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Old 08-12-2012, 06:54 PM   #21
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I doubt many of them are INTJs

Just joking, but pointing out how the usual suspects around this site are not like most people.
Although the sample size is not all that large, I have to wonder if there is not only correlation between being introverted and taking early retirement but causation? A simple desire to get away from all the stressful interaction with co-workers, clients etc sounds like a good motivation to me.
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Old 08-12-2012, 06:56 PM   #22
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Sounds like a "mandate" to me for folks who fail to plan. Perhaps if one's savings rate and/or investment return fall below certain values, that one gets their DIY-self-managing privileges taken away.

Or perhaps, you need a license to run your own retirement money? Imagine waiting in line at the Department of Retirement Plans in order to take a test to get your license.
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Old 08-12-2012, 06:56 PM   #23
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In some ways I gotta feel for some of these folks !

The majority of Americans (75 percent) nearing retirement age had less than $30,000 in their retirement accounts in 2010. For the poorest Americans in the 50-to-64-age bracket, the average amount saved for retirement was $16,034.

America
Who comes up with these numbers? I find this very hard to believe.
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Old 08-12-2012, 07:39 PM   #24
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In the past couple of weeks four different people asked me in person for help on their retirement investing. The backgrounds and experiences of these folks were quite varied. A couple of them had professional degrees. One was the equivalent of an administrative assistant.

All had one thing in common: almost total ignorance about using mutual funds to plan ahead for retirement even though they all participated in 401(k) plans. They were risk averse and had picked money market funds for their primary investing vehicle or used high-fee advisors.

I think the vast majority of folks are just like these people. How would folks suggest that these people can be helped?
Maybe all conributions to 401k's by both employees and employers should be mandated to initially be allocated by default into 60/40 equity/bond index funds, with the employee having the option to change the mix every quarter. That way you won't have uninformed and uninterested risk averse people initially putting all of their contributions into money market funds, and doing serious damage to themselves while, and if, they come up the learning curve. After all, a 60/40 mix is pretty close to how a defined benefit pension plan is invested.
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Old 08-12-2012, 08:43 PM   #25
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I agree with you that I disagree with her comment about having professionally managed accounts. But the truth of the matter, with the demise of the defined benefit traditional pension plans that is exactly what workers had, now days, some people (and evidently the majority) just don't have the inclination or in some cases the education to manage their 401K investments in a responsible way.
In 1980 almost 40% of workers in the private workforce had a pension, now its under 15% and dropping. The pension was either a straight extra benefit or forced contributions with match were done on a mandatory basis. That alone provided a huge safety net even if a person didn't save a dime on their own. Now,that forced savings opportunity is essentially gone.
All of my friends will retire comfortably before age 55, and like me, none of our retirements would last very long on our saved money. Yes, about 14.5% a year was taken out each check, but what company provides that kind of match to go with it in a 401k, like we received in our jobs? I would guess very few. Im not knocking 401k and praising pensions,because more than likely they are on their last legs, anyways. However, for many people, money almost needs to be confiscated from them before they get their check and returned to them when they retire.
I am a realist to know without this $ confiscation from my check and matched contributed amount, I would certainly not be anywhere near the finish line, now.
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Old 08-12-2012, 08:53 PM   #26
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No matter which numbers you choose to believe, the bottom line is that the vast majority of folks approaching retirement have not nearly saved enough. This is pretty sad.
I don't know if you can say that without knowing what their expenses are or what other sources of income and family support they have. If my wife and I worked to 65, we could easily live very well off of SS payments.
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Old 08-12-2012, 09:04 PM   #27
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+1

If the point of the article is to show whether or not the "average" American in financially prepared for retirement, then the author should have looked at all assets - including the present value of defined benefit pension plans and SS, assets outside retirement accounts, home equity etc
Absolutely - If someone has a combination of SS and COLA pension worth $40,000, that are a (phantom) millionaire. Or roughly, if SS plus 1/2 a non-COLA pension gets you to $40,000 - that's a millionaire also.

Counting pensions and SS would change those numbers in the article by a large margin.

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Old 08-12-2012, 09:21 PM   #28
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In 1980 almost 40% of workers in the private workforce had a pension, now its under 15% and dropping. The pension was either a straight extra benefit or forced contributions with match were done on a mandatory basis. That alone provided a huge safety net even if a person didn't save a dime on their own. Now,that forced savings opportunity is essentially gone.
All of my friends will retire comfortably before age 55, and like me, none of our retirements would last very long on our saved money. Yes, about 14.5% a year was taken out each check, but what company provides that kind of match to go with it in a 401k, like we received in our jobs? I would guess very few. Im not knocking 401k and praising pensions,because more than likely they are on their last legs, anyways. However, for many people, money almost needs to be confiscated from them before they get their check and returned to them when they retire.
I am a realist to know without this $ confiscation from my check and matched contributed amount, I would certainly not be anywhere near the finish line, now.
One of the other problems with defined benefit schemes is that most all of the ones I have seen have a combination of vesting schedules and time-in-place requirements that effectively impose a pretty stiff penalty on those who change jobs - in the private sector at least, I suspect it is a rather small minority who stay in one job long enough to reap the full benefit of such schemes.
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Old 08-12-2012, 11:28 PM   #29
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It is amazing how little the average person saves for retirement. Boggles my mind. I never made big money, far from it, but I always saved as much as possible because it was the right thing to do. I just find it hard to believe but on the other hand it's really not a surprise when you consider how poorly people handle money.
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Old 08-13-2012, 01:22 AM   #30
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It was obvious to me when 401k accounts first appeared that they would fail as a generational retirement funding program. That's quite clear now although some of the people here, including me, represent the small group of counter-examples. By contrast SS has served the population extremely well, especially given that it was never designed to provide more than one leg of the three-legged stool. In addition to the fact that the average person lacks the skills to manage his own money, the 401k system provides no mortality credits, a big minus.
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Old 08-13-2012, 06:29 AM   #31
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For the poorest Americans in the 50-to-64-age bracket, the average amount saved for retirement was $16,034.
My mom's sitter would love to have this amount saved. She's 61 years old and just trying to hang on for SS. Not sure what kind of jobs she worked over the years, but she probably paid in a minimal amount in SS taxes. She did inherit a small house from her mother, but can't afford to do basic up keep. And no health insurance.

Sad and there are tons of these stories out there.
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Old 08-13-2012, 07:41 AM   #32
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It was obvious to me when 401k accounts first appeared that they would fail as a generational retirement funding program. That's quite clear now although some of the people here, including me, represent the small group of counter-examples. By contrast SS has served the population extremely well, especially given that it was never designed to provide more than one leg of the three-legged stool. In addition to the fact that the average person lacks the skills to manage his own money, the 401k system provides no mortality credits, a big minus.
I don't think the 401k is failing most of these folks because they mis-manage the money(pick the wrong funds, investments, etc...). I think it is failing them because they lack the finanical discipline to actually contribute the proper amount. Some that do initially ruin their plan buy doing hardship withdrawals or constantly doing 401k loans.
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Old 08-13-2012, 07:44 AM   #33
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Plans have the option of automatic enrollment and a default investment. see here...

Automatic Enrollment 401(k) Plans For Small Businesses

Low income workers probably do not benefit as much from a 401k as it is based on a % of income for contributions, they probably are better off with a pension. I could do 6% and never miss it, plus with company matching up to that it was free money. A lot of small plans do not have matching, I probably would not participated without it.

I can't imagine what my parents would have done with a 401k... they thought a CD was a risky investment!
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Old 08-13-2012, 08:59 AM   #34
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My mom's sitter would love to have this amount saved. She's 61 years old and just trying to hang on for SS. Not sure what kind of jobs she worked over the years, but she probably paid in a minimal amount in SS taxes. She did inherit a small house from her mother, but can't afford to do basic up keep. And no health insurance.

Sad and there are tons of these stories out there.
DW has a friend who is now in her early 50s and has been chronically unemployed her whole life and has had some regular jobs and many under-the-table jobs. I fear that she will find she doesn't qualify for SS or her SS will be so low she will be screwed.

DB pensions were from an era of paternalistic corporate America where one had lifetime employment and the paternalistic employer provided for everything (salary, health care, pension, retirement health care, etc). The world has changed (both employers AND employees) and will never be the same so people need to adapt. Some (many of us) have adapted and will prosper but many have not and will suffer the consequences.

However, I think our children will see the difference as our generation retires and will make better choices, so in a generation we will reach an equilibrium where people regularly save for retirement (as many of us have) knowing that they need to and big Mega and the government will not bail them out. This current generation of non-adapters will pay the consequences, but it isn't like the need to save for retirement was a deep dark secret. Darwin needs to win now and then.
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Old 08-13-2012, 09:39 AM   #35
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I don't care that much for the Ghilarducci plan for myself, as I've been able to do an adequate job of saving with the various IRA and 401k opportunities I had. But if the majority of people can't or won't participate to an adequate level, then maybe a plan like this is needed. It's really a variation on the Social Security idea, where enrollment is required and benefits are controlled by government rules and actions. I'm sure it won't be sufficient for my purposes (hopeful ER) so I'll just end up saving some outside the plan, just like I do now with IRA and 401k.

If we do end up with a plan like this, I expect older IRA (and Roth) rules would stay for existing accounts. That seems most likely and would make that precious tax advantaged space even more valuable.
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Old 08-13-2012, 01:32 PM   #36
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This information doesn't surprise me at all. I work with about 75 people at a nonprofit. The nonprofit contributes 5% of our salary amount to a 403b that we can manage within many choices ourselves. We can also contribute to it tax deferred, and our company puts in the 5% regardless. I have brought in speakers/teachers from the retirement company several times to talk to employees about managing their funds, then importance of contributing something, and to let me know about the free financial teaching that the company provides at any time. However, there are only about 4-5 of us contributing anything and all only contribute $10-$15 a paycheck, while I contribute the maximum allowed. Some of the ladies' families do very well financially, and yet they hardly contribute. I really don't get it.
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Old 08-13-2012, 01:44 PM   #37
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What always amazed me was that this doesn't include lower income people. When I worked in a hospital of 7000 people, the HR person let slip that only 81 of us were contributing the maximum to our 401(k)s. And I remember our Assistant Director, who was highly compensated, complaining that it was unrealistic for him to put in anything to the plan because it was too expensive.
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Old 08-13-2012, 01:50 PM   #38
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This information doesn't surprise me at all. I work with about 75 people at a nonprofit. The nonprofit contributes 5% of our salary amount to a 403b that we can manage within many choices ourselves. We can also contribute to it tax deferred, and our company puts in the 5% regardless. I have brought in speakers/teachers from the retirement company several times to talk to employees about managing their funds, then importance of contributing something, and to let me know about the free financial teaching that the company provides at any time. However, there are only about 4-5 of us contributing anything and all only contribute $10-$15 a paycheck, while I contribute the maximum allowed. Some of the ladies' families do very well financially, and yet they hardly contribute. I really don't get it.
You don't get it because they don't wish to get it to begin with (or at least the ones that need to). After 5 years of badgering a friend, the light finally went on about a year ago and the turn around has been tremendous. All he says now is he wished he had listened earlier. He then has got his wife on board, too. What I am referring to is a changing from a live for today debt driven lifestyle, to one of saving and maximizing all tax benefits he had been ignoring. I am very pleased with his progress.
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Old 08-13-2012, 02:46 PM   #39
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What I am referring to is a changing from a live for today debt driven lifestyle.
Excellent comment and a major root cause of the problem of people not being prepared for retirement.
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Old 08-13-2012, 03:38 PM   #40
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The fact is that retirement planning takes a combination of discipline, knowledge, and available cash that very few have. The 401k provides nice fees to financial companies, and is good if you want portability, but it is poorly suited to the vast majority of people who lack the discretionary cash and knowledge to make good use of it. Combine this with the reduction in overall employee compensation when defined benefit plans were replaced by DC plans with an employer contribution that was worth far less to the employee than the old DB plans and it's small wonder that US retirement accounts are so small.

The UK faces a similar issue of low retirement savings rates and to address this they have done two things.

They have reformed their equivalent of SS by removing any connection to earnings. High earners used to get a bigger monthly check than lower income people, but now the retirement benefit is calculated only on number of years you've worked. If you reach 30 years of contributions you get maximum benefit and everyone gets exactly the same. The contributions tax remains a percentage of earnings paid by both the employee and employer so you pay more the more you earn, similar to FICA, but you don't get a bigger benefit. The result is that low income people have seen a big increase in their benefit and high earners have seen it reduced. The reasoning is that low income people rely more on the state benefit than high earners so a higher state pension to them will reduce poverty and the high earners won't miss the lower state pension because they have additional sources of retirement income.

Secondly the UK has introduced a mandatory DC pension plan that every employer must offer unless they have an equivalent or better company plan. The company must pay into this, but the employee has the option to opt out. It's called the National Employment Savings Trust (NEST)

http://www.nestpensions.org.uk/schem.../homepage.html

However, I don't see these approaches being implemented in the US because of the egalitarian aspects of the first and the mandate of the second.
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