Social Security at age 60?

[FUEGO]

I think there was more to the two income trap than just discretionary spending of double incomes. Particularly competition for adequate housing likely drives prices to higher levels where two incomes are required to purchase the expected lifestlye, as well as increased probablity of losing a job when there are two. Remember she is drawing broad general conclusions based on population trends, not describing any particular household, especially not a rare LBYM FIRE one.

Re: increased probability of losing a job with a 2 income household. Of course. Pardon me for the engineering take on it, but any system that has two parts operating in series, each of which is equally likely to fail, will have a higher cumulative probability of failure versus a system with only one of the parts in series.

The problem is that her way of viewing 2 incomes is flawed. Losing 1 income in a 2 income household doesn't lead to zero income. Probably more like 75% of the previous income (the jobless person gets unemployment). Add to that the potential savings on work-related expenses (commuting, dry cleaning, lunches out etc) and ability to avoid child care expenses. Sure, families that spend 110% of their income are really screwed if their income suddenly drops by 25%. But there are a lot of families that do actually live within their means and actually save a little.

Re: the housing thing and costs inflating, sure there are areas of the country where you really have to pay up to get into an adequate school district. But there is usually a way to get by in a much less expensive house just inside the better school district. Or settling for the slightly less than perfect school/school district knowing that at least your kids will have a roof over their heads and stability should a financial issue arise in the family. I think the real reason people are paying a lot more for housing has to do with the fact that average house sizes have doubled in the last few decades. And the houses have nicer amenities in them. Hey, I don't blame people for their choices - nice new houses are nice and new, very appealing! But how do you really know people are moving to the expensive parts of town for the school districts versus other things (status, nicer housing, cleaner newer look around the suburbs, more land, etc). In reality I'm sure it is a combination of motivations.

Of course her book viewed things from the lens of bankruptcy. Families were living on the edge, had no savings, and had lots of debt. An unexpected medical issue with the accompanying job loss or underemployment = financial catastrophe.

 

[ziggy29]

The problem is that her way of viewing 2 incomes is flawed. Losing 1 income in a 2 income household doesn't lead to zero income. Probably more like 75% of the previous income (the jobless person gets unemployment). Add to that the potential savings on work-related expenses (commuting, dry cleaning, lunches out etc) and ability to avoid child care expenses. Sure, families that spend 110% of their income are really screwed if their income suddenly drops by 25%. But there are a lot of families that do actually live within their means and actually save a little.

Yep -- and don't forget the reduced tax burden! If you reduce income by 1/4, you're likely to reduce your income tax burden by more than 1/4 because of the progressive nature of the income tax. Plus, the unemployment benefits aren't subject to Social Security or Medicare taxes -- only income tax. So in reality, losing half of your earned income -- after factoring in the drop in taxes and "work expenses" -- may cut into cash flow by no more than 20%, if even that.

Some frugal households regularly save well over 20% of their after-tax income.

In other words, if you are a strong saver/LBYM household, there's a chance that a single job loss in an equal two-income household won't be a calamity or cause you to even dip into the emergency fund. You may have to stop saving and investing for retirement for a while, but you may not go into a negative cash flow situation. Plus, as I stated before, this couple *probably* still has an employer-provided health insurance option, something a laid-off single income household worker won't have (other than 18 months of very expensive COBRA, which you probably can't afford when your only paycheck is gone).

 

[FUEGO]

Yep -- and don't forget the reduced tax burden! If you reduce income by 1/4, you're likely to reduce your income tax burden by more than 1/4 because of the progressive nature of the income tax. Plus, the unemployment benefits aren't subject to Social Security or Medicare taxes -- only income tax. So in reality, losing half of your earned income -- after factoring in the drop in taxes and "work expenses" -- may cut into cash flow by no more than 20%, if even that.

Some frugal households regularly save well over 20% of their after-tax income.

In other words, if you are a strong saver/LBYM household, there's a chance that a single job loss in an equal two-income household won't be a calamity or cause you to even dip into the emergency fund. You may have to stop saving and investing for retirement for a while, but you may not go into a negative cash flow situation. Plus, as I stated before, this couple *probably* still has an employer-provided health insurance option, something a laid-off single income household worker won't have (other than 18 months of very expensive COBRA, which you probably can't afford when your only paycheck is gone).

All good points and very true. Unemployment benefits are also tax free for the first $2000. And you get highly subsidized COBRA health insurance the first 9 months of unemployment.

The bottom line is that Ms. Warren's analysis holds true for the people living on 100-110% of their income saving virtually nothing with high debt service to income ratios. As much as folks on here like to stereotype everyone as these type of people, all families are not like this. Many families do actually save 10%+ of their income and/or have some savings or emergency funds. Many people don't do cash out refinances every 2-3 years to pay for cars, boats and vacations. Some folks pay their mortgage down over time and refinance occasionally as rates drop, hence reducing the monthly payment.

I think she also mentioned that the "safest" people were ones who actually blew most of their money on discretionary purchases (fancy meals out, partying, vacations, electronics, etc) and as a result had relatively lower fixed expenses (car loan, mortgage). Maybe true if those two extremes of lifestyle choices were the only two options. But there is a third option to have reasonable debt service to income, and save some of your money instead of blowing it all on discretionary purposes. Before you know it you have an emergency fund and actual financial assets that you can use if you hit hard times.

 

[JustNtime]

Housing

I think there was more to the two income trap than just discretionary spending of double incomes. Particularly competition for adequate housing likely drives prices to higher levels where two incomes are required to purchase the expected lifestlye, as well as increased probablity of losing a job when there are two. Remember she is drawing broad general conclusions based on population trends, not describing any particular household, especially not a rare LBYM FIRE one.

One man's adequate is another's luxury. IF qualifying for a mortgage based on two incomes <and doing a bit of a stretch> and using all of savings for the down payment. Then buying car, furniture, appliances, etc on time adding to the debt to earnings ratio. A loss of either job will likely be just as bad as a loss of the single job in single wage earner household. I did the stretch on a mortgage once when I was young and rates were high, lost some sleep and I learned my lesson. But I recall the mortgage lady specifically telling me to wait until the mortgage went through before incurring more debt for car, etc. Thus adding to the stretch. Helpful advice for getting the loan. NOT really helpful for LBYM...

 

[ziggy29]

IF qualifying for a mortgage based on two incomes <and doing a bit of a stretch> and using all of savings for the down payment. Then buying car, furniture, appliances, etc on time adding to the debt to earnings ratio. A loss of either job will likely be just as bad as a loss of the single job in single wage earner household.

Well, sure; this is why I look at being a debtor as a form of indentured servitude. There's a lot of truth to the old bumper sticker that reads, "I owe, I owe, so off to work I go." Debt takes away a lot of life's options.

Some people would be shocked at how little it takes to live comfortably if you can embrace the "simple" and "frugal" life and remain debt-free.

 

[clifp]

I think she also mentioned that the "safest" people were ones who actually blew most of their money on discretionary purchases (fancy meals out, partying, vacations, electronics, etc) and as a result had relatively lower fixed expenses (car loan, mortgage). Maybe true if those two extremes of lifestyle choices were the only two options. But there is a third option to have reasonable debt service to income, and save some of your money instead of blowing it all on discretionary purposes. Before you know it you have an emergency fund and actual financial assets that you can use if you hit hard times.

Ah come on FUEGO nobody does sensible things like that . The few hundred that do all are on this board.

 

[ziggy29]

Ah come on FUEGO nobody does sensible things like that . The few hundred that do all are on this board.

As long as there are only a "few hundred" of us, we folks who seek to build fairly large asset bases off which to draw modest incomes can fly under the radar and keep getting all the means-tested goodies coming our way in the future...

 

[samclem]

As long as there are only a "few hundred" of us, we folks who seek to build fairly large asset bases off which to draw modest incomes can fly under the radar and keep getting all the means-tested goodies coming our way in the future...

Yes, as long as "means" means what it means today.

 

[Buckeye]

For the record, if they offered DW and I the 99 weeks of unemployment insurance right now, I think we would take it.

That would amount to just over $100,000 over the course of 2 years, but I'd be willing to take it. You know, for the good of the cause. Help out those in need, etc.

Maybe use some of that money to stimulate a tropical destination's beach economy somewhere warm.

I did volunteer to be the first layoff to protect the more vulnerable but you must apply for jobs (and certify you have done so) every week as a condition of receiving your benefit. Sometimes someone actually reviews your resume, discovers you are qualified, makes you an offer of employment and the party is over!

 

[FUEGO]

I did volunteer to be the first layoff to protect the more vulnerable but you must apply for jobs (and certify you have done so) every week as a condition of receiving your benefit. Sometimes someone actually reviews your resume, discovers you are qualified, makes you an offer of employment and the party is over!

An individual sufficiently motivated to NOT find a job can guarantee themselves to never find one. Don't make your resume high quality. Send it to the wrong jobs for which you aren't qualified. Be late to the interview. Discuss inappropriate things at the interview. Pick your nose if you have to.

Where there is a will, there is a way!

 

[Buckeye]

An individual sufficiently motivated to NOT find a job can guarantee themselves to never find one. Don't make your resume high quality. Send it to the wrong jobs for which you aren't qualified. Be late to the interview. Discuss inappropriate things at the interview. Pick your nose if you have to.

Where there is a will, there is a way!

I had my resume reviewed by the resume service on OpsLadder. They basically said it was pathetic but they could fix it for $700 so I thought I had that angle covered. I was totally overqualified for the position that got me into the door but the interview morphed into an interview for a higher level position which had yet to be posted so I failed at applying for an innappropriate job. I was late for one of the interviews (couldn't find a parking place) but they never noticed because they didn't come looking for me in the lobby for another 15 minutes. I should have gone for the nose!

 

[Fireup2020]

I just want jobs to refer my clients to. Also, want my job seekers who ARE collecting SS benefits to RETIRE...and let the 30/40 somethings get the jobs so they can support their families and the SS collectors.

 

[HsiaoChu]

I tried to get my school district to offer double the sick days bonus to save money. People who are eligible to retire at age 59.5 to get the pension, but are holding off because they want to get SS to pay for their health care, could be encouraged to leave a year early. it would save the district by getting a new person at more than 30K less that they were pay the very very experienced one, and it wouldn't be like losing their best because the best was probably planning on retiring very soon anyway. After the person turns 62, this option would no longer exist.

They weren't even interested in discussing it.

 

[HsiaoChu]

These numbers for SS retirements are really kind of dumb.

If I take retirement of SS at 62, and don't use the money but actually save it, I will be at least 84 years old before the extra amount that I would get by waiting until age 70 kicks in. And I wouldn't have the huge reserve to draw on if I needed it. And if I died before 70 I would get nothing at all.

Better to take it and save it, than take more later.

 

[Calgary_Girl]

Up here in Canada you can take reduced CPP (Canada Pension Plan) benefits at age 60 (it's 70% of full CPP benefits). You get full CPP benefits if you wait until your 65.

 

[HsiaoChu]

Up here in Canada you can take reduced CPP (Canada Pension Plan) benefits at age 60 (it's 70% of full CPP benefits). You get full CPP benefits if you wait until your 65.

Yeah..... but the real question is how long it will take for you to get those 30% back if you wait until 65 to get anything, and what will happen if you should die before getting it. And of course, if you save it rather than spend it, you will have the profit or interest from investing it, plus the benefit of having it as a lifeline if you should need it.

My point is that taking it later if you don't need it has less benefits to you as you get older than taking it earlier and then inventing it.

Let's say your SS benefit is $15K. If you don't take it until 65 your ss is now 20K. But if you took it early and saved it for 5 years you would probably have about $32,000 extra in your account. You'd have to live to at least 72 or so to make it back, and even if you did, you wouldn't have that $32,000 for something you might have needed. In the usa its 8 years difference which is significant.

Z