual numbers were harmed in the making of this post. All numbers are entirely made up.

That's completely backwards. I don't think you understand how reverse mortgages work. It's not the same as a home equity loan.

As for leaving an estate for heirs, that's a separate issue from retirement planning. There's no way to leave a bunch of debt to heirs. If you die with liabilities exceeding assets then any debt which remains after selling off assets is simply defaulted. The heirs will inherit nothing of significant value, but creditors can't force them to pay off the remaining debts either.

It's stashed in their depreciating vehicles and equity in their houses.

I know far too many people (albeit all younger than me) who readily admit to having zero savings--retirement or otherwise. These aren't destitute minimum wage workers. They're professionals with decent jobs, often whose employers have 401(k) programs. They just don't participate in them. They deliberately don't because they want to spend today and not lock up their money for an uncertain future. About half think they're going to die before retirement, and the other half have an overly rosy expectation of a future safety-net to help them. They are betting (unwisely IMO) that the USA will give in and not let an entire generation die on the street.

I have close friends with this mentality, and it frustrates me to no end. 6-figure earners with severe learned helplessness.

> no more than $71k

Don't worry, I'm sure they'll get together and vote to distribute everybody's 401(k) balances equally among all retirees so that they people who did save will also end up with nothing.

I always wonder about this 401k balance. How many people don't roll over their 401(k)s?

The term "retirement savings" is too narrowly defined here, since it only includes things like 401k, savings accounts, and pensions.

Many people have their retirement savings entirely in rental real estate (I know several like this). Many people have small retirement accounts but millions of dollars in ordinary taxable investment accounts due to the myriad restrictions that the government places on what you can put into retirement accounts. All of these are outside the definition of "retirement savings", despite being actual retirement savings, but none of them are rare.

> Many people have small retirement accounts but millions of dollars in ordinary taxable

Certainly not many people, at least not many in the context of retirement population. Any people with access to millions of dollars of assets in retirement are rare.

Who do you think the shareholders are? That's right, it includes 401(k) and retirement plan owners. It's a way to diversify your retirement beyond a single company. A pension plan in a company that can disappear and that can make investments on your behalf without any control is the big con.

The fact that people contribute less to their 401(k) means they care less about saving for retirement, not that the plans themselves are a con. I personally don't even have a 401(k) because I am self employed and there are other options.

https://www.cnbc.com/2021/10/18/the-wealthiest-10percent-of-... ("The wealthiest 10% of Americans own a record 89% of all U.S. stocks")

https://www.usnews.com/news/national-news/articles/2021-03-1... ("Median household owns $15k in equities")

(unless you're wealthy, you are a token participant in the capital markets)

I'm fine being a token participant as long as it means I've been seeing significant gains over the past decade, which I have.

I'm not faulting the selfish position, simply pointing out the game is rigged for everyone except outliers (like yourself or the ultra wealthy). These are just facts, not feelings, when you review the data about who has sufficient cashflow for inflows into investments during accumulation phases as well as their current and potential future investment exposure to these asset classes.

Congrats on the luck (no snark, honestly). But let us not extrapolate luck and personal anecdotes to solutions for systems. "In God We Trust, all others must bring data", working backwards from first principles, etc.

They aren't facts. The number of millionaires in the U.S. has exploded. Many are benefiting from the markets. It's not luck.

The fact that many would rather spend than save does not change that these opportunities are for everyone. The best selling car in America is the F-150 which is quite expensive...

> They aren't facts. The number of millionaires in the U.S. has exploded. Many are benefiting from the markets. It's not luck.

Are you sure it's not luck?

https://blogs.scientificamerican.com/beautiful-minds/the-rol... ("The Role of Luck in Life Success Is Far Greater Than We Realized")

https://www.technologyreview.com/2018/03/01/144958/if-youre-... | Ref: https://arxiv.org/abs/1802.07068 ("Talent vs. Luck: The Role of Randomness in Success and Failure")

https://www.pbs.org/newshour/economy/making-sense/analysis-i... ("Analysis: If you’re rich, you’re more lucky than smart. And there’s math to prove it")

https://www.marketwatch.com/story/when-you-realize-how-much-... ("When you realize how much luck goes into investing, you might change your methods")

Millionaire is a fairly trivial threshold these days. Social security is now paying some people 54k/year inflation adjusted which would take well over 1 million to safely generate.

A couple living on social security + 2 million in assets may be financially secure but they are still middle class.

> The best selling car in America is the F-150

To be fair, F-150 and other pickup truck sales figures are buoyed by fleet purchases. The better figure to cite may be that the average new car transaction is now north of $48k; ten years ago, it was around $30k, and this rise has beaten general inflation.

Do you have any stats that show that pickup truck sales are bolstered more by fleet purchases than other categories such as sedans and economy cars, both of which are also purchased widely for various fleets?

I did a bit of research, and this is what I found:

This article says about 20% of vehicles sales are to fleets. It says vans are the most popular fleet vehicles. It syas "light trucks" (which includes vans) outpace cars in fleet registrations at 22.5% vs 17.3%. https://www.autoserviceworld.com/fleet-registrations-continu...

Based on that data, I see strong evidence that the F150 is not boosted over other types of vehicles. I certainly found nothing to support the idea that it is, and if it is, it does not seem to be a strongly dominant consideration.

Do you think all prima facie economic problems can be resolved down to problems generally of individual responsibility/spending choices like this? Or just this one? Does the prosperity of some always assert the culpability of the rest with regards to their own poverty? Is the measure of person always relative like this?

What does it mean to you to live in world with other people in general? Are we all fundamentally competitors like this? Winners and losers in a game of skill (and definitely not of chance)? Does the existence of losers reinforce the necessity or merit of the game, of the structure in question? Or are we trying to make everyone winners, trying to teach them to get it together enough to not buy all their flashy cars and such?

No I don't, but I do think in an ideal world it would. Not everyone wants to build wealth nor should they be compelled to. A society that gives people the options to do what they want (in the sense of building wealth vs spending it) would be ideal in my opinion.

> But let us not extrapolate luck and personal anecdotes to solutions for systems

We can certainly extrapolate if we look at the last 13-14 years.

The fact that the wealthiest 10% own 90% of stocks does not mean the game is rigged. (I mean, that's sort of like saying the game is rigged because the rich people have all the money.) Anyone can purchase stocks and the SEC works hard to make sure that all market actors have access to the same information. Stocks are one of the least rigged games! Long success in stocks does require some knowledge about picking a company and some discipline, but so do lots of things.

Unless maybe "the game" is meaning a broader economic "game", which is (apparently) rigged because some people are (way) richer than others? You'd expect something like 80/20 just from a Pareto distribution, which if I understood the paper correctly, generally occurs whenever people have free choice. I guess one could required "not rigged" to provide equal outcomes, but since people have unequal ability, equal outcomes seems "rigged" to me, just in the other direction, of pulling down the highly skilled.

> > ("The wealthiest 10% of Americans own a record 89% of all U.S. stocks")

This is tautologous. "Wealthy" means mostly "built, and still owns a decent chunk of, a company whose shares are highly valued".

Also, I could, like my parents, own nothing in the stock market, but have a paid off house and decent savings and a state pension, and be doing well. Proportion of capital markets ownership is too skewed a metric to reason about.

> This is tautologous.

No, it's not, and it's a problem that you're thinking this way. A tautology would be "Americans in the top 10% of wealth are wealthier than the bottom 90%." A tautology is necessarily true according to logic.

Logic does not dictate that the top 10% own 90% of the equities. And, in fact, there's a strong argument that societies with extreme inequality in wealth distribution are structurally unsound societies (I don't mean that they're economically unsound, though I'd argue that, too).

I'm saying "owning most of the stocks" is completely equivalent to "wealthiest". The exact percentage isn't important. It's not as though those wealthy people need to have lots of actual cash to be considered wealthy in such stats; they just need to own enough of a company that's providing lots of value, or due to, that drives up the wealth stat.

> there's a strong argument that societies with extreme inequality in wealth distribution are structurally unsound societies (I don't mean that they're economically unsound, though I'd argue that, too).

This just depends on how you define "structurally unsound" and "economically unsound".

> "owning most of the stocks" is completely equivalent to "wealthiest"

That's still not a tautology just because in practice it is usually true, and is easily disproven as such: Stock values could all nosedive to nothing, and the wealthiest people would still mostly all be the wealthiest due to non-stock assets.

> is easily disproven as such

Not that easy. If the wealthy own 90% of the stocks and 90% of their wealth is in stocks, and the stocks disappeared, they may still be wealthy due to the remainder, but still the bulk of the their wealth was in stocks.

> The exact percentage isn't important.

The exact percentage is exactly critical informarion.

Imagine, for the sake of argument, that the 10% own 100% of all net worth. Imagine net worth of 90% of the population is exactly at zero. Do you think democracy would still function, liberty would survive?

The folks at zero would be closer to slaves than to anything we recognise today.

They will still have wealth because that wealth is their ability to work and produce value.

I see you are to misuse words to mean something other thant what they actually mean.

A considerable part of the wealth of slaveowners was the value of their slaves. Slaves were traded for a lot of money. That means, economically speaking, if you own yourself you have that wealth.

This is not a tautology but a (not-so-good) measurement of inequality.

Pensions tend to be much more generous.

They are also riskier.

People see the generosity of pension plans and (understandably) want that, without having the risk.

> means they care less about saving for retirement

They shouldn't be "caring" so much about the high cost of living I guess?

Totally agree about diversification. Reliance on a company pension fund is terrifying.

That said, the old pension model forced workers to make large contributions. The 401k model does not. (Unless your company has some amazing match deal… I’ve only ever seen shitty deals like 25% of up to 4% of salary, whereas more like a 30% savings rate is what’s really needed.)

For comparison's sake. I have a pretty good pension plan and my employer contributes about 27% of my gross salary to it along with the 8% I contribute. If someone offered a 401k match of 300% on my 8% I'd call that a good deal, but what you described is what people more often get.

Careful here. Some of that 27% is no doubt to achieve full funding, so shouldn't really be thought of as the "cost" to provide the pension per se, rather, the cost to catch up on previous underfunding.

Pension plans hold equity and other assets from many companies. They are essentially like mutual funds with a defined annuity payout.

Defined benefit plans should never have died out, they should have been part of a total mix. There is no reason you can’t have pensions along side social security along side 401k/IRA plans. This gives retirees multiple avenues for payout each with their own risk profile. The 401k is a great idea as a retirement supplement for folks who are interested in saving more and managing investments. But many (most?) people are not sophisticated enough to (a) take advantage of tax deferred savings vs paying rent and buying food, (b) muck with investment options roll overs and all the like.

We are about to see a mass humanitarian catastrophe over the next 20 years as the 401k dependent generations retire, social security buckles, and we learn why pensions existed to begin with all over again.

There is no difference between a defined benefit pension plan and a target date retirement fund, except you avoid the extra agency risk that comes with giving control of your savings to the board of the pension plan and its vendors.

The only defined benefit pension plan that has a leg up on index funds is a taxpayer funded one, because it has the power to tax, assuming the taxing jurisdiction will remain sufficiently economically productive decades into the future (see Detroit for an example of one that did not and hence was able to cut benefits to DB pension recipients).

Personally, I would only value a DB pension paid by the federal government, since it can always print money. Otherwise, give me my 0.03% expense ratio index funds.

Investment target date plans are optional and still include the challenges of people executing roll overs, taking loans, cashing out with penalties, and actually choosing the right investment target date plan. Pensions are not optional, you can’t cash them out, you can’t take a loan, and they don’t require any logistics to maintain after you’ve moved on. The biggest flaw of 401ks is their optionality which allows present self to buy a new car making retired self homeless.

You (and I) aren’t the issue here - it’s the majority of people who are unsophisticated. They are autopiloting through life, assuming social security is a retirement plan or that they’ll save later when they’re closer to retirement. This is an awful lot of people. The truth is as a society we will be carrying them in their old age because we didn’t pay up front, instead we set up an optional plan assuming they would pay up front. Instead we will collectively be figuring out a way to deal with the massive underprepared aged population using present dollars rather than compounded dollars.

I think you're conflating "mandatory participation" with "defined benefits". You seem to want a system that prevents future-damaging choices by participants.

I think the other argument going on above is that "defined benefits" isn't actually possible without some escape mechanism (like tax collection) to provide the benefits when it turns out the fund didn't perform as well as hoped. When a private pension fund gets in trouble, its participants lose their safety. The others want a system that prevents future-damaging choices by fund operators, and see defined contributions as the only viable way to do this. You own a chunk of the fund and can transfer it to different stewards.

https://www.pbgc.gov/wr/find-an-insured-pension-plan/pbgc-pr...

PBGC relies on being bailed out all the time. Most recently, multi employer plans got another federal taxpayer bailout:

https://www.nytimes.com/2021/03/07/business/dealbook/bailout...

If they didn’t, PBGC would have easily failed. The whole thing is an excercise in who has sufficient political power to get bailed out, and if I am playing that game, why not just directly put my hand in the SP500 and ensure I am bailed out directly rather than maybe via proxy.

Some escape mechanism like insurance.

This is just scare talk, nobody says that a checking account is impossible without "some escape mechanism" meaning FDIC.

No, the benefit of DB plans over target date retirement funds is obvious and undeniable. A DB fund offers participants a guaranteed benefit with the additional risk of taking a haircut in bankruptcy. A target date index fund offers no such guarantee whatsoever. Further, a pension can provide equivalent benefits of individual retirement accounts much cheaper. Who will pay fewer basis points for the target date fund, you or a billion dollar pension?

What happens to the proportion of workers who buy the target date fund (even narrowing ourselves to the ones who contribute appropriately and so on) who effectively outlive their money? Kicked to the curb?

> There is no reason you can’t have pensions along side social security along side 401k/IRA plans. This gives retirees multiple avenues for payout each with their own risk profile.

I work for my state's government and we have exactly that.

Defined benefit pension plans are terrible and ought to be completely eliminated. They are far too risky for employees, employers, and taxpayers. There is a moral hazard where employers promise pension benefits based on overly optimistic estimates of investment returns. Then when those returns fail to materialize decades later the increased pension contribution requirements can drive the company into bankruptcy and taxpayers are left to pick up the tab.

Replace all pensions with defined contribution plans. Individual employees might make poor decisions and end up short of retirement funds but at least there are no systemic risks.

Plain and simple: It's a way to tear up ERISA oversight and pension guarantees and instead get fed to the wolves of wall street. Who doesn't know someone who's 401k was wiped out just months before they were about to retire in 2001 or 2008? Why make rules where you can't change your portfolio settings more that twice a year and in very productive and limited ways in exchange for inescapable Management fees?

Someone on the brink of retirement would not be 100% stocks, ideally more like 60% at most. Both of those cases were about a 50% drop peak to trough, so the loss was around 30% on paper. In the '08 case, the market recovered in about 4-5 years. Holding firm and sticking to a 60/40 allocation would've meant very little realized losses prior to it bouncing back.

For the '01 case, it's hard to find much sympathy for a stock heavy portfolio that took a 50% haircut, considering that grew 400% in the 10 years that preceded it.

I don't know anyone whose 401(k) plan was wiped out just before retirement. Some of them experienced small losses. Management fees are generally very low unless you pick the worst mutual fund options.

The majority of domestically-owned S&P shares are owned by either pension funds or IRAs (401ks): https://theirrelevantinvestor.com/2020/10/25/who-owns-the-st...

The foreign share is a roughly similar breakdown to the domestic share.

How do you think Pension Funds get a return if not investing in equities in similar ratios to most people's 401k allocation?

The quoted excerpt is referring to only the subset who has maxed out their 401k contributions, whereas you're describing the median, who mostly have not. These are different groups. People who maxed out their 401ks for their working years and had vaguely reasonable investment options (mostly diversified stock funds) will be fine. And social security income should not be ignored.

> and most did not or could not contribute to 401ks in any meaningful fashion)

burying the lede here, killer.

to be clear, the 2% mgmt fee in a lot of 401k plans is terrible and is absolutely scamming the average folks.

but you can't retire on something you didn't contribute to, either because you didn't or couldn't.

Some improvements are in flight.

https://www.cnbc.com/2023/10/31/biden-administration-to-crac...

https://www.whitehouse.gov/briefing-room/statements-releases...

Pensions have a lot of problems. They become handcuffs that keep workers at the same place no matter how unhappy they are, and employers know how to take advantage of that. It's easy to look back with rose-colored glasses but I know several people who dragged themselves though several years of misery to hang on to their pension funds.

I wouldn't trade my 401k.

Still happens today in education. Many of those retirement accounts are pensions of another name, and educators need to work a number of years to become fully vested into it

Pension plans as they were are still kind of bad because they could be mismanaged in a variety of ways.

Pensions are kind of always problematic because you take control away from people and give it to people with misaligned incentives.

It's the same if you give people control over their own retirement because they can not contribute or mismanage how the money is invested. Defined contribution pensions are maybe an improvement on this because at least you know there is money there and can have a regulatory framework that is simple and heavily restricts how the money can be used. I would really like to see broad market index funds only. Dumb money should stay dumb.

Maybe if you pull the responsibility up to the federal government you minimize the risk of mismanagement, but it's still pretty large.

Seems like we are doomed to pick an option that is still risky and it's every person for themselves. You need to super save and not rely on any framework provided by others. And this is where 401ks shine. Sure I am stuck relying on the stock market, but I think the distribution of outcomes there are more in my favor than if it were managed by someone else. Whatever is in my 401k (or IRA or whatever) is owned by me and is heavily diversified.

> Pensions are kind of always problematic because you take control away from people and give it to people with misaligned incentives.

Maybe I'm the weird one, but I don't necessarily want control of my retirement fund. My primary requirement is that it exists when I need it. Somehow the financial industry convinced the public that being able to micromanage their retirement investment and pick their own stocks and mutual funds is somehow beneficial. I can probably count on one hand the number of people I know who find this kind of micromanagement interesting.

I just want "money goes in" and "enough money eventually comes out" and I don't think I'm alone in that. You can accomplish that with a well-run pension, a well-run government plan, and so on. Lots of options that don't involve me having to decide between stock and bond funds.

Having watched a close friend of my dad's sell at the bottom in 2007-2008 after he had retired, I understand your sentiment.

However, before the advent of discount brokerages and widespread 401(k) plans investing really was only for the extremely wealthy and inept fund management - resulting in extremely high expense ratios - was rampant. Now investment is more accessible and ETFs are offering near-zero (or actually zero (!) - see FNILX) expense ratios on the strength of the economy, which has been a net win for a larger segment of the population than the 0.1%. We're up to 20% now!

I would like to see a much larger percentage of the population to be able to get in on this opportunity. Doing away with wealth and income inequality will get us halfway there. Trust-managed investing addresses what you're asking for, where a company manages your investments and retirements for you at some level of expense ratio. (These companies exist today for retirees.)

>I just want "money goes in" and "enough money eventually comes out" and I don't think I'm alone in that. You can accomplish that with a well-run pension, a well-run government plan, and so on. Lots of options that don't involve me having to decide between stock and bond funds.

It is called a target date fund.

https://en.wikipedia.org/wiki/Target_date_fund

Two market crashes and badly managed 401k accounts won’t help. Most trust that their 401k is correctly managed. This is often not the case.

The merry-go-round of debt ceiling and budget confrontations in congress doesn’t help. Any gains from this year are probably going to be wiped out by that continuing drama.

Finally the increase in cost of living expenses and cost of long term medical care will quickly eat into your 401k once you stop contributing.

The math looks ugly once you sit down and figure it out.

What do you mean by "trust that their 401k is correctly managed"? Those 401(k) plans are self managed. In most plans the investment selection defaults to a low-cost retirement date fund. There's no one to trust.

If you start at a company today the default setting would be for the 401k money to be invested in something like LifePath N or similar ETFs that are designed for retirement funds. Most people, lacking the knowledge to do otherwise will stick with that.

So you are working on the assumption that LifePath or similar ETFs are going to be correctly managed for their cohort (shifting into safer investments as the retirement date approaches).

Somehow the "safety" of bonds were not adjusted as yields reached and sometimes went below zero. A multi-year zero interest bond is not a very safe investment. I did have that default setting on a retirement account and got out of those LifePath type ETFs over a decade ago.

You appear to be confusing safety with investment returns. As an asset class, bonds with high credit ratings have a lower risk of losing capital than stocks. Those bonds will lose some value as interest rates rise but they very rarely go to zero. For investors approaching retirement age it's more important to preserve capital than to worry about interest rate risks.

Total market index funds don't go to zero. You would have a bond fund and stock fund and rebalance to more stocks as you get nearer retirement. Sure, but maybe not when there have been very low interest rates for a long time. Holding cash in that case seems better than bonds to me. No upside in bonds, just downside.

Bond funds generate higher risk-adjusted returns than cash over most historical periods. You have to factor in income from coupon payments. You can cherry pick a few brief periods when this wasn't true but no one has the ability to reliably predict when that will happen in the future so it's a foolish approach to retirement planning. Most target date mutual funds do include some cash and equivalents in the portfolio as the target date approaches.

Peter Lynch’s mantra is to not bother with bonds, and his arguments are compelling enough for me to only stick with low-expense-ratio index funds.

Nevertheless, I find target retirement date funds pull out of stocks and move to bonds way too early. I’d probably only start moving out of stocks 2-3 years before retirement, based on how long recessions/crashes of the past lasted.

Historically, it looks like the risk of being in stocks as you approach retirement is pretty low. Let’s say you planned on retiring in 2009 at age 65. 2009 hits, stocks fall 50%… if you just continued working for 2-3 more years, your retirement account would be back at fresh all time highs AND you’d be collecting a larger SS paycheck each month when you retired at 67-68. Not exactly tragic.

What happens if, in the recession, you can't find a job?

I'm no expert, but I thought that was one of the big problems with recessions.

Major passive target date funds are all correctly managed. Periodically rebalancing between the various component index funds to match a set ratio is not exactly rocket science. You can just read the prospectus and latest audit.

The real problem is money printing at the fed and deficit spending. The nominal 401k value goes to but purchasing power goes down

Yep, so even if you do make it to retirement at say 65, if you’re reliant on daily nursing care, all your money/assets will be gone, usually within a few years. Ballpark, it’s $100-150k/year to have a nurse come in every day and take care of you. The nurse is going to be on their phone most of the time, English probably isn’t their first language, and the opportunity for elder abuse is sky-high. For what they get paid after their boss takes their cut of your $100k, they will probably steal. Heck, there are often arrangements where the nursing home gets “whatever you have” when you pass away in exchange for providing care. Conflict of interest, yeah? They are incentivized to let you die where possible.

I wish assisted suicide was more popular. I think it will be more popular as time goes on, especially in the US. If you worked your whole life to have say $2 million in assets, would you rather piss it all away on a boring, painful, purposeless existence in a retirement home, or would you rather your kids have a shot at owning their home?

> How will that happen when there has been so much growth in the S&P?

If you invested in an index fund, you will get very close to the S&P 500/Russell 3000/Whilshire 5000/etc.

If you invested in an actively managed fund, then the fund manager takes their cut, but also probably tries to be 'too clever' and doesn't get as good returns as a plain index, and so you're not getting as high returns.

My 401k account offered by fidelity, using the highest risk investment strategy available to me, returned about 8 percent during a period where the S&P did about 30%. and they took a 1.5% commission. Absolute fucking scam. took all my money out and ended contributions.

You werent allowed to invest in the s&p 500 or any other low cost index fund?

If I was, they did not make that clear at all. They had a set of about 14 different "packages" that were aggregations of different etfs and such that were available to invest in and that's it. I couldn't find any way to invest in a single stock or etf.

They also told me I couldn't cash out my money until I left the company I worked for which I am pretty sure is untrue.

You usually can’t cash out while still employed with the company sponsoring the 401k plan. Conversely, you can usually only take a loan withdrawal if you’re still employed with said company.

Definitely 401ks are obscure and confusing and full of deception. I think John Oliver did a segment on them. Your experience is not atypical.

You can always do a S&P 500 fund in a 401k

Isn't having an S&P 500 fund legally required?

Not always. Many 401k's only allow participants to select a handful of funds, all of which are managed, and none of which are pure index

My 401k plan has an S&P 500 fund run by Fidelity that costs 0.015% a year in fees, FXAIX. If I didn’t have access to a fund like this, I would demand to be given access to it.

Past performance does not guarantee future results. You can find periods in the US stock market’s history of years, even a decade or so, where the return on the DOW was essentially 0. Look at other countries and it gets worse; Japan’s NIKKEI returned 0 between 1995 and 2020. 25 years of… dividend reinvestment I guess? Still nothing compared to the US stock market during that period.

The stock market is a circus- that’s common knowledge- yet we rely on it for retirement? Okay. That’ll work until it doesn’t.

The Dow Jones Industrial Average is a garbage index with components selected arbitrarily. No one in finance takes it seriously.

No one can guarantee stock market returns, but over decades it's a lot safer than depending on pension contributions from a single company. And most 401(k) plans now offer target date mutual funds which automatically reduce stock exposure over time, thus reducing risk of capital loss as you approach retirement.

We're not talking about what people "in finance" know or care about. We're talking about regular people's retirement funds.

What's your point? Regular people's retirement funds aren't invested in the Dow. They mostly use target date funds.

Even worse. If you’re using a TRD fund to stash your retirement, it will severely underperform in a bull market, and if it spares you somewhat from a bear market, well… you probably weren’t going to be able to retire on that money anyway. Then there’s the relatively high expense ratio most of those “actively managed” funds have.

I used the DJIA because Nasdaq 100 and S&P500 aren’t even 100 years old yet, so I can’t go back to 1929 or even 1945 and see how the S&P500 was doing. Dow was the only index back then that still exists today as far as I’m aware.

The modern US financial system has only really existed since 1971 so I fail to see the point of looking back further for retirement planning. And the DJIA is constructed in such a way that comparisons going back that far are nearly meaningless. You're just looking at noise.

If we are going to cherry pick, Nikkei-225 returned -6% between Dec 1989 and Feb 2023 (dividends reinvested and inflation adjusted). 33 years of negative returns.

Ouch. A little worse than I thought. I never bothered to do the math with dividends and inflation adjustments.

> How will that happen when there has been so much growth in the S&P?

Almost no one gave the obvious answer: Most 401 K plans are not investing in the S&P. Many give you the option to, but it's not the default, and probably over 90% of workers are unaware of the fund.

And quite a few do not even give you the option to invest in it.

I’ve never worked for a company whose 401k default was an index fund. I probably never will. Best-case it was a target retirement fund, worst case I think it was some bullshit little proprietary fund that had a high expense ratio.

The cost of real goods, energy, medical care etc will inflate to account for this, plus extracting the gains will involve selling..to whom? At what price?

> despite maximum contributions

The people with insufficient 401k balances aren't making the max. They're doing the minimum, starting too late, or selecting the most conservative investments such as bond funds (NAVs have collapsed) or cash. Many plans don't have good low cost index funds, so people are forced into actively managed funds some of which are complete garbage in terms of fees and returns.

Workers living paycheck to paycheck (61% of the population, see https://www.cnbc.com/2023/07/31/61percent-of-americans-live-...) means that contributions aren't realistic for millions of people.

Further, a lot of people don't understand how they work, and never contribute, even if they could. Even with matching contributions. Or, they don't trust them after the 2008 collapse or a vague suspicion that the system is rigged against them. This is what I hear from my spouse; many of her colleagues won't touch the solid 401k investments offered by their employer.

Some employers have made changes that makes it easier to get started, but many never will, assuming (wrongly) that social security is their retirement solution.

Your predictions about older workers working longer is correct. You can see it now, seniors working at grocery stores into their 70s and even older.

> Workers living paycheck to paycheck (61% of the population

According to US BLS and Federal Reserve studies, only about 15% of the population necessarily lives paycheck-to-paycheck. The median US household has a ~$12,000 surplus per year after all ordinary expenses. Note that "ordinary expenses" includes car payments on a BMW, the latest iPhone, and other by-no-means-necessary expenditures, and also includes all healthcare costs.

If 61% of the US population is living paycheck-to-paycheck, it isn't because they need to. Americans have very high income surpluses compared to the rest of the developed world. 15% of the population necessarily living paycheck-to-paycheck is still a lot of people, but it implies 85% are not.

> If 61% of the US population is living paycheck-to-paycheck, it isn't because they need to.

Consumers can share blame for not living below their means, needless wealth signaling, and financial illiteracy.

But predatory entities are part of the problem, too - car dealers obscuring true costs of borrowing ("how much do you want to pay per month?"), credit card issuers jacking up rates to 37%, and real estate "investors" jacking up rents after buying mom & pop mobile homes and senior rental units knowing that tenants have nowhere else to go. Here's one example from Montana:

“I can’t tell you how many calls I got from folks that were older, like older than 55 or 60, that had lived in their same house for decades, had the same owner for decades who never raised the rent,” Huey said. “Then all of a sudden they lost their housing.”

Huey and other providers across the state have heard countless stories of homeowners turning their rental property into Air-BnBs or evicting their long-term tenants in order to house their own children in increasingly affluent communities.

https://billingsgazette.com/news/state-regional/montana-seni...

Re: predatory landlords: if they are not breaking the law, are they really blameworthy? Seems like the previous landlord was naïve, or at least operating on an outdated worldview where local reputation mattered. (Hard to show up at the local Chamber or Elks or church when you are getting old folks kicked out of their homes).

How to solve… I’d like to find a model to apply in my HOA to slow or reverse the corporate takeover of my community…

They are blameworthy for not getting public and sharing profits with regular people, rigging regular people by inflation

>Seems like the previous landlord was naïve, or at least operating on an outdated worldview where local reputation mattered

Or maybe was an individual with a conscience who didn't want the old couple that had been in their property for 30 years living on the street. I guess you could call that naivety though.

“Conscience”, there’s a word I haven’t heard in a while. If an act is “unconscionable” well then it’s legally indefensible. But the broader idea of “having a conscience” seems to have receded, to the point I don’t really know what it means.

This doesn't strike me as true at all. Honestly, it sounds like an excuse for a personal unwillingness to develop your own moral center. Even if you were right - which I don't think you are! - that other people "having a conscience" has receded, who cares what they're doing?, you're not them, make your own, better choices.

Btw I love inky caps. Just had a marvelous flush of shaggy manes in the yard here, fed by wood chip paths.

Just because the law allows it doesn't mean you should do it.

> if they are not breaking the law, are they really blameworthy?

This mindset needs to die.

Yes. If you do something ostensibly immoral, it's still bad even if it's legal. It's still bad even if other people were going to do it if you didn't, anyway. It's still bad even if there's negative incentives that ultimately led to it. It's just still bad in general. If you have a reasonable decision and you choose to do a bad thing, you still chose to do it. It doesn't matter either, if a single person made this decision, or if a corporate board made this decision, or if a bunch of people in an angry mob collectively decided something.

What you can do is explain why it happened, but that doesn't mean that there is absolutely zero social responsibility to have. All that something being legal means is that it's legal. Something being legal doesn't necessarily mean it's good. Something being illegal doesn't necessarily mean it's bad.

We've conflated what we've come to expect from corporations to the standards we must hold them to. The standard that a corporation should live up to is indeed much higher and significantly more nuanced than "technically not breaking the law."

I'm not suggesting that I believe in no regulation. Regulation is clearly valuable in many cases, but I believe that it is clearly not inherently good (duh, bad regulation is everywhere) nor is it inherently the only solution to any class of problems. Believing that companies should not simply maximally exploit what is technically legal while still regulating them when they do abuse the system is possible and I'm pretty sure if we don't start thinking that way, we're even more screwed than we think we are.

Even if some corporations amass unthinkable amounts of influence and power and fundamentally escape the pressures of social responsibility through this, I still think that it's necessary to fight the learned-helplessness mindset. If absolutely nothing else, I think everyone is at least responsible for ensuring the bar doesn't drop so low as to allow this kind of thought process to remain "normal". It should always be thought of as abnormal, and as the threat to liberty and democracy that it clearly can be.

Completely concur with the notion that if something is "perfectly legal" then there is no basis for judging the bad actor poorly. There absolutely is of course as judgement in this context is a moral choice, not a legal one.

The other one I wish would die is: "It is not illegal if you don't get caught."

No, thank you very much, heard that blame story long enough in my childhood (socialistic country).

If it's bad -- let's make it illegal. Law is a reflection of what people consider fair and just. If it's legal -- it's fair and just.

> Law is a reflection of what people consider fair and just

Law is a reflection of what people with political power consider fair and just, and that set of people is only a subset of all people affected by it.

> If it's legal -- it's fair and just.

A quick look at history shows this to be false (Jim Crow laws, Nuremberg Laws, a million other examples). People should never derive their morality from bureaucrats.

The politicians (not bureaucrats: bureaucrats don't make policy) aren't making these laws up all by themselves: they're responding to the whims of the voters.

Jim Crow laws were "fair and just" at the time, according to most people of the time; that's why the laws existed. The people wanted them (well, the majority who had political power anyway, obviously not the Black people). "Fair and just" is simply an opinion, and according to the people at that time, those shitty laws were fine. They weren't getting their morality from lawmakers; the people at the time simply had bad morals.

Exactly. Just like how the British people just recently decided that privacy and encryption aren't "fair and just." After all, would a policymaker ever go against the desires of the voters?

> well, the majority who had political power anyway

You're making a massive assumption that this somehow equates to voters/the people.

You're making a really strange and unfounded assumption I frequently see, where you seem to want to absolve the common people of all guilt.

The idea that common white people 100+ years weren't massively racist is, honestly, ridiculous and downright insulting. Racist policies didn't come from a few leaders that somehow got themselves elected; regular people believed that way too. There's no shortage of historical evidence for this fact, and you trying to deny it really sounds a lot like flat-eartherism.

Of course "some people wanted the laws that were enacted", that's basically meaningless and not what OP said.

OP insinuated that these laws were a result of some small minority of racist people. That's complete BS. The laws were the result of much of society being racist.

Go talk to your grandparents about how racist people were in those days.

I'd rather not outsource my personal morality to the whims of the legislators and jurists that happen to have formed the laws in my particular jurisdiction.

I'd suggest moving to a democracy where the legislators answer to people like you.

One does not simply move to a democracy.

Democracies are welcoming for people stepping down, not up.

My own morality will never align perfectly with the voters in my jurisdiction, no matter where I live. That's how it works, no individual is ever perfectly aligned with the desires of the society as a whole. In my opinion, the best thing to do is for a somewhat low common denominator of things to be illegal, with a much larger set of things being "enforced" by messy social pressure pushing people on what legal things are nonetheless moral and ethical.

People stating "nothing that is legal is immoral or unethical" is one parry in that "message social pressure", and those of us disagreeing is a counter-parry. And that's the way I think it should work! People who care what I think (my family, my friends, my kids, people at work and in my community who respect me for whatever reason) will feel pressure from me, pushing them toward what I think is right (and vice versa!), and people who don't know me, but who think what I'm saying rings true will also be affected, almost certainly to a lesser extent, by what I'm saying. And people (presumably like you) who don't find it compelling, will debate what I'm saying, and other people may find their perspective more compelling than mine, and that's fine too!

And in my view, this is just how society works, we messily influence one another toward a loose consensus on what is good and right, above and beyond what we've enshrined into legislation and legal precedent.

Honestly, there's nothing immoral about charging market rates.

What's immoral is preventing construction of housing to allow supply and demand to meet. What's immoral is zoning rules that allow prices to rise well above the level of what would historically have been considered affordable.

Obviously, from looking around, we cannot rely on people to just not raise prices to market levels in exchange for feeling good about themselves. We need to take action to lower the price of housing.

Housing cannot be both affordable and a good investment.

We desperately need to stop thinking of housing in terms of investment at all.

Housing is for people to live in. That's it. Any other purpose is a long-distant second to that. The fact that it has become primarily an investment product is what's causing all the pain.

Japan got burned by real estate investments in the 80s and now real estate isn't considered an investment, so housing in even Tokyo is affordable. It also helps that housing structures are considered as a deprecating asset, to be rebuilt every 30-40 years.

We must live in a different world. I’ve been reading articles for years about Tokyo house prices being a huge problem, and that young people are depressed and checking out because they see no way to climb the ladder in Tokyo. A quick Google search confirms I’m remembering correctly. Tokyo has the same real estate issues as any major western city.

Ah, the problem with that is that you can’t earn enough money, the housing prices are sane but the salaries for workers is not. But there aren’t really the same codes as the west, so you can rent something for $2-300/month. Kids can get by on low salaries they way, but buying is out of reach even. If the prices are affordable by our standards.

You can pull up either narrative in Google by searching specifically for it. Tokyo is cheap, Tokyo is expensive, etc… eg

Tokyo housing is cheap: https://medium.com/land-buildings-identity-and-values/what-i...

And Tokyo housing is expensive: https://www.reuters.com/markets/asia/surging-tokyo-property-...

They are both true with nuance.

By definition, if housing prices are unaffordable, then they aren't sane prices.

Japan federalized zoning rules meaning cities can't arbitrarily deny housing. This allows supply and demand to meet, leaving housing approximately at the cost of construction.

That is true, but you can't discount a lack of speculation, a shrinking population, a culture of structure depreciation, and low wages.

I agree but speculation is usually on the basis of prices going up. If prices don't go up there's nothing to speculate on. The shrinking population only affects demand - but price is at the nexus of supply and demand. So you can achieve that by dropping demand or raising supply. The argument that demand affects price is an implicit argument that supply does too.

Housing HAS to be a good investment, not in the sense of something that beats inflation, but something which appreciates at the same rate as inflation. The whole point of a 30-year fixed mortgage is that you pay off the mortgage in your working years and then enter your retirement only having to pay the property taxes. This allows you to retire on a smaller nest egg AND pass generational wealth on to your heirs.

Uh, none of that means housing has to be an investment. The point of a mortgage is that it helps you buy a house and pay it off over time, nothing more. We don't talk about cars being an investment just because people take out 7-year auto loans.

Moreover, passing on generational wealth shouldn't be a feature we want to make easier. You don't want a to push society in the direction where generational wealth is required to live a good life.

Your first paragraph is because cars depreciate. Cars are thus the opposite of an investment, barring a few collector models which never got driven much.

Paragraph 2 reeks of "I know what to do with other people's personal property better than them." If you pay that house off and die, it's in your will and it's yours to pass on to whoever you want. We should absolutely be incentivizing that kind of responsible behavior and respect for long-term financial planning and thinking over real estate getting gobbled up by megacorps to rent out.

> Your first paragraph is because cars depreciate. Cars are thus the opposite of an investment, barring a few collector models which never got driven much.

Right, and in countries with sane planning laws the same is true of houses.

> If you pay that house off and die, it's in your will and it's yours to pass on to whoever you want. We should absolutely be incentivizing that kind of responsible behavior

Locking up as much prime real estate as possible for your family forever isn't being "responsible", it's a "fuck you, got mine" move. In places where housing is limited it should go to those who need it most, not to those who were lucky enough to have parents who were rich, or happened to buy in the right place at the right time.

Housing would depreciate too if we didn't have artificial scarcity policies designed to make it an investment. Saying that housing should be an investment because we've designed it to be an investment is circular reasoning.

Re #2: it's obvious that most people aren't the most objective when it comes to their offspring. That's why we should have policies that discourage overallocating resources to an unqualified child of a rich parent.

Finally, "personal property" is a construct of law. Something is yours because society has decided it's yours. If the laws change, and if you can't physically defend your property, then it's not really yours any more, is it?

Human rights are inherent in our existence as human beings. Or created by God if you believe in Him. They aren't "constructed by society," and this last paragraph is borderline advocating violence because you think some people have too many things.

News flash: this noble group of disinterested autocrats you think can allocate people's property better than themselves doesn't exist. They're the same biased schmucks as the rest of us are.

Housing also depreciates. We just have a lot more land appreciation, and apply high maintenance costs to our housing to counteract as much depreciation as possible (we pay down depreciation more immediately).

>We need to take action to lower the price of housing.

Who's "we"? The problems you cite, zoning rules etc., are all local issues caused by the people in those places voting for leaders who maintain these anti-housing policies, because it's good for their home values. And it's not just the homeowners; the renters have a vote too, but I don't see them voting for anyone who wants to change zoning laws and increase density.

>Housing cannot be both affordable and a good investment.

True, but obviously most Americans prefer the latter. Just look at many of the comments right here: people advocating for "generational wealth" and how housing must be an investment.

The problem is Political. Municipal governments only have an obligation to the people who currently live there. They owe nothing to people who want to live there if it was more affordable. They owe a lot to the people living in the community who want to raise their property values. "We" can fix it at a State or Federal level. The President represents everyone in the country. Including the people who live in a place and the people who want to move there from another State

>We" can fix it at a State or Federal level.

That's the only way, because, as you said, municipal governments only answer to the people who live there. Here in Japan, they passed a national zoning law decades ago that prevents localities from enacting their own zoning legislation, and makes uniform (and extremely permissive) zoning across the whole country. Basically, if you own land, you can build housing there if you want, unless it's one of the uncommon heavy industrial zones. So there's no real shortage of housing; if it's profitable to build, they'll build it.

Lots of people complain that the result is chaotic-looking neighborhoods where there's no way to get the buildings to look similar to each other, but I really like not having to deal with all the crime and homelessness that results from the western model.

Japanese zoning is better in another way. http://urbankchoze.blogspot.com/2014/04/japanese-zoning.html Japanese do not impose one or two exclusive uses for every zone. They tend to view things more as the maximum nuisance level to tolerate in each zone, but every use that is considered to be less of a nuisance is still allowed. So low-nuisance uses are allowed essentially everywhere. That means that almost all Japanese zones allow mixed use developments

> Honestly, there's nothing immoral about charging market rates.

I think the debate is far more nuanced than that. Dislodging families, eliminating the ability to save for retirement, sucking up capital that could otherwise be put to economic use, etc. are all worthy of discussion without flushing it away via the term "market rates".

It's not like landlords are doing remodels and making their property more valuable. Every landlord I've ever had does just about the bare minimum. There's simply no competition. I don't know how we can have a "market rate" without anything that really looks like a market. They've lucked (or manipulated) themselves into a situation where their property value goes up while their costs stay fixed and they're using their good fortune to squeeze others.

There's a reason we use the term "rent-seeking" for businesses that want to get guaranteed income without having to improve their product. I'd certainly consider it immoral.

> What's immoral is preventing construction of housing to allow supply and demand to meet. What's immoral is zoning rules that allow prices to rise well above the level of what would historically have been considered affordable.

I don't see these as separate issues. Rising rents influence property values and vice versa. Many of these landlords are the exact people opposing new construction or rezoning.

> We've conflated what we've come to expect from corporations to the standards we must hold them to. The standard that a corporation should live up to is indeed much higher and significantly more nuanced than "technically not breaking the law."

We shouldn't try to hold a standard that we can't or won't enforce. If we want better behaviour from corporations we need to actually make them behave better, not wring our hands when they don't do it by themselves.

> Even if some corporations amass unthinkable amounts of influence and power and fundamentally escape the pressures of social responsibility through this, I still think that it's necessary to fight the learned-helplessness mindset. If absolutely nothing else, I think everyone is at least responsible for ensuring the bar doesn't drop so low as to allow this kind of thought process to remain "normal". It should always be thought of as abnormal, and as the threat to liberty and democracy that it clearly can be.

If you think it shouldn't be normal, figure out how to make it illegal. But raging against greedy landlords/corporations/what-have-you is just its own form of learned helplessness.

> This mindset needs to die.

Survival bias get in the way. The morality you refer to exists, it just doesn’t survive long enough to notice. So yes, you do something ostensibly immoral but legal for some advantage, that advantage allows you to economically out compete your more moral neighbor, who winds up insolvent eventually. If morality isn’t encoded in law and their is an economic advantage to being immoral but legal, then that’s what you will ultimately wind up with, because the moral actors will simply die off.

Colorado legislators and legislators from other states were drafting legislation to give communities right of first refusal to buy the property from the owner (i.e. a loan secured against the land, financed by residents), not sure where that went. It was focused on mobile home communities, I believe

You're the "I'm not touching you" kid.

> I’d like to find a model to apply in my HOA to slow or reverse the corporate takeover of my community…

I'm on the board of my condo building's HOA. 5 or 6 years ago, we passed a rule that requires 50% of units building-wide to be owner-occupied. Once the limit is reached, there's a waiting list for anyone who wants to rent their unit. (Meaning you must wait until an owner moves back in or sells their unit.) There's also a hardship waiver at the board's discretion.

The PE/RE investment firms won't touch units with this rule in place; a unit they can't rent makes no revenue and is a waste of capital for them.

Note that this (or any kind of arrangement meant to discourage these kinds of buyers) gets contentious when someone is selling, especially if they're struggling to find a buyer. We recently had someone who needed to sell quickly, had interest from some kind of firm, but no offers from normal buyers (ie human people) due to the soft market. The firm made an offer contingent on the HOA rescinding the rental rule. We were very much not inclined to do so, so there was a lot of tension until the sellers finally got an offer from humans.

(This is not meant to insinuate that PE firms are run by non-humans. Evidence remains inconclusive.)

Of course, this rule can also spook human buyers, but IME once the details and reasoning for the rule is explained, it isn't usually a blocker.

Thanks! I really appreciate your sharing your experience.

> if they are not breaking the law, are they really blameworthy?

Every horrible thing which decent humans no longer allow was once legal.

Legality isn't morality.

It was completely legal to have slaves. It was completely legal to fire women when they were pregnant and/or married. It was completely legal to send your kid off to work. We've been jailing folks for weekend pot smoking for decades. Back in the 90s, you could get discharged from the US military for having consensual sex with the same sex. Or giving a blowjob - sodomy laws were still in effect.

Obviously, you can get blame even though you are doing something legal. Legality doesn't make you good.

Re: predatory landlords: if they are not breaking the law, are they really blameworthy?

Yes. Many things that fall short of "illegal" are blameworthy (that you don't even push back on calling them predatory is telling). Our legal system is not meant to be a moral system (and almost always favors people with more money). Also keep in mind, these folks have money to contribute to local politicians who then bend laws/regs in their favor anyway.

> if they are not breaking the law, are they really blameworthy?

Do you think the law and regulations fell out of sky?

Or maybe we saw some shitty and bad-faith actions from powerful entities and then the people demanded to enact some laws to prevent that behavior in the futuer?

Which one is more likely?

> Consumers can share blame for not living below their means, needless wealth signaling, and financial illiteracy

That's a claim that marketing does not work and we know that's not true. It regularly defeats "personal responsibility" or no one would pay the marketers.

Expecting your rent to stay constant for decades sounds predatory too.

If the government is willing to back a long term fixed rate mortgage, it’s hard for me to understand why those with that mortgage shouldn’t be highly restricted in the rent they can charge.

Why not just cut to the chase and ban loans for investment properties? Who would own the properties that renters need to live in if it's made un-investable? Some level of renting is probably healthy (more mobility, requires less capital upfront, etc).

I wouldn't argue we are in a healthily balanced environment in the US currently. But rent is a spot price that also has downside potential and if you want the market for rentable properties to exist, it has to be attractive to investors.

I think this regulation would eventually end up with a lot of assets concentrated with a few owners, the ones rich enough to pay cash and side-step the loan regulation you propose. At that point, it's going to be worse than our current system.

I don't understand your reasoning here. Are you saying that if we don't give money to property owners through subsidization of their mortgages, then there won't be rentals? Why wouldn't there be? They could still get loans they just wouldn't be government-backed.

Why is it worth interfering with the market here? If we want renters to be able to rent and support such interference why not just give renters money directly?

And after first 5 or 10 years, why don't the renters have substantial savings? Surely they have allocated same relative cut to living costs, meaning that with raises they should have saved good amount of money.

I saved money buying a house. We needed a bigger house for a baby and the smaller duplex wasn’t enough. Rent was about $2500-3500 and the house was $2500 and now $2100 after the refi.

Sure I put in about $25k in repairs but I’ve also gained over $200k. If I was still in the duplex I’d be broker than I am now.

If the mortgage price doesn't go up, I'd not expect large increases in rent even if the cost of fixing it goes up. Most fixes are minor things.

You're competing with other renters for the unit though. If someone offers the landlord more you think they should say no?

Yes, I do - I do not think landlords should have a no-fault eviction. I don't think they should be able to refuse to renew your lease in a lot of situations. Once you are living there, you should have rights to stay so long as you pay and so on.

This keeps people stable.

If the unit is free, I don't think there should be bidding. The price listed is the price it goes for. It is on the landlord to make sure they are asking a fair price that is enough.

If competition is fierce, obviously there isn't enough housing.

> If competition is fierce, obviously there isn't enough housing.

Well we agree on that. The problem with taking away people's property rights is that it fucks incentives to actually fix the problem by creating new things. The solution here is building new housing, that won't happen if you take away landlords rights.

Your policy means that it's impossible to move to in demand areas unless you're willing to buy.

> car dealers obscuring true costs of borrowing ("how much do you want to pay per month?")

That I would blame the consumer. Think about it.

I'd bet consumers looking for a car start at "What car do I like?" or "What do I need in my next car?" I'd bet pretty much no one starts by asking themselves "How much can I afford?" And if they ask that question is always on a month-to-month basis, because that matters. The now and today.

Once they know what they want, they try to get it no matter the cost. If it's more than their budget, they go for paying more in the long run but less month-to-month.

Hell I'd even say that if a salesman tells them that their so-wanted car is out of their limtis, the consumer will get mad and go all-karen on them.

>"includes car payments on a BMW, the latest iPhone, and other by-no-means-necessary expenditures

"The latest iPhone" is the new "Avocado toast and starbucks". Inflation wise, the iPhone 3GS is only marginally more expensive than the iPhone 15, while delivering far more value. I struggle to understand how ~$75/mo for someone making 100k/year is a deliberating expense for the purpose of wealth signaling especially when that purchase likely delivers far more than $75/mo of actual economic value.

Conversely, those 100k/year earners are likely concentrated in some of the highest CoL areas in the country and simply wouldn't be 100k/yr earners in lower CoL areas. Rent and housing has continue to explode but the idea that these 100k/yr earners are hedonists is starting to feel like a thought terminating cliche to me.

The price of an iPhone has been pretty much constant for 15 years when adjusted for inflation, but 1bdr Rent (adjusted for inflation) in San Francisco is up 60% in that same time period.

Lets say a 100k earner in 2009 did the responsible 30% of income on rent, and spent 2,500/mo. A 100k/yr earner in 2023 would be spending 4,000/mo on a comparable apartment. They might need a roommate, or almost HALF of their income would go to rent. If Earner 1 was saving 10% of their income every month, that would be completely eaten by rent in earner (2) scenario, making them paycheck-to-paycheck. No "iPhones or BMWs" required; and I haven't yet touched the other non-luxury cost of living increases.

His point wasn't that iphones are the breaking point for american's personal finance situation. It's that the BLS and Fed study estimates weren't thrifty subsistance level living standards. They included luxuries like new iphones and premium vehicles.

> The price of an iPhone has been pretty much constant for 15 years when adjusted for inflation...

Yes, the luxury item has remained a constant cost luxury item.

Anecdotally, this has been my experience as well. The few people who have money troubles put themselves there through frequent outings, buying expensive items. If they got a 20% raise tomorrow, they would just increase their spending and squander most of it away. I don't doubt there are people out there struggling because of medical conditions or just plain bad luck, but that's not the most common case I've seen.

> The people with insufficient 401k balances aren't making the max.

That may be true, but even maxing out probably isn't sufficient anymore for most people.

It's not just starting to be broken now; it's been broken for a long time. The 7% average stock market return is completely irrelevant to how people actually invest. And I'm not even talking about irresponsible investing. I'm talking about allocation models (put x% of your portfolio in bonds; more when closer to retirement), and I'm especially talking about how people tend to have less money to invest when times are bad and prices are low, and more money to invest when times are good and prices are high. What use is stocks being on sale if you've been laid off at the same time?

I think if everyone had a practice of tracking the dates and amounts of all their retirement contributions, and calculated APY from their balances, we'd be a lot closer to exposing the huge lies that are at the root of the investment advice communities. If anyone here is deeply embarrassed about barely beating inflation after 20-25 years of investing, you shouldn't be.

Any suggestions for recommended reading for someone in their mid-30s, really only focused on 401k for retirement? Should I be doing something else?

My favorite resource lately is earlyretirementnow.com, particularly the Safe Withdrawal Rate series and their spreadsheet. It basically either expands upon or rebuts every other commonly-recommended financial advice resource people tend to suggest.

The basic mindset is you have to understand your expenses ie spend rate. People flush with income tend to forget that, thinking it's just for people living paycheck-to-paycheck and needing a budget. But it's essential for being able to project retirement reliably. And of the income/performance/expense triumvirate, it's the one that you have the most control over (assuming you're already investing responsibly).

> Workers living paycheck to paycheck (61% of the population, ... means that contributions aren't realistic for millions of people.

This doesn't mean they are poor. From your cite:

"Of those earning $100,000 or more, only 45% reported living paycheck to paycheck"

It just means they see-money-spend-money.

> or a vague suspicion

I see the people who caused the crisis walking around freely having paid no price for their actions whatsoever. There's nothing "vague" about my suspicion. The government has a responsibility to maintain confidence in markets. They utterly failed in my view so myself and anyone else holding this suspicion are completely correct to do so.

I also get the feeling that insiders front run the market, stealing gains from us, I also get the feeling that most of the volume in the market is driven by people who are not "in it" with me to "earn a retirement" but are instead in a mad dash to grab every lose cent and percentage point on a transaction fee that they can get their hands on.

Uncritically moving the average American over to a 401k was never a smart move as this entire sordid disaster was an obvious outcome given the lax regulatory environment in which the decision was made.

This is over-hyped. Professionals who want out will overwhelmingly figure out how to save more, regardless of whether their investment returns are 5% or 9%. Most people are working for much more than a paycheck (though I believe they often fail to realize that), and stop working for far more varied reasons than achieving financial independence or a fully vested retirement plan.

Sure, this will move some people at the margins, but most people will stop working from physical or mental frailty, to move across the country to be with grandchildren, or to preserve their limited energy to do things that they find more compelling than work. To the extent that they need to, they'll find lower-cost ways to live, probably including down-sizing, living with their adult children, renting rooms, or other informal arrangements within their communities.

It’s not over-hyped. If you play around with the numbers, the ~$22k per year (increases a little each year usually) you can put in a 401k is insufficient to retire on, even if you start at age 20 and max it each year till 55… unless the stock market goes up, up, up. One flaw is that you can only contribute that $22k to retirement if you have an employer and that employer offers a 401k plan to employees. Most do, but it also discourages entrepreneurship and gig work (which can be lucrative). Without a 401k, we are limited to contributing $6k/year to an IRA, which only has a tax deduction if you make less than $85k or so per year.

Meanwhile 15% or so of our paychecks go towards social security, which many believe won’t exist in 20 years, regardless of contributions you made.

Finally, the cost of retiring heavily depends on two things- healthcare and housing. Many Americans remain employed until 65 when they are eligible for Medicare as their employer-provided health insurance is all they can afford. Prior to Obamacare, these individuals would simply be uninsured, but now it’s “insured but it’s ridiculously expensive” without their employer.

As for housing… it’s common to sell a single family home for X and use X/Y of that money to buy a smaller townhome or condo to live in until the day you die. This can work out well, adding tens or hundreds of thousands of dollars to the retirement account, but it relies on the person owning the home, having significant equity in the home if it’s not fully paid off, and being willing and able to sell the house and downsize.

The system is broken and in this software engineer-heavy forum, I think it’s easy to forget that we make more money than most Americans. Heck, we make more money than most humans.

No one retires at age 55 unless they already have substantial wealth. The expectation is that you continue contributing until you retire at about age 67.

> It’s not over-hyped. If you play around with the numbers, the ~$22k per year (increases a little each year usually) you can put in a 401k is insufficient to retire on, even if you start at age 20 and max it each year till 55

Over the last 35 years, that would have netted you about $3M in today's dollars. You could argue that's not enough to retire on at 55 (although I'm sure many can), but if you keep it up to 65 that's $6M. Easily enough to retire on.

Not to mention Social Security kicks in once you hit your 60s.

Is SS in the constitution? Show me where social security payments are an American right guaranteed by the federal government.

Right, but that's also assuming the person is 100% invested in the stock market all the way up to their retirement. That's a lot of risk.

Sure, but more conservative and balanced approach still puts you in really decent shape. 4mm instead of 6 maybe.

So that's not the problem, the problem is with the idea that you start max contribution in your 20s and keep it up. To a first approximation, nobody does this.

The real way that people run into trouble with voluntary saving (tax sheltered or no) being relied on is something like this:

20s : bad salary, don't save much

30s : making better money but getting married and having a couple of kids

40s : man those kids are expensive, putting college funds together, saving a little bit. oh well at least we're building house equity.

50s : huh, we should think about saving. finally can live a bit though.

60s : oh crap, no way to catch up

Ding ding ding.

We started to hit “we could save enough to retire at 55, or 60 at worst” money just as we started having kids.

The added health insurance costs, healthcare costs (and our kids don’t even have any huge problems!), housing costs (unless we’re OK sending them to bad schools), lost wages due to time staying home caring for them, child care costs before they started school, et c… that stuff topped a quarter million before I stopped counting, and it went way higher after that.

The kids have gotten somewhat cheaper as they’ve gotten older! But having that ultra-high cost front-loaded cast like a million-plus dollar shadow on our likely at-60 savings (due to opportunity cost), not even counting the ongoing costs and the effects those are having. Retiring at 65 is now iffy…

I probably meant to say 59 1/2 rather than 55. I often mix those two. 55 is when you can move to those 55+ communities, 59 1/2 is when you can pull from retirement penalty-free. 65 is when social security benefits kick in, including Medicare.

> discourages entrepreneurship and gig work (which can be lucrative)

Self-employed folks can make both employee and employer contributions to tax-advantaged retirement accounts, and the aggregate yearly amount far exceeds what a W-2 employee can contribute on their own.

Depends on how much they make that doesn’t need to go back into the business, but sure. Most startups fail, most don’t turn a profit for several years. I would venture to say most people who skip the 9 to 5 for a few years to pursue their passion return with ~5 years of missed retirement contributions.

Maybe by then Canada will have some sort of MAID tourist visa.

Maybe it's time for a tech startup to invent the Futurama suicide booth. We could have a test market lined up.

Combine it with a Cyberpunk 2077 crematorium vending machine and it sounds like a great one stop shop.

> preventing younger workers for getting into positions

This won't matter anyways, or at least it feels that way.

I have no real hope that jobs that open up above me will go to me or someone else in my cohort. What I think instead is one of three things will happen:

1) Those job responsibilities will be split among remaining people as much as possible, and effectively remain vacant with other people scrambling to take over part of it. They will receive a tiny pay bump at most.

2) Those job responsibilities will be filled by someone but pay nowhere near what the person retiring was making.

3) The job will be automated somehow.

Maybe this is too cynical but I really do feel like companies are getting better at making sure employees make exactly the minimum they will tolerate faster than employees are becoming intolerant of how little they are paid.

Those are the things that happen in static or declining companies. If you see those things happening then it's time to look for a new job in a growing company, unless you're already close to retirement.

Most companies have ups and downs. Longterm stable companies tend to be static, short term success can turn into cratering failure in a hurry, and no company can grow forever.

When you're interviewing, every company will swear they are growing rapidly and making oodles of money. How do you tell if they really are?

If I could identify growing companies so easily I wouldn't work at all, just make bank on the stock markets, right?

It's easy to tell if companies are actually growing. For public companies just read their quarterly financials. For private companies look through LinkedIn to check the pace of hiring and promotions.

Of course there are no guarantees. If your current employer stops growing then it's time to look for other opportunities.

I don't understand your point about the stock markets. All other investors have access to the same growth data about public companies. The growth rates are already priced in.

Companies that are days from being insolvent will often hire as if they had years of runway.

--Static or declining companies Including companies recently purchased by PE.

This is happening all over the place and is the reason for the huge productivity/wage gap over the past X decades.

> 3) The job will be automated somehow.

If we're talking middle management, that's basically just an automated spreadsheet.

I think it’s funny this is being talked about as some future eventuality. It’s happening now, already, in most organizations I’ve been involved with all of these things are happening.

Honestly just see a lot more RV/Van dwellers in retirement. housing and healthcare are the greatest costs.

This is what I'm contemplating in the near future. My house mostly paid off, but I struggle to afford the maintenance and some stuff is starting to go seriously wrong, and younger people are moving into town with eye-popping incomes, driving up COL overall. But then I can't afford to rent either because my income is tiny. I understand RV living has many issues but there are likely no other options for me.

Its "funny" that I'm not that old (40s) and I've now lived through 2 major housing crisis as an adult. Its the same number as my parents who are in their 80s, and they never even had to buy a house in a post crisis era. Housing was basically ez-mode for them their whole lives (as was healthcare). Only now are they having any difficulty, even with a defined-benefits pension, but they have me to help out, lucky them (not so much me).

As for healthcare I've given up on that already. I might have one elective surgery next year, after that if anything major goes wrong with me, I'm dead. Not even really bothering with many doctor visits now, though I manage the prexisting issues I know about.

I’m not sure about your budget/priorities, but there’s plenty of affordable housing if you’re willing to live in a low growth or rural area. Sounds like we’re similar age, and I’ve thought about this, have a few places in mind that COL is pretty attractive AND I get to live in a real house instead of an RV.

I wish, but those things are heinously expensive for what you get

Also all the older workers who do have enough used it to buy multiple investment properties, helping make house prices absurd.

Just wondering, how many U.S. citizens have considered retiring in another country, possibly a developing country? I live in an Asian country where the living costs are significantly lower than that of U.S., so as long as the US dollar remains strong you can expect 2~3X more purchasing power for the same dollars. Countries like Malasyia have favorable policies for foreign retired workers, such as easy retirement visa, world-class medical care, etc. Could be an ideal place for retirement in case 401k was insufficient for retirement in US.

Don't know why, but all those cheap countries are too hot for me. All the colder climate countries are well developed and expensive. Maybe the chain of derivation is cold -> hard to survive -> expensive -> developed.

What about getting an air conditioner?

Meaning sitting under house arrest all the time?

How about South Africa?

Good example to illustrate my point - coldest of the continent, best developed (still going to shit lately).

I'm closer to retirement than probably most people here, and I have considered it, though I haven't specifically looked at any countries. One risk for me is the the potential for culture shock, as I haven't ever lived outside the US (and indeed have not been outside of US in over 20 years, and when I did it was to the UK, so not exactly a big difference from US).

I also have to take care of my aging parents here, by the time I don't have to do that anymore, I could be near 60 and really not in much condition to manage a big move like that. My own retirement might be...rather short at that point; there is no one to take care of me.

My brother really wants us to try for Irish citizenship (we have distant relatives so its possible while one of my parents is still alive), but its highly unlikely we'd get approved and Ireland is not cheap nowadays. I've looked at Canada but there is a lot of red tape for US citizens to move there, especially ones who are already partially retired.

Moving to another country is not like moving to another state in the US. Culture/language can be very different. Moving pets is INCREDIBLY costly and typically they have to be quarantined for some period of time. You’ll be eating different food, possibly speaking another language, the electrical outlets are different, internet is different, and some things aren’t going to be available (VPN can solve that I suppose)…. But it all adds up. Each thing alone is a minor inconvenience, but all of that… there’s plenty I’m leaving out too.

>> The expectation for your 401k is that it's going to grow by 6-8% each year.

I have always been suspicious of the 6-8% figure, as it also includes an unknown number of insiders. They know when to buy and when to sell, so their returns are higher than 6-8%. Correspondingly, all non-insider returns are lower, such as 3-4%, but you will not be able to tell because statistically, it will still average out to 6-8%.

Perhaps the historic returns from a passively managed index fund would bypass these concerns?

>Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on.

The biggest problem I have with the 401k is that it was very clearly set up as a tax break for the upper class. It was then extended to be the primary retirement for everyone and it has oh so many footguns and ways to bilk retail investors along the way.

1. It's tied to your employer, and not universally available. 2. Even when it's available, it's not mandatory to save anything. It should at the very least have a decent default contribution with a 'I really know what I'm doing' opt out. 3. Investment options are often active funds with subpar performance and high fees 4. It's too easy for retail investors to panic and sell everything during a downturn.

If the government were really intending to set up a defined contribution retirement plan, they should have just made the TSP available 'at cost' to everyone. Autoenroll everyone at 10% in a 'target date' index fund and don't let them touch it until their 60's unless they have a terminal illness or something. It really is that simple.

Indeed. The switch from defined benefit to defined contribution puts investment risk and longevity risk on the individual. Australia has much better pension/retirement savings policy public in the form of Superannuation.

What are you talking about? Australia's superannuation system is also defined contribution with individualized risk.

But a pension to back it up if your super won't support you. So not entirely individualised risk.

The US also has this.

To be fair, Individual Retirement Accounts (aka IRAs) are available outside of your employer's purview, the thing that 401Ks have over IRAs occur when the employer matches some part of your contribution.

I continued to roll over my 401k's from various employers into an IRA when I changed jobs and now just have the IRA.

The investment choices are often sub-par, and while I can prove nothing, it sometimes "felt" like investment banks would shift losses from their clients into their funds to "spread them out across the retail investors."

IRAs have a much lower max contribution than 401ks which as far as I can tell only serves to force you to line the pockets of whoever your company chooses to operate your 401k.

IRAs have much lower contribution limits though. If you want tax-advantaged savings for retirement, those with access to a 401(k) have a huge advantage over those without. I would expect as a society we want people to properly prepare for retirement, but then we make the ability to do so contingent on your particular employer.

> It's tied to your employer

This is a non-issue. You can roll it over penalty-free into an IRA when you leave. Anything you contributed is still yours, though there might be a vesting schedule for the employer match.

> Even when it's available, it's not mandatory to save anything.

As long as it's not hard to sign up, I'm an adult. I can save money on my own.

> Investment options are often active funds

My employer has a good plan, and some of the options are Fidelity target date funds. These are great options, and I've been seeing them at more employers. Granted, some might not have these options.

> It's too easy for retail investors to panic

Again, I'm an adult. Every financial advisor says don't do that.

> If the government...

Individuals aren't responsible enough to save money on their own, but the group that couldn't elect a leader for 3 weeks, can barely pass a bill to keep the government running for the next 45 days, plays chicken with the credit limit, and is watching its credit score fall because of these shenanigans is responsible enough?

Most of your objections kind of prove my point that the 401k is more a tax break for the upper class than than a reasonable retirement plan for the average american.

>> It's tied to your employer

>This is a non-issue.

It absolutely is an issue when half the people in the US do not have access to a 401k

https://www.prnewswire.com/news-releases/new-aarp-research-n...

>I'm an adult.

If you're posting on this site, you're not just 'an adult', you're likely well off, financially literate, are able to delay gratification, and have a great deal more bargaining power than the average joe. No judgement, but that is not most Americans. You know how most publications target an 8th grade reading level? Our retirement plans should target that level of financial literacy as well.

While I don't trust our politicians I do trust the rank and file government employees that serve the american people. I have a tsp account left over from my time with the navy and it is by far the best retirement account I've ever had.

> It absolutely is an issue when half the people in the US do not have access to a 401k

As someone else said, IRAs offer the same tax break. The contribution limit is lower (I'd support changing this), but most of the people who don't have access aren't maxing out their contributions, anyway.

>most of the people who don't have access aren't maxing out their contributions, anyway.

Precisely. We should have an account that autosaves and invests ~ 10% of a worker's pay into a simple target date fund. You can opt out, but by default, when you get to retirement you're covered.

I can tell you first hand that many of the blue collar folks I know in retirement almost exclusively live off of social security and that's a sad, restricted life.

Who is actually making max contributions? $19k per year is out of reach for most. If someone makes the max 401k and IRA contributions over a 35 year career, they would be set.

I suspect all of the exempt employees of Meta, Apple, Google, Microsoft, Intel, and pretty much the ones in any of the other fortune 100 companies.

There is a funny thing though, you can have "too much" in your 401k/IRA :-). When you hit 72 you have to withdraw 10% annually and that amount can put you into the top tax bracket if you've been saving your whole career and have more than a million bucks in there.

The good news is - if you have to take out $100k, you only need to take out $90k the next year!

Yeah unless the market is doing well and your balance is growing. I get that it isn't a "problem" per se. :-)

Required minimum distributions start at about 5% (not 10%) at age 72, and increase with age. But your general point stands. RMDs will add to one's tax bill, by regular tax brackets and having up to 85% of Social Security benefits taxed too.

Hell, even among people who should be able to contribute the max, many do not.

They’re would be set assuming continued US stock market returns, which will “probably” continue indefinitely so long as we are a country, but it’s not guaranteed. If I recall correctly, maxing out 401k for 30 years doesn’t even get you $1M on principal. 30 years from now even $2M is probably not enough to comfortably retire on.

Then if you need any nursing care it’s $100k+ per year.

The 401k generation is retiring right now. They peak in 5 years and end in 10.

I think the guessing they'll work longer is optimistic. Once you hit age 65 or 67 man, you'll be surprised how much harder life is lol. At my workplace, two people retired this year and they announced their funerals within 2 weeks. That caused 5 more to finally retire before it's err, too late.

But I fully agree the 401k meme is in trouble. It's modeled just like social security and pensions. Infinite growth, which simply does not exist. Except instead of the government footing it, we threw it into the market and allowed middlemen to also take a cut.

What about all the 401k generation that can retire? Should we be expecting a massive sell-off of stocks held by 401k-ers?

> It's worse than that. The 401k generation will begin think about retiring in the next few years. Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on.

I’m sorry, are you looking at the same market graphs I’m looking at? Anyone who is retiring soon and has been maxing their 401(k) for the last decade-plus is doing pretty damn well.

It’s all relative. That person is likely to need more in retirement based on their living standards

I’m pretty confident the majority of families that have been maxing their 401(k)s have a pretty good awareness of their retirement situation. Not a lot of people in that bracket are going to wake up one day in their sixties and suddenly realize they need to drop their standard of living if they want to make it. There’s not a lot of overlap in the Venn diagram of people who care enough to max out their retirement plans and people who don’t routinely assess their financial situation.

I’d be much, much more worried about the depressingly large number of people who have next to nothing saved, who almost certainly will be surprised to learn that retirement isn’t an age, it’s a financial situation.

> I’d be much, much more worried about the depressingly large number of people who have next to nothing saved

I agree.

> Not a lot of people in that bracket are going to wake up one day in their sixties and suddenly realize they need to drop their standard of living if they want to make it.

If all they've been doing is maxing their 401k and expecting that to be enough are likely in for a shock. I don't know if this person is more savvy than others. They likely have many other tailwinds, like paid off mortgages and kids with good careers that will ease things. But the drop in income is going to be an adjustment is all I'm saying.

Its not all relative, that's an abuse of the phrase.

How much one needs in retirement is entirely relative to the type of retirement that person wants for themselves which is typically relative to the lifestyle they lived prior to retirement which is relative to their income an ability to save for retirement. I don't get your point, but there seems to be a lot of relative factors going on.

Maxing out their 401k? Who does that? Quick Google says 15% of Americans max out their 401k.

The number of workers in the economy is not zero-sum.

Unless you plan to retire with a very expensive lifestyle, the contribution max of $22,500 per year is very fair, plus you can also put $6,500 max in a roth IRA. That's almost $30,000 per year in tax advantaged accounts. More if you're in you're 50s. If you were to max your accounts for any reasonable portion of your career, you would retire with millions. Most people don't make enough to hit the max every year, thankfully, retirement will still work without going near the max.

The problem is that people don't put anything in, or only put 1-3% in. My friend works in HR at a company that employs a lot of engineers. These are people that are educated, can do 6th grade math, and make decent incomes. I think the average contribution in the department was a little over 4%. Those people are going to retire with $150k in their account and have to life off social security but they shouldn't blame it on anyone else. I know a lot of people are struggling in America right now, but a lot of retirement savings shortfalls are just ignorance.

The only policy solution to this is to force some kind of deduction from paychecks into retirement accounts. Australia and Singapore do this and it works reasonably well.

> The only policy solution to this is to force some kind of deduction from paychecks into retirement accounts.

Or to admit that privately managed retirement accounts were a mistake, and ramp social security up to the point where it's enough to live on, taking enough contributions to cover that.

Investment should be money that someone can afford to lose. Treating privately managed investment as the way to do retirement savings is going to leave some people destitute.

The demographics of the world mean that social security and government pensions are no longer going to work very well. They will need to be cut, and can certainly not be raised even higher. In your lifetime, most countries will have 1 worker per retiree. Some, like South Korea, will have two retirees per worker. Good luck paying all your normal taxes as well as increased levels of medicare and social security all on one income.

Investment will continue to be the cornerstorne or retirement, the math for redistribution just doesn't work. Especially if you increase the distributions.

The government can invest just as well as individuals can. The only difference is that everyone would get the average growth, rather than the wise or lucky getting more and the foolish or unlucky getting less. If we can't afford to fund people's retirement that way, they can't afford to fund it themselves either, and investment accounts were only ever about shifting the blame.

Social security invests in low interest bonds, if they invest at all. Having the government invest everyone's retirement savings will at best lead to sub-optimal returns and more likely lead to corruption and theft.

If the government can't figure out how to invest for decent returns, how is it remotely reasonable to expect individual citizens to?

They could also be doing that because they're saving up for a home maybe? I know I stopped putting anything in my index funds because I need money that'll be available to me in the near future.

401K contribution limits only apply to 401K contributions.

People can save and invest unlimited additional money outside of those plans. They just don’t get the same tax benefits or potential employer matching.

> Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on.

Is that a hunch you have or are you basing that statement on data?

> Newer companies like AirBNB and Uber went public at what could be their max market cap valuation of billions so investors wont' get much of a chance to make money from these companies.

An argument I heard is that companies prefer to stay private longer to avoid the burden/oversight of SOX etc. The charitable interpretation is that they are too busy growing to be bothered, the less charitable is that they aren't capable of growing if they have to be accountable and forthright.

The availability of VC will necessarily siphon off enterprises from other funding sources.

VC isn't a panacea and doesn't operate in a vacuum. If you raise the cost of going public and staying public, then that makes VC funding or going private more attractive. The VC funding may come with terms that are not expected by public company investors.

But VC-backed companies is only one part of the private equity trend.

The other part that is discussed is small owner-operated or partnership firms getting bought up by bigger ones. Here again, if the government increases regulations, then that tends to fall more strongly on small businesses than bigger businesses.

I agree with everything you have said.

I'll just add that, with the path of finding VC well-known and well-worn, we should expect greater difficulty. Even if we somehow reversed the trend of all institutions and bureaucracies to become over time larger and more cumbersome, that is, we streamlined government processes, we should expect an additional hesitation of growing enterprises to return to IPO, because VC is now a comfortable path for a significant portion of the roadmap.

> Vet clinics, medial practices, engineering firms, etc all use to to thrive on being 20 person shops are now routinely being bought up by PE firms and rolled into larger companies which means far fewer entrepreneurs or chances for up and coming employees to buy into the firm from the founders, which helps stall careers.

In the past 2 weeks, my local small biz autobody shop and furnace/HVAC company have been bought by large regional firms. The furnace company refuses to service your boiler w/o buying from their preferred oil supplier, and the autobody shop has adjusted their rates to essentially insure they only work with insurance claims.

It’s very common for auto body shops to only work with insurance claims. I think your best bet is to take the car to a dealership-owned body shop, especially if it’s the dealership you bought the car from, or the same make.

> It’s very common for auto body shops to only work with insurance claims.

Right, because like health care they treat the insurance company like a giant piñata to beat free money out of. Ive seen auto shops lie about damages, things like claiming previous damage is part of a claim - anything to bilk them. Of course the clients don't see any moral issues because their car receives "free" work.

> Newer companies like AirBNB and Uber went public at what could be their max market cap valuation of billions so investors wont' get much of a chance to make money from these companies.

Almost all of these companies were massively overvalued by the time they IPO'd. I for one am glad that regular people were not allowed to invest in Theranos or WeWork. Looser restrictions on investing would create even more dodgy company's whose primary goal is to scam retail investors, like what we've seen NFTs.

> Vet clinics, medial practices, engineering firms, etc all use to to thrive on being 20 person shops are now routinely being bought up by PE firms

IMO, this is a symptom and not a cause. Vet clinics and medical practices would be terrible investments if it were sufficiently easy to start new vet clinics and medical practices. Likewise, housing would be a terrible investment if it were sufficiently easy to build more housing.

It's not terribly hard to start a clinic, but it just makes sense to consolidate, and it doesn't make much sense for anyone who's not a vet to start one (because of the relative pricing power of vets). But it's not bad for vets to be able to exit to PE after they have established the clinic.

And after consolidation PE can make better deals with vendors (from pharma to insurance networks to maintenance).

(Of course exorbitant rise in vet costs shows there's room for more vet clinics, but it's mostly a side-effect of a lot of rich people spending a lot on their pets.)

I agree!

But I also think the rise in interest rates could help reverse this trend, at least somewhat.

Consider: Until recently, interest rates in the US and other developed economies had only declined, in fits and starts, since the early 1980's.[a]

Not coincidentally, the modern private equity sector was born in the 1980's.[b]

Until recently, private equity firms had benefited from interest rates that only decline and valuation multiples that only expand -- for four decades!

A lot of deals that "work" when rates only decline will stop working if rates don't. For example, there are a lot of private-equity-backed middle-market businesses, including plenty of roll-ups, that were financed before rates went up, with such high leverage that the companies are now at risk of insolvency if rates don't decline soon.

If rates stay at current levels or (gasp!) continue to increase, I'd expect to see a significant contraction in the number of private equity firms. Those private equity firms survive may have to become mainly lenders, i.e., banks in all but name, and sooner or later will end up being regulated as such.

---

[a] https://fred.stlouisfed.org/graph/?g=1aNbC

[b] https://en.wikipedia.org/wiki/Private_equity#Private_equity_...

Those companies are only at risk of insolvency if their debt is variable rate or has a balloon payment due soon. I imagine most PE firms are smart enough to avoid those risks. Banks are also incentivized to negotiate with debtors in those situations since the asset is worth more as a going concern than it would be in bankruptcy and banks don't want to operate a business (they have no expertise there).

Most PE deals would work (with lower returns) without any debt. The debt allows them to diversify into more deals (since they put less equity into any given deal).

> Those companies are only at risk of insolvency if their debt is variable rate or has a balloon payment due soon.

Actually, most LBO-type deals are financed with a combination of bank and bond debt. A shocking number of bond deals will be maturing within 1-3 years, and have to be refinanced. The bank debt, senior to the bond issues, is typically variable-rate and (depending on deal size) split into tranches that must be repaid at different schedules over time. Many PE-backed borrowers in recent years decided not to enter into swap contracts to fix their debt rates. My understanding is that things could get ugly quickly if rates don't come down soon.

> Most PE deals would work (with lower returns) without any debt.

Actually, if a deal returns less than the yield on corporate debt of similar risk, then the deal does not work. LP's in the PE fund will correctly view it as a failure. The raison d'être of PE funds is to earn returns above those yields. Moreover, if a portfolio company is already loaded with debt, finding buyers that will pay the old multiples given the new rates will prove difficult, if not impossible -- similar to the situation many US homeowners that locked-in ~2% mortgage rates a few years ago face today: They cannot sell their home at the old valuation because prospective buyers are looking at mortgages that cost ~8%/year. Higher interest rates make it hard to impossible to "exit" at valuations that generate decent returns.

I'll believe it when it happens. Banks/creditors don't want to operate these assets (no expertise there) and since the businesses are fundamentally sound for the most part there is no reason to force them into bankruptcy. "Extend and amend" (sometimes "extend and pretend") is what they called it after 2008.

If they had unlevered yields below the corporate debt yield they would have negative leverage and debt would reduce returns.

Here you go. I just saw this on the front page of today's Financial Times:

"Private equity: higher rates start to pummel dealmakers"

https://www.ft.com/content/8b4a5df6-7f6d-480f-8d20-55793854c...

The rise of private equity is also correlated with major drops in the top marginal income tax rate and the maximum capital gains tax rate in the US. When individuals become so wealthy they couldn't possibly spend all of their wealth, this creates an a new market of extremely wealthy clients with a risk appetite.

Financiers can cater to this clientele with exotic investments that feature more concentrated risk/reward and pay out exclusively to the uber-wealthy and institutional investors: Private equity, hedge funds, and venture capital.

As John Kay put it, the stock market used to be a way for new businesses to raise capital, now it's a way for already profitable companies to cash out. The example he gives of one of the first ones is Google. So it's been going on for quite a long time now.

The funny thing is now many of these companies aren't even profitable. It's all driven by speculation.

It's still how many new businesses raise capital. That's how the biotech industry works for example. (In biotech VC just gets you to the IPO stage and you don't cash out at IPO since typically those companies don't even have an approved product yet).

> It's still how many new businesses raise capital.

Should it be? Theranos stained biotech badly.

Business and markets run on trust. The less trust you have the more overhead you have to verify that every claim your counterparty makes is true. That's expensive and means some worthwhile things become impossible to do profitably. It's a tradeoff and I think in general the US finds a good spot between regulation and ease of doing business, and the rest of the world benefits from it too.

There are failures of course, but most of the big ones recently have been in private markets not the public ones.

No knowledgeable biotech VC invested in Theranos, because they were unable to pass due diligence. Theranos investors were unsophisticated family offices who didn't operate in the space, didn't know enough science or technology themselves, and didn't know how to run due diligence. Had Theranos attempted to open up enough to go public in those circumstances, they would have been exposed much more quickly.

Don’t forget about inflation when comparing these numbers. 300M in 1984 is 0.85 Billion today. Some companies IPO at huge valuations, but ShockWave Medical, Inc., had a 2019 IPO at roughly the same valuation as Microsoft and has seen 11x returns since then.

Looking at the other 2019 IPO’s you see a lot of volatility but many home runs. https://stockanalysis.com/ipos/2019/

IMO this also impacts "large" institutional investors such as pension funds. A lot of them are going to hold the bag.

I don't see a way to get out of it without a fundamental change.

I would be surprised if this argument is borne by the facts. Sure, Bill Gates would be a trillionaire now if Microsoft remained private for longer but for every company that sees tremendous growth after IPO, how many see their shares sink. This investment strategy only works if you are able to predict the top of the market for individual private companies which is likely incredibly hard to do. Given the power law of returns in VC, you only need to get this wrong once or twice before you wipe out the returns of your fund.

As for the idea that PE firms are buying up SFH, I would be surprised if this is happening on a meaningfully large scale (anecdotes aside). Homes are real physical assets that need all sorts of actual maintenance on an ongoing basis. I don't know of any investment firm that is set up in a way that supports this type of operational burden. Even if they outsourced the work, it still wouldn't make sense to have any management overhead to keep on top of it. Investment firms want assets that can exist (for all practical purposes) inside of a spreadsheet. Homes are the opposite of that.

It’s because of cheap money flowing into Wall Street. The negative impact of ZIRP has only started to be felt.

I've thought about this a bit. This concentration shift seems good for the economy in the short term but a massive loss for society as business increasingly becomes a chains or centralised. Especially in areas that are traditionally owner run like restaurants, pubs, vets, dentists, GP clinic, pharmacy, hardware etc. Capitalism is the best system but we too often forget a core tenant for govt to create a level playing field. We seem to have forgotten this and make it increasingly hard for small business which should be a significant driver of innovation and improvement.

I think some possible solutions would be to;

1) Significantly lower taxes for smaller businesses vs larger. Even better bring personal rate inline to company rates... but this would be a very difficult shift for governments.

2) Tax benefits for companies listed and actively traded, so companies are encouraged to list and share wealth/growth.

3) A 'not in the national interest' law for companies that continually pay little to no tax where you would expect them to. Have tax department give something like a 3 year warning they are on the 'consideration list' and if things dont change the tax office can make them sell, or if they prefer close. And then they remain on said list for a couple decades or so to verify. This, while being risky for overuse, would be an effective tool on the worst tax dodgers and wielded in a limited capacity quite useful for those that have high end tax strategists that keep getting around the rules.

4) Limit investment ownership in residential so people dont spend their life trying to buy a house. This will allow people to take some business risk and invest in their entrepreurship far more easily.

5) Put a low market cap limit on core local business like those mentioned above like vets, dentists, GP clinic, pharmacy. Or maybe a progressively sliding scale annual asset tax past a value/outlet of X. Something that limits how big these organisations can get.

6) Stop large consumer distributors selling their own brand product. Not sure how to word this exactly but places like Amazon or large supermarkets, they should be a retailer of other business goods only. Stop them sticking their own rip-off product next to the other.

Obviously a load more...

I think it will be a cyclical thing. The PE firms actually do run those businesses much more efficiently, but they also become homogenized and that's offputting, which opens the door for new entrants to differentiate themselves.

Efficiently is a bit of a stretch. I worked at a company making consumer electronics that got bought by PE. They promptly drained all accounts and just ran the company on minimum possible funding such that they never got to make any capital investment or perform any R&D.

As others have stated, great short term, it's going to absolutely bite us in the ass shortly thereafter.

It depends on the PE firm and the company, but the median PE acquisition outperforms its peer group even after the PE firm has exited. Of course there are plenty of cases where that hasn't happened and plenty of cases of mismanagement by PE firms but at least statistically they aren't the norm.

I'm not 100% on this cyclical thing. Some reasons;

1) A well know component of capitalism is capital concentrates. When that 300 store pharmacy does get run inefficiently, local guy doesn't replace the pharmacy, some other PE goes and buys the badly run chain and fixes it, likely merging another company with a bunch of pharmacies on the way vs new entrants competing.

I dont see the cycle returning to owner run, only being replaced by bigger and more efficient.

2) In my career I used to think companies with short term money extraction, like PE, were 'wrong' and should take a long term view for better business. However over time too often I see the 'quick buck focus' tends to win as while they do often erode the value/reputation of a company in that approach, they extract enough value quickly that they go buy the next company that was more conservative, rinse and repeat, and keep growing that way. This especially during the last era of cheap debt, though maybe that will change if rates go up.

The "quick buck" thing is a catchy meme but not really reflected in the statistics. While there are notable examples of companies that have been destroyed by PE investors they are rare and as a whole PE backed companies outperform after the PE group exits.

See this for example https://www.institutionalinvestor.com/article/2bstpilo30bmb4...

That is similar to other data I've seen, and given how loathed the industry is, the fact that it's hard to find contrary data suggests to me that it is accurate.

The PE firms have to exit their investments so they are either selling to dumb buyers who don't realize that PE is value destroying, or they are actually creating value by improving operations and selling to intelligent buyers who are willing to pay for the improved company. The former is definitely possible but you'd think after 40 years buyers would get smarter if that were the case.

Yes. I've found that with the big IPOs, while everyone is scrambling to somehow get into the stock pre-IPO, or at the first minute of the sale, the stock almost inevitably goes below the IPO price in the first weeks or months of trading. A bit of patience can yield more value.

Then, of course, is the question of whether it will ever go up again... I haven't done the study of whether they are (on average) reliable bargains or fools' gold.

> we now have such concentration of wealth that the big PE firms can buy alot of what used to be small businesses and roll them up.

When they don't decide to do a leveraged buy out and have the business help fund its acquisition.

One small step away from Tony Soprano and the sporting goods store bust out.

It's not just PE either. Collectively, Vanguard, State Street, and BlackRock own 28% of the SP500's market cap and one of the three are the majority shareholder in 88% of the SP500.

> Microsoft went public for a valuation of around $300M and is trading over a $1T now. This means that regular investors had a chance at all this growth.

Can't the regular investors buy PE stock?

No, unless they lie and can cough up the minimum investment amount ($25,000 to $1,000,000)

Just a little counterintuitive but feasible

I was thinking of the ETFs for PE investment. And aren't there PE firms with public stock?

If 5 out of 1000 PE firms have public stock, thats the same circumstance the article is talking about

Then the market should value those companies properly.

Not sure what you are saying here. Which companies? Why?

For private equity to take a publicly traded company private, they've got to pay more for it than the public market values it at.

For example, in 2016 Softbank was able to buy ARM for US$32 billion, but that was only possible because the stock market priced it below US$32 billion.

> Newer companies like AirBNB and Uber went public at what could be their max market cap

Uber is worth 50%+ its IPO valuations.(EDIT: No it isn’t. Sorry, jet lagged.)

> Uber is worth 50%+ its IPO valuations.

Is it?

I just looked at the chart and saw it went public at $45 and it currently trading at $45.

Did it split at some point or issue a 50% div?

https://finance.yahoo.com/quote/UBER says opened at $41.91 in May 2019 and is now $42.42

Had it kept track with inflation it would be about $50 - up 15%

Had it kept track with S&P it would be about $63 - up 50%

No it isn't, as 30 seconds of research would show.

Where is all this money coming from?

> we now have such concentration of wealth thatthe big PE firms can buy alot of what used to be small businesses and roll them up.

If only those small businesses could just refuse and continue operating on their own... alas.

Exactly. No one forces these businesses to sell. It’s the owners easiest retirement plan instead of passing them down to their kids who may not want to or have the skill set to run the family business.

Sure, no one is blaming any individual business for selling. Nor would you blame any particular drop of water for flowing downhill. Still, too much water will make a dam burst and most of the water will flood the land; too much business owners realizing their retirement plan by selling out to PEs, and everyone suffers - including those retirees.

Are you going to tell these mom and pop shops they can’t sell?

Of course not. The problem aren't the mom and pop shops. The problem are the PE companies making those offers. These are the ones to go after.

How is that any different? You’re still trying to stop mom and pop shops from selling out to PE’s.

Are you also going to stop startups from getting acquired to? Seeing that only 6 of the hundreds of companies that YC has invested in have ever gone public, acquisitions is the most likely exit

The difference is that PE is just one of many kinds of buyers, but the one that has a particular tendency of doing trades with nasty externalities. It's this pattern of buying that is a problem, and I don't see fighting it any different than fighting factories dumping toxic waste into rivers. Factories, in general, are not a problem. Actions that have destructive impact on people at scale are a problem.

Startups are a bad example because I absolutely would stop startups from being acquired as a general phenomenon. The pattern of startups seeking an exit is one of the worst economic innovations that happened to the world. They at best just waste time of their users/ customers before inevitable rugpull, and at worst, they actively disrupt whole market segments - not creatively disrupt, just in the "blow the whole thing up with VC money, disappear when it's clear the business was never sustainable" kind of way.

And again, it's not the acquisitions as a concept that are the problem - it's the pattern of startups being created with acquisition as the goal that is a problem.

All startups have acquisition as a goal. If not, they aren’t paying attention to statistics.

This very site you are on is funded via VCs where only 6 of the hundreds of companies that have been funded have gone public.

Who is going to buy these mom and pop shops? Are you going to say that startups can’t be acquired and either have to go public or go out of business when the large companies just put a few people on a clone of their project and crush them?

> All startups have acquisition as a goal. If not, they aren’t paying attention to statistics.

That's a problem, though. I'm under no illusion that startups are founded for purely altruistic reasons, but there used to be more focus on creating an actual business, one that makes money by delivering value to customers. Nowadays, the focus is on exit - and the main strategy is to hype up a shitty MVP to force rapid growth, and then either trick some incumbent corporation into acquiring the startup, or go public and run away with the profit before people figure out the company is just hot air.

I'm looking at this from the POV of a customer and a member of society, and as such, I see contemporary startups as wasting everyone's time and hopes, at scale. A perpetual flashy mediocrity that slows progress by starving would-be legitimate businesses for oxygen, and occasionally destroys a random market segment in the process.

Once again, the pattern is a problem. Startups are fine, acquisitions are fine, keeping an eye for an exit is fine. The issue is that the entire startup ecosystem - founders and investors alike, and increasingly even acquirers - found a way to game the system, and is busy printing money without doing anything of lasting value, while still burning resources and dumping externalities on the rest of the economy.

Why would a PE firm be buying (for example) a doctor's office if the doctor-owner was retiring? The doctor is why the business exists in the first place. Without him, it's no longer a doctor's office, it's a charming little suite with front desk people and a few nurses running around.

We had a local machine shop (that I used to go to for welding) sadly go out of business because the owner was retiring. I asked him if he considered selling it instead so it could stay open and he said "Who would buy it? I am this shop and I'm retiring. In 5 days it's just going to be a pile of tools."

For the patients and as a slow “exit”

Yea I don't see PEs buying a doctor's office.

I have seen "mergers". A doctor will join up with another doctor and then disappear in a year or two. That let's them legally sell the practice while weening patients over.

I have had a CPA start that process recently too. Suddenly announced he's joined up with this new CPA firm . Not to worry, he'll still be here to take care of our corporate needs and has transferred everything over (he's late 60s and snowbirding already)

A PE may buy up a already larger medical practice chain or something, but never individual practices.

The machine shop example is rough, he could do a merger retirement as well, but he needs to have consistent clients that he can bring over to another shop before slowly phasing himself out. Which may not have been scenario unfortunately.

If only each individual bond could try a little bit harder to resist the acid.

the point is the owners have a positive exit that they choose. And yes people are agents

Right America is governed by individual incentives.

There are more kinds of incentives than money.

Doing what's morally responsible in spite of everyone else is a losers game these days.

It's partly that, but in medicine (dentistry, fertility, etc) a lot of clinics are being rolled into PE conglomerates because the bureaucratic overhead in medicine has skyrocketed in the past 20 years, and clinic chains have better support for doing all the paperwork and legal side of things.

What a convenient way to completely ignore the macro effects, well done.

You joke but it's not benign. The reason economic regulations exist is to ensure we maintain the economy as a crucible for rewarding the smartest and hardest workers in society.

When private money can grow cancerously via pump and dump crypto schemes, overhyping IPO's that peaked during the series A round, and strong arming small branches of independently owned practices (all to later enable milk mode and reap monopolistic profits), the general public and society is left with overlords who do not build, they eat.

When have the smartest and hardest workers ever been the richest?

It's easy for me to believe it's not always been (and doesn't have to be) THIS bad.

There's functional value in a capitalist system. It just requires ongoing maintenance, to avoid situations like we're currently in. It's not self-repairing. Operated properly, it makes market conditions self-repairing, but this is at the expense of the potential market capturers.

It was better when corporate tax rates and income taxes for the incredibly wealthy were much, much higher. My favorite hobby is putting Thatcher and Reagan's faces on economic graphs to show what year they were elected is almost universally either the same year or just about when the global economic system went bugfuck by basically every metric we measure.

But, thanks to those two and the larger political milieu they so well represent, those entities are now rich beyond all reason and in a capitalist system that permits things like Citizen's United, money more or less equals political power so the odds of getting any of this addressed are basically nil, along side other issues that would demand corporations make less money: like climate change, crumbling infrastructure, socialized healthcare for the US, better socialized healthcare elsewhere, the vanishing middle class, etc.

Private Equity is going to get us all killed in a very real sense.

> When private money can grow cancerously via pump and dump crypto schemes, overhyping IPO's that peaked during the series A round, and strong arming small branches of independently owned practices (all to later enable milk mode and reap monopolistic profits), the general public and society is left with overlords who do not build, they eat.

None of those practices create "overlords".

They could, but my opinion is that this is putting personal responsibility front and center on what is a systemic problem. If our economic systems encourage the consolidation of wealth, we should change the systems, rather than blaming individuals.

Well think this through.

There are 10 vet practices in your city. 7-8 get rolled up into one uber practice by a PE firm.

They now have far less overhead per patient. Billing, equipment and even vets can be amortized over far more patients.

You, the hold out clinic, are now more expensive, or have a far smaller profit ratio, thus you are operating at a big disadvantage to the other clinics in your city.

You can hold out but what is your edge in this case where your competitor is now bigger and can handle things like a vet quitting as they have a bunch that roam from practice to practice. Or they can handle buying a new machine for millions while the bank won't lend to you due to your shrinking margins.

Economies of scale are a thing and can be a very real competitive differentiator.

You the hold out are now getting crushed by your competitors while you look around and see your fellow vets taking weekends off to take their new boat to the lake because they sold their practice and you're working your 11th weekend in a row because your other vet quit to work for your competitor that can now pay more than you.

I've had friends live this and its not fun.

Ah, so the overall economic efficiency improves and then everyone's better off. Wait, what's wrong with that?

Think of Comcast but for puppies' health

The actual problem is that the unmonetizable value gets tossed out by PE. E.g. customer service will take a massive dive because everyone working for the clinic or whatever else will be time-pressured out of good service.

Generally the problem with treating everything via pure financial models is that some things are valuable but hard to measure financially and those are inevitably destroyed by PE and other entropy-maximizers.

You're shifting goalposts. Your first comment was about how small businesses could just refuse to sell, then a commenter described the (very real) consequences of that decision: a person has to work harder, for less money, to compete with entities that can outspend them by a few factors. Now you're saying that's more efficient overall which is a completely different point.

And, that's true, it is more efficient. But those veternarians, despite now having their weekends off, are paid barely market rate for their skills (if that) and more importantly, no longer running their business: A PE firm is. That means they have zero recourse if the PE firm starts doing PE firm shit: keeping bare minimum stock at their clinic of every last consumable, to avoid taxation; keeping bare minimum staff at all times to avoid paying workers; abusing staff and causing high turnover; basically every stupid ass "why would they do that" type decision you've heard of a large business making in the last 30 years, PE's LOVE those decisions.

And that's not even going into the fact that the profits of that business are no longer going to the community in which it operates, they're going to far away shareholders.

More efficient for the mega-vet, sure. Once you've consumed all the competition, there's no need to compete on price anymore. Prices can go up quite a bit before it becomes economical for a new entrant to take a risk in the market. Except maybe another mega-vet.

See what Walmart did to communities and small business. Efficiency is not all roses.

Another issue is that doctors are coming out of school with more student loan debt than ever before, so when it comes time for the older doctors to retire, the younger doctors haven't built up enough personal equity to take over the clinics.

Nobody seems to care about the student loan debt of doctors, because doctors can make a good salary, but student loan debt still has negative consequences down the road such as this.

Dentistry is different. I've seen multiple comments from fresh DDS graduates being able to take out 7 digit loans to acquire/start/buy in to a practice, because it's seen as a low risk license to print money.

The edge is far better service and less scammy practices (pushing unneeded treatments/medications etc..), at least from what I heard locally about Dutch vets.

Incidentally in Belgium they just passed a law requiring each veterinary practice be owned by a veterinarian. Life could be simple...

Taking the emotion out of the analysis, all i am hearing is that the PE uses more capital, but produces a cheaper, more efficient service.

If the original small business owner sold, the money they got paid isn't gone - they could've used it to start another small business (or fund one as a VC themselves). I don't see how PE is stifling anything, but to produce a more intensely competitive environment.

> produces a cheaper, more efficient service.

More profitable perhaps, but not cheaper. In fact, usually more expensive, because the PE firms buy up all the clinics in a city, eliminating competition, and then they can set the rates to whatever they want. Needless to say, any "savings" are passed along to the investors, not to the consumers.

> If the original small business owner sold, the money they got paid isn't gone - they could've used it to start another small business

They're usually selling because of retirement, so they're not going to start another business. The issue here is that the business is not passed along to another new small business owner, it's passed along to a giant PE firm.

> produce a more intensely competitive environment.

In reality, to reproduce an environment with less competition and more consolidation, as mentioned above.

Great, that "less competition" means higher prices... Which means someone setting up a new clinic can benefit from those higher prices - oh look, now you have competition again.

Sure, until they have no competition anymore, and raise the prices to whatever they want them to be, extracting 99% of value from what they offer with a huge moat that eliminates all competition. Then the consumer is left with no pricing negotiation and the experience is objectively worse for most of the society.

The escape hatch for that is taxes to the powerful market entities, that revert value back to the less powerful market entities, but that's not popular in the U.S.

> i am hearing is that the PE uses more capital, but produces a cheaper, more efficient service.

You have to understand what "more efficient" means. It really means "it's shit and only getting worse, but isn't bad enough to abandon the service entirely". It starts with a corresponding price drop, and you either get a race to the bottom, or the competition gives up early, at which point the quality continues to go down the drain, but the price stays the same, as the provider pockets the difference.

Because customers tend to almost universally agree that they create a worse service in the process. Scaled systems perform poorly in areas where people require customized service rather than a one-size-fits-all experience, and veterinary care is absolutely not a one-size-fits-all type of service.

Cheaper and more efficient does not mean higher quality.

Quantity has a quality of its own. Dude named Piketty wrote almost 2k pages about wrt capital accumulation. The opposite of what you propose is what actually happens. For another example, please see Amazon.

Vet is probably a very good example of economies of scale. I remember a vet in my town in Brazil complaining how hard it is if he get ill (or take vacations i presume), that he will lose his customers and how much he regretted not becoming a state employee.

>what is your edge in this case where your competitor is now bigger and can handle things like a vet quitting as they have a bunch that roam from practice to practice. Or they can handle buying a new machine for millions while the bank won't lend to you due to your shrinking margins.

To answer your rhetorical question:

1. People would rather deal with neighbors than with PE or megacorps, and will do so to the extent that the difference in price is tolerable (and to the extent that they even know their neighbors.)

2. Management layers and performance based incentives are huge costs that small enterprises should be mostly able to avoid.

3. Owning a business can have a really compelling advantage at tax time in the ranges of professional incomes we're discussing.

4. Owner-operated businesses should be able to integrate with family life, allowing dads to spend time closer to their kids, which should be another advantage in favor of professionals going it on their own.

5. Owner-operated businesses can also operate with much more efficient facilities (housing over top of business) when not forbidden by zoning or other regulations.

On the other hand, people like steady salaries and set working hours. They like leaving work at work. And, especially as these professions increasingly see their schools dominated by women, many of these professionals really like stepping away from work or going part time for 5-10 years around their 30s.

RE 1: Customers have zero influence on this. If you have a pet, you'll need a vet, and if the owner of the owner-operated clinic next to you gets an offer they can't refuse... I can't imagine you'll find some other owner-operated clinic to visit out of spite, where the now-corporate one next to you is open, and perhaps even cheaper.

RE 2-5: These are all rounding errors compared to economies of scale the PE-backed companies have. Also, those PE roll-ups target businesses whose owners are at the stage of life when they're just happy to take a big payout and retire. Tax time advantages and spending some time with kids (which is arguably less than salaried employees of the corpo-clinic will have) can't possibly beat being able to not work at all anymore, live comfortably, and have all the time you want for kids.

> I can't imagine you'll find some other owner-operated clinic to visit out of spite

No, but I did organise a few patients to grant our vet a loan to open a new facility. (It wound up creating some Michael Scott Paper Company drama between the vet and her former colleagues, which was interesting.)

People like you are our last line of defense on the ground. Sadly, I don't think there's enough of such people to hold the line against PEs doing targeted divide-and-conquer on specific market segments, one by one.

>RE 1: Customers have zero influence on this. If you have a pet, you'll need a vet, and if the owner of the owner-operated clinic next to you gets an offer they can't refuse... I can't imagine you'll find some other owner-operated clinic to visit out of spite, where the now-corporate one next to you is open, and perhaps even cheaper.

I have seldom gone to the nearest vet/pediatrician/hospital. Inevitably I try it, it's bad, and then I spend time driving to some place further away that I actually like. And I drive an average of 4000 miles per year; with the median driver traveling some multiple of that each year, I can only assume that most people are way more willing than I to shop around.

People in general do not give a fuck about anything besides price, and behind that, convenience.

However, people spend a lot of time talking about how they care about more than just price. The actual manifestation is tiny though.

People care about multiple things on different time horizons. There’s nothing contradictory in saying, “I would prefer a world not owned entirely by one PE firm” and “I will generally seek the lowest acceptable prices.”

The contradiction is not between saying two different things about different time horizons, but saying one thing and doing another.

It matters little what you someone says with their words if they say the opposite with their money - if in practice someone is seeking the lowest acceptable prices, then their "revealed preference", to use the technical term, is that they're actually preferring a world where that shop is run by a PE firm, as they're actively helping make that world happen. And sure, their stated preference may well be that a world not owned entirely by one PE firm, but really, who cares about the stated preference that doesn't get reflected in acts in the real world? Those are just empty, misleading lies if the actual choices show the opposite.

It's like saying "I prefer a world where I will lose weight" while buying a 12-pack of donuts for lunch.

That term isn’t “the” technical term. It’s a term from economics to try to explain apparently contradictory behaviors. Gee wiz, what a great explanation! “People just don’t actually prefer the things they say they prefer, even when they have far better reasons to prefer their stated preference over their revealed preference.”

Now here’s the thing, when you actually ask someone actually amidst buying the dozen donuts if they’d prefer to have the donuts or to lose weight, they’ll tell you “to buy the donuts.” If you remind them of their goal to lose weight, they’ll shrug and say “yeah but that starts tomorrow,” or “oh well,” or “I’ll skip dinner later.”

Why? Because it’s not actually the case they are behaving against their preferences. It’s that their preferences are alternating as different rewards approach on different time horizons.

“Revealed vs stated preferences” is the laziest frictionless spherical cow explanation of human behavior ever crafted.

Too late to edit, but I’ll add: the revealed vs stated explanation is plenty useful for some things. A lot of times (especially in business) you don’t really care why someone behaves against their stated interests. But that doesn’t mean it’s actually an accurate description of what’s happening at the individual level.

> People in general do not give a fuck about anything besides price, and behind that, convenience.

They do when it comes to their pets.

First, you should be careful about thinking you know people in general, and even if you could know such an abstract and totalizing thing, you don't need all the customers, just enough customers, or even plenty of customers.

Also, the very fact of charity shows that people must care about something other than price. Paying higher prices to interact with your neighbors is just a much smaller step on the same road of doing things you think are beneficial but that won't maintain your bank account at the highest possible value at that exact instant. Farmer's markets are another example of the same.

You're either looking at the wrong people or making the wrong changes, if you don't think anyone actually cares about anything other than price.

It's people with deeper wallets who do what you're describing, including shopping at farmer's markets. This brings us to the real way a smaller business survives against a giant competitor: they raise their prices and target a niche market by offering more obscure/luxury products or services.

That produce at the farmer's market? It's not the same produce that you'll find at Kroger. If it were, the farmer's market wouldn't last long.

If the government increases regulations, then it tends to place a bigger burden on small businesses than big businesses for the same reasons you highlighted about overhead.

I haven't thought about it this way, I hope youre right. Here's what comes to my mind after PE buys vet clinic:

- Analyze all the employees using a "system" to gauge "productivity metrics"

- Pressure management to get rid of an employee or two to increase profits, making everyone else work harder.

- Seek additional income streams from dubious "insurance" products that may or may not pay. Help market their products by spreading false information that insurance gives them "peace of mind".

- Increase costs to see what the market will bear

- Put all employees on a unified HR system that has a strict 1-size policy, little gotchas like "no health insurance for the first 60 days", limited PTO, etc. Ignore anyone who speaks badly because "this is company policy ". Give the business director a bonus when he finds new and creative ways to "maximize profits" at the cost of denigrating staff and making them work harder under more constrained policies.

- Lock all dr's salaries and staff pay to the same scale because "policy". Work harder? Why try? I get paid the same amount either way. Employees game the system to work the minimum to avoid termination. Not because they love animals, those people quit in the first 60 days (which is why our health coverage doesn't kick in before then).

- remove as much of their agency as possible, helping a poor persons injured dog is no longer acceptable, pay-as-you-go and sliding-scale billing are so 1990's, we have a business to run, the policy is "put the animal down and move on to the next paying customer". House calls are a liability and take valuable time away from the business, effective next year they are no longer allowed.

- appeal to emotion to upsell wealthy customers to services that promise to prolong the animal's life (but increase suffering and are medically unethical).

- Fewer people go to the vet now because they can't afford it, more animals suffer so that rich men can have more profit.

Where did this list come from?

inference, based on how corporations are run vs small business

It's not enough that large corporations use economy of scale to undercut smaller businesses. That would generally be a good thing for consumers. Instead, we're seeing larger companies use their influence to increase regulation: a cost they can absorb that smaller businesses cannot.

We've seen this in medicine in the last 10 years. I know of no independent doctor's offices in my area. They looked at the cost to comply with electronic medical records requirements and joined a local health network.

My wife works in a lab for a regional medical company. They just sold out their labs to a national medical lab company, effective January.

She's only heard bad things about this other company. Her wage is basically guaranteed to stagnate, they're not as generous about PTO, and they contribute surprisingly little to health insurance plans.

Oh, but I'm sure the management is flying away on a golden parachute.

If what's good for an individual short-term was also always good for them long-term, the world would've been an utopia.

Usually what happens is that 60 something year-old founders have retained control and not shared profits with their employees. Looking to sell, the employees can’t buy out the founder, and the founder finds PE with deep pockets. The fork in the road for keeping the company out of PE was passed long before the founder got to retirement age.

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