Companies cutting 401K contributions - fewer ERs in the Future

[Texarkandy]

Quote:

Originally Posted by wildcat .... On my soap box: Although it will never happen, companies and the govt should send a message to the American population that you are on your own in terms of retirement. ....

Well, as long as we're getting on the soap box:
Aren't 401k's & IRA's merely a govt subsidy of retirement savings? Those vehicles are not exactly 100% pure in the being "on your own" department. When one starts drawing down those accounts in their later years, do they pay the govt interest on 40 years of taxes deferred?

If people were to be truly "on their own" in terms of funding their retirements, there would not be tax breaks.

What's the difference in your company subsidizing your retirement (as part of a mutually agreed upon contractual compensation package for work performed) or the government (out of the beneficence of the other taxpayers)?

[Grep]

I doubt that we have seen a unique golden age of early retirement.

ER has always existed, and it has always been reserved for a few fortunate, foresightful and/or stubborn types. One means of getting there may ebb, and inevitably some people will find some other means of getting there. If not, that doesn’t mean they can’t – more likely they will take stock and determine that working longer is in their simple best interest. Sure, there will be over-all ebbs and flows in ER just as there is a vast breathing in and out of the global world circumstances. But our great-forebearers would probably retire early now anyway, if they had half the chance we did.

There will always be fortunate types as well as stubborn types, and ER will continue.

[Grep]

P.S., It's not like "early retirement" is anything so uniquely special or important either. It's just a trade-off that a certain sub-set of people make. Lighten up.

[ziggy29]

Quote:

Originally Posted by Grep P.S., It's not like "early retirement" is anything so uniquely special or important either. It's just a trade-off that a certain sub-set of people make. Lighten up.

Easy to say, when according to the post linked below you have:

Quote:

Originally Posted by Grep ... a very secure job, a satisfactory middle-class income, no debt, solid savings sufficient for a modest early retirement, and expectations of a reliable pension and reasonably-low cost health benefits.

http://www.early-retirement.org/foru...59&postcount=1

I think a lot of people would be "lightening up" a bit more about their retirement prospects if they had what I boldfaced above. The fact that a growing number of people *don't* have those things are a big reason why ER is feeling like it's becoming more endangered. These are very important ingredients in the quest for FIRE and they are harder and harder to come by -- and increasingly less within our own control.

[Grep]

Ziggy, since you are making this personal, and taking advantage of bold text as you have, you might have missed the part about how every penny I have, and every benefit I am due, was earned through great personal sacrifice. You are welcome to follow in my footsteps if you think otherwise. Really!

My comment stands. It's just a trade-off. Most of us, including myself, are compulsive savers, hence we are well positioned to retire early. And I'm not special either: my very modest pension and job security has surprisingly little to do with my ability to retire early.

But if I were to be dead by now, I'd be p*ssed at all that wasted hard work and unspent savings!

[Koolau]

In another post I mentioned the book "The Coming Generational Storm" by Scott Burns and Lawrence Koltikoff. Many here have touched on several of the issues addressed in the book. B & K seem to come to much the same conclusion as Dex and others that we're in a unique retirement climate which will not last. In fact, B & K warn of rather dire consequences to our children and perhaps even to ourselves.

What I wonder is whether even those of us with (what we now think of as) bullet-proof retirements (e.g., pension, 401(k), no-mortgage, SS, etc.) could still end up out "on the street" so to speak.

Has anyone thought of backups to these more traditional retirement tools? Gold? Guns? Survival rations? I'm at least partly serious. I guess reading their book has sort of given me the retirement heebie jeebies. B & K do have some suggestions for back ups including owning a house and some small investment in gold. But I think they believe we ALL will eventually face a lower standard of living, no matter how well we've planned for the future.

Anyone else read B & K? Agree? Disagree?

[ziggy29]

Quote:

Originally Posted by Grep Ziggy, since you are making this personal, and taking advantage of bold text as you have, you might have missed the part about how every penny I have, and every benefit I am due, was earned through great personal sacrifice. You are welcome to follow in my footsteps if you think otherwise. Really!

I think you missed the point, which wasn't to rail against any kind of "unfairness" about what you have (which seems to be how you took it). My point was that the type of deal you got is getting harder and harder to get for each generation as time goes by, which is bound to make RE harder and harder to come by -- thus lending some support to the original thesis for this thread that RE will generally become harder and harder for each successive generation, at least for now.

I guess the "lighten up" part rubbed me the wrong way a little bit, as if some sort of a "let them eat cake" kind of thing. When you have something that will securely enable your RE (and be much less vulnerable to layoffs and bad stock markets), it's easy to tell others not to worry about their retirement when they don't have any of this retirement security. But in all honesty, IMO, not that helpful for people who don't have those benefits.

[Texarkandy]

Quote:

Originally Posted by ziggy29 .... My point was that the type of deal you got is getting harder and harder to get for each generation as time goes by, which is bound to make RE harder and harder to come by -- thus lending some support to the original thesis for this thread that RE will generally become harder and harder for each successive generation, at least for now .....

I think the smart &/or motivated of our generation (& the previous) have "worked the system" so to speak in order to achieve our individual retirement goals. We may have worked different "systems" (IRA's, 401k, pensions, stock market, real estate, frugal living, etc) but we all worked (or are working) a system, nonetheless.

I expect the "smart &/or motivated" of the next generation will find ways to similarly "work" whatever systems are available to them - though those may be different systems than we are used to because of a different economic environment.

[Independent]

Quote:

Originally Posted by Koolau In another post I mentioned the book "The Coming Generational Storm" by Scott Burns and Lawrence Koltikoff. Many here have touched on several of the issues addressed in the book. B & K seem to come to much the same conclusion as Dex and others that we're in a unique retirement climate which will not last. In fact, B & K warn of rather dire consequences to our children and perhaps even to ourselves. What I wonder is whether even those of us with (what we now think of as) bullet-proof retirements (e.g., pension, 401(k), no-mortgage, SS, etc.) could still end up out "on the street" so to speak. Has anyone thought of backups to these more traditional retirement tools? Gold? Guns? Survival rations? I'm at least partly serious. I guess reading their book has sort of given me the retirement heebie jeebies. B & K do have some suggestions for back ups including owning a house and some small investment in gold. But I think they believe we ALL will eventually face a lower standard of living, no matter how well we've planned for the future. Anyone else read B & K? Agree? Disagree?

I haven't read the book, but I've read a couple long reviews that seem to provide a pretty good feel. It seems to be a typical "gov't spending is on an unsustainable course", which seems true to me. We were into an unsustainable inflation spiral in the 1970's, and got out of it. So I think that change is possible.

I've got no plans for "complete breakdown of society". If it turns out that I need guns or survival rations, I'm out of luck. I figure you can't plan for every possible contingency.

In terms of things that work if we continue to have civil order and property rights -- I use B&K's suggestions of owning a debt-free house and having a significant chunk of savings in TIPS.

In earlier threads about "back up plans", I think the most common answer was that people have some sense of "needs" vs. "wants". We generally plan to have enough income to pay for all our needs and some of our wants. If the bad times come, we feel we'll just shift spending down to the needs level. More than once, I've gone through the mental execise of "exactly how much do I need?". I can see that I have a lot more today than my parents had in the 1950's. I figure that I can go back to that lifestyle and feel that life is still worth living.

I think that my children would have a lot more trouble with that. They take things for granted that I consider luxuries (for example, my father always considered a hot shower a luxury, and I absorbed that opinion).

[Grep]

Pensions are not a unique gift that enables early retirement. Indeed, almost no-one's pension will secure an early retirement (there are a few exceptions, I'm sure). Pensions are usually set up to reward longevity on the job, e.g., staying from age 25 to age 60 or more. In particular, they are usually weighted strongly towards retiring later. Retiring earlier and/or on less time means a paltry pension that would only provide a modest supplement to what the individual has saved, etc. Often they will not even kick in until later anyway. My own pension would bring in only around 20% of my pre-tax needs in early retirement, and that would decrease over time. Am I glad to have it? Sure. Is it a uniquely enabling vehicle for early retirement? Absolutely not. At best, most people's pensions would only "secure" retirement at a normal age. Similarly, job security is nice while working, but it's irrelevant once retired early.

Early retirement is about trade-offs. Some people sacrifice and do the heavy savings that it takes, and others choose different paths. I agree with Texarkandy: People of any generation will adapt to the choices available to them and, if they are strongly motivated, they will make them work.

[jazz4cash]

Most articals do not distinguish between company match and company contribution. This is starting to look like the planned obsolesence of 401k, or maybe just the usual sensationalized reporting. In the Starbucks plan, if there is no match incentive, should employees be permitted to contribute retro-actively?

Starbucks May Not Match 401(k) Contributions - Companies * US * News * Story - CNBC.com

[Delawaredave5]

Quote:

Originally Posted by jIMOh I actually could take the position ER will be MORE common. My best example is a 25 yo saving 10% of income for 40 years will a) already be trained to live on 90% of income b) have less taxes in retirement than the 90% of income (because 20-30% of this will be swallowed by payroll taxes like SS) c) have significant compouding, especially those last 10 years of retirement (money might double twice) which then allows d) early retirement to reduce taxes .

Early retirement for the "masses" will be a thing of the past. Traditional corporate pensions were main foundation of baby boomer ERs - and pensions are a thing of the past.

Unfortunately for most people, "saving your way to ER" mathemetically won't work in 30 years. Say a person makes $50K, needs $40K/year in ER, which means needs $1MM portfolio with 4% SWR (all in today's dollars).

If this person puts away 30% of his pay each year, and portfolio compounds at 5% (after inflation, no taxes included), at 30 years that person will have the $1MM to ER. Few will be able to do that.

Using same model, the person who saves 10% will have $1mm in 50 years -- 70 years old - hardly "ER"

[SteveL]

If you ignore the top ten percent of households which get the majority of income and pay the vast majority of taxes, what we are seeing is a diminution of the current and future American standard of living. The middle class developed as people moved from farm to factory. Over the last 30 years people have moved from factory to service and retail. Most of these new jobs don't require great skill, and thus don't pay well. This includes benefits such as 401k matching, health insurance, and pensions.

From a macroeconomic point of view, the challenge for America is to develop some basis for an industry/activity that would provide employment and pay enough so that our aggregate standard of living could start going up again. Bubbles don't cut it.

[Delawaredave5]

Quote:

Originally Posted by SteveL From a macroeconomic point of view, the challenge for America is to develop some basis for an industry/activity that would provide employment and pay enough so that our aggregate standard of living could start going up again. Bubbles don't cut it.

Somehow Europe seems to have a decent middle class standard of living and a manufacturing base.

Maybe there's something to be said for high taxes, unions, and proectionist policies.

I can't believe I wrote above............but.........

[SteveL]

Quote:

Originally Posted by Delawaredave5 Somehow Europe seems to have a decent middle class standard of living and a manufacturing base. Maybe there's something to be said for high taxes, unions, and proectionist policies. I can't believe I wrote above............but.........

This is the challenge of American Culture.

We want the opportunity to become rich even though 95% of the population will never achieve it. We believe that it is the individual that matters and not society.

People in America firmly believe in the free lunch; that you can have low prices and high wages.

[ziggy29]

Quote:

Originally Posted by Delawaredave5 Early retirement for the "masses" will be a thing of the past. Traditional corporate pensions were main foundation of baby boomer ERs - and pensions are a thing of the past.

I agree. I think many people who have them (and retiree health insurance) underestimate the retirement challenges that those who don't have them face.

For background, I have a tiny pension coming from a past employer eventually, but it's probably going to be only about 10-15% of my retirement income needs by the time I'm ready to collect on it.

I've been maxing out 401Ks for more than a decade, and maxing out two Roths since 1999. And even if I continue that for 12 years and assume an 8% return (fairly aggressive), I'd only have about $900K (in nominal dollars) by age 55, which might mean $30K in nominal dollars (and probably quite a bit less in real dollars). And I've been more aggressively funding retirement than probably 95% of the people my age, and I've received pretty good company matches on my 401K throughout that time.

This all assumes, of course, that I manage to keep my job for another dozen years -- far from a given in the age of job insecurity.

That's just not enough unless we want to live in austerity. If I can't do it considering how much I've been plowing into it (and have done reasonably well relative to the market), how many others have a chance?

[tuixiu]

Quote:

Originally Posted by SteveL what we are seeing is a diminution of the current and future American standard of living.

Or perhaps a realignment of expectations? If you put someone lower middle class today back 30 years ago they look pretty fat with their cell phone, home computer, flat screen TV, car that doesn't require tuneups and has goodies like airbags, etc.

[ziggy29]

Quote:

Originally Posted by tiuxiu Or perhaps a realignment of expectations? If you put someone lower middle class today back 30 years ago they look pretty fat with their cell phone, home computer, flat screen TV, car that doesn't require tuneups and has goodies like airbags, etc.

Partially true. But households in the 1960s to the 1980s, for example, had a much higher standard of living with more new whizzbang technologies than those 30 years before them, and yet it became easier to retire at all, let alone early, than it was 30 years prior.

So at best that's only a partial explanation. I still say the main factor was the artificial and unsustainable post-WW2 economic conditions that started deteriorating by the 1970s, and we've built those promises on a house of cards since then. Increasingly we have borrowed (both personally AND in government) and seized prosperity from future generations to keep the house of cards from falling for current retirees and near-retirees, to pretend we can still afford that level of retirement prosperity.

It's getting harder and harder to keep that house of cards from falling -- there are just too many different and growing financial pressures pushing on it -- and indeed, it may be falling once and for all now. We had maybe 30 years to give the best deal ever offered for retirement. And spent the following 30 years in denial by keeping it nominally "alive" by ruining the hopes of our kids and grandkids.

[quietman]

Quote:

Early retirement for the "masses" will be a thing of the past. Traditional corporate pensions were main foundation of baby boomer ERs - and pensions are a thing of the past. Unfortunately for most people, "saving your way to ER" mathematically won't work in 30 years. Say a person makes $50K, needs $40K/year in ER, which means needs $1MM portfolio with 4% SWR (all in today's dollars).

There will be limited exceptions, certainly. People with remarkable skills, company founders, some few lucky individuals. But for the general populace, as saving for a retirement nest egg (capital base) takes a larger share of working income and a larger number of years to accumulate, the number of people doing so directly will likely diminish sharply.

However, there will also be a new emerging class of FI who were fortunate to have parents with means. As the generation ahead passes, their retirement nest eggs (capital base) will pass to their heirs. This is not just the rich and trust fund baby set, but regular normal people will start finding that accumulating enough means to RE requires more that a single generation to do so. Those from family histories of thrift and savings may still enjoy ER as we imagine it. Those "on their own" will likely find it harder than ever to get there in a single generation.

Also, will likely make inheritance taxes and even bigger political target in the future.

[Khan]

Quote:

Originally Posted by SteveL This is the challenge of American Culture. We want the opportunity to become rich even though 95% of the population will never achieve it. We believe that it is the individual that matters and not society. People in America firmly believe in the free lunch; that you can have low prices and high wages.

That about sums it up.