Ignorance in accumulation phase "compounded" in decumulation phase

[FinanceDude]

Of course. I'd like the SS system to be extended by allowing people to increase their SS benefits by paying extra into the system, perhaps by rolling their 401k accounts into SS. It would provide a straightforward way for people to avoid being cheated by insurance companies, and by infusing some cash, it could delay the day when the SS system runs into fiscal problems.

That's a horrible idea. Since when is the govt good at running a retirement disbursal plan?

 

[FinanceDude]

I just wanted to point out the general lack of financial knowledge and its potential consequences. Even the prudent ones haven't saved enough and have generally made bad decisions. The folks on this forum are right at the tail end of the bell curve as we enjoy talking about this stuff and have 401k/IRA balances 5 or 10 times that of the average retire and can come up with multiple approaches to fund a 4% SWR, and might actually succeed.

Arguments can be made for both DC and DB approaches, but I'm staggered by how little people understand about their finances which leaves them ill prepared to manage their DC plans or evaluate the advice of a financial planner. This is one of the most important aspects of life, yet many are afraid of it and prefer to ignore the issues or pay 2% a year to have someone with CFP after their name do some generic planning. The consequences of this ignorance have been highlighted by the recent down turn and once withdrawals start it will surely get worse. Remember the 401k generation is just starting to retire. It will be interesting (or maybe that should be frightening) to see how the baby boomers manage their money in the income phase.

You seem pretty fired up about it, why not start a blog or do free retirement counseling or something?

 

[FinanceDude]

Yes, I think obligations of the US government are at least as safe as other securities. But if it gets to the point that not all obligations can be met, there will be a lot of retirees with a lot of votes, to make sure that SS obligations are near the front of the line.

That hasn't worked to this point, why would it work in the future? I have been working for over 30 years and I am still under 50 and know I am going to get the shaft. It's easy for those collecting to armchair quarterback the system because there's no risk to their payments......

 

[megacorp-firee]

... But, people like us will still be frustrated that they weren't more efficient.

I don't want to seem callous, but it's not like there is no information out there about this stuff. It's been all over the news for years now. Suzy has become rich telling people about it. So I think that this is sort of financial 'natural selection'.

I have stopped worrying about everyone else. They are going to keep on doing what they want to anyways.

3 rules seemed to have gotten me and dw where we are today:
LBYM
LBYM
LBYM
Our kids still call us cheap, but now they see the rationale.

 

[nun]

You seem pretty fired up about it, why not start a blog or do free retirement counseling or something?

Do you mean fired or FIREd?

I think this board give me enough opportunity to express myself.....maybe a bit too much. There are plenty of good blogs about investing and retirement by far more qualified people than me so I don't need to add to those.

The advice I've given to my friends when the subject comes up over beers is usually met with derision as I'm a bit out of the ordinary. It's easy for me to live on a small fraction of my income and save a large %age as I'm single, have no kids and will soon have no mortgage. My friends find it hard to believe I'll soon have no debt when they are taking on more to send their kids to college. They are also alpha seekers and firmly believe that paying 1.5% fees on a mutual fund is a good thing.....my 50/50 indexing strategy doesn't excite them. This is why I'm pessimistic.

 

[Nords]

Interesting idea, but do you think the gov't would be a good steward of those funds and that you could count on getting back it back via increased monthly payments?

We call that the "Thrift Savings Plan".

I'll have to get back to you in a couple decades on the second part, but so far so good...

 

[ladypatriot]

Nearly everyone I know - in real life - has an "I'm going to work forever" plan for non-retirement. I'm on the younger end of the boomer span (born in 1958) and most of my friends are all boomers who actively resist any mention of growing older and slower. They don't believe they're going to retire, so they've made only basic financial planning.

It's not that they can't come up with a financial plan for retirement - they're certainly educated and intelligent enough to figure out what they need to do. Heck, I figured it out and most of them have more education than I have. It's almost as if they've convinced themselves that they're just going to work for the rest of their lives, so why bother with all that retirement planning stuff.

It's puzzling to me. But it doesn't worry me.

LadyPatriot

 

[arebelspy]

Nearly everyone I know - in real life - has an "I'm going to work forever" plan for non-retirement. I'm on the younger end of the boomer span (born in 1958) and most of my friends are all boomers who actively resist any mention of growing older and slower. They don't believe they're going to retire, so they've made only basic financial planning.

I can more understand that for people who are older and have been working a long time. You've been working 30+ years, it's something you're used to, so you picture continuing working.

Young people though (my age), who have been working a few years, and have a plan to work forever, just make me scratch my head. You really want to work for the next 40 years?

Most just don't think about it, but even when asked, young people with no plans to try to retire early, but planning on working forever.. ugh. I don't get it.

 

[Katsmeow]

There are times on this forum when I think I really grew up in a different world than everyone else here and so did my DH.

When I was kid my grandmother shuttled around among her children to live. She had very little money and would spend a month here then a month with another kid and so on. When she stayed with us, she slept with me. And it didn't seem strange and she wasn't unhappy.

Among my parents and my husband's parents and their siblings it all is pretty much the same. They earned modest incomes but retired with a paid off house. They made had a couple of hundred thousand dollars saved (some had more and some less). They drew SS and maybe had a few very small pensions or take RMDs from IRAs. Living on $20,000 a year or so is fine.

It was just a given that retired people were "on a fixed income" (mostly SS) and had to watch money and couldn't spend a lot. And they are fine.

I see plenty of people doing fine with SS, a paid for modest house and a couple of hundred thousand dollars for extras.

 

[Running_Man]

I just wanted to point out the general lack of financial knowledge and its potential consequences. Even the prudent ones haven't saved enough and have generally made bad decisions. The folks on this forum are right at the tail end of the bell curve as we enjoy talking about this stuff and have 401k/IRA balances 5 or 10 times that of the average retire and can come up with multiple approaches to fund a 4% SWR, and might actually succeed.

Arguments can be made for both DC and DB approaches, but I'm staggered by how little people understand about their finances which leaves them ill prepared to manage their DC plans or evaluate the advice of a financial planner. This is one of the most important aspects of life, yet many are afraid of it and prefer to ignore the issues or pay 2% a year to have someone with CFP after their name do some generic planning. The consequences of this ignorance have been highlighted by the recent down turn and once withdrawals start it will surely get worse. Remember the 401k generation is just starting to retire. It will be interesting (or maybe that should be frightening) to see how the baby boomers manage their money in the income phase.

Having seen multiple family member make mistakes with their retirements what I have seen with bad choices is:
#1 - downgrade housing (sell House move to apartment then eventually a cheaper apartment) my father is presently living in a one bedroom apartment for $550 per month. If he had to he would move into a studio for about $100 per month less. You turn the heat to 60 in the winter and use an occasional fan in the summer. You go to bed at sunset and wake up at dawn to avoid using lights.

#2 - Social Security provides a decent safety net for many. The average Social Security per their website claim for 2011 is $1,167 per month. The average income to be eligible for food stamps is $1,800 monthly income for single $2,428 for a couple to receive a $200 benefit for a single and $367 month for a couple. (I pick NY for no particular reason)

Therefore an average retiring couple could expect a $1,177 SS and a spouse SS benefit of $589 and could then purchase an inflation annuity with their meager life savings of $100,000 for $300 per month that couple would have $2,433 per month of income to live on (includes value of food stamps) with virtually no taxes, no money in the bank and many members on this board live on less than that.

Whether the US can continue to pay for this is another question but I think in the end this is how many retirees with little or no money handle their retirement when the realization hits them that this is all they can afford. Not what I want but not so bad as to be unlivable.

http://www.otda.state.ny.us/programs/food-stamps/#eligibility
http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/13/~/average-monthly-social-security-benefit-for-a-retired-worke

 

[Independent]

Of course. I'd like the SS system to be extended by allowing people to increase their SS benefits by paying extra into the system, perhaps by rolling their 401k accounts into SS. It would provide a straightforward way for people to avoid being cheated by insurance companies,

I'm doing this today. I'm spending down 401k while I'm deferring SS in order to increase my benefit. I also own TIPS, which is another way of using the gov't instead of private.

... and by infusing some cash, it could delay the day when the SS system runs into fiscal problems.

Ouch.

 

[MasterBlaster]

I'm doing this today. I'm spending down 401k while I'm deferring SS in order to increase my benefit. I also own TIPS, which is another way of using the gov't instead of private.

You have made the assumption though that your "extra" SS payments won't be cut back in the quest to hunt down "the rich"

SS caps and means testing are all options still available.

 

[Independent]

You have made the assumption though that your "extra" SS payments won't be cut back in the quest to hunt down "the rich"

SS caps and means testing are all options still available.

Odd, I just posted on that topic in another thread. I think that "rich" is more likely to be measured via non-SS assets and income, rather than by SS income. (In fact, I think the techies are smart enough to not penalize people for higher SS benefits that are solely the result of deferring SS, they'll use PIA instead of monthly benefit.) So I think this approach actually improves my position in a means-tested world.

 

[nun]

There are times on this forum when I think I really grew up in a different world than everyone else here and so did my DH.

They drew SS and maybe had a few very small pensions or take RMDs from IRAs. Living on $20,000 a year or so is fine.

It was just a given that retired people were "on a fixed income" (mostly SS) and had to watch money and couldn't spend a lot. And they are fine.

I see plenty of people doing fine with SS, a paid for modest house and a couple of hundred thousand dollars for extras.

ERing is about the combination of LBYM and saving and investing, so you have a few "soul mates" here. It's frighteningly rare to find that combination which is why this forum might just become extinct. With everyone having to work until they drop ERers will become anachronisms.

 

[JoshTrent]

Of course. I'd like the SS system to be extended by allowing people to increase their SS benefits by paying extra into the system, perhaps by rolling their 401k accounts into SS. It would provide a straightforward way for people to avoid being cheated by insurance companies, and by infusing some cash, it could delay the day when the SS system runs into fiscal problems.

I would rather see the opposite take place.. Offer me the chance to come out from under SS & never have to pay into it again.. I would jump at the chance. Keep what I have paid already for the last 15 years as a severance.. Good bye US Govt - Hello FIRE!

 

[Danmar]

I wouldn't be too worried about the fate of people who haven't saved enough. All the Gov't can do is raise your taxes to pay for them and from what I 've seen recently there is a very strong political faction that is againt raising taxes in the US.
Situation is no worse than it has always been. We are truly lucky(smart?) to be where we are so other than through philanthropic activity I'm not sure what more we can do?

 

[Jay_Gatsby]

Sure, but in the decades past people had pensions.

And before that they had a big family all living in one house to take care of them.

Now they have wal-mart.

When Baby Boomers start retiring in droves, you may see a fair number of parents moving in with their kids. Naturally, they'll play the "I sacrificed for you" card, even though they know that their financial position is more the result of poor planning than sacrificing for their children.

 

[Jay_Gatsby]

I wouldn't be too worried about the fate of people who haven't saved enough. All the Gov't can do is raise your taxes to pay for them and from what I 've seen recently there is a very strong political faction that is againt raising taxes in the US.

We may simply see a continuation of the current trend of Baby Boomers not retiring for several years past their traditional retirement age to capture more of their high salaries for retirement. Unfortunately, this doesn't allow the next generation to advance in their careers, which will result in a loss of talent to companies who do not have an aging workforce, or even better, new startup companies where advancement and higher pay are possible.

 

[rescueme]

When Baby Boomers start retiring in droves, you may see a fair number of parents moving in with their kids.

I can't see that happening (of course, I could be proven wrong).

The stories today show that a lot of young folks have returned to the "nest", without making a nest of their own...

I/DW being older came from a different generation (along with a different generation of parents). When we struck out on our own, our respective parents basically told us not to come back. As my parents often said, "you made your bed, now sleep in it"...

 

[Jay_Gatsby]

As my parents often said, "you made your bed, now sleep in it"...

So we can say the same thing to Baby Boomers who try to move in with their kids, or more broadly, who ask for handouts from the government, other people, etc...?

 

[rescueme]

So we can say the same thing to Baby Boomers who try to move in with their kids, or more broadly, who ask for handouts from the government, other people, etc...?

Yes (I/DW represent the remark - since we are early boomers ).

BTW, parents/in-laws have been long gone. Guess their advice suited us well, since we learned at an early age to make it on our own.

And we are not asking for any "handouts", IMHO. Only a slight return of the programs we've been contributing to over the last 45+ years of employment....

 

[Jay_Gatsby]

Yes (I/DW represent the remark - since we are early boomers ).

BTW, parents/in-laws have been long gone. Guess their advice suited us well, since we learned at an early age to make it on our own.

And we are not asking for any "handouts", IMHO. Only a slight return of the programs we've been contributing to over the last 45+ years of employment....

Not disagreeing with you about getting what you've been expecting. I think the real issue is expecting such benefits while voting for politicians who spent the very money needed to pay for them on other things.

 

[Independent]

Not disagreeing with you about getting what you've been expecting. I think the real issue is expecting such benefits while voting for politicians who spent the very money needed to pay for them on other things.

I think that most people who post here* understand that the "other things" that most of the money bought was SS payments and Medicare benefits to the WWII generation.

Both SS and Medicare are primarily paygo. The boomers paid taxes to provide for their parents. Boomers are hoping their children will continue that practice.

The WWII generation had three kids per couple, boomers only had two. The way I do the math, boomers either get 67% the benefits their parents got or the boomers kids pay 150% of the taxes. That's something that politicians have trouble saying.


* I understand there is a lot of misunderstanding about SS finances in the general public. A few people probably still think there's an account somewhere with their name on it. More people think that if the money isn't there is must have been spent on foreign aid or welfare.

 

[MasterBlaster]

I think that most people who post here* understand that the "other things" that most of the money bought was SS payments and Medicare benefits to the WWII generation.

Both SS and Medicare are primarily paygo. The boomers paid taxes to provide for their parents. Boomers are hoping their children will continue that practice.

The WWII generation had three kids per couple, boomers only had two. The way I do the math, boomers either get 67% the benefits their parents got or the boomers kids pay 150% of the taxes. That's something that politicians have trouble saying.


* I understand there is a lot of misunderstanding about SS finances in the general public. A few people probably still think there's an account somewhere with their name on it. More people think that if the money isn't there is must have been spent on foreign aid or welfare.

While what you post is (strictly) true.

I believe that most boomers have the expectation of getting what they paid into.

There would be hell to pay if they try now to take it away. Just saying that "your money went to the previous generation" won't cut it .

 

[Jay_Gatsby]

While what you post is (strictly) true.

I believe that most boomers have the expectation of getting what they paid into.

There would be hell to pay if they try now to take it away. Just saying that "your money went to the previous generation" won't cut it .

Yet that's been the undeniable fact about the system since it was created many decades ago. The easiest way to solve the SS problem is simply to extend the benefit eligibility date. Yes, this could be perceived as "moving the goalposts," but it's either that or something more painful (e.g., means testing, burdening the next generation with higher taxes, etc....)