What has the world come to??!

[tmm99]

Ha and I were talking about a specific occupation, state psychiatrist.

Ok I do see how my statement made it seem that other public sector jobs might pay that well.

I was wrong about that. In Seattle, the managers at a fire dept earn up to $184,000 a year in a public pension.

State feels bite of workers' 'pension spiking' | Local News | The Seattle Times

And that's how some cities in CA went banktupt - IMHO

 

[scrinch]

It's only as complicated as you want to make it. Basic rules are simple:

1) LBYM
2) Save as much as you can in a low cost index funds -- if you can't figure out how to create a balanced portfolio, you can always just buy target retirement funds and set it and forget it.

If you do those two things for your entire working career, you should be just fine. Everything else is gravy.

Still, saving/investing isn't about having a lot of knowledge or expertise. It's about DOING it consistently (hence the concept of discipline).

I think you have a point, but if this were literally true, this board would have collapsed long ago.

We have busy perpetual threads on social security, Medicare, Obamacare, Obamacare subsidies, SWR, etc.

I think it can be as simple as LBYM, save the rest, set it and forget it. But not for too many posters on this board, because what fun would that be to talk about?

What sets the posters (and lurkers) on this board apart from the rest of the population isn't so much their incredible mental prowess/financial acumen as their ability to see that they have a personal future out there that needs to be planned for. We have people on the board who can't bring themselves to invest in those incredibly risky things called equities, and we have people who have difficulty investing in anything less risky than microcaps, and most of us are somewhere in between. The similarity between these people isn't in their ability to read and react to the financial winds, but to see that they are going to need to provide for themselves when they can't (or decide not to) work any more. Saving 20% of your salary and stuffing it in a shoebox, while unsophisticated, is much better preparation for retirement than saving 5% of your salary, investing in a sophisticated portfolio of hedge funds, and running up credit card debts. The shoebox guy is probably lurking on this board, while the sophisticated guy is on the BMW board.

We come together on this forum to share ideas about where to live, how to live, how to live efficiently, how to support ourselves, how to enrich our lives in retirement. I don't think we do that because we're smarter on average than other groups, but because we're paying attention and trying to plan for that phase of our lives. We're all gratification postponers. Okay, maybe smarter-than-the-average-bear gratification postponers.

 

[Hamlet]

The thing is, messing up those things probably won't cause real problems to someone who has spent 30 years living below their means and investing in something okay.

There are many, many opportunities to make small mistakes, but if you get the two big things approximately right you're probably going to be okay.

Really, what is the downside of taking SS too early/too late?

I think you have a point, but if this were literally true, this board would have collapsed long ago.

We have busy perpetual threads on social security, Medicare, Obamacare, Obamacare subsidies, SWR, etc.

Just filing a 1040 for most of us takes a lot of care, plus usually some spending, even without professional help.

 

[pletal]

Saving 20% of your salary and stuffing it in a shoebox, while unsophisticated, is much better preparation for retirement than saving 5% of your salary, investing in a sophisticated portfolio of hedge funds, and running up credit card debts. The shoebox guy is probably lurking on this board, while the sophisticated guy is on the BMW board.

.

I am the shoebox guy. Just saving 40 percent

 

[kyounge1956]

Ha and I were talking about a specific occupation, state psychiatrist.

Ok I do see how my statement made it seem that other public sector jobs might pay that well.

I was wrong about that. In Seattle, the managers at a fire dept earn up to $184,000 a year in a public pension.

State feels bite of workers' 'pension spiking' | Local News | The Seattle Times

Oh, for Pete's sake! This article is about a small number of retirees (in Lakewood and other cities of the Puget Sound region, not Seattle) who are taking advantage of a loophole in an obsolete pension plan, and about the fact that this loophole allows their former employers to provide a retirement incentive in the form of a last-minute salary hike, at small cost to the employing city, but creating a large expense for the State of Washington, which has to pay the artificially inflated pension. First of all, to the best of my knowledge, only a minority of public employees--law enforcement and fire fighters--were ever able to enroll in this plan. Second, the plan which allowed these very high pensions was replaced in 1977, and, according to the article, there are only about 200 people in it who haven't retired yet. The replacement plan does not allow "spiking", which is how the specific retirees mentioned in the article come to have such high pensions. Pension benefits under LEOFF2 are based on the 60 highest paid consecutive months' salary.

While supposedly withdrawing your original comment, you again imply that many public sector retirees draw outlandishly high pensions. Most of us didn't make as much as Bronske, McGovern or Hull when we were working, let alone after retirement. In fact, the article says these three are getting more in pension than Seattle's current fire chief is getting in salary. I'm a public sector retiree, and I'm fed up with hearing the fable of widespread six-figure public pensions repeated over and over as if it were an indisputable fact. Now you know better, and I hope next time you have occasion to mention the topic, you'll at least be more specific and not paint with such a broad brush.

 

[Fermion]

I think for high earners in the public sector, they get very high pensions. I think high earners in the private sector can save a decent amount in taxable accounts.

The public sector high earners are in a little better position because they can shelter a lot more money during their career in the pension, where the private sector individual has to pre pay tax on it thus not having the compounding of that money over the 30 years.

The regular earners in both private AND public sector are maybe about in the same boat and represent probably the vast majority of retirement.

That seem fair?

 

[gazelle]

In the "old" days people died before they could receive a pension or SS. There is a reason the retirement age for SS was set at 65. Back in the 1930s the life expectancy was around 62-63. Our increased life expectancy has radically changed things because we have to plan for 30+ years of retirement. That wasn't true in my parents generation. Though that means we have to save more for retirement I agree with many of the other posters who say that saving for retirement is as complicated as you want it to be. There are many fairly uncomplicated retirement tools out there if that is what you want.

 

[haha]

In the "old" days people died before they could receive a pension or SS. There is a reason the retirement age for SS was set at 65. Back in the 1930s the life expectancy was around 62-63. Our increased life expectancy has radically changed things because we have to plan for 30+ years of retirement. That wasn't true in my parents generation. Though that means we have to save more for retirement I agree with many of the other posters who say that saving for retirement is as complicated as you want it to be. There are many fairly uncomplicated retirement tools out there if that is what you want.

I don't know how old your parents are, but what you say is accurate in a minor way, but it gives the wrong impression. Life expectancy at birth has increased very greatly, but this is not the main thing affecting retirement economics. Life expectancy once middle age has been attained has increased some, but not nearly as much. Huge strides have been made in neonatal
care as well as pediatrics. Not many iron lungs left, or rheumatic fever which often set up young adults for an early death.

I had one great grandfather born in 1852 who died in 1946. This entire period was before "modern medicine" existed. Antibiotics first became available during WW2, but as far as I know they only became available to the civilian population in the late '40s-first sulfonamide, then penicillin. I remember when one great uncle who was a TB doctor at a sanatorium near our home had to enter private practice because the san was being shut down due to antibiotics curing the patients- I think it was streptomycin. A grandfather born in 1864 (his Dad figured the war could carry on just as well without his attendance)-died in 1949. Both my grandmothers born with at least 20 years still to go in the 19thy century lived into their late 80s, and my great grandmother married to the guy who died in '46 lived until 1952, in her late 90s and still getting around and enjoying the occasional beer. My Mom used to pick her up and take her (and me) to a nice beergarden. Both my parents' sibs lived at least into their mid to late 80s. And it isn't just my family. As a boy I went to so many parties with lots of old men and women spinning tales about how great it was in the old days. And our neighborhoods were age integrated. Old people were everywhere, and this was not just a young boy thinking any adult was old. I knew a lot about most of these people, they were old. A couple of old bachelor brothers lived up the street. Each had had a wife who ran off in their early 20s. Didn't seem to bother their life expectancy, as one lived to 84 and the other to 86. This was in the 50s. No nursing homes either, they were walking around the neighborhood, then all of a sudden they were dead.

What has really turned SS on its head is the falling birth rate. There was a short period in mid 20th century when youngish men were dying of heart disease, but as you know that is long gone now.

Ha

 

[modhatter]

First let me say, that I feel your pain. When I first entered this zone, I was overwhelmed with reading all the posts and trying to figure out what was going on and to educate myself. Seems like this should be a mandatory class in high school.

Perhaps some of the others could suggest a book that is an "easy read" for the OP. (Not 4 Pillars - though it is good. It is not one to start out with for a novice I don't think) Something, presented in more layman's language.

Then after that and reading this and Bogleheads Forum for a while, he/she might move up to another recommended book.

 

[steelyman]

I think kyounge1956 is right.

Puff up if you want, the sun will rise.

 

[kyounge1956]

I think for high earners in the public sector, they get very high pensions. I think high earners in the private sector can save a decent amount in taxable accounts.

The public sector high earners are in a little better position because they can shelter a lot more money during their career in the pension, where the private sector individual has to pre pay tax on it thus not having the compounding of that money over the 30 years.

The regular earners in both private AND public sector are maybe about in the same boat and represent probably the vast majority of retirement.

That seem fair?

Fairer, certainly...perhaps even a little off in the other direction. I don't want to minimize the value of a defined benefit pension, which many public employees receive and I think most private sector workers don't. The fact that I have a pension is what makes it possible for me to retire at all, as I didn't start saving seriously for retirement until about five years before I pulled the plug. I doubt that many private sector workers would have been able to retire at 57 in spite of having procrastinated for so long.

It's just a sore point with me that so many people seem to think many if not most public employees receive outrageously high pension benefits, which just isn't the case. I think generally the pension is proportional to pay--high earners get big pensions, modest earners get small ones. I do agree (with the author of the article, and I think the majority here on ER) that "spiking" is an abuse that should be eliminated from pension systems.

 

[Calico]

I am the shoebox guy. Just saving 40 percent

Shoebox gal here, saving between 40-50%.

 

[Badger]

I am thinking that some kind of sensible finance education mandatory in high schools might be of benefit. Do they do that now?? Like they have Home Economics??

+1
I was a teacher (high school and college) for most of my life and recognized the need for a course in personal finance for close to 40 years. Sadly you will be hard pressed to find this anywhere in the US public school system and most likely not in private schools as well. It is difficult enough for teachers to teach basic math, science, and grammer with the limited time left after all the other non-academic activities and requirements that eat up the day. Too bad. Even a short course with real world examples and individual/group projects for one grading period (6-9 weeks) would greatly benefit the students. But let's not go there.

On occasion I would take time out of regular class activities to go through some simple examples like a budget while trying to live on minimum (even 2X) wage, the value of compounding savings over time, or the expense of time payments, etc. I got through to a few who wanted to talk more after class but most were content to let it pass since parents were taking care of them and they had an allowance to blow each week.

I believe you have the right idea to allow for the opportunity to develop a basic understanding of personal finance "survival". It would go a long way to provide the tools to create a more comfortable life in their older years.

Cheers!

 

[Walt34]

It's just a sore point with me that so many people seem to think many if not most public employees receive outrageously high pension benefits, which just isn't the case. I think generally the pension is proportional to pay--high earners get big pensions, modest earners get small ones.

I think part of it is that a few news stories about exceptional out-of-the-ordinary pensions create a mental "anchor point" and that creates the perception, ignoring the reality, that all public service pensions are lavish six-figure ones.

While I also receive a public service pension, like most it is nowhere near six figures. I sure wish it was!

 

[2B]

There is a wide diversity in public pensions. Some plans have allowed high payments by gaming the system but most public pensions are pretty modest. Unfortunately, many plans are seriously (criminally?) underfunded. Again unfortunately, these plans will ultimately undergo some form of readjustment and even the modest pensions could be at risk. Eventually, the payments can only be maintained if the tax revenue can be matched to the spending. Think Detroit for the here and now but more will probably be coming.

I have been saying for years that we must consider some sort of systemic risk in our planning. That "ironclad" public or private pension might roll over someday. Social Security could be "saved" once more at your expense. We can not protect ourselves from everything but we can make sure we don't totally blow our lifestyle with one aspect collapsing.

As to the OP, I think the investment world now is simple with less illusions of security. My father worked many jobs and never got that pension because vesting was never achieved until he managed to work for 20-some years at the post office. That pension was modest but COLA'd. He should have been saving money but he didn't. If he had, he would have been ripped off by high brokerage fees and poor insurance products with high commissions. That's what I saw when I started investing. Now we have low cost index funds and no fee accounts available. As said before, we now need the discipline to do what needs to be done. It really is very, very simple but it is not easy. Most people don't bother to learn the basics and then many more won't follow through.

 

[marko]

I don't think they teach even basic financial literacy anymore. A few relatives who are in financial straights don't have a 'money problem', as much as they have a 'money management problem'.

One thing I recall from 7th grade was that they took an entire afternoon teaching us how to balance a checkbook. We also had a lady from the local bank come in every week to talk about saving, how interest worked and set us up with savings accounts (.05 cents a week)...she'd actually take our nickels and bring back our passbooks the next week showing our deposits (good ol days indeed!)

As noted, people are living longer just as pensions are evaporating and folks with poor money skills are being left to fend for themselves. Couple that with credit cards and a 'must have' society pressure and there you go.

 

[Jager]

I think the disappearance of defined benefit pensions is THE central factor in retirement becoming the challenge/impossibility for a large percentage of people that it has.

When I began my career (with the old Bell System) 39 years ago, pensions, for most people, were the norm. I recall attending many retirement celebrations for craft workers (those would be the union-represented, non-management folks - arguably the cohort least likely to understand the arcana of finance). The fact that they routinely arrived at that milestone, typically at ages that today we consider "early," was entirely because of the pension they were due.

Alas.

I couldn't agree more with the OP. Today's prospective retiree has an enormous heavy lift in front of them. And the members of this board are anything but representative. LBYM - a common emphasis here, for instance - is a marginalized, tin-hat philosophy to most of our consumerist society.

Something wicked this way comes...

 

[HFWR]

LBYM - a common emphasis here, for instance - is a marginalized, tin-hat philosophy to most of our consumerist society.

I would add that many folks' problem is not a lack of knowledge. One doesn't have to be savvy at investing to at least save something. "A penny saved" has been around for a while. It's the delayed gratification part that causes many to "fail"...

 

[Fermion]

It is unfortunate though that bonds have been yielding negative real returns for the past few years.

I think the majority of the public distrusts the stock market and yet that is the only way their 401K has a chance at matching the 8% guaranteed rate of the defined benefit pension.

There is no taxpayer bailout for the 401K if you keep it all in treasuries paying negative 1% real.

Education is needed.

 

[danwhite77]

Think Detroit for the here and now but more will probably be coming.

As I sit here in Chicago I can't think of any other city that might have a REALLY BIG problem with its underfunded pension that will result in much higher tax rates. No, sirree. Not a one.

 

[Which Roger]

Things may have been simpler in the previous generations for those who had pensions, but the majority people back then did not have pensions, nor did they have access to the various retirement vehicles (401k, IRA, etc) because such things did not exist.

Back then the "ins" were those who were in the right place at the right time and ended up with a job for life that came with a nice pension, and the "outs" were everybody else. Now, the "ins" are those who are able to adapt to the fast-changing job landscape, pick up new skills, and keep themselves in demand, and the "outs" are everybody else.

Regarding the complexity of investing: Investing is relatively simple, but understanding that investing is simple is far from simple. Investing in low-cost index funds is great advice, but understanding why it is great advice requires a fair amount of math skills, which may seem pretty basic for most of us on this board, but are far from basic for many people. Also, we are paddling upstream against a bunch of sales people whose income depends on making us think that investing is complicated so we need to pay them big money to hold our hand and guide us. Fortunately, that is slowly but surely changing, with companies like Vanguard gaining more and more momentum and people like us getting the word out.

 

[2B]

As I sit here in Chicago I can't think of any other city that might have a REALLY BIG problem with its underfunded pension that will result in much higher tax rates. No, sirree. Not a one.

I didn't want to name names. I can't remember all of the moderator slaps on the wrist I've received but I think I got one on a discussion about public pensions a few years ago. I was using my "risk" comments and I think I identified several cities that were reportedly seriously underfunded. Someone from one of the cities said that their pension was safe because it was protected by their state's constitution. Detroit has shown us how much that is worth.

Back then, my opinion on the safety of municipal and state pensions was probably not mainstream thinking. Now with several pensions getting gutted, it's really come forward in people's thinking. I think the whole process that led to this situation is disgusting but there isn't an easy solution. I don't think any state is exempt from risk but I also think that most existing pensions will be paid in full. Some will not. Most public pension plans have significantly increased employee cost and/or reduced benefits. The benefit of future public pensions will not be as generous.

 

[2B]

Regarding the complexity of investing: Investing is relatively simple, but understanding that investing is simple is far from simple. Investing in low-cost index funds is great advice, but understanding why it is great advice requires a fair amount of math skills, which may seem pretty basic for most of us on this board, but are far from basic for many people.

I've managed to educate my DW which means even those with next to no math skills can understand. The breakthrough was when she read Millionaire Teacher. That book is simple to the extreme. It covers the required points clearly with almost no math. Most forum participants would be bored by it but it may be of use for spouses and others that aren't up to tackling Investor Manifesto.

 

[Texas Proud]

Regarding the complexity of investing: Investing is relatively simple, but understanding that investing is simple is far from simple. Investing in low-cost index funds is great advice, but understanding why it is great advice requires a fair amount of math skills, which may seem pretty basic for most of us on this board, but are far from basic for many people. Also, we are paddling upstream against a bunch of sales people whose income depends on making us think that investing is complicated so we need to pay them big money to hold our hand and guide us. Fortunately, that is slowly but surely changing, with companies like Vanguard gaining more and more momentum and people like us getting the word out.

One of the problems that people get into is that they think they need to know everything about investing... which is not true... A car is a very complex piece of equipment and almost everybody that I know can pick up how to use it pretty quickly.... the same can be said for investing.... if you WANT, it can be very simple.... as I told one guy a few years back who was just starting to save in his 401.... just put it all in a retirement dated fund.... you do not have enough to worry about.... and if he never did invest in another fund, he probably will do just fine.... He did not have to learn about how markets work, about risk, etc. etc....

Most people who do not act do so out of fear... fear that they will make a big mistake.... but their mistake was not doing anything....

 

[NanoSour]

I have to agree with the OP that the average Joe does have difficulty with all this financial mumbo jumbo. Truthfully, for most 20 somethings, retirement savings is just so low on their list of priorities that they just don't give it much thought. It's just part of being young and invisible. There is true that most wisdom comes with age. Unfortunately, by the time their retirement years do come in to focus, for most it's a little late as their spending/life habits are already set in motion.

I remember when I was a young 18 year old "slick-sleave" Airman Basic and went down to the local Merrill Lynch office in Colorado Springs. The broker wouldn't take my $1000 to open an account. Said I needed a minimum of $5000. I think he just didn't want to deal with a child. And looking back at pictures of myself back then, can't say as I blame him.

My point is, how many other Airman that age were looking at the world the way I was. Not many I suspect. Most were interested in new cars or radio gadgets. I don't think it was an accident that I was able to ER at 49 and the vast majority wouldn't be able to.