The value of LBYM

[REWahoo]

People would choose to leave 4.5% of their pay on the table and walk away because they would not or could not save 6% of their pay in a tax deferred plan?

Yep.

The experience convinced me I was a miserable salesman. Couldn't even sell free money...

 

[JustCurious]

Yep.

The experience convinced me I was a miserable salesman. Couldn't even sell free money...

You're not the first person who has described this phenomenon, as have others on this thread, but it is really hard to wrap my head around that mindset.

 

[REWahoo]

You're not the first person who has described this phenomenon, as have others on this thread, but it is really hard to wrap my head around that mindset.

From the viewpoint of the employee they were being asked to take a 6% pay cut. The concept of delayed gratification was so incomprehensible it completely masked the value of added compensation.

 

[Walt34]

Yep.

The experience convinced me I was a miserable salesman. Couldn't even sell free money...

I had a hard time understanding that outlook (not saving I mean, not lousy salesmanship) for a long time. Several years ago I read a bunch of books on the "why" people behave that way. "Predictably Irrational", "Your Money and Your Brain", "Thinking, Fast and Slow" and similar titles.

The short version that I came away with was that people evolved to survive day-to-day on the plains of Africa, not plan ahead for 30-year retirements. In fact, if you survived to age 30 at all, you were doing great.

Apparently the people who can plan for a 30-year retirement are by far the outliers. And that makes me sad, because it points to the majority of people who don't have decent pensions or lots of inherited wealth to support them when they can't work any longer having very poor lives. I think it's going to be a national calamity but I probably won't be around to see the worst of it.

 

[HI Bill]

Sad story, but, the couple hasn't changed their spending or taken on more hours, or taken any defensive actions.

My first big regret was buying a $20K sports car in 1991, when I made $28K annually. Could have probably retired a year earlier if not for that mistake. Still, I enjoyed the car for 95 thousand miles, until I blew out the transmission!

Some people learn, some will never retire early, or on time, or comfortably.

My 68 year-old boss said this week that he didn't know if he could afford to retire in Hawaii. He's been working more than 40 years, and makes something like $250K, and has a pension from his government job...go figure!

 

[Clone]

I would have to go back into my lesson plans and find the reference that I used for the financial lecture. It was a very high percentage (around 50%) of employees that did not participate. I think it was Boeing, but I could be wrong. I know from discussions with other folks in industry that it is very common that people do not participate.


My focus with the students was this: On your first day, you are going to be presented with a pile of papers to go through. Make sure you sign up to defer at least the amount required to get the company match. Then, whenever you get a raise, take a piece of that and add it to the amount that you are deferring. And, if you get a big bonus, put some of that in as well. Hopefully it put some of them on a path that they may not have otherwise taken. An additional piece was to max your HSA account.


I had a co-instructor when we were working on a transition plan for me to retire. He stated that there were things in the lecture that he did not know, and wished someone had explained to him when he was in college.

 

[Taxman59]

^
Many years ago I managed a mfg. plant with ~100 employees. A large percentage of them did not participate in the co. 401k plan even though the company matched dollar for dollar the first 3% and $0.50 per dollar on the next 3%. I talked to a number of them about why they weren't taking advantage of free money and got three basic responses:

1. I need every last cent I can get my hands on to live. (This was reinforced when we had a glitch in the payroll system resulting in a 24 hour delay in the auto-depositing of paychecks. Panic and a near riot ensued.)

2. I don't trust the company to keep their hands off any money I contribute to the plan. They might swipe all my savings.

3. I won't ever be able to retire so I don't need to save/invest for the future.

I worked at a financial company with many professionals who were giving our clients financial advice. I ended up taking over the accounting for the 401(k) plan (16 employees quarterly valuations). Turns out that 2 of the professionals (out of 10) and 2 secretaries (out of 6) didn't participate! They were giving up a 5% contribution (500% of a max 1% employee contribution). Some said they needed the cash (yet could afford Glamour Shots photo sessions about 2x per year) and some figured SS would be sufficient!

I did convince one secretary to make a $200 contribution out of her annual bonus. She was shocked when the statement came out and her balance was over $1000! She was a convert from then on.

 

[RAE]

Sad story, but I wouldn't exactly say they got into this situation quickly. Yes, he lost his job unexpectedly, but multiple decisions they had made for several years leading up to the job loss really set them up for something like this to happen. When you carry that kind of debt load, bad things are almost certainly going to happen to you at some point. All it takes is a job loss, a medical emergency, or some other unexpected event to occur, and you are in deep trouble. I say "unexpected" event, but we all know that these things do occur in people's lives all the time, so you can't really say they are unexpected, either. It would be unexpected (in my view) if everything went perfectly, all the time......that's just not real life.

 

[Cut-Throat]

I know I'm strange, but I love it when people chuckle at me for driving an electric scooter to work. I think to myself, "keep laughing funny boy. I'll see you in early retirement before you know it."

The scooter is fine, as long as it is Safe. Not sure if you are riding this in traffic or not. But, no sense risking your life to retire early... Take the Bus, Walk or car pool.... The Medical Profession often refers to Motor Cycles as Donor Cycles.



When your limbs are flapping in breeze with 3-10 Thousand Pounds of vehicles passing you by, (i.e. Cars, Trucks) you are risking far more than a 100% Stock Portfolio. Money isn't everything. Not even close.

 

[Jerry1]

Value of LBYM to me was during the housing crisis. I never once worried about losing my house or being underwater. There were times when DW and I were a bit envious of some of the houses we’d seen. Frankly, I’m sure we could have afforded them, but it would have been tighter and I now realize that the stress of ownership coupled with the likelihood that I would have had to work longer makes it all worth it that we stuck with our smaller, simpler house.

On the 401K match, I worked with a bunch of accountants. I don’t think any of them, or me, left company match money on the table. I’m sure company wide the percentage was different for those not taking advantage, but when I was young and hired in, it was part of the indoctrination that you contributed no less than the amount needed to max out the company match. I’m thankful for the indoctrination. They were a good group of people.

 

[athena53]

Value of LBYM to me was during the housing crisis. I never once worried about losing my house or being underwater. There were times when DW and I were a bit envious of some of the houses we’d seen.

For me, it was when my company was acquired. DH and I looked at the numbers and figured that if it too me 6 months to find another job (and that was probably a high estimate given my field and my network), we'd survive, so I stayed around to see how it would work out. The new parent company was actually far more capable of running our company than the previous parent company and I lasted there another 6 years. I saw others bolt immediately for other jobs, unable to take the risk of a period of unemployment.

The new parent matched the 401(k) 100% on the first 6% and also added another 6% even if you put in nothing because we weren't eligible for the DB plan they'd stopped offering. One coworker would withdraw it immediately when it went in at the end of the year, pay the Stupid Tax, and spend the rest.

 

[Ronnieboy]

^ Sad but true.

Many years ago I managed a mfg. plant with ~100 employees. A large percentage of them did not participate in the co. 401k plan even though the company matched dollar for dollar the first 3% and $0.50 per dollar on the next 3%. I talked to a number of them about why they weren't taking advantage of free money and got three basic responses:

1. I need every last cent I can get my hands on to live. (This was reinforced when we had a glitch in the payroll system resulting in a 24 hour delay in the auto-depositing of paychecks. Panic and a near riot ensued.)

2. I don't trust the company to keep their hands off any money I contribute to the plan. They might swipe all my savings.

3. I won't ever be able to retire so I don't need to save/invest for the future.

4. But 65 years old is sooooo faaarrr awaaaaay!! <- is the one I hear a lot

You'll get there eventually (most of them).

 

[Ronnieboy]

I find it most telling when people have a medical emergency, several people in my home town had go-fund-mes and fundraisers for medical bills and I was like What?? How can they need a go-fund-me if they just went on that elaborate vacation and built that new house? Yes paying the out of pocket max is painful but it shouldn't be begging for money painful, not when they have good jobs and good insurance and obviously enough money to get nice things.

^

This is a moral issue to me. Or lack thereof.

Some people feel the need (or at least don't feel any guilt) to let others pay (via go fund me, etc.) for their bills when it isn't fun for them or if it will cut into their fun time/vacation(s) that they deserve/stuff that they want even when they could afford it by sacrificing their upcoming vacation. You always seem to hear the following excuses: "We deserve this trip because we work so hard" "Our children shouldn't have to be punished by not going on the trip" "These big companies/Hospitals, etc can afford to take less for my bills (deep pockets)" "We HAD to upgrade/remodel our house, we've lived without an update for far too long"

Reading the OP about how the nurse spouse will try to go home early and not pick up extra shifts just blows my mind....I hate to say it but it seems like this generation.....damn millennials or whatever their called now.

 

[michelek]

Sad story, but I wouldn't exactly say they got into this situation quickly. Yes, he lost his job unexpectedly, but multiple decisions they had made for several years leading up to the job loss really set them up for something like this to happen. When you carry that kind of debt load, bad things are almost certainly going to happen to you at some point. All it takes is a job loss, a medical emergency, or some other unexpected event to occur, and you are in deep trouble. I say "unexpected" event, but we all know that these things do occur in people's lives all the time, so you can't really say they are unexpected, either. It would be unexpected (in my view) if everything went perfectly, all the time......that's just not real life.

Beautiful.

 

[PandaBear]

The WP has an excellent personal finance columnist/ blogger..I always read her live chats. Last weeks live chat even had a mention of this board..



She had a nuclear fallout from something she wrote. Basically she said with Summer approaching if you have debt other then mortgage/car payments, you don't DESERVE a traveling big time getaway vacation. You might want it but you don't DESERVE it. She said people do deserve time away from work to recharge but stay home, go local, drive to visit family.



IOW if you book a vacay on your CC cards or have 100K in student debt you can't justify spending on a destination vacay. People went insane, called her every name in the book. To her credit she didn't back down and said I wouldn't be doing my job if I said anything different.

We travel quite a bit now and have nice vacations. But when the kids were little, we had a new mortgage and I had reduced my hours to part time. The kids went to a parent Co-op preschool (excellent but inexpensive) and our vacations were camping and using my parents timeshare. We always vacationed, but it was cheap. One year there was a 7-11 near the timeshare and we made our meals (no going out). But each evening we’d walk to 7-11 and the kids got a slurpee. Boy, they thought that was great!!!

 

[pb4uski]

They need to immediately talk with a lawyer and see if there is some way to get their $25k deposit back.

Tax at 12% and penalty at 10% would be $5,500... if they can get their $25k deposit back and pay off that 401k loan then that would be ideal.

Then lots of other work to do.

 

[CRLLS]

My focus with the students was this: On your first day, you are going to be presented with a pile of papers to go through. Make sure you sign up to defer at least the amount required to get the company match. Then, whenever you get a raise, take a piece of that and add it to the amount that you are deferring. And, if you get a big bonus, put some of that in as well. Hopefully it put some of them on a path that they may not have otherwise taken. An additional piece was to max your HSA account.

^ this

One day you lived on x dollars. Come raise time, you will get, say 3% more. Certainly you can manage to increase your living expense 1-1/2% more, and start sacking away 1-1/2% That is how I got started when 401K's came into being. Each year I took about 1/2 of the raise and added it to my 401K withholding.

The other thing about LBYM is that your "needs" were less for all those years during accumulation that a certain lifestyle was ingrained in your brain. By the time retirement age is near, the dollars required to sustain your lifestyle are less. This makes the target nest egg lower and more quickly attained. It is a double win IMO.

 

[RetMD21]

I think some people must feel a competitive pressure to post on Facebook about things they have spend money on. I don't want to contribute to their difficulties. Although I post travel pictures I try to tone it down. I didn't mention or show a picture of the seaplane that got us to an island last month.

 

[Amethyst]

You sound exceptionally kind.

Although it is kind of a nuisance to fiddle with, FB does offer an option to display your post to some friends...and not others.

I have well-off friends, who can afford all their trips and toys, and I love to see what they are up to even though we can't afford the same level. I would hate for them to keep these interesting things from the Amethysts "because they don't have as much as we do."

Same with the body-building lady friend, who surely has some overweight or physically compromised friends and relatives. I don't know if she shows her competition photos to "all friends" or screens them. But I like seeing them, even though I could never achieve what she has.

I think some people must feel a competitive pressure to post on Facebook about things they have spend money on. I don't want to contribute to their difficulties. Although I post travel pictures I try to tone it down. I didn't mention or show a picture of the seaplane that got us to an island last month.

 

[Teacher Terry]

Unless it’s a dire emergency go fund me bugs me too. Now if you need a organ transplant even with insurance you may need help. People will ask for funeral costs. Unless a young family has a child die paying for a funeral shouldn’t be a surprise. We always had savings when young because you never knew when you might get laid off, etc. All but one of our vacations involved driving across the country to visit relatives and friends when we were raising the kids. The stuff I see on Facebook is unbelievable. It’s fine if you can afford it but many can’t. Most of our friends live within their means.

 

[brett]

There are many in their 50's who have yet to learn this lesson (and probably never will) notwithstanding all the learning opportunities that they may have had in the past.

 

[The Cosmic Avenger]

The WP has an excellent personal finance columnist/ blogger..I always read her live chats. Last weeks live chat even had a mention of this board..

Yep, that was me! I hardly ever miss a chat.

 

[ivinsfan]

Yep, that was me! I hardly ever miss a chat.

No way...small world!!

 

[The Cosmic Avenger]

But there are some exceptions. 10 or so years my brother was looking for a new vehicle with the full intention of buying it outright. Then he found a last year model, still new but in an ugly colour. It was priced way below retail and they offered him 72 months financing at 0% so he took the deal.

But I'd guess that most people who take financing for that long do so because they can't afford a shorter term. And I don't think anyone offers 0% financing any longer.

We were offered 0% financing two years ago by Subaru, which was really surprising because it's such a popular brand! When I think of 0% financing and cash back, I think of brands that get their market share based on loyalty or low price. We actually had the cash saved up anyway, and I was thinking about CD rates and such when I realized that that amount was just about what we had left on our mortgage! So out of our former monthly mortgage payment, about 1/3 of that goes towards the car loan, 1/3 towards saving to replace the older car, and the rest...well, it was a little breathing room in our budget, but now it is going towards stable fees!

 

[Amethyst]

I only know a few people who aren't frugal and/or who can't meet their obligations. As I've said before, I know even more people who started out frugal, then inherited and now are living the high life...but she still shops at Wal-mart.

Of those few financially irresponsible people, my observation is that vacations and eating out are sacred to them; they would consider life a grim and trackless desert without them. The notion that $5,000 spent on vacation could have been invested,doesn't click with them. The interest on $5,000 won't buy lunch, and the time horizon for growing such an investment seems too long. Meanwhile, they need some fun. Heaven help the one fellow who did get into investing...naturally, he gravitated toward day-trading, because it looked like such a fast return!

They also crave to give money and help to friends and family, even when they aren't meeting all their own bills. It is just how they see being a decent person. When the wheels come off, they say "$#!+ happens, what can you do." And there's always bankruptcy to wipe the slate clean!