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Old 09-11-2013, 07:51 AM   #41
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I don't think they teach even basic financial literacy anymore. A few relatives who are in financial straights don't have a 'money problem', as much as they have a 'money management problem'.

One thing I recall from 7th grade was that they took an entire afternoon teaching us how to balance a checkbook. We also had a lady from the local bank come in every week to talk about saving, how interest worked and set us up with savings accounts (.05 cents a week)...she'd actually take our nickels and bring back our passbooks the next week showing our deposits (good ol days indeed!)

As noted, people are living longer just as pensions are evaporating and folks with poor money skills are being left to fend for themselves. Couple that with credit cards and a 'must have' society pressure and there you go.
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Old 09-11-2013, 07:58 AM   #42
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I think the disappearance of defined benefit pensions is THE central factor in retirement becoming the challenge/impossibility for a large percentage of people that it has.

When I began my career (with the old Bell System) 39 years ago, pensions, for most people, were the norm. I recall attending many retirement celebrations for craft workers (those would be the union-represented, non-management folks - arguably the cohort least likely to understand the arcana of finance). The fact that they routinely arrived at that milestone, typically at ages that today we consider "early," was entirely because of the pension they were due.

Alas.

I couldn't agree more with the OP. Today's prospective retiree has an enormous heavy lift in front of them. And the members of this board are anything but representative. LBYM - a common emphasis here, for instance - is a marginalized, tin-hat philosophy to most of our consumerist society.

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Old 09-11-2013, 08:26 AM   #43
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LBYM - a common emphasis here, for instance - is a marginalized, tin-hat philosophy to most of our consumerist society.
I would add that many folks' problem is not a lack of knowledge. One doesn't have to be savvy at investing to at least save something. "A penny saved" has been around for a while. It's the delayed gratification part that causes many to "fail"...
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Old 09-11-2013, 09:12 AM   #44
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It is unfortunate though that bonds have been yielding negative real returns for the past few years.

I think the majority of the public distrusts the stock market and yet that is the only way their 401K has a chance at matching the 8% guaranteed rate of the defined benefit pension.

There is no taxpayer bailout for the 401K if you keep it all in treasuries paying negative 1% real.

Education is needed.
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Old 09-11-2013, 09:17 AM   #45
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Think Detroit for the here and now but more will probably be coming.
As I sit here in Chicago I can't think of any other city that might have a REALLY BIG problem with its underfunded pension that will result in much higher tax rates. No, sirree. Not a one.
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Old 09-11-2013, 09:47 AM   #46
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Things may have been simpler in the previous generations for those who had pensions, but the majority people back then did not have pensions, nor did they have access to the various retirement vehicles (401k, IRA, etc) because such things did not exist.

Back then the "ins" were those who were in the right place at the right time and ended up with a job for life that came with a nice pension, and the "outs" were everybody else. Now, the "ins" are those who are able to adapt to the fast-changing job landscape, pick up new skills, and keep themselves in demand, and the "outs" are everybody else.

Regarding the complexity of investing: Investing is relatively simple, but understanding that investing is simple is far from simple. Investing in low-cost index funds is great advice, but understanding why it is great advice requires a fair amount of math skills, which may seem pretty basic for most of us on this board, but are far from basic for many people. Also, we are paddling upstream against a bunch of sales people whose income depends on making us think that investing is complicated so we need to pay them big money to hold our hand and guide us. Fortunately, that is slowly but surely changing, with companies like Vanguard gaining more and more momentum and people like us getting the word out.
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Old 09-11-2013, 09:48 AM   #47
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As I sit here in Chicago I can't think of any other city that might have a REALLY BIG problem with its underfunded pension that will result in much higher tax rates. No, sirree. Not a one.
I didn't want to name names. I can't remember all of the moderator slaps on the wrist I've received but I think I got one on a discussion about public pensions a few years ago. I was using my "risk" comments and I think I identified several cities that were reportedly seriously underfunded. Someone from one of the cities said that their pension was safe because it was protected by their state's constitution. Detroit has shown us how much that is worth.

Back then, my opinion on the safety of municipal and state pensions was probably not mainstream thinking. Now with several pensions getting gutted, it's really come forward in people's thinking. I think the whole process that led to this situation is disgusting but there isn't an easy solution. I don't think any state is exempt from risk but I also think that most existing pensions will be paid in full. Some will not. Most public pension plans have significantly increased employee cost and/or reduced benefits. The benefit of future public pensions will not be as generous.
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Old 09-11-2013, 09:54 AM   #48
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Regarding the complexity of investing: Investing is relatively simple, but understanding that investing is simple is far from simple. Investing in low-cost index funds is great advice, but understanding why it is great advice requires a fair amount of math skills, which may seem pretty basic for most of us on this board, but are far from basic for many people.
I've managed to educate my DW which means even those with next to no math skills can understand. The breakthrough was when she read Millionaire Teacher. That book is simple to the extreme. It covers the required points clearly with almost no math. Most forum participants would be bored by it but it may be of use for spouses and others that aren't up to tackling Investor Manifesto.
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Old 09-11-2013, 09:59 AM   #49
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Regarding the complexity of investing: Investing is relatively simple, but understanding that investing is simple is far from simple. Investing in low-cost index funds is great advice, but understanding why it is great advice requires a fair amount of math skills, which may seem pretty basic for most of us on this board, but are far from basic for many people. Also, we are paddling upstream against a bunch of sales people whose income depends on making us think that investing is complicated so we need to pay them big money to hold our hand and guide us. Fortunately, that is slowly but surely changing, with companies like Vanguard gaining more and more momentum and people like us getting the word out.


One of the problems that people get into is that they think they need to know everything about investing... which is not true... A car is a very complex piece of equipment and almost everybody that I know can pick up how to use it pretty quickly.... the same can be said for investing.... if you WANT, it can be very simple.... as I told one guy a few years back who was just starting to save in his 401.... just put it all in a retirement dated fund.... you do not have enough to worry about.... and if he never did invest in another fund, he probably will do just fine.... He did not have to learn about how markets work, about risk, etc. etc....

Most people who do not act do so out of fear... fear that they will make a big mistake.... but their mistake was not doing anything....
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Old 09-11-2013, 10:29 AM   #50
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I have to agree with the OP that the average Joe does have difficulty with all this financial mumbo jumbo. Truthfully, for most 20 somethings, retirement savings is just so low on their list of priorities that they just don't give it much thought. It's just part of being young and invisible. There is true that most wisdom comes with age. Unfortunately, by the time their retirement years do come in to focus, for most it's a little late as their spending/life habits are already set in motion.

I remember when I was a young 18 year old "slick-sleave" Airman Basic and went down to the local Merrill Lynch office in Colorado Springs. The broker wouldn't take my $1000 to open an account. Said I needed a minimum of $5000. I think he just didn't want to deal with a child. And looking back at pictures of myself back then, can't say as I blame him.

My point is, how many other Airman that age were looking at the world the way I was. Not many I suspect. Most were interested in new cars or radio gadgets. I don't think it was an accident that I was able to ER at 49 and the vast majority wouldn't be able to.
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Old 09-11-2013, 11:03 AM   #51
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I've managed to educate my DW which means even those with next to no math skills can understand. The breakthrough was when she read Millionaire Teacher. That book is simple to the extreme. It covers the required points clearly with almost no math. Most forum participants would be bored by it but it may be of use for spouses and others that aren't up to tackling Investor Manifesto.
+1 on the Millionaire Teacher, just read it as my DS asked for something simple. I ended up keeping the copy for myself, with a recommendation to her, of start here.

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Old 09-11-2013, 11:12 AM   #52
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Here is my sentiment.

Compared to when my parents were my age, I think the finance every John and Jane have to deal with nowadays is much more complicated. In the old days, you went to work, did your work, got paid, saved a little money, and got your company pension and social security after you reached your retirement. (I know I am simplifying things, but you probably didn't need a high IQ to navigate to old age as much as we do now....) I know people invested money too, but not to the extent we do now. In this modern day and age, everyone needs to know a lot about finance. They cannot just go to work, and get paid and go their married ways. They have to think about a whole lot more about where to put money (401K, Roth IRA, Traditional IRA, bond, equities, this and that) to make sure they have money in the retirement years. I see a lot of people who post here are engineer types, and some finance, some entrepreneurs. I am in the IT field myself, and I don't consider myself stupid (well, only some of the time) but this finance stuff is very complicated and these are things I have to read books on or read blogs or come to forums like this for to learn. There is so much to know and digest. It's not just investing per se, but how about healthcare? How about Social security?

The thing is (I don't mean to sound snooty at all), I don't think the majority of the forum members here are an average, median income, average intelligent groups of folks. So I get that people here can navigate through this "do it yourself" finance world definitely much better than average. But how do people who haven't graduated from high school, or don't have an average IQ supposed to navigate through all this c*rap?? I have a college degree, and this stuff is still pretty hard for me, because there are so many moving parts to consdier! I really wonder how someone with less knowledge/education deal with this. I am originally from Japan, and majority of the people there do not have to deal with all these choices we deal with in the US.

Are there free institutions who lead *regular* folks? Many of the people cannot just pick up books and figure things out...
Thought I'd address the items (in bold) in your original post:

In the old days, it wasn't just do your job, save some money and rely on your pension and Social Security in retirement for everyone. I see the main reason for the the elimination of pensions in the private sector as the difficulty of maintaining them, the decline of unions, and the costs associated with keeping them in place. A lot of folks lost pensions in the past - company folded/bought out, or were fired/quit before they were vested. It took a long time to be vested in a pension in the good ole days.

Investing for retirement isn't all that difficult. The responses to your post about investing in index funds and living below your means will go a long way towards insuring you'll have some form of retirement when the time is right.

I personally believe that employers should not have the responsibility for managing your retirement investing. Every person should be required to set up their own individual retirement account (with a government certified investing institution ie. Vanguard, Fidelity, etc.) when they enter the working world. This would be (as originally intended) a supplemental retirement investing vehicle for Social Security - which I don't see going away anytime soon. These institutions could also tie your Social Security account reporting to their accounting as you no longer receive any reports from SS. Employers who offer to contribute to your retirement would just forward the funds to your individual retirement account as they do with your current employee 401k. This would keep you personally involved and your eye on your retirement goals as you age.

I also don't believe that healthcare should be managed by one's employer. Where you work should not determine the quality and accessibility to healthcare

I've spent a lot of time researching individual investing. I've read a lot of books on the subject and attended a few seminars. I came to the conclusion that even the smartest out there on the subject of investing can't tell you what to buy in the market tomorrow. There are a lot of professionals in various industries (insurance, financial, etc.) who will gladly take your money and manage it for you, who don't always have your best interests at heart. This is where the people who apply themselves and learn the finer details of investing come out ahead. You have your choice in this area when it come to individual investing, but leaving it to someone else always comes with a price....
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Old 09-11-2013, 02:05 PM   #53
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One of the problems that people get into is that they think they need to know everything about investing... which is not true... A car is a very complex piece of equipment and almost everybody that I know can pick up how to use it pretty quickly.... the same can be said for investing.... if you WANT, it can be very simple.... as I told one guy a few years back who was just starting to save in his 401.... just put it all in a retirement dated fund.... you do not have enough to worry about.... and if he never did invest in another fund, he probably will do just fine.... He did not have to learn about how markets work, about risk, etc. etc....

Most people who do not act do so out of fear... fear that they will make a big mistake.... but their mistake was not doing anything....
I agree that people don't need to know everything about investing. Furthermore, the things about investing that are important to know (minimizing costs, having an asset allocation within your risk tolerance, etc) have nothing to do with the things that the Wall Street sales force wants you to think are important (how to pick an undervalued stock, how to get your hands on the best-performing funds), etc. The guy you refer to is a success story - he tuned out all the noise. But if one only has a sound bite education on investing, settling for the "average" performance provided by a target-date fund is counter-intuitive. The sound bites tell you to chase yield (with no mention of the additional risk), time the market, and buy all of the hottest funds.
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Old 09-11-2013, 02:30 PM   #54
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You go!!!! Spot on.

I do think there is a fair amount of public-pension-baiting on the board, though, and so I refuse to rise to silly statements about everyone getting ginormous pensions. Funny that we do not have nearly as much megacorp-huge-bonus-and-generous severance-package-baiting. Everyone always thinks those are wonderful. Still, many of those high-paying companies make their money off governments, after all

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Oh, for Pete's sake! This article is about a small number of retirees (in Lakewood and other cities of the Puget Sound region, not Seattle) who are taking advantage of a loophole in an obsolete pension plan, and about the fact that this loophole allows their former employers to provide a retirement incentive in the form of a last-minute salary hike, at small cost to the employing city, but creating a large expense for the State of Washington, which has to pay the artificially inflated pension. First of all, to the best of my knowledge, only a minority of public employees--law enforcement and fire fighters--were ever able to enroll in this plan. Second, the plan which allowed these very high pensions was replaced in 1977, and, according to the article, there are only about 200 people in it who haven't retired yet. The replacement plan does not allow "spiking", which is how the specific retirees mentioned in the article come to have such high pensions. Pension benefits under LEOFF2 are based on the 60 highest paid consecutive months' salary.

While supposedly withdrawing your original comment, you again imply that many public sector retirees draw outlandishly high pensions. Most of us didn't make as much as Bronske, McGovern or Hull when we were working, let alone after retirement. In fact, the article says these three are getting more in pension than Seattle's current fire chief is getting in salary. I'm a public sector retiree, and I'm fed up with hearing the fable of widespread six-figure public pensions repeated over and over as if it were an indisputable fact. Now you know better, and I hope next time you have occasion to mention the topic, you'll at least be more specific and not paint with such a broad brush.
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Old 09-11-2013, 02:39 PM   #55
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I agree that people don't need to know everything about investing. Furthermore, the things about investing that are important to know (minimizing costs, having an asset allocation within your risk tolerance, etc)

Just remember those things you mentioned:
1. Minimizing costs
2. Having an asset allocation
3. Within your risk tolerance

People totally new to this world, have no idea what "costs" are and when they learn, what is reasonable and what is not and the effects of these costs long term.

Second, "having an asset allocation". Most don't even know what that means, no less figuring out what combination would fit your risk tolerance.

Last, Risk tolerance. I don't think someone could informatively answer that question before they understood the "market" and the history of stocks bonds, and their inherent risks and advantages.

So, yes, easy for you to make these statements because you have learned all the basics. But for someone just entering this new world, they haven't a clue what your talking about or at least an "informed" understating of what your talking about.

If your family didn't teach you about the market, and your school didn't teach you, you know squat. So in the beginning you can be clueless and feel overwhelmed. Just my opinion.

By the way. I just went on Amazon and read all the reviews on the book that a couple of posters mentioned.
Millionaire Teacher. It seems just the ticket for a "newbe" I wound up ordering it for my son. I think judging from the comments that the author will do a better job than I could, and besides our kids don't think we know anything anyway.
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Old 09-11-2013, 02:52 PM   #56
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'In the old days, you went to work, did your work, got paid, saved a little money, and got your company pension and social security after you reached your retirement.'

Actually in the old days you worked until you died or were disabled, at which time you lived with relatives. Also, less than half of all workers ever had a pension.
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Old 09-11-2013, 03:21 PM   #57
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Boy, that would so not happen now. Vanguard and others would gladly take anybody's $1K, never mind their age. So that is one thing that is better today than yesterday.

I also remember many young enlisted personnel being keen to spend their enlistment bonuses on muscle cars and fancy stereos. Their First Shirts tried to get them to put the money away, but who can tell an 18-year-old what to do? Frankly, I didn't blame them much. As I got to know some of them, I learned most came from backgrounds with no luxury at all, and the gadgets and cars were the first nice things anybody in their family had ever owned.

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I

I remember when I was a young 18 year old "slick-sleave" Airman Basic and went down to the local Merrill Lynch office in Colorado Springs. The broker wouldn't take my $1000 to open an account. Said I needed a minimum of $5000. I think he just didn't want to deal with a child. .
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Old 09-11-2013, 07:27 PM   #58
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It is unfortunate though that bonds have been yielding negative real returns for the past few years.

I think the majority of the public distrusts the stock market and yet that is the only way their 401K has a chance at matching the 8% guaranteed rate of the defined benefit pension.

There is no taxpayer bailout for the 401K if you keep it all in treasuries paying negative 1% real.

Education is needed.
Unfortunately, that 8% is not guaranteed, but rather assumed. It's what pension fund managers, actuaries et al use when they calculate the pension fund's return rate. Unfortunately, lots of pension funds don't actually achieve an 8% return, and that is part of the reason so many of them (including mine) are woefully underfunded.
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Old 09-11-2013, 10:23 PM   #59
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Retirement Planning is a Generational based process, and the skills required to produce long term success, is a work in progress. Asset allocation and safe withdrawal rates are the current factors that receive the most attention, as well as the cost of healthcare, for those in the 40 to 65 age group.

It wasn't always so, and understanding a bit of the past may help put some perspective on the probability of change in the future.

A few points...
Pension was a word that covered more than what we now know as "defined pension plans. In my first job, with Sears, (late 50's), there were older employees who were retiring with substantial "pensions" which in fact were profit sharing plans, or ESOP''s (Employee Stock Ownership Plans). Two "retirees".... who were mens suits salesmen, retired with more than $300,000... a tidy sum in 1959. ($2.4 Million in today's dollars.

IRA's were not available before 1974, and then only allowed based on income, with a maximum annual investment of $1500.

Instead of bank interest rates of less than 2%, depending on the year, even bank money market rates were as high as 14%.

The FDIC guarantees were limited to $20,000 as late as 1970. The increase in the limits over the years encouraged bank savings to limit risk.

Housing Values grew quickly (before the housing bubble)... as much as 43%, nationally in the 1970's (even with inflation adjustment).

Averge College costs (tuition and fees) have increased 1120% since records were kept (1978).

The concentration of wealth, which had been nearly even until 1980, skyrocketed after that, to 155%, leaving the median income lower relative to those earlier years. Basically that means earlier savers/retirees in those years were able to accumulate retirement funds at a comparatively higher rate than the younger generation.

The same incremental increase in pay (salary) differential applied, with wages generally following inflation. Of course high technology also affected the reduction in the manufacturing wage rates.

Most of the above factors were in play, during my own working years, 1958- 1989... and helped in providing the small safety net that we use in retirement. Investing per se... stocks and bonds, was not a major part of our plan.

No real point to be made here, except for a different look at the accumulation of money for retirement...
...and to bring up the fact of change, to realize that what makes perfect sense today, could change, in the face of the rising national debt, and any longer term lag in the economy.

For anyone with a financial philosophical bent, there are some interesting alternatives to the economy as we know it today. One that catches my fancy come from CESJ.org... which offers some alternate economic theories.
Here are some of the individual subjects:

Binary Economics
The Just Third Way
Louis Kelso (ESOP Guru)
Capital Homesteading

My opinion only
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Old 09-12-2013, 04:41 AM   #60
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Here is my sentiment.

Compared to when my parents were my age, I think the finance every John and Jane have to deal with nowadays is much more complicated. In the old days, you went to work, did your work, got paid, saved a little money, and got your company pension and social security after you reached your retirement. (I know I am simplifying things, but you probably didn't need a high IQ to navigate to old age as much as we do now....) I know people invested money too, but not to the extent we do now. In this modern day and age, everyone needs to know a lot about finance. They cannot just go to work, and get paid and go their married ways. They have to think about a whole lot more about where to put money (401K, Roth IRA, Traditional IRA, bond, equities, this and that) to make sure they have money in the retirement years. I see a lot of people who post here are engineer types, and some finance, some entrepreneurs. I am in the IT field myself, and I don't consider myself stupid (well, only some of the time) but this finance stuff is very complicated and these are things I have to read books on or read blogs or come to forums like this for to learn. There is so much to know and digest. It's not just investing per se, but how about healthcare? How about Social security?

You are right financial decisions were simpler back in the old days. Mostly cause old people didn't have any money. If we go back 50 years ago, roughly 1/3 of the population had pensions and the rest had social security. There was no 401K, IRAs, no Medicare. People worked longer and had shorter retirements due to a lower life expectancy. Now some folks were wealthy, had stocks and bonds, and real estate, like one of my grandparents, but for the most part they had money in savings accounts and not a lot of it. Like my dads parents who worked until their late 60s.

One of the biggest changes in the last 50 years, were those over 65 use to be the second poorest after under 25 group,now those over 65 is the second most affluent group after the 50 years old who are at their peak earnings.

Anyway if you have no saving or investments and just depend on Social Security like 46% of single people do, financial decisions are much easier.

Compared to the alternative all in all I am happy to have to worry about these complexities.
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