I must have lived in a different world

[hnzw_rui]

I think 401k's and IRA's are enablers. BUT, they have major limitations that hold some folks back from their full saving potential in tax deferred accounts. e.g. annual contribution limits and RMD's at 70.5. The government seems to want you to save, but not too much or for too long.

IRAs and 401k's are tax advantaged retirement plans. I doubt sheltering them from taxes forever was part of the design objective. Besides, RMD at 70.5 is just, what, 3.65%? Even when you're 90, RMD is just 8.77% and at 100, it's 15.87% (Table III Uniform Lifetime).

My primary issue with 401k's is not everyone has access to one and the current limits for IRA are woefully inadequate. Another thing, unlike 401k contributions which are salary reduction, traditional IRA contributions may be subject to state and local income tax, and depending on income, may not be deductible for federal tax purposes. The limited (often high expense) investment choices can also be pretty detrimental to portfolio growth.

Instead of having companies set up their own separate 401k plans, why not just have everyone switch to IRA, increase IRA contribution limits (mayhaps $50K combined limit for employee+employer contributions or up to 25-50% of gross income whichever is smaller) and make traditional employee IRA contributions salary reduction similar to 401k? Maybe follow SIMPLE IRA rules for vesting of employer match.

 

[dixonge]

Anyone in America can be a millionaire if they have enough drive, determination and ambition.

that's the long-standing thought, in certain circles...

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

 

[samclem]

My primary issue with 401k's is not everyone has access to one and the current limits for IRA are woefully inadequate. . . . Instead of having companies set up their own separate 401k plans, why not just have everyone switch to IRA, increase IRA contribution limits (mayhaps $50K combined limit for employee+employer contributions or up to 25-50% of gross income whichever is smaller) and make traditional employee IRA contributions salary reduction similar to 401k? Maybe follow SIMPLE IRA rules for vesting of employer match.

That would be logical and good. The present setup is just an artifact of the patchwork legislation that put each part in place, and it could certainly be made more uniform and logical.
But, any comprehensive reform will involve tinkering and "improving" the system. I'm not confident enough in the way folks now in office think and act that I'd want to roll the dice that the result would be an improvement. So, based on what I've seen lately, I'd be happier to stick with the devil I know. Attempts to improve "fairness" (i.e. equality of outcome) are much in vogue now.
Anyway, there's no prohibition against people saving for retirement outside of these government-encouraged retirement accounts. The present tax code is pretty favorable in its treatment of earned income as well as dividends and cap gains for those of low/moderate income, which effectively is another retirement savings benefit for those at the low end of the income scale--if they'll just forego the new car, $100/mo phone plan, $150 cable bill, etc and put some money away.

 

[Hamlet]

$10K of debt in 1979 (which is what my then-SO was shouldering for a state school, while living on campus instead of at home as I did), $40K of debt today. Is that consistent with the CPI, or is it a faster increase? Are today's students getting more or less for their $$?

Bottom line, I'd like to see something more authoritative than a snarky meme before I make any conclusions on where the greenest grass prevails. Like rumors, those memes always have a little grain of truth somewhere, are extremely easy to make up and pass around, and the axes are always grinding so furiously in the background that you can't hear yourself think.

Amethyst

I'm guessing your SO didn't work at all in school, or else spent a fair amount more to live than most college students to rack up $10k in debt in 1979. That seems like a massive amount of debt for that time period for a state school. I would expect that to be quite a bit more than the total cost of tuition at that time.

I went to the University of Minnesota starting in 1990. The cost for tuition there was in the $3k ballpark at that time. It is about $13.8k today (both are in-state numbers). Adjusted for inflation $3k in 1990 is about $5.5k today. So the real cost of tuition has more than doubled in that time.

I found that by working 20-25 hours per week during the school year and more than 40 hours per week in the summer, I could pay for my living expenses and an just a little more on the student jobs I had. I would have had to borrow to pay the tuition, but I got about $200/month of help from family that mostly paid the tuition. I was able to graduate debt free. Note that I lived on my own someone cheaper than the dorms would have been. I didn't have a car.

Adjusted for inflation today, that $200/month would be $4.3k/year, which barely makes a dent in the tuition these days. I would need either much more family assistance, or a massive amount of student debt to graduate these days.

Someone living in the dorms and not working would need to borrow about $100k for a four-year degree today--

https://www.google.com/?gws_rd=ssl#q=university+of+minnesota+tuition

 

[Andre1969]

$10K of debt in 1979 (which is what my then-SO was shouldering for a state school, while living on campus instead of at home as I did), $40K of debt today. Is that consistent with the CPI, or is it a faster increase? Are today's students getting more or less for their $$?

I plugged $10K into an inflation calculator, and it comes out to around $32,600 in 2015 dollars.

I don't know when college costs really started shooting up, but I know that they've gone up faster than inflation, since I graduated.

My first semester at the University of Maryland was about $850, for tuition. I was a commuter student. That was the fall of 1988. By spring of 1993, it was up to around $1500. And I hear that today, it's about $5,000.

Adjusting for inflation, $850 in 1988 would be $1038 in 1993, and $1703 in 2015. Even the $1500 in 1993 would be about $2460.

 

[CaliforniaMan]

I guess I am getting too crotchety in my old age, but statements like this just gall me.

"The inability to save isn’t because we’re wasting money on kitchen remodeling or fancy coffee",

Umm, well yes it is. It is exactly because of this way of thinking.

"And millennials have the extra burden of staggering student debt."
Well no, the smart ones don't.

I see young people, even those who spend wisely, spend way, waaaay more than I did when I was in college. I needed a bed, I bought an old mattress with such a big hole in the middle I had to stuff with rags to sleep on it. I never bought coffee out or ate at restaurants. When I went out, on those rare occasions, I bought one beer and it had to last me all night, because that is all I could afford. Sure I knew people with large student debt even back then, but even though my meatloaf was mostly corn meal I always had money in the bank.

Now kids in college have to have craft beers with every meal, Starbucks coffee in the morning, and complain times are hard. I am sorry, I don't buy it.

Not to say I didn't have a lot of fun in College, went camping, did lots of free things around campus, worked at an interesting job, lots of friends and good discussions, played guitar with my friends, composed music. Even found there were beautiful women who like being with someone they found interesting, even if they were not rich.

Sure the average person will have a hard time. They always have. My advice, stop complaining, things are how they are, and don't settle for being average.

And get off my lawn...

 

[Bamaman]

I am glad you were able to retire early at 52.

Not everybody is as fortunate.

Many people don't have 401-k options.
Many people are working 2-3 jobs just to get by. If you have read the book by Barbara "Nickel and Dimed - Not Getting by in America" you will know what I am talking about.
Many people have no financial education, informal or otherwise.
People think they will work till 65, but their body fails them and they are forced out of a job. Or the company gets rid of their "deadwood" and nobody wants to hire a 55-year old or a 60-year old. And before Obamacare, a medical problem occurs and they went bankrupt (that might possibly be true even today).


I do get what they say in the article. For the vast majority of Americans, the old pension system was better than the "new" 401-k system. The new system is better for the financial savvy folks, which is probably a small percentage of Americans, less than 50% for sure.

The problem is that few companies have the profits coming in to support their operations AND fund a defined pension program for their employees. My pension was funded by Ford Motor Company when it was very profitable and even though their pension plan investments returned the best income anywhere, they cut out their pensions and moved to good 401K programs.

Governments used to underpay their employees, but promise great vacation and pension programs to keep employees. Over the years, their pay increased to as good as private industry--or better. But they never cut their pension programs.

Tennessee Valley Authority cut their employment from 34,000 to about 10,000, but they're $ billions short of meeting pension obligations on living retirees. Look at Detroit with their recent bankruptcy over pension obligations. There are many state and cities that are in just as bad condition.

In this world, the only one you can really count on is yourself. And that means you should live below your means and save more than normal to take care of you in your later years. It's up to our children to fund their own retirement savings, as old Dad may have to spend all of his funds to live on--now that we're living longer. Hopefully we'll have enough $ to live respectively and stay out of nursing homes, etc.

 

[Amethyst]

Thanks for the stats. They are interesting.

Are the students getting "more or less" for this increased tuition? I realize that's hard to quantify. But if you're going to speculate about what my boyfriend was doing 40 years ago, I can also engage in speculation: For example, in 1979 we were using punch-cards for our programming courses, and competing for scraps of computer time on a huge, slow mainframe computer. Today's students would have it somewhat better than that I suspect

Campus cafeteria food probably hasn't improved much. But I bet there isn't rampant smoking in the classrooms to damage the non-smokers' health, as there was at my Old School.

The job market at the time was a tad bit competitive (what with all those bad, older baby boomers having taken all the jobs! See, we even have intragenerational resentment) and the school provided no job placement help whatsoever. I ended up going to an employment agency and paying them to find me an entry-level job. I imagine that wouldn't happen to today's straight-A student, but what do I know.

Actually, now that I think about it, I am not sure what these debates over "who has it worse" (however popular) are meant to accomplish.

Amethyst

I'm guessing your SO didn't work at all in school, or else spent a fair amount more to live than most college students to rack up $10k in debt in 1979.

 

[samclem]

College costs have gone up largely due to the huge amount of federal (and federal-backed) student loans which threw a giant amount of cash into the pot. "Free money" will do that to prices (see "home prices" and "medical costs" for other examples). Then, people cite the increasing cost of "education" (which apparently cannot be conducted without lavish gymnasiums/fitness bars, single-occupant dorms, and an ever increasing number of admin staff to augment the folks actually teaching) as requiring >more< government aid. I say "turn off the money spigot" and education costs will decrease. As an added benefit, maybe the curricula will more closely approximate the skills needed to be a productive citizen.

 

[Hamlet]

Thanks for the stats. They are interesting.

Are the students getting "more or less" for this increased tuition? I realize that's hard to quantify. But if you're going to speculate about what my boyfriend was doing 40 years ago, I can also engage in speculation: For example, in 1979 we were using punch-cards for our programming courses, and competing for scraps of computer time on a huge, slow mainframe computer. Today's students would have it somewhat better than that I suspect

Campus cafeteria food probably hasn't improved much. But I bet there isn't rampant smoking in the classrooms to damage the non-smokers' health, as there was at my Old School.

The job market at the time was a tad bit competitive (what with all those bad, older baby boomers having taken all the jobs! See, we even have intragenerational resentment) and the school provided no job placement help whatsoever. I ended up going to an employment agency and paying them to find me an entry-level job. I imagine that wouldn't happen to today's straight-A student, but what do I know.

Actually, now that I think about it, I am not sure what these debates over "who has it worse" (however popular) are meant to accomplish.

Amethyst

I think all I am trying to accomplish is to make the older generation realize that the start of life for this most recent generation is more difficult financially than it has been for a very long time. There are lots of things that are massively better for this younger generation. For the most part, the world is a pretty awesome place compared to when I was a kid.

However, the economics of getting an education and joining the workforce have gotten much worse (in the US). They aren't just complaining because they feel overly entitled. They have a lot less income than we did 25 years ago compared to the cost of education, and that education is required by employers much more frequently than it was 25 years ago. Many of the alternatives to college are also tending to pay much less than they used to.

 

[hnzw_rui]

That would be logical and good. The present setup is just an artifact of the patchwork legislation that put each part in place, and it could certainly be made more uniform and logical.
But, any comprehensive reform will involve tinkering and "improving" the system. I'm not confident enough in the way folks now in office think and act that I'd want to roll the dice that the result would be an improvement. So, based on what I've seen lately, I'd be happier to stick with the devil I know. Attempts to improve "fairness" (i.e. equality of outcome) are much in vogue now.
Anyway, there's no prohibition against people saving for retirement outside of these government-encouraged retirement accounts. The present tax code is pretty favorable in its treatment of earned income as well as dividends and cap gains for those of low/moderate income, which effectively is another retirement savings benefit for those at the low end of the income scale--if they'll just forego the new car, $100/mo phone plan, $150 cable bill, etc and put some money away.

There's no prohibition against saving in taxable accounts for retirement but you have to admit, people with access to workplace retirement plans have an advantage.

My marginal tax rate is 34.3% (25% federal, 9.3% state). I have access to a 457 where I contributed $12k in 2015. If I didn't have the 457, then I would only be able to save less than $8k in taxable. This year, I'm contributing $15k which would have been less than $10k in taxable and next year, I plan to finally max out my 457 contributions. Yes, I realize I'm only deferring taxes but at my current spending level, I'd only be in 21% marginal (15% federal, 6% state).

They don't even need to get rid of 401k's. One option would be to increase IRA contribution limits to the same level as 401k/403b/etc and keep the same rules (if you're not covered by a workplace plan, tIRA contributions are 100% deductible, otherwise subject to income limits). Also, get rid of the income limits for Roth IRA contributions. As far as I'm aware, there are no income limitations for contributing to a Roth 401k.

 

[Big_Hitter]

different world? definitely

401k plans were never designed to be the primary source of private pension income

it takes lots of savings and disciplined investing for the rank and file employee to duplicate DB income via a tax-qualified savings program

for example, assuming 4% interest and salary increase rate, if a 25 year old employee started saving 20% of pay (this may include matches etc), after 30 years he or she would have a nestegg sufficient to replace about 35% of income. Tough to ER on that.

 

[Hamlet]

College costs have gone up largely due to the huge amount of federal (and federal-backed) student loans which threw a giant amount of cash into the pot. "Free money" will do that to prices (see "home prices" and "medical costs" for other examples). Then, people cite the increasing cost of "education" (which apparently cannot be conducted without lavish gymnasiums/fitness bars, single-occupant dorms, and an ever increasing number of admin staff to augment the folks actually teaching) as requiring >more< government aid. I say "turn off the money spigot" and education costs will decrease. As an added benefit, maybe the curricula will more closely approximate the skills needed to be a productive citizen.

You might be right. I disagree to some extent, but it doesn't really matter. Regardless of why costs are so high, students today have little choice but to pay them. Corporate America requires a college degree these days, and the alternatives to megacorp are generally paying less.

It's either get the degree or continue working for < $10/hr for many, many people.

 

[jkern]

I went to UC Santa Barbara in the late 70s and early 80s. Tuition was $750 per year. Today I think it is $10k to $12k per year. However, back then you cannot get $12k per year in FAFSA and another $2,500 in an American Opportunity Tax Credit.

Back then tuition, books, room and board were about $25k to $30k for 4 years. Today it's about $100k. Subtract almost $60k for FAFSA and Tax credits and today's cost can be as low as $40k. It's not as different as it appears.

 

[Rustic23]

I just checked the tuition and fees for Texas State Univ. (Not the University of Texas) This is one of the smaller Texas universities. For four classes tuition and fees run $3,500 a semester. Five years, 4 classes a semester equals about $35,000 for a degree, plus books. Living at home, and a job at a fast food restaurant and you should be able to graduate with little or no debt.

A friend of mine's daughter graduates from Sam Houston State in 3.5 years. She applied for just about every scholarship she could think of, lived at home and worked part time. She had money left over in her school account when she graduated. She got a job upon graduation as a school teacher in her home town.

Borrowing money, living on campus, or apartment is easy and fun!

On the other side, the average college debt is a little over $35,000. Seeing as most will then go out and buy a new car for $20-35K and pay it off in five years, college debt seems a little over blown. However, when I see news reports of kids getting degrees that don't lead to well paying jobs at private or public schools that have large cost, it makes me wonder where there parents are.

Congratulations, Class of 2015. You’re the Most Indebted Ever (For Now) - Real Time Economics - WSJ

 

[Senator]

The last I knew, there are plenty of options for free college. The Military still has ROTC programs. If you are active duty, they pay for your college 100% while you are in.

Once you get out, there are several programs that can be used to pay for it. The GI Bill and other military scholarships.

Of course, there are many scholarships for the low-income, athletically gifted and the smart people.

Are there that many people that want free college, and do not qualify for the military? Or maybe it's just like some people can sacrifice and FIRE, and some do not?

 

[REWahoo]

Five years, 4 classes a semester equals about $35,000 for a degree, plus books. Living at home, and a job at a fast food restaurant and you should be able to graduate with little or no debt.

Yep, there are many ways to get a degree without going into serious debt.

Grandson #1 graduates from HS in June. He's been taking dual credit courses the past couple of years and will have 30 hours of college credit when he gets his HS diploma. He will live at home for one year and attend a community college, then transfer to a "real" college (his term, not mine) to complete his degree. With part time work he should graduate debt free, even with no scholarship $.

It's doable folks, very doable.

 

[Big_Hitter]

regarding student loan debt - isn't this something that can't be discharged via bankruptcy?

 

[Senator]

regarding student loan debt - isn't this something that can't be discharged via bankruptcy?

If it is a federally guaranteed student loan, it cannot be discharged with bankruptcy.

If it is a loan from the DOD (Dear Old Dad), it can be...

 

[Accidental Retiree]

I just checked the tuition and fees for Texas State Univ. (Not the University of Texas) This is one of the smaller Texas universities. For four classes tuition and fees run $3,500 a semester. Five years, 4 classes a semester equals about $35,000 for a degree, plus books. Living at home, and a job at a fast food restaurant and you should be able to graduate with little or no debt.

A friend of mine's daughter graduates from Sam Houston State in 3.5 years. She applied for just about every scholarship she could think of, lived at home and worked part time. She had money left over in her school account when she graduated. She got a job upon graduation as a school teacher in her home town.

Borrowing money, living on campus, or apartment is easy and fun!

On the other side, the average college debt is a little over $35,000. Seeing as most will then go out and buy a new car for $20-35K and pay it off in five years, college debt seems a little over blown. However, when I see news reports of kids getting degrees that don't lead to well paying jobs at private or public schools that have large cost, it makes me wonder where there parents are.

Congratulations, Class of 2015. You’re the Most Indebted Ever (For Now) - Real Time Economics - WSJ

I worked and attended community college and later state university classes around my job. It took me longer, mainly because I was tired and took time off, but I graduated and went back for an M. A. and graduated with no debt.

The world still needs plumbers and welders and electricians and water/wastewater operators and truck drivers and trash collectors, as well as other skilled workers that I'm not thinking of. Maybe people who get "sold" on college need to pursue other career paths that require other kinds of training that isn't so expensive.


Sent from my iPad using Early Retirement Forum

 

[Hamlet]

Yep, there are many ways to get a degree without going into serious debt.

Grandson #1 graduates from HS in June. He's been taking dual credit courses the past couple of years and will have 30 hours of college credit when he gets his HS diploma. He will live at home for one year and attend a community college, then transfer to a "real" college (his term, not mine) to complete his degree. With part time work he should graduate debt free, even with no scholarship $.

It's doable folks, very doable.

Yes, it is doable. It is much harder than it used to be though for most people.

I didn't have to take AP classes, live at home, and go to community college to graduate debt free 25 years ago. All of those (except the AP classes in a lot of areas) were options 25 years ago as well. Your Grandson would have probably graduated with 20k saved (in today's dollars) from his part time work 25 years ago.

Why is it so hard for people to accept that this area of life has actually gotten harder (on average) from when they went through it? Do people really think that all of that increase in college debt in the WSJ link above is going to lattes and craft beer?

 

[Big_Hitter]

If it is a federally guaranteed student loan, it cannot be discharged with bankruptcy.

If it is a loan from the DOD (Dear Old Dad), it can be...

lol DOD - he just paid tuition, books and gave me $500/mo for room and board. It was still waaay cheaper than Brown

 

[Big_Hitter]

I didn't have to take AP classes, live at home, and go to community college to graduate debt free 25 years ago.

me either, except it was 30 years ago

craft beer didn't exist in the 80s, we were lucky to get guiness or harp (and no, Sammy doesn't count as craft beer)

 

[REWahoo]

Why is it so hard for people to accept that this area of life has actually gotten harder (on average) from when they went through it? Do people really think that all of that increase in college debt in the WSJ link above is going to lattes and craft beer?

I made no claim that it wasn't more difficult, just pointed out there were other options other than going into debt. I find it far more positive to point out ways we can do things rather than focus on how we can't.

 

[Big_Hitter]

wow, I just went to my alma mater's web page and college is expensive....it costs about $25K a year now, including room and board