MIT Lecture

Marshac

Full time employment: Posting here.
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I came across this lecture by Laurence Kotlikoff, the "brains" behind "The Coming Generational Storm" (no offence to Burns, but Kotlikoff DID write the paper)

The Video: http://mitworld.mit.edu/video/202/
The Paper which lead to the book: http://econ.bu.edu/kotlikoff/GenerationalStorm.pdf

He talks about the problems facing the US, and talks about what you can do about it. The Q&A session is full of good information as well. Overall, very depressing, but nice in the sense that he validates everything I have been telling my friends :D

Anyways, if you have an hour, I highly reccomend you get some popcorn, pull up a chair, and enjoy!
 
I thank Merrill Lynch for funding this description of America's demographic transition and its
implications for America and Americans.
 
And of course everyone posting here is sending a copy to their Congressman so they'll be informed. Heh.heh, heh.
 
Marshac,

Thanks for the "Coming Storm" link. It is well
worth the time.

The author is apolitical ..... he says a pox on
both Dems and Repubs and offers a middle
ground solution that might appeal to the
moderate pragmatics of both camps.

I sincerely hope that we can bury the political
biases on these issues and start coping with
the problems we face.

Cheers,

Charlie
 
@ell, I certainly agree with "a pox on both Dems and Republicans" :)

JG
 
Thanks for posting these links.

I watched the video and am 50% through reading his paper.

This is a very worrisome situation. It's had me concerned for a while, but he puts a lot of analysis and real numbers into the mix.

He's a big advocate of NOT investing an long-term US bonds, as he thinks the US is bankrupt and it's only a matter of time before othwr nations who invest heavily in the US will figure this out and move their monies elsewhere.

He also suggests NOT putting your savings into IRAs and Roths (except to get a company-match) because he thinks the federal income tax rates will be escalating significantly and will impact these savings vehicles in the process.

Many of his proposed solutions are going to involve a lot of belt-tightening...and will not make many people happy.

Does anyone who has read and/or watched these have any suggestions on how we (the high-savings group) can best prepare?

EngrGal
 
De Gaul and the Norwegian widow

History does not repeat exactly - but I can recognize familar elements of the 70's, 80's and early 90's.

We will muddle thru - at least until someday we don't.

BTY - the pinch hitter is Adam Smith and his 'Invisible Hand' - with Yogi as the coach.
 
History does not repeat exactly - but I can recognize familar elements of the 70's, 80's and early 90's.

Yes, I remember reading a lot of other papers predicting demise in those times. One of the most popular ones was Ravi Batri, Professor of Econ at Princeton, I believe.

It's human nature to believe in these scenarios. And someday one of these gloom and doomers are going to be right. Not because they are smarter than everyone else, but just because they got lucky. :D

They have always been with us, and I expect them always to be. This is not saying that I think he's wrong, but there are so many unforseen variables that cause different reactions than were expected.
 
To put it bluntly - adjustments will be/are being made in world currency, stock, bond markets and Congress will 'do something' - like pension reform in 1975 or saving SS in 1983. Remember Graham/Rudman?

Some people will benefit and others won't.

Sooo - to throw in a little Bear Bryant - watch the football and like a linebacker be: 'agile, mobile and hostile'.
 
EngrGal,

I recently bought a long term CD (2014) that pays
2% + CPI as an inflation hedge.

Some of us on this forum use Short Term Investment
Grade (Vanguard) as a MM substitute. I am seriously
considering shifting the rest of my bond allocation
to my MM fund. IMHO, this is a safer play right now
even if you give up 1.5% of current yield. If long
rates go up 1% MM will have a better total return
than Short Term Investment grade.

Cheers,

Charlie
 
If the government raises taxes in the future (and thus increasing the rate at which your 401k withdrawals are taxed at), possibly. It all depends on what your tax bracket is now. In the paper I linked to, there is a table he made that shows you how a 20% tax increase later would affect your lifetime consumption, and your lifetime tax burden.

He wasn't telling people "don't save for your retirement", but rather telling people to look at some of the alternatives to a tax-deferred retirement account.
 
The book that Kotlikoff has written with Scott Burns generally recomends being more heavily weighted toward international stock and bond investments, using funds that don't hedge away currency risk. In addition, they suggest natural resource stocks and funds in anticipation of higher inflation. They are moderate in their suggestions.

I take Social Security at their word, planning on receiving 73% of expected benefits at most as mentioned on the annual statement. After Medicare B is deducted, I view SS as a fixed pension, with rising medicare costs eating the inflation adjustment, as happened this year to low income SS recipents.

The tax laws affecting SS are not inflation adjusted, so it eventually becomes fully income taxed.
 
Hello mark! I basically view SS in the same way.
They send you the annual statement. Sure, the
law could change, but beyond what they show you
it's all just guessing isn't it? I have recently started to
factor my DW's SS benefits into my projections
(she will be 62 four and a half years after I start
drawing). With my SS, her SS, and the income from my investments, we look golden. Of course, it is entirely
possible we won't live to see it. OTOH, 2011 no longer seems that far away.

JG
 
While there are many opinions on Social Security, it is won't disappear, just become more stingy. In my personal opinion, there will be less of a crisis than is politically expected (as opposed to the real world) due to insufficent personal savings. Retirement will start later from necessity.
 
If the government raises taxes in the future (and thus increasing the rate at which your 401k withdrawals are taxed at), possibly. It all depends on what your tax bracket is now. In the paper I linked to, there is a table he made that shows you how a 20% tax increase later would affect your lifetime consumption, and your lifetime tax burden.

He wasn't telling people "don't save for your retirement", but rather telling people to look at some of the alternatives to a tax-deferred retirement account.
I hadn't thought about a 20% tax increase between now and retirement. Wondering about how tax-deferred compounding would affect the long term scenario I looked at the article. On the first page this leaped out at me:

I thank Merrill Lynch for funding this description of America's demographic transition and its implications for America and Americans.
Merrill Lynch would probably benefit more if people saved more in after-tax accounts, at least for companies that don't use them as their 401(k) trustee.

The graph is on the last page. If I read it right it's saying that a 4% tax-deferred savings works better in the 20% rise in taxes scenario than 6% or 8% tax-deferred savings. I think I'll run my own numbers on that sometime...too many questions from that graph, like when do the taxes go up?

This is in the executive summary on page 4 when talking about the effect of high tax-deferred savings for low and moderate income households:

Third, and most importantly, withdrawals of tax-deferred balances when old can trigger much higher levels of Social Security benefit taxation under the federal income tax.
Huh? 401(k) and IRA withdrawals don't have SS tax taken out of them, do they? Last I checked I pay SS tax on my gross income, not my gross income minus tax deferred savings, so why would I pay SS again later? Or is he saying that since it's taxed as income that having a higher income would limit my SS benefits?

Or is he simply saying that the marginal tax rate or resultant total tax rate is higher with tax-deferred withdrawals being taxed as income as compared to having after-tax capital gains styled investments? You pays your taxes now, or you pays your taxes later. Your marginal tax rate changes with higher taxable income, but I don't see how that diminishes SS benefits.

I gotta tell you, I was interested in his article when I read your post about 20% tax increases, but at first glance I'm suspect of his motives. I've only read the first and last pages plus the executive summary, though.
 
BMJ,

Didn't you know that up to 85% of your SS income
is subject to income taxes under certain conditions?

We can thank our Lib friends on the left for that.

Cheers,

Charlie
 
BMJ,

Didn't you know that up to 85% of your SS income
is subject to income taxes under certain conditions?

We can thank our Lib friends on the left for that.

Cheers,

Charlie

This is too easy - I'll let someone else do it! :D
 
BMJ,

Didn't you know that up to 85% of your SS income
is subject to income taxes under certain conditions?
I know SS benefits have taxes taken out, but that doesn't change based on how much you withdraw from tax-deferred vehicles, does it? In the executive summary it sounds like he's saying that my saving in a 401(k) now negatively impacts my SS benefits in retirement, and I don't see how.
 
BMJ,

Remember that money drawn from an IRA is
taxable income (except for a ROTH). If your
total adjusted gross income is high enough,
you pay tax on up to 85% max of your SS
income.

Ain't life grand? Tax on tax via an insidious
"means" test. Soak the rich .... they can afford it. :)

Cheers,

Charlie
 
This should really be under "post-ER surprises", but
Charlie got me thinking about it. I first planned to start
drawing
down my IRA in 1993, when I semiretired (age 49). I
have been fortunate enough to have not yet touched
the money, even 11 years later. If I started to draw
on it now (age 60 years and 5 months) I would run the risk of putting myself in the position of having to pay
federal income taxes, which I have not had to do
(very low income) for years now. Since I am so close to SS, I am now thinking I can just let the IRA grow
indefinitely. After all, I've made it this far. I could
make it another 13 months. Anyway, paying -0-
federal taxes is delicious.

JG
 
Since I am so close to SS, I am now thinking I can just let the IRA grow
indefinitely. After all, I've made it this far. I could
make it another 13 months. Anyway, paying -0-
federal taxes is delicious.
That seems an odd way of looking at it. First of all, you have RMDs starting at age 70.5. You will pay taxes on that IRA money sooner or later excepting extraordinary circumstances. If you die before paying another penny of tax then Uncle Sam will take his bite post mortem anyway, and you didn't get to enjoy the money.

Of course I'm not familiar with your situation, but might it not benefit you to take some of that IRA money out now at 10% federal tax and save it after tax, or do you not envision surpassing the 10% tax bracket for the rest of your life?
 
Hello BMJ. Good question. Re. "envisioning not surpassing the 10% tax bracket for the rest of my life",
I honestly don't know. I sure would hate to "not have use of the money" just in order to brag that I paid no taxes. I expect this will become more clear as time passes, and as usual it is a bit more involved here than
what I posted, as you suggested.

JG
 
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