The "Retirement Crisis" is worse than we thought

[Midpack]

We can scold these people, wag our fingers at them, , and feel ever-so-superior to them.

But still, as I begin to reflexively do these things, I start feeling very guilty about my judgmental behavior because there for the grace of G*d, go I.

Some of them have parents, kids, disabled, or extremely ill relative who are dependent on them just to survive. Some have mountains of debt due to divorce or failed businesses. Some poor souls are just unable to do even the simplest arithmetic and cannot budget because they are mathematically incapable of doing something like that. And I am sure there are many other unexpected and burdensome situations that could arise, that I haven't thought of.

I don't think very highly of anybody that just blows all their money on booze and the casino. But I am not sure I believe that all of these people fall into money wasting habits.

For those that do, I have but one response: Shame on you!

No one is suggesting they're all victims, some certainly are. I suspect the widest swath of people fall between "there but for the grace of G*d" and "blowing money on booze and the casino."

But I've personally known way too many people who made chronically bad choices - expensive cars, max mortgage homes, lavish vacations and every new toy that comes along. Many we're indignant when anyone suggested they weren't entitled to everything they had and more (I listened, I didn't suggest). That doesn't mean we feel "ever-so-superior". I never wagged my finger at or scolded any of them, not even a little bit.

I don't need to tell them "shame on you" either, that sounds a little superior...

 

[Texas Proud]

I think part of the problem for low wage earners is that the "sales pitch" for 401K always discusses contribution amount higher than they might be able to afford. Maybe if the were encouraged to start with any amount, regardless how small, it might have a better success rate.
FWIW, here's my anecdote. As a manager at several of my j*bs, I pitched the contribute-whatever-you-can approach. This worked with a few of the low wage earners......and more than a few of those thanked me later when they hit some great savings threshold, be it $500 or in one case $100. ALL of the increased their deductions when they realized they didn't miss that deducted amount.

The unfortunate part of this is that these are likely the people who will come and empty their plan out when they hit a financial speed bump and have to pay the penalty...


Now, if there is a good match, they are still ahead of the game... When I was a young manager I tried to talk someone into putting money away that had a 100% match up to 12%!!! Yes, that is right... I told him he could put the money in and then every once in awhile borrow on his balance.... even if he was laid off and had to 'pay' it back by making it taxable he was ahead of where he was now... he never did get it and he was in finance!!!

 

[ownyourfuture]

From my hometown newspaper in south central Minnesota

Minnesota's Retiree Population About to Explode
Posted: Jan 03, 2016 5:46 PM CST

Starting in 2020 and lasting through 2030, for every one person of “working age'' added to the population, there will be 21 people added over the age of 65. That's according to Metropolitan Council data.

The demographic shift will nearly double the area's elderly population by 2040, when more than 1 in 5 people will be retired.

The*Minnesota Department of Human Services says the impact on the state budget will be substantial as more people will have to rely on public programs for services they can't afford themselves.

 

[JPatrick]

From my hometown newspaper in south central Minnesota

Minnesota's Retiree Population About to Explode
Posted: Jan 03, 2016 5:46 PM CST

Starting in 2020 and lasting through 2030, for every one person of “working age'' added to the population, there will be 21 people added over the age of 65. That's according to Metropolitan Council data.

The demographic shift will nearly double the area's elderly population by 2040, when more than 1 in 5 people will be retired.

The*Minnesota Department of Human Services says the impact on the state budget will be substantial as more people will have to rely on public programs for services they can't afford themselves.

Got a feeling we are going to see more and more seniors carrying protest signs calling for ---

MORE FREE STUFF NOW

 

[RetiredGypsy]

Let's invade Canada...

We already lost John Candy in the last Great Canadian Bacon Caper. We can't afford to lose anyone else. They're polite but wily, those Canadians.

And you'd be surprised how many incursions are made into Mexico every weekend by the service. Somehow it never gets much south of Tijuana though.

 

[target2019]

I believe it only covers one type of retirement savings vehicle (401ks), so that seems like it's not very comprehensive regarding anything but 401k plans.

It's written slightly different each site. It is based on W2, so excludes some Roth and IRA. There is probably a Fed study on all tax advantaged. But we're excluding other investment types. More articles and studies will pop up I'm sure.

 

[Sunset]

I wonder how many people don't save for retirement because what they make barely covers their living expenses.

I have been using Uber a good deal lately, and the drivers like to chat. I always end up wondering how on earth they make any money. One lady had a nice new Camry with 30,000 miles on it already. She told me she leased the car from Uber and essentially, was driving for them to earn enough to pay the lease on the car she was using for them. I got the impression she hadn't really looked at it that way until after discussing it with me, which probably means I wasn't her favorite fare that day.

Yes, and when they don't recognize the expenses it gets really bad.
I know someone who makes better than avg wage, but has a hard time saving as the $$ just seems to evaporate.
Yet this person didn't like it when I pointed out buying the college age child a cell phone was over a $2,000 purchase.
They said no, the i-phone was free, they did not think about the 3 yr contract at $70/mo = $2,520

 

[Sunset]

Sorry for a bit of diversion here.

I miswrote in the above post. Yes, war was waged on Canada soil, but wasn't it the only one?

The Americans were blaming Canada for "the practice of removing sailors from American merchant ships and forcing them to serve in the British navy", among other harassment, and declared war in 1812. This was shortly after the Declaration of Independence, so the British were still sore, and enlisted the help of the Canadians. Canada did not achieve independence from England until 1866, so this could be considered a continuation of the Revolution War.

Jefferson, then a former president, said that it would be a piece of cake and just a matter of "marching" into Quebec. I guess it's that complacency that the invasion force failed initially. In later attempts, the Americans did get far enough to burn some buildings in Toronto and blow up some forts. When the British sent reinforcements, it got too tough, so the Americans retreated.

.......

Yep, it was the British ("Canadians not independent") that burned the White House.

Canada still has many forts along the St. Laurence River between Ontario and USA to defend against US invasion in 1800's

Interesting how nearly all our enemies are now our friends and allies...

 

[garyt]

And this is why social security will never go away or be diminished, the tax rates for it will just keep climbing because too many people will have nothing else to retire on.

But will it become means tested as a way of controlling rising costs associated with so many non savers? That would be my fear.

 

[Music Lover]

I know someone whose retirement plan is to pay off their mortgage by the time they retire, then sell the house and move to an apartment. They plan to live on the proceeds from the house sale plus the modest amount they will get from CPP and OAS.

 

[ER Eddie]

I knew a couple of engineers at megacorp who lived paycheck-to-paycheck. One had the same pay grade I did. He even tried declaring bankruptcy to get out of credit card debts, spent money on a lawyer just to hear him say that it would not work because the judge would garnish a big chunk of his pay, leaving him with less to live on.

I left megacorp to be on my own at the age of 40, so no more 401k after that. I eventually retired at 55, while he still toiled away last I heard, probably till 70 if they let him.

PS. The banks love this guy. He volunteered that his credit card debts were more than $50K, way back then. At 21% APR, that's $875 per month in interest. And that was some time more than 20 years ago.

PPS. What is peculiar about this guy is that he has nothing to show for his spending. No big house, no fancy car, no vacation. Where does his money go? He eats and drinks out a lot, buys a lot of electronic toys, but those should not use up all his money. Maybe his wife's a big spender. Maybe somebody's on drugs. His spending habit would make an interesting study.

Ouch, $875/mo. on credit card interest. If he hasn't mended his ways, that's probably where a lot of that missing money went.

I feel grateful that I learned about avoiding debt (Dave Ramsey, etc.) about 25 years ago. I wish I'd learned earlier, but once I really started to focus, the turnaround was immediate. Being free of debt is such a financial boon. I'm also grateful I came across voluntary simplicity literature, too, around the same time. Made a big difference.

 

[LOL!]

You can also contribute far more to a 401k than you can to a Roth, you can borrow against it with no penalty, you are protected from claims etc.

So I don't agree with the comment about why should anyone contribute to a 401k. There are tons of reasons to do so even for those with limited income.

But the issue really isn't 401k vs. IRA or savings account or whatever. It's simply that many people want to live beyond their means. The vehicle isn't going to be used no matter what it is.

Yes, for some people all the things you wrote are true, but not for everyone.

1. Some people don't have enough money to contribute more than $5,500 (single) or $11,000 (married) to a 401(k), so the higher contribution limits of a 401(k) is of no benefit to them.

2. Many 401(k) plans do not have a loan provision (my spouse's plan for instance).

What are some other "tons of reasons" if there is no company match? I can think of other reasons not to: High fees, high expense ratio mutual funds, lack of index funds in all the desired asset classes.

But yes, if one has plenty of money that they want to invest for retirement, then contributing to a 401(k) or 403(b) AND/or IRAs is something one can do. No argument with that.

 

[Danmar]

you guys had several conflicts on your land didn't you?

learned this when I went to QC 25 years ago

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

Right. Forgot about that one. All the fortifications mentioned by Northwest were the result of the war of 1812.

 

[Danmar]

Sorry for a bit of diversion here.

I miswrote in the above post. Yes, war was waged on Canada soil, but wasn't it the only one?

The Americans were blaming Canada for "the practice of removing sailors from American merchant ships and forcing them to serve in the British navy", among other harassment, and declared war in 1812. This was shortly after the Declaration of Independence, so the British were still sore, and enlisted the help of the Canadians. Canada did not achieve independence from England until 1866, so this could be considered a continuation of the Revolution War.

Jefferson, then a former president, said that it would be a piece of cake and just a matter of "marching" into Quebec. I guess it's that complacency that caused the invasion force to fail initially. In later attempts, the Americans did get far enough to burn some buildings in Toronto and blow up some forts. When the British sent reinforcements, it got too tough, so the Americans retreated.

Had the Americans succeeded, I would now be able to travel freely up north without stopping at the border. When I go to Alaska, I will have to cross the border twice each way, and do not like it (the US checks my RV fridge for contrabands and confiscates my lemons ). And the Canadians would be able to bring back as much booze and merchandise as they wish without worrying about customs. They would also learn what ACA is all about.

Yes there were several causes ( pretexts) but the goal was very clear and simple, grab Canada. Total failure. Although the other "causes" went away in short order.

 

[NW-Bound]

Sorry for the diversion again, but this side discussion is too much fun.

Yes, it might be that there were many causes and motives, and this is true in any war. When I visited Canadian museums, there were nothing said about the causes cited by either side.

The main reason cited by the US is about "impressment", the conscription of American civilian sailors into service for the British Navy in its Napoleonic War. According to one Web site,

Between 1793 and 1812, the British impressed more than 15,000 U.S. sailors to supplement their fleet during their Napoleonic Wars with France. By 1812 the United States Government had had enough. On 18 June, the United States declared war on Great Britain, citing, in part, impressment.​

Maybe Canada which was then just a colony of England got attacked as a surrogate. Or maybe the Americans wanted to annex it and get all of their tasty Canadian bacon and whisky. But it was truly another war with the British, who did invade the US back and burned down the White House in 1814. Maybe the Canadians were just peace-loving colonists who got caught in the middle. I should remember to research this some more.

 

[2017ish]

....But it was truly another war with the British, who did invade the US back and burned down the White House in 1814. ...

That burning, however, was in direct response to the US burning of the Port of Dover and, less directly, of the government buildings in York. So we can blame it on the Canadians, maybe?

 

[Danmar]

Sorry for the diversion again, but this side discussion is too much fun.

Yes, it might be that there were many causes and motives, and this is true in any war. When I visited Canadian museums, there were nothing said about the causes cited by either side.

The main reason cited by the US is about "impressment", the conscription of American civilian sailors into service for the British Navy in its Napoleonic War. According to one Web site,

Between 1793 and 1812, the British impressed more than 15,000 U.S. sailors to supplement their fleet during their Napoleonic Wars with France. By 1812 the United States Government had had enough. On 18 June, the United States declared war on Great Britain, citing, in part, impressment.​

Maybe Canada which was then just a colony of England got attacked as a surrogate. Or maybe the Americans wanted to annex it and get all of their tasty Canadian bacon and whisky. But it was truly another war with the British, who did invade the US back and burned down the White House in 1814. Maybe the Canadians were just peace-loving colonists who got caught in the middle. I should remember to research this some more.

Yes. No doubt. The causes are pretty obscure at this point but the end result is very clear-an independent yet relatively friendly Canada. Pretty good result I'd say.

 

[NW-Bound]

Back on the retirement crisis, why is the demographic of Minnesota different than that of other states? I don't think it is the same throughout the US, or is it?

Even if the outnumbering geezers are financially self-supporting, the lack of local workers will drive up the living costs. And if I were a Minnesotan youngster, I would escape to another state instead of staying behind, and getting surrounded by a bunch of old people. That is going to make it worse and worse.

PS. I see that only 1 in 5 will be retirees. Perhaps that is not any worse than in Florida.

PPS. 20% in nothing compared to Florida. From a Web site,

Florida, unsurprisingly, also has the highest percentage of retirees in the nation. Those 65 and older make up 27.9 percent of households in the state. Pennsylvania was second with 25 percent.
​

From my hometown newspaper in south central Minnesota

Minnesota's Retiree Population About to Explode
Posted: Jan 03, 2016 5:46 PM CST

Starting in 2020 and lasting through 2030, for every one person of “working age'' added to the population, there will be 21 people added over the age of 65. That's according to Metropolitan Council data.

The demographic shift will nearly double the area's elderly population by 2040, when more than 1 in 5 people will be retired.

The*Minnesota Department of Human Services says the impact on the state budget will be substantial as more people will have to rely on public programs for services they can't afford themselves.

 

[Luck_Club]

My personal experience with "company retirement accounts" 401K, sep IRA etc. The issue for me was in the first 5 to 10 years my investment choices sucked. After roughly 10 years and 1 market correction, I had exactly what I and my employer had contributed. Buying on book value, cash flow analysis, PE ratios etc; none of it seemed to matter! After all was said and done, my "retirement savings" was valued pretty much the same as what I and my employer had contributed.

I had management buyouts leaving me with nothing and them with the productive assets I thought I had purchased.

My point is until it is a simple invest X and get Y most are going to fall victim to the "corporate shenanigans".

Finally I said show me the money, and would only invest in dividend paying individual stocks. Then and only then did I see returns on my money.

This is the primary reason I'm big on rental real estate.

 

[REWahoo]

My personal experience with "company retirement accounts" 401K, sep IRA etc. The issue for me was in the first 5 to 10 years my investment choices sucked. After roughly 10 years and 1 market correction, I had exactly what I and my employer had contributed. Buying on book value, cash flow analysis, PE ratios etc; none of it seemed to matter! After all was said and done, my "retirement savings" was valued pretty much the same as what I and my employer had contributed.

I had management buyouts leaving me with nothing and them with the productive assets I thought I had purchased.

Were you being sarcastic when you chose your forum name?

 

[ownyourfuture]

Yes, and when they don't recognize the expenses it gets really bad.
I know someone who makes better than avg wage, but has a hard time saving as the $$ just seems to evaporate.
Yet this person didn't like it when I pointed out buying the college age child a cell phone was over a $2,000 purchase.
They said no, the i-phone was free, they did not think about the 3 yr contract at $70/mo = $2,520

Well done!

 

[ownyourfuture]

But will it become means tested as a way of controlling rising costs associated with so many non savers? That would be my fear.

I'm pretty sure it's already means tested.

 

[ownyourfuture]

Back on the retirement crisis, why is the demographic of Minnesota different than that of other states? I don't think it is the same throughout the US, or is it?

Even if the outnumbering geezers are financially self-supporting, the lack of local workers will drive up the living costs. And if I were a Minnesotan youngster, I would escape to another state instead of staying behind, and getting surrounded by a bunch of old people. That is going to make it worse and worse.

PS. I see that only 1 in 5 will be retirees. Perhaps that is not any worse than in Florida.

PPS. 20% in nothing compared to Florida. From a Web site,

Florida, unsurprisingly, also has the highest percentage of retirees in the nation. Those 65 and older make up 27.9 percent of households in the state. Pennsylvania was second with 25 percent.
​

The main reason I posted that news article was to point out what I highlighted at the end.

'more' people will have to rely on public programs for services they can't afford themselves

To avoid getting political, all I can say is that something Minnesota is extremely high in already, is going to get a lot higher in the future

 

[Luck_Club]

Were you being sarcastic when you chose your forum name?

LOL. My wife is after me to change it, but I can't find a way. It was meant as a joke.

Perhaps and Admin could change it?

 

[JohnnyBGoode]

Yes, the (negative) savings rate is well documented and quite sad. I seem to recall in an article I read recently that it was actually positive about 10 years ago during the last housing crisis. People were scared (and perhaps got out of a lousy upside down mortgage by just walking away) and actually saved more than they spent!!!

But the bad times ended, good times came back, and we are back to negative savings. Clearly we don't want another 2007-style financial crisis, but it was very illustrative. I assume there probably is an analogy if we think back to the "high" savings rates of the 1950's - everyone still had the Great Depression seared into their collective consciousness. And that is when there were real pension plans as well - a double dose!

It sure would be nice to have a high savings rate without a dire economic crisis. I don't see the behavior changing any time soon. And the sky-high stock market indices aren't helping adjust behavior I expect.