Most Americans Can't Retire...

[Big_Hitter]

So this report shouldn't surprise anyone.

no surprise here

 

[Options]

Well maybe I shouldn't be surprised by that, but I am not ashamed to admit that I am. Actually to me this more than surprising; to me this is shocking. I'm also shocked and disgusted at what has already happened to private pensions in the past couple of decades.

...

IMHO, we're in for a lot more "surprises" (alternative media has been talking about/warning of this for years). Won't happen overnight, more like a slow, steady drip of eroded "entitlements". There's simply been too much promised and not nearly enough $ to fulfill those promises. Applies to SS and Medicare, too. Couple that with low expected returns, and you really have a nowhere to hide type of situation. I have friends who devoted their entire lives to government--everyday workers who never received bloated salaries. Reduced pensions for them will mean a lifetime of missed opportunity to make more $ in the private sector. A no win situation.

 

[daylatedollarshort]

IMHO, we're in for a lot more "surprises" (alternative media has been talking about/warning of this for years).

Alternative media and Warren Buffett. Warren Buffet wrote this in 1975:

"Rule number one regarding pension costs has to be to know what you are getting into,” Buffett wrote to Graham. “As will become so expensively clear to citizens in future decades, there has been even greater electorate ignorance of governmental pension costs.”

Buffett Says Pension Tapeworm Means Decade of Bad News - Bloomberg Business

 

[purplesky]

IMHO, we're in for a lot more "surprises" (alternative media has been talking about/warning of this for years). Won't happen overnight, more like a slow, steady drip of eroded "entitlements". There's simply been too much promised and not nearly enough $ to fulfill those promises. Applies to SS and Medicare, too. Couple that with low expected returns, and you really have a nowhere to hide type of situation. I have friends who devoted their entire lives to government--everyday workers who never received bloated salaries. Reduced pensions for them will mean a lifetime of missed opportunity to make more $ in the private sector. A no win situation.

Remember back 20 years ago when teachers and government workers were heroes in our economy because they made such small salaries compared to the private sector.

Then the economic downward spiral started and it appears that now those once underpaid teachers are just evil government union workers with a pension and the blame for all our fiscal problems.

 

[pb4uski]

Low wages and the cost of healthcare will make it impossible for millions of working Americans to accumulate enough savings to retire.

The math won't work.


The current public policy is that taxpayers subsidize low wage workers with food stamps.
The future public policy will have Taxpayers also subsidizing their retirement.

Actually if a low wage person retires at FRA the math isn't near as bad as you think because SS replaces a much higher percentage of income for low wage workers. This study indicates replacement rates of 72% for singles and 63% for couples for those whose income is in the lowest 20%.

Note that this replacement rate compares SS benefits with gross income, so a 72% replacement rate is actually much higher if one compares SS benefits to pre-retirement take-home pay (which presumably is all spent). After SS and federal withholding someone who is single earning $2,000 a month would take home 83% of their gross, so SS would really replace ~87% (72/83) of their pre-retirement takehome pay... and that assumes they reside in a state with no state income tax... in states with an income tax the replacement rate would be higher.

Is this a great outcome.... no, but it isn't as dire as you seem to think.

 

[purplesky]

Actually if a low wage person retires at FRA the math isn't near as bad as you think because SS replaces a much higher percentage of income for low wage workers. This study indicates replacement rates of 72% for singles and 63% for couples for those whose income is in the lowest 20%.

Note that this replacement rate compares SS benefits with gross income, so a 72% replacement rate is actually much higher if one compares SS benefits to pre-retirement take-home pay (which presumably is all spent). After SS and federal withholding someone who is single earning $2,000 a month would take home 83% of their gross, so SS would really replace ~87% (72/83) of their pre-retirement takehome pay... and that assumes they reside in a state with no state income tax... in states with an income tax the replacement rate would be higher.

Is this a great outcome.... no, but it isn't as dire as you seem to think.

So will these broke people live in a van down by the river. or section 8. or in their kids basement.

 

[Fermion]

They certainly don't make it easy to save if your earnings have peak years. We have been working for 20+ years and maxing out 401K for 15 of those years yet have only $650,000 in our 401k. This would not buy an equivalent COLA'd annuity of a public/private pensioner with 20 years on the job. I haven't checked, but I doubt you get much at all with $650k in the annuity market at age 50 to 55.

Partly to blame as we had horrible choices in our 401K in the early years (1% to 2% ER funds)...should have done something different. Also we were not in the position to run to taxpayers if our 401K returns were not super, so we had to go with a more conservative allocation.

But whatever. Maybe there will be some SS left in 20 years.

 

[pb4uski]

So will these broke people live in a van down by the river. or section 8. or in their kids basement.

[Mod edit] If SS replaces a significant portion of their income they'll probably live wherever they are currently living, be it an apartment, a van, section 8 or their kids basement.

Or with any luck, they can move in with you.

 

[Fermion]

Actually there is an entire forum dedicated to people essentially living in a van down by the river. Most of them are on some form of SS. I post there a bit with financial and engineering information to aid them. Pretty decent bunch of people.

 

[Lakewood90712]

Actually there is an entire forum dedicated to people essentially living in a van down by the river. Most of them are on some form of SS. I post there a bit with financial and engineering information to aid them. Pretty decent bunch of people.

I used to follow the van dwellers ? site. It went dormant so I don't know it the guy found another host for the website.

 

[purplesky]

[Mod edit] If SS replaces a significant portion of their income they'll probably live wherever they are currently living, be it an apartment, a van, section 8 or their kids basement.

Or with any luck, they can move in with you.

No I don't know it all. I agree with you about the safety net of social security to keep people off the streets and to put some food on their table.

I am really more interested in people being able to work and save sufficiently for retirement during their working years and using SS to supplement those retirement savings.

 

[Mulligan]

Remember back 20 years ago when teachers and government workers were heroes in our economy because they made such small salaries compared to the private sector.



Then the economic downward spiral started and it appears that now those once underpaid teachers are just evil government union workers with a pension and the blame for all our fiscal problems.

I remember reading an article in Fortune Magazine around the turn of the century that basically said you were a fool if you were in a pension system instead of a 401k. Of course they were assuming the stock market explosion was going to last forever. All I remember thinking is, "well it's too late to turn back now".
There are more types of pension systems and funding ratios with all getting lumped under the same troubled umbrella. I can only speak for mine, but if it ever got in trouble, there are so many levers that can be pulled to fix the system ; provided everyone didn't stick their head in the sand and not address it...Each of these can have profound positive effects on the system. 1)Lower retirement multiplier 2) Raise retirement age 3) eliminate COLA 4) Raise total amount of years needed to retire. 5) Raise contribution rates.
If needed, little bit of pain, could eliminate a catastrophe down the road.


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[purplesky]

They certainly don't make it easy to save if your earnings have peak years. We have been working for 20+ years and maxing out 401K for 15 of those years yet have only $650,000 in our 401k. This would not buy an equivalent COLA'd annuity of a public/private pensioner with 20 years on the job. I haven't checked, but I doubt you get much at all with $650k in the annuity market at age 50 to 55.

Partly to blame as we had horrible choices in our 401K in the early years (1% to 2% ER funds)...should have done something different. Also we were not in the position to run to taxpayers if our 401K returns were not super, so we had to go with a more conservative allocation.

But whatever. Maybe there will be some SS left in 20 years.

I can relate. I max out my 401k and Roth every year and I still am probably behind where I really need to be to have solid retirement income.

 

[NW-Bound]

Actually there is an entire forum dedicated to people essentially living in a van down by the river. Most of them are on some form of SS. I post there a bit with financial and engineering information to aid them. Pretty decent bunch of people.

I used to follow the van dwellers ? site. It went dormant so I don't know it the guy found another host for the website.

Are we talking about cheaprvliving-dot-com? I visit it from time to time. I really like what these people are doing, as they are resourceful and try to live on what they have. Living in a van down by the river is a lot healthier than getting cramped up in inner-city housing. You are out in the open, breathing clean air, getting to walk and hike about, having more physical activities. All the good stuff.

... I can only speak for mine, but if it ever got in trouble, there are so many levers that can be pulled to fix the system ; provided everyone didn't stick their head in the sand and not address it...Each of these can have profound positive effects on the system. 1)Lower retirement multiplier 2) Raise retirement age 3) eliminate COLA 4) Raise total amount of years needed to retire. 5) Raise contribution rates.
If needed, little bit of pain, could eliminate a catastrophe down the road.

Most just like to pull this lever: Raise taxes.

 

[purplesky]

I remember reading an article in Fortune Magazine around the turn of the century that basically said you were a fool if you were in a pension system instead of a 401k. Of course they were assuming the stock market explosion was going to last forever. All I remember thinking is, "well it's too late to turn back now".
There are more types of pension systems and funding ratios with all getting lumped under the same troubled umbrella. I can only speak for mine, but if it ever got in trouble, there are so many levers that can be pulled to fix the system ; provided everyone didn't stick their head in the sand and not address it...Each of these can have profound positive effects on the system. 1)Lower retirement multiplier 2) Raise retirement age 3) eliminate COLA 4) Raise total amount of years needed to retire. 5) Raise contribution rates.
If needed, little bit of pain, could eliminate a catastrophe down the road.


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Yes my megacorp offers a pension and changes have been made like you mentioned to improve the health of the fund.

 

[Mulligan]

Yes my megacorp offers a pension and changes have been made like you mentioned to improve the health of the fund.

And that is the prudent way to do it....NW's comment should be a scary one for any pensioner. The bailouts probably won't come if the system becomes a mess. And let's be honest.... Increased taxation on a work force who does not have a pension themselves won't bring out enthusiasm for "pulling that lever".


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[daylatedollarshort]

So will these broke people live in a van down by the river. or section 8. or in their kids basement.

Tiny houses with solar power, solar showers and composting toilets? It takes a lot of money in global terms to live a standard middle class American lifestyle, but maybe not so much to simply have the basics like food, shelter and clothing.

Tiny Houses For Homeless People Put Roofs Over Heads In Time For The Holidays

"Occupy Madison, which resulted from the nationwide movement against Wall Street wealth in 2011, has focused its efforts on combating homelessness in the Wisconsin capital since its inception. Last December, OM Build completed its first tiny house: a 98-square-foot home with a roof, insulated walls, bathroom and kitchen for Betty Ybarra. "

 

[purplesky]

Tiny houses with solar power, solar showers and composting toilets? It takes a lot of money in global terms to live a standard middle class American lifestyle, but maybe not so much to simply have the basics like food, shelter and clothing.

Tiny Houses For Homeless People Put Roofs Over Heads In Time For The Holidays

"Occupy Madison, which resulted from the nationwide movement against Wall Street wealth in 2011, has focused its efforts on combating homelessness in the Wisconsin capital since its inception. Last December, OM Build completed its first tiny house: a 98-square-foot home with a roof, insulated walls, bathroom and kitchen for Betty Ybarra. "

I watched a film recently about this tiny house movement. Its actually pretty cool.

 

[NW-Bound]

I already have a tiny house as dwelling of last resort. It's comfortable, of 200 sq.ft (8'x25'), and is even self-propelled (at a cost of 9mpg, towing a car).

Here, it is parked facing Bodega Bay, where Hitchcock's thriller The Birds was filmed.

 

[purplesky]

I already have a tiny house as dwelling of last resort. It's comfortable, of 200 sq.ft (8'x25'), and is even self-propelled (at a cost of 9mpg, towing a car).

Here, it is parked facing Bodega Bay, where Hitchcock's thriller The Birds was filmed.

Thats awesome! I am planning on getting an RV not too far down the road.

I really like Newmar RVs but they are pricey. Seems like more and more options are becoming available in the RV market.

 

[haha]

Living in a van down by the river is a lot healthier than getting cramped up in inner-city housing. You are out in the open, breathing clean air, getting to walk and hike about, having more physical activities. All the good stuff.

This is pretty funny. I tipped an older woman I know that there was a vacancy in a subsidized age 60+ building near my home. She got it and invited me over.She pays $400/month for a studio of about 400 sq ft, with a beautiful Bay view from the 18th floor. A market rate studio with this view in this neighborhood would cost who knows what-without the view maybe $1550, with it I can't guess. Walk score 98, many bus lines very close by, and even a parking lot for those with cars. Now 400 sq ft is not very big, but neither are vans, or motorhomes for that matter. And as far as exercise goes, it is hard to get more daily exercise than people living in safe well serviced urban neighborhoods with safe sidewalks, crosswalks, police, supermarkets, etc. Just look at the typical city dweller's body.


Of course, if one really does not enjoy people, this would not be a happy existence. This board has made me aware of a type of living that is kind of anthro-phobic.

Ha

 

[daylatedollarshort]

I already have a tiny house as dwelling of last resort. It's comfortable, of 200 sq.ft (8'x25'), and is even self-propelled (at a cost of 9mpg, towing a car).

Here, it is parked facing Bodega Bay, where Hitchcock's thriller The Birds was filmed.

Cool picture NW-bound. I think that is a cool way to travel. We are thinking of getting a travel trailer.

Here is a more stationary way to live pretty cheap with a solar cabin with no mortgage and no utility bills:

I love watching these kind of videos. We'd probably never really live like this, but we are implementing some of the ideas from similar books and videos on the house we have. We just tackle a few projects at a time. This year we want to install a solar fountain, some off grid solar panels, replace the lawn with a native plant garden (cut water usage and no more mowing) and a few other projects.

 

[scrabbler1]

Same here...I didn't even start investing in my 401k at work until the last two weeks of 1997, at the age of 27. At that point, I had only been a full time employee, and eligible to invest in the 401k, since February 1994. At the time, our company match was only 1%. So, in the grand scheme of things, maybe I didn't miss out on much.

And, like you, my pay wasn't all that high back then either, so I wouldn't have been able to max it out. I don't think I started hitting the federal limit with my 401k until 2005

I started slowly with retirement savings, too. My old company matched the first 6% of salary for its 401k but I put in only 3% for the first 3 1/2 years I worked there. But in those 3 1/2 years with the extra take-home pay, I paid off my fairly small student loans, bought my first car and without needing a car loan, and saved up to make the down payment on my co-op apartment purchase. Once I bought the apartment, I boosted my 401k contribution to 6% to take full advantage of the company match.

A few years later, I made some after-tax contributions to my 401k for just over a year to try to catch up a little bit. That was interfering with my new goal to pay off the mortgage so I stopped that.

 

[NW-Bound]

All the talks about van down by the river, subsidized housing, or tiny homes show that people manage to retire with whatever they have. The few people that we see under bridges are not that many, and most if not all have mental problems anyway.

So, what is this talk about people not retiring?

 

[scrabbler1]

I remember reading an article in Fortune Magazine around the turn of the century that basically said you were a fool if you were in a pension system instead of a 401k. Of course they were assuming the stock market explosion was going to last forever. All I remember thinking is, "well it's too late to turn back now".
There are more types of pension systems and funding ratios with all getting lumped under the same troubled umbrella. I can only speak for mine, but if it ever got in trouble, there are so many levers that can be pulled to fix the system ; provided everyone didn't stick their head in the sand and not address it...Each of these can have profound positive effects on the system. 1)Lower retirement multiplier 2) Raise retirement age 3) eliminate COLA 4) Raise total amount of years needed to retire. 5) Raise contribution rates.
If needed, little bit of pain, could eliminate a catastrophe down the road.


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My old company back in 2002 froze its pension for anyone who wasn't grandfathered into remaining in that system. At the time, I lacked the right combination of age and number of years of service so my pension got frozen. There was no pension for any new hires, too. In its place was a "Cash Balance" program which is a hybrid of a DB and DC plan. Because I had begun working part-time in 2001, my Cash Balance "balance" is pretty low but grows a little bit every year due to the interest credit.

These pension reductions better put the pension fund on more stable ground given that my pension benefit has not changed, not just since I left the company but in the 7 years after it got frozen while I still worked there. At least the ESOP exploded in those 7 years and that enabled me to ER by the end of that time.