Americans Are Putting Billions More Than Usual in Their 401(k)s(bloomberg.com)
bloomberg.com
Americans Are Putting Billions More Than Usual in Their 401(k)s
https://www.bloomberg.com/news/articles/2017-01-04/americans-are-putting-billions-more-than-usual-in-their-401-k-s
477 comments
I'm not planning on Social Security being around by the time I'm old enough to tap into it, and I'm also not planning on having any kids to bail me out when I go senile, so yeah I'm putting a lot into my 401k. I think a lot of people my age (turning 30 next week) are feeling the same way, so I wonder if it's younger workers driving this trend.
> "I'm not planning on Social Security being around by the time I'm old enough to tap into it"
You need to change that attitude or your complacency will allow politicians to take it from you. The fact is you pay ~16% of your paycheck into social security and medicare, it is designed to be like a pension. It is not an entitlement, it's your money.
You need to change that attitude or your complacency will allow politicians to take it from you. The fact is you pay ~16% of your paycheck into social security and medicare, it is designed to be like a pension. It is not an entitlement, it's your money.
> The fact is you pay ~16% of your paycheck into social security and medicare, it is designed to be like a pension. It is not an entitlement, it's your money.
Except the facts don't match up with this.
It is not designed to be like a pension. It is the workers of today paying for the retirees of today, on the assumption that when you retire there will be workers to pay for you. There is no guarantee, and there is no fallback. The money is spent just as soon as it's taken from you.
It is an entitlement because I'm paying for my parents and my peers' parents. If it's around when I retire, I will be spending other people's hard-earned money, not my own. I mean the Wikipedia "definition" of entitle is "a government program guaranteeing access to some benefit by members of a specific group" which is exactly what SS is.
Except the facts don't match up with this.
It is not designed to be like a pension. It is the workers of today paying for the retirees of today, on the assumption that when you retire there will be workers to pay for you. There is no guarantee, and there is no fallback. The money is spent just as soon as it's taken from you.
It is an entitlement because I'm paying for my parents and my peers' parents. If it's around when I retire, I will be spending other people's hard-earned money, not my own. I mean the Wikipedia "definition" of entitle is "a government program guaranteeing access to some benefit by members of a specific group" which is exactly what SS is.
> It is the workers of today paying for the retirees of today, on the assumption that when you retire there will be workers to pay for you.
Isn't that how pensions have traditionally worked too?
Isn't that how pensions have traditionally worked too?
No- pensions take money from you while you work, put it into savings (investments) and then use that money to pay you when you retire. A properly ran pension fund is not dependent on current workers to pay current retirees, and if there were no current workers, there would still be money to pay retirees.
Unfortunately, a significant number of pensions have large amounts of unfunded liabilities, which means they may end up bankrupt or convert into pay-as-you-go.
Most pensions at least pretend to be equivalent to a retirement savings account. Defined contribution pensions are effectively a savings account, and defined benefit pensions pretend to be similar (but are usually not).
Defined benefit pensions are usually used for government roles and some large unions, where the unions can get large increases in total employee benefits without having the true cost show up on the organization's books. The union and employer generally agree to use unrealistic numbers for returns on investment (>=8%/yr).
Defined benefit pensions are usually used for government roles and some large unions, where the unions can get large increases in total employee benefits without having the true cost show up on the organization's books. The union and employer generally agree to use unrealistic numbers for returns on investment (>=8%/yr).
Yes, although I think the initial lag for pensions to start paying out is longer. First SS retiree payed in for only three years. https://www.ssa.gov/history/imf.html
"It is not an entitlement, it's your money."
I think you'd be on higher moral ground if Social Security was on sound footing from an actuarial basis, the US had balanced budgets for the last 30+ years and had invested heavily in the next generation (here or abroad) through education, infrastructure and social capital. Writing an IOU from the general fund to the Social Security "Trust" fund is no more legitimate than "saving" for retirement by funding an IRA with a credit card cash advance.
Money is just an implied promise with future workers. As the last person on planet earth I could have stacks of hundred dollar bills and it won't get me a sandwich.
If you look at US demographics the entire notion of retirement is at risk unless we assume some combination of massive productivity boosts, massive immigration and/or massive, sustained trade deficits or a next generation of workers that is willing to forgo children and embrace minimalism and self sacrifice that would make a monk look like a hedonist.
Otherwise the future will consist of lower standard of living for the vast majority of seniors; working longer; and some combination of lower asset prices and higher long term interest rates.
I think you'd be on higher moral ground if Social Security was on sound footing from an actuarial basis, the US had balanced budgets for the last 30+ years and had invested heavily in the next generation (here or abroad) through education, infrastructure and social capital. Writing an IOU from the general fund to the Social Security "Trust" fund is no more legitimate than "saving" for retirement by funding an IRA with a credit card cash advance.
Money is just an implied promise with future workers. As the last person on planet earth I could have stacks of hundred dollar bills and it won't get me a sandwich.
If you look at US demographics the entire notion of retirement is at risk unless we assume some combination of massive productivity boosts, massive immigration and/or massive, sustained trade deficits or a next generation of workers that is willing to forgo children and embrace minimalism and self sacrifice that would make a monk look like a hedonist.
Otherwise the future will consist of lower standard of living for the vast majority of seniors; working longer; and some combination of lower asset prices and higher long term interest rates.
But it isn't your money. They take your money today and then tomorrow ship it out to someone on social security. Your money is well and long spent on Depends and Ensure by the time you retire at which point some other sucker is on the hook to pay for your dotage.
And like every pyramid scheme, if the bottom becomes too small it will fail spectacularly.
And like every pyramid scheme, if the bottom becomes too small it will fail spectacularly.
Again, assumes we can't adjust things on the input side. and that the output side only ones in one direction.
> You need to change that attitude or your complacency will allow politicians to take it from you.
I mean I want the money to be there and will fight tooth and nail to ensure it, but damn if my control over it isn't limited. We still need to look out for ourselves.
I mean I want the money to be there and will fight tooth and nail to ensure it, but damn if my control over it isn't limited. We still need to look out for ourselves.
It is an entitlement, because it's your money. You have legal title to it; that's what 'entitlement' means.
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Social Security is a theft of my money by government. The smugness of government to decide what to invest for MY retirement itself is an insult to me.
I can do zilch. Voting against SS would mean labeling yourself some kind of moron who is not paying his "fair share" senile libertarian.
I think the only practical way is to think of this as some kind of ransom money we are paying to mafia not get into jail at this moment. The SS when I get old would mean nothing.
I can do zilch. Voting against SS would mean labeling yourself some kind of moron who is not paying his "fair share" senile libertarian.
I think the only practical way is to think of this as some kind of ransom money we are paying to mafia not get into jail at this moment. The SS when I get old would mean nothing.
If it was actually your money, paying into it would be optional.
Bingo!
This is the best attitude I have seen in the whole thread. Social Security is an authoritarian play, or a power play.
Another way to look at it: if every single US tax payer had to manually pay their taxes, instead of them being auto-drawn from their respective W2 employer, you'd see more people asking the question "who's money is this really?"
This is why the fair tax or similar plans will never pass. The power to silently tax people is too good for big brother.
This is the best attitude I have seen in the whole thread. Social Security is an authoritarian play, or a power play.
Another way to look at it: if every single US tax payer had to manually pay their taxes, instead of them being auto-drawn from their respective W2 employer, you'd see more people asking the question "who's money is this really?"
This is why the fair tax or similar plans will never pass. The power to silently tax people is too good for big brother.
> Social Security is an authoritarian play, or a power play
A more charitable view would be that social security is an attempt to provide a minimum standard of living for all seniors and the disabled. How do you propose that society cares for these people, particularly the disabled, if it's not done at a societal level?
Retirement also benefits the young/middle aged by ensuring jobs open up.
A more charitable view would be that social security is an attempt to provide a minimum standard of living for all seniors and the disabled. How do you propose that society cares for these people, particularly the disabled, if it's not done at a societal level?
Retirement also benefits the young/middle aged by ensuring jobs open up.
I think the older generation should give way to the younger generation. After all, it is the younger generation that is required to run the world while the older retires. However, as it is currently, the older generation is robbing the younger generation. The younger generation is paying for entitlements that it knows it will never receive. That is not sustainable, fair, or in my opinion: necessary.
It should not be the governments job to manage retirement funds. That's why I said it's a power play, because if you made social security an open market with competition, you would probably see more positive support and results.
It should not be the governments job to manage retirement funds. That's why I said it's a power play, because if you made social security an open market with competition, you would probably see more positive support and results.
"Probably" see better results? I don't have, nor will I fetch for, the number of people who are solely reliant on SS, but my father is one of them. And he said the exact same words as you to me when I was a sprout. Now, after some bad decisions, and health issues as a direct result of long arduous work, he is glad to have that net.
Please, don't tell me about my duties as a son, I've supported two family members through cancer, simultaneously. If/when it comes to it, he will be taken care of by me & siblings. How about the millions? who don't have children able to care for them? The streets is it? More welfare? I'd love to hear about a more sustainable option that doesn't include 'probably'.
Please, don't tell me about my duties as a son, I've supported two family members through cancer, simultaneously. If/when it comes to it, he will be taken care of by me & siblings. How about the millions? who don't have children able to care for them? The streets is it? More welfare? I'd love to hear about a more sustainable option that doesn't include 'probably'.
That's great that you've recognized your duty to your family, but what happens when your children retire? What process is in place to help them? Current projects barely keep things solvent for the retiring baby boomer generation.
Robbing Peter to pay Paul isn't sustainable [1], but that's what social security is. Social security is not a guaranteed solution. If we have to raise taxes or collect additional taxes, that makes it a ponzi scheme. Cutting benefits is similar: you either lose the money now or later.
Discussion forums such as this are one of our few hopes for generating s sustainable solution. Just because a solution doesn't currently exist doesn't mean we should be complacent with how things are.
[1]: http://money.cnn.com/2016/06/22/pf/social-security-medicare/
Robbing Peter to pay Paul isn't sustainable [1], but that's what social security is. Social security is not a guaranteed solution. If we have to raise taxes or collect additional taxes, that makes it a ponzi scheme. Cutting benefits is similar: you either lose the money now or later.
Discussion forums such as this are one of our few hopes for generating s sustainable solution. Just because a solution doesn't currently exist doesn't mean we should be complacent with how things are.
[1]: http://money.cnn.com/2016/06/22/pf/social-security-medicare/
We already have a sustainable solution: admit more people to the workforce via immigration. As more of the baby boomers die off over the next `03 years, the pool of retirees collecting social security will shrink back towards the mean. You seem to be under the impression that the demographic bulge is a one-way thing.
This is not a sustainable solution.
This is kicking the can down the road.
The population of any closed system, whether country, continent, or even planet, cannot grow indefinitely. And any system that expects indefinite growth to sustain itself will invariably become exhausted when rate out exceeds rate in for a sufficient duration.
Immigration alone may be a stopgap, but it is by no means a solution.
This is kicking the can down the road.
The population of any closed system, whether country, continent, or even planet, cannot grow indefinitely. And any system that expects indefinite growth to sustain itself will invariably become exhausted when rate out exceeds rate in for a sufficient duration.
Immigration alone may be a stopgap, but it is by no means a solution.
It's not your money to 'lose', and welfare programs do not rob Peter to pay Paul. They are just that - welfare programs. Wealth redistribution. There is nothing fundamental about them that makes them pyramid schemes.
We're not in disagreement, I'm a reluctant participant for the common good. Part of my point was, the sky was falling 40 years ago for those who blamed the previous generation and protested paying in. And the SSA is still viable today and keeping those 'boomers' off the streets. It could fail tomorrow, and it's going to take policy makers with a backbone to keep it up, but that's what we have today, as a functioning society that takes care of their elderly and infirmed. Mostly. Considering what travesties private healthcare, prisons and pension funds have gotten us, I tend to doubt an 'open market' solution is more sustainable to what we have.
IANAEconomist.
IANAEconomist.
It's not a retirement fund and was never intended to be. Social Security was always envisioned as a social safety net to provide enough support to elderly people to keep them off the streets and fed, nothing more.
In that case it really ought to be means-tested, much more than it is now.
Well, find a way to stop retirees from voting then.
It should not be the governments job to manage retirement funds.
Sez you. I'd like to outsource that job to them as private financial advisers often seem to put their own interests ahead of their clients', and I really don't know how to evaluate competing investment vehicles except int he most shallow way. I'd really like to delegate that job to someone, and I'd really like to join up with enough other people to feel the same way to delegate it to the same entity and enjoy the resultant economies of scale.
If enough people decide they want government to perform some function on their behalf, and it seems like a majority of people over several generations of western democracy in multiple countries do want the government to run a pension system, then it damn well is the government's job.
It should not be the governments job to manage retirement funds.
Sez you. I'd like to outsource that job to them as private financial advisers often seem to put their own interests ahead of their clients', and I really don't know how to evaluate competing investment vehicles except int he most shallow way. I'd really like to delegate that job to someone, and I'd really like to join up with enough other people to feel the same way to delegate it to the same entity and enjoy the resultant economies of scale.
If enough people decide they want government to perform some function on their behalf, and it seems like a majority of people over several generations of western democracy in multiple countries do want the government to run a pension system, then it damn well is the government's job.
Is that true? It's certainly true that under many of these alternative tax structures, we can't fund what we do right now.
If instead there was a list that said, "Here is the amount of money that went to each of the major federal departments", maybe people would say, "really? that's cheap!" or "really? we spend that much on defense???" Who knows, but they'd be better informed.
As I recall to a rough first approximation only about 1/5 of government spending isn't Defense, Social Security, Medicare, Medicaid. That's the first thing to keep in mind when talking about deficits, taxation and priorities.
Personally every time I look at my pay statement the taxes sting badly. However, I think the more interesting discussion to have is, "what are we spending money on?"
If instead there was a list that said, "Here is the amount of money that went to each of the major federal departments", maybe people would say, "really? that's cheap!" or "really? we spend that much on defense???" Who knows, but they'd be better informed.
As I recall to a rough first approximation only about 1/5 of government spending isn't Defense, Social Security, Medicare, Medicaid. That's the first thing to keep in mind when talking about deficits, taxation and priorities.
Personally every time I look at my pay statement the taxes sting badly. However, I think the more interesting discussion to have is, "what are we spending money on?"
> Personally every time I look at my pay statement the taxes sting badly. However, I think the more interesting discussion to have is, "what are we spending money on?"
As a self-employed libertarian I think the same thing :O
I think most of the services that are offered through the government are noble or necessary..I disagree that it should be the government that runs many of them.
As a self-employed libertarian I think the same thing :O
I think most of the services that are offered through the government are noble or necessary..I disagree that it should be the government that runs many of them.
If instead there was a list that said, "Here is the amount of money that went to each of the major federal departments"
Yes...we could call it a 'budget.'
Yes...we could call it a 'budget.'
This is a great point I don't see brought up often enough. It also has a lot of implications for the "gig economy" and independent contractors.
If the majority of the workforce works as independent contractors, the government will not be able to use employers to collect ("withhold") taxes automatically from workers' paychecks. The IRS will need to wait for the contractors to explicitly pay their own taxes.
I suspect this will have a big impact on cash flow for incoming taxes. Also, it could give more power to the people should they ever choose to execute a tax boycott.
If the majority of the workforce works as independent contractors, the government will not be able to use employers to collect ("withhold") taxes automatically from workers' paychecks. The IRS will need to wait for the contractors to explicitly pay their own taxes.
I suspect this will have a big impact on cash flow for incoming taxes. Also, it could give more power to the people should they ever choose to execute a tax boycott.
My guess is the government will create legislation where it requires large marketplaces to automatically withhold taxes by default, such as ebay, airbnb, uber, lyft, task rabbit, amazon, doordash etc.
This has already started with fees. Fees are just a synonym for taxes, or money that does not go in your pocket.
Not necessarily. The Australian superannuation program has compulsory contributions but the money goes into an account in your own name.
Do you get to choose the bank that the account is with?
Yes, and the money is easily portable between them and you choose what level of risk you're willing to tolerate.
You can even run a self-managed superannuation fund and make all the investment choices yourself if you want but people rarely do better than a standard fund.
You can even run a self-managed superannuation fund and make all the investment choices yourself if you want but people rarely do better than a standard fund.
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Interesting - I wasn't aware of this program even as I was writing a similar comment.
How does Australia deal with retirees with too little or nothing in this account, aka the poor who are past working age?
We have an old-age pension if your income and assets are below a certain amount: https://www.humanservices.gov.au/customer/services/centrelin...
And in my opinion the assets test is too generous.
My grandmother is sitting in a multi million dollar inner suburb property and claiming a pension. It seems harsh but I think she should be required to get her pension via the Pension Loans Scheme: https://www.humanservices.gov.au/customer/services/centrelin...
My grandmother is sitting in a multi million dollar inner suburb property and claiming a pension. It seems harsh but I think she should be required to get her pension via the Pension Loans Scheme: https://www.humanservices.gov.au/customer/services/centrelin...
There is certainly room for discussion on the personal home exemptions to the asset test, I agree.
The superannuation program is minuscule compared to the pension scheme in terms of expected payments.
Not necessarily. If the system morphed into a required savings rate, then it could still be 'yours' without being optional.
> It is not an entitlement, it's your money
That's not how social security works. Every dollar you pay in flies out to fund promises made in years past. "Your" social security money needs to be earned by our children.
That's not how social security works. Every dollar you pay in flies out to fund promises made in years past. "Your" social security money needs to be earned by our children.
Note that Reagan increased the SS tax in order to pad the fund and prepare for Boomers retiring. That surplus of the last 30 years is invested in special government bonds gauranteed with the "full faith and credit" of the US government.
Who is going to be paying the taxes needed to pay off those bonds?
Ideally the same people whose taxes Reagan lowered https://upload.wikimedia.org/wikipedia/commons/8/8c/Historic...
It's often overlooked that the deal Reagan made to get the lower tax rates was to eliminate all kinds of investment tax shelters. I.e. few were actually paying those rates, the rates were more for show and are not comparable to the tax system today.
There are ways besides cutting their rates, to deal with people who refuse to pay their taxes. Hangings, imprisonment, seizure of property...
And what a surprise - rates today are much lower, yet tax evasion continues to be a problem.
And what a surprise - rates today are much lower, yet tax evasion continues to be a problem.
Do they not count as "our children" if they're rich?
A little off topic but if you were well into that top marginal bracket at the time I bet that drop from 90% to 70% felt really good.
Almost nobody was actually paying that rate; those high marginal tax rates only benefited the accountants who could figure out how not to pay, and the politicians who could show how how much money they were pretending to take from the rich.
No one need pay taxes to pay off the bonds. The Fed can buy the bonds and hold them in perpetuity.
>The Fed can buy the bonds and hold them in perpetuity.
And what cash will they give to the SSA in exchange for those bonds? Where will that come from?
And what cash will they give to the SSA in exchange for those bonds? Where will that come from?
> Where will that come from?
The same place cash comes from now when the Fed buys t-bonds in order to manipulate the interest rate: nowhere. The Federal Reserve has the authority to create money to redeem any US government security.
The same place cash comes from now when the Fed buys t-bonds in order to manipulate the interest rate: nowhere. The Federal Reserve has the authority to create money to redeem any US government security.
I don't think that is right.
The federal reserve can create new US dollars, and it can buy US Treasuries - but this is not the same as redeeming them. The fed becomes just another bondholder that needs paying by the treasury dept. The money goes to the person who previously held the bond as payment for the bond.
Also there is about $20 trillion outstanding public debt, and only $3.3 trillion in the whole money supply, so there is a big gap in money creation needed to pay off the debt. Would tank the currency and kill the economy (think hyperinflation).
https://www.treasurydirect.gov/NP/debt/current
http://www.tradingeconomics.com/united-states/money-supply-m...
The federal reserve can create new US dollars, and it can buy US Treasuries - but this is not the same as redeeming them. The fed becomes just another bondholder that needs paying by the treasury dept. The money goes to the person who previously held the bond as payment for the bond.
Also there is about $20 trillion outstanding public debt, and only $3.3 trillion in the whole money supply, so there is a big gap in money creation needed to pay off the debt. Would tank the currency and kill the economy (think hyperinflation).
https://www.treasurydirect.gov/NP/debt/current
http://www.tradingeconomics.com/united-states/money-supply-m...
> The fed becomes just another bondholder that needs paying by the treasury dept.
The Fed does not get paid. It doesn't need to get paid, since the Federal Reserve by law has infinite liquidity.
The Fed does not get paid. It doesn't need to get paid, since the Federal Reserve by law has infinite liquidity.
all bondholders are paid - it doesn't matter who owns the bond.
https://www.quora.com/What-happens-to-all-the-bonds-that-the...
https://www.quora.com/What-happens-to-all-the-bonds-that-the...
>The Federal Reserve has the authority to create money to redeem any US government security.
We're all aware. Whether the money is taken from the next generation or from the federal reserve is irrelevant. The point is that it's not yours until the government takes it from them and gives it to you.
We're all aware. Whether the money is taken from the next generation or from the federal reserve is irrelevant. The point is that it's not yours until the government takes it from them and gives it to you.
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The Social Security Trust fund generally runs a surplus (as recently as 2014 it added $25 billion.) However it's projected that around 2030-2034 the number of recipients will be drawing more than is being paid in. At that point your statement will become more correct than it currently is.
> as recently as 2014 it added $25 billion
Yes, but that is $25B out of total receipts of $884B[0]. For every $1.00 paid in over $.97 was paid back out to beneficiaries. In 2015 it was $.975 and 2016 will probably be higher still.
According to this page[1] the trust fund will be depleted by 2035. I know that is a projection and things can change, but to say there is no room for concern borders on hubris.
[0] https://www.ssa.gov/oact/STATS/table4a3.html [1] https://www.ssa.gov/oact/trsum/
Yes, but that is $25B out of total receipts of $884B[0]. For every $1.00 paid in over $.97 was paid back out to beneficiaries. In 2015 it was $.975 and 2016 will probably be higher still.
According to this page[1] the trust fund will be depleted by 2035. I know that is a projection and things can change, but to say there is no room for concern borders on hubris.
[0] https://www.ssa.gov/oact/STATS/table4a3.html [1] https://www.ssa.gov/oact/trsum/
We could just eliminate the contribution cap. Then it keeps working in perpetuity, because we'd actually be taxing the people who have money.
That would eliminate even the thin handkerchief of SS being a sort of mandatory government-run savings program, and not a bald faced tax-and-redistribute system.
Which, as you can see from comments upthread, is -- even though I personally don't think it's true -- one of the arguments that people regularly make in favor of SS when they feel it's under threat ("it's your money", "you paid into it and you should get your money out", etc.). Positioning it in this way makes voters feel like they have a personal investment in the system that they need to protect, which is clever because people generally hate having something taken away, much more than they dislike not receiving something (even if the amounts are the same).
When it becomes a straightforward tax, then it'll be attacked like every other tax during the periodic political pendulum-swings in favor of lower taxes and fewer government programs in general. And by removing the contribution cap, it'll suddenly have a lot of very wealthy enemies who have a significant vested interest in making sure it goes away. I would not expect it to last long under those conditions.
Which, as you can see from comments upthread, is -- even though I personally don't think it's true -- one of the arguments that people regularly make in favor of SS when they feel it's under threat ("it's your money", "you paid into it and you should get your money out", etc.). Positioning it in this way makes voters feel like they have a personal investment in the system that they need to protect, which is clever because people generally hate having something taken away, much more than they dislike not receiving something (even if the amounts are the same).
When it becomes a straightforward tax, then it'll be attacked like every other tax during the periodic political pendulum-swings in favor of lower taxes and fewer government programs in general. And by removing the contribution cap, it'll suddenly have a lot of very wealthy enemies who have a significant vested interest in making sure it goes away. I would not expect it to last long under those conditions.
>That would eliminate even the thin handkerchief of SS being a sort of mandatory government-run savings program, and not a bald faced tax-and-redistribute system.
So bloody what? I've got no problem taking from the rich to fund a basic income to keep the elderly off cat-food. I've got parents and a grandmother left who need Social Security.
>When it becomes a straightforward tax, then it'll be attacked like every other tax during the periodic political pendulum-swings in favor of lower taxes and fewer government programs in general.
It already is attacked during regular political pendulum swings. Both Clinton and Bush 2 tried to privatize Social Security.
So bloody what? I've got no problem taking from the rich to fund a basic income to keep the elderly off cat-food. I've got parents and a grandmother left who need Social Security.
>When it becomes a straightforward tax, then it'll be attacked like every other tax during the periodic political pendulum-swings in favor of lower taxes and fewer government programs in general.
It already is attacked during regular political pendulum swings. Both Clinton and Bush 2 tried to privatize Social Security.
> Both Clinton and Bush 2 tried to privatize Social Security.
That shows a grave misunderstanding of both proposed solutions to the SA insolvency problem.
That shows a grave misunderstanding of both proposed solutions to the SA insolvency problem.
I am genuinely curious. Please elaborate the misunderstanding. Thank you.
>That would eliminate even the thin handkerchief of SS being a sort of mandatory government-run savings program
It would have been called mandatory social savings if that was its intended purpose. It's not. It never was. It's social security.
>one of the arguments that people regularly make in favor of SS when they feel it's under threat: "it's your money"
This is actually one of the arguments used to try and justify privatizing it and handing over the money to Wall Street to invest instead (Bush tried to do exactly this and Obama made noises about it).
>And by removing the contribution cap, it'll suddenly have a lot of very wealthy enemies
It ALREADY has a lot of very wealthy enemies who are trying to privatize it. One of the most prominent is Stan Druckenmiller, who is fairly open about inciting intergenerational warfare - telling "millenials" that "boomers" are the cause of their problems and that the "fix" is privatizing social security and austerity:
http://www.nakedcapitalism.com/2013/10/who-should-young-peop...
It would have been called mandatory social savings if that was its intended purpose. It's not. It never was. It's social security.
>one of the arguments that people regularly make in favor of SS when they feel it's under threat: "it's your money"
This is actually one of the arguments used to try and justify privatizing it and handing over the money to Wall Street to invest instead (Bush tried to do exactly this and Obama made noises about it).
>And by removing the contribution cap, it'll suddenly have a lot of very wealthy enemies
It ALREADY has a lot of very wealthy enemies who are trying to privatize it. One of the most prominent is Stan Druckenmiller, who is fairly open about inciting intergenerational warfare - telling "millenials" that "boomers" are the cause of their problems and that the "fix" is privatizing social security and austerity:
http://www.nakedcapitalism.com/2013/10/who-should-young-peop...
Well we know what the alternatives are; cut benefits or expand immigration to balance out the demographic bulge of retirees.
...the SSTF holds exclusively US Treasury notes and bonds as assets.
You're describing a distinction without a difference, as other parts of the USG have already spent the surplus.
You're describing a distinction without a difference, as other parts of the USG have already spent the surplus.
I'm not sure I understand where you're coming from as it assumes that the US won't be paying back its debts. Do you also consider that money you deposit into your checking and savings accounts as having disappeared into a black hole?
The point is that in order for government to pay back its debts, it has to tax people (or fire up the printing press).
There's nothing wrong with "firing up the printing press."
The US government will be in debt for the rest of its existence and the balance of that debt will likely increase every year. The Federal Reserve openly targets a 3% inflation rate and that inflation is going to come from ye olde printing press.
IMHO, better this inflation come in the form of SS payments than payouts to military contractors.
The US government will be in debt for the rest of its existence and the balance of that debt will likely increase every year. The Federal Reserve openly targets a 3% inflation rate and that inflation is going to come from ye olde printing press.
IMHO, better this inflation come in the form of SS payments than payouts to military contractors.
I'm not sure I understand where you're coming from as it assumes the exponential function will stop working in the near future.
I'm coming from the perspective that there is neither a short term nor long term plan to address the inevitable default of the US government, decades hence. We WILL either default, monetize, or sell federal land. Math won't stop working in my lifetime.
I'm coming from the perspective that there is neither a short term nor long term plan to address the inevitable default of the US government, decades hence. We WILL either default, monetize, or sell federal land. Math won't stop working in my lifetime.
Sure, but US Treasuries are considered some of the safest assets in the world.
Simply removing the payroll cap and taxing all brackets equally would fix that:
http://www.nakedcapitalism.com/2016/05/the-7-biggest-myths-a...
Social security's 2030 "insolvency" was a political decision not an economic inevitability.
http://www.nakedcapitalism.com/2016/05/the-7-biggest-myths-a...
Social security's 2030 "insolvency" was a political decision not an economic inevitability.
optimuspaul(1)
That's why we need immigration policies that let us keep enough working age people in the country
Devil's advocate: High trust, homogeneous societies are more likely to have more comprehensive safety nets. As trust diminishes (i.e. partisan Red vs. Blue bickering) and the population fragments into large heterogeneous groups, what is there to keep the safety net in place? Why would a bunch of immigrants from Central America, doing the jobs that Americans don't want to do (and at very low wages) want to see a significant portion of their paychecks siphoned off to pay for the retirement of old white people they've never met, in states they've never visited, and with whom they have very little in common?
I think it is more likely that the attempt to try and cover Social Security shortfalls by importing labor will backfire, and that the new citizens will vote against paying more to cover retirement expenses for Boomers and Gen-X.
I think it is more likely that the attempt to try and cover Social Security shortfalls by importing labor will backfire, and that the new citizens will vote against paying more to cover retirement expenses for Boomers and Gen-X.
Why would a bunch of immigrants from Central America, doing the jobs that Americans don't want to do (and at very low wages) want to see a significant portion of their paychecks siphoned off to pay for the retirement of old white people they've never met
Because they'd like a similar system to take care of them in their old age, same as if they'd been born here? Why are you adding race into it as if the economic factor weren't the primary driver? If participants in the system have access to the benefits, in the future, why should they care about ethnic disparities between the current workforce and the cohort of retired people?
Your argument is that people of differing ethnic identity cam't have or perceive common or mutual economic interests.
Because they'd like a similar system to take care of them in their old age, same as if they'd been born here? Why are you adding race into it as if the economic factor weren't the primary driver? If participants in the system have access to the benefits, in the future, why should they care about ethnic disparities between the current workforce and the cohort of retired people?
Your argument is that people of differing ethnic identity cam't have or perceive common or mutual economic interests.
Metadevil's advocate: Immigration to the United States (and to other ex-settler colonies) is fantastically effective at improving the portion of humanity that lives in high-trust societies. Why would a bunch of Central American immigrants contribute to the retirement of old non-Latino white people? The same reason a bunch of Italian immigrants contributed to the retirement of old Germans 80 years ago--the former view the latter as "us".
No, that's why we need people not to bet their retirement on a pyramid scheme, which is the point the parent of this whole conversation was making.
It's not a pyramid scheme, it's a countercyclical mechanism. The ratio of retirees to workers is a temporary condition and subject to a variety of remedies.
And at the same time give these new young immigrants a basic income so that they don't need to work.
Or don't use a massive government sponsored Ponzi scheme for a national retirement plan.
Social security is not a Ponzi scheme.
http://www.politifact.com/florida/statements/2014/sep/24/car...
http://www.politifact.com/florida/statements/2014/sep/24/car...
> A Ponzi scheme is by definition an illegal crime and an unsustainable set-up that crashes very quickly. Social Security and Medicare, which have been around for decades, are not criminal schemes.
This is terrible legalistic reasoning. It essentially says the government cannot create a Ponzi scheme because Ponzi schemes are by definition illegal and governments define what is legal.
Better reasoning would incorporate the government's indirect control of inflation, direct control of federal wages and ability to "restructure" social security benefits and taxes, as well as the fact that the economy grows in real terms. This reasoning is more complex, but it is behind why investing in a start-up that plans to go public isn't a Ponzi scheme.
This is terrible legalistic reasoning. It essentially says the government cannot create a Ponzi scheme because Ponzi schemes are by definition illegal and governments define what is legal.
Better reasoning would incorporate the government's indirect control of inflation, direct control of federal wages and ability to "restructure" social security benefits and taxes, as well as the fact that the economy grows in real terms. This reasoning is more complex, but it is behind why investing in a start-up that plans to go public isn't a Ponzi scheme.
Enough with the straw man. The article's thesis absolutely does not hang on this interpretation, which only appears deep into the summary. Briefly, in contrast with a Ponzi scheme promising unsustainable returns on investment:
-There are no promises of huge returns
-The inner workings of the program are public knowledge
-There is no fundamental demographic or mathematical reason the system (a pretty straight-ahead social insurance program involving a certain amount of wealth transfer) should ever become insolvent, assuming the political will exists to keep it running.
-There are no promises of huge returns
-The inner workings of the program are public knowledge
-There is no fundamental demographic or mathematical reason the system (a pretty straight-ahead social insurance program involving a certain amount of wealth transfer) should ever become insolvent, assuming the political will exists to keep it running.
> "A Ponzi scheme is unsustainable because the number of potential investors is eventually exhausted."
Which is exactly what is happening now with the lopsided ratio of retirees and new incoming workers.
They seem to have marked the assertion as "False" based off of really semantic technicalities
Which is exactly what is happening now with the lopsided ratio of retirees and new incoming workers.
They seem to have marked the assertion as "False" based off of really semantic technicalities
The supply of workers will never be exhausted. The program will be tweaked, as it has been all along, to ensure it remains fully functions.
Read up on it, it's a lot more interesting than the "it's going broke!!" stuff makes it out to be.
Read up on it, it's a lot more interesting than the "it's going broke!!" stuff makes it out to be.
Oh my a short term mismatch in the system; as if we can't make an adjustment. What would privatization of Social Security employ when the stock market crashes, which happens from time to time, to moderate the negative effects. In fact, moderation isn't good enough, it'd have to completely smooth away any negative effect for it to be even remotely tenable. Oh the old people have to move out of their apartment if they can't afford it now? Too bad?
http://www.pewresearch.org/fact-tank/2016/04/25/millennials-...
http://www.pewresearch.org/fact-tank/2016/04/25/millennials-...
If there wasn't a fertility decline in the Western world, there wouldn't be a lopsided ratio of retirees to new incoming workers.
That future probably wasn't terribly obvious to the politicians who created them (given that most public pension plans were created roughly between World War I and a bit after World War II).
In fact, based on some of the literature of the time (eg The Population Bomb -- https://en.wikipedia.org/wiki/The_Population_Bomb -- etc.) I'd say it's more like people were fearing the reverse.
That future probably wasn't terribly obvious to the politicians who created them (given that most public pension plans were created roughly between World War I and a bit after World War II).
In fact, based on some of the literature of the time (eg The Population Bomb -- https://en.wikipedia.org/wiki/The_Population_Bomb -- etc.) I'd say it's more like people were fearing the reverse.
Wow, downvoters!
Seriously, just google "is social security a pyramid scheme".
You'll find a LOT of breathless articles from personal blogs and sites like World Net Daily calling it a pyramid scheme.
You'll also find a lot of, for lack of a better way to put it, content of actual substance that describes how it's not a pyramid scheme, but a sustainable government program that's worked out just fine for decades (with regular adjustments, as all human endeavors need).
Seriously, just google "is social security a pyramid scheme".
You'll find a LOT of breathless articles from personal blogs and sites like World Net Daily calling it a pyramid scheme.
You'll also find a lot of, for lack of a better way to put it, content of actual substance that describes how it's not a pyramid scheme, but a sustainable government program that's worked out just fine for decades (with regular adjustments, as all human endeavors need).
It's not a "pyramid" scheme. A pyramid scheme involves selling a product - something like knives or energy drink. But the actual thing which is sold are licenses to sell the product. Each licensee passes some of their profits up to their licensor who is the licensee of someone else and passes along part of that and so on. Eventually the last round of licensees are stuck with product that they can't sell and the upstream licensors are getting rich from the "pyramid" of downstream licensor/licensees recruited into the scheme.
A ponzi scheme is quite different. You pretend to invest an initial investor's money. The returns to that investor are paid out of money coming in from later investors.
Social security works in this way. The money paid into social security is not invested at all. The returns from social security (money going out to current retirees) come entirely from new investments (money going in from current workers). This is the basic definition of a ponzi scheme. It is a sustainable ponzi scheme so long as taxes collected from current workers exceed benefits paid out to current retirees. The designers of this system did not count on two things: (a) ever increasing life expectancy and (b) the baby boom. The former has increased the length of time each person collects benefits and the latter has resulted in a demographic bulge that is now hitting its retirement years.
Thank you Mr. Bismarck![0]
[0] https://en.wikipedia.org/wiki/Otto_von_Bismarck#Old_Age_and_...
A ponzi scheme is quite different. You pretend to invest an initial investor's money. The returns to that investor are paid out of money coming in from later investors.
Social security works in this way. The money paid into social security is not invested at all. The returns from social security (money going out to current retirees) come entirely from new investments (money going in from current workers). This is the basic definition of a ponzi scheme. It is a sustainable ponzi scheme so long as taxes collected from current workers exceed benefits paid out to current retirees. The designers of this system did not count on two things: (a) ever increasing life expectancy and (b) the baby boom. The former has increased the length of time each person collects benefits and the latter has resulted in a demographic bulge that is now hitting its retirement years.
Thank you Mr. Bismarck![0]
[0] https://en.wikipedia.org/wiki/Otto_von_Bismarck#Old_Age_and_...
Upvoted you to try to counter-act the downvotes, which I am really confused by. Social security is a pay-as-you-go pension plan, like pretty much almost every public pension plan in the Western world.
I understand the comparison to Ponzi schemes, but I consider these comparisons rather hyperbolic. The intent of a pay-as-you-go pension never is fraud. There are some definite problems with pay-as-you-go systems, especially now due to the fertility decline in the West, but the issues do not stem from pure malice.
I understand the comparison to Ponzi schemes, but I consider these comparisons rather hyperbolic. The intent of a pay-as-you-go pension never is fraud. There are some definite problems with pay-as-you-go systems, especially now due to the fertility decline in the West, but the issues do not stem from pure malice.
That's it! That's the whole crux of the matter.
A ponzi scheme has an intent to defraud. That's why they're illegal.
Social security has no intent to defraud. It's not "legal cause the gubmint says so," it's legal because it's not a fraudulent money-making scheme designed to enrich the leader.
A ponzi scheme has an intent to defraud. That's why they're illegal.
Social security has no intent to defraud. It's not "legal cause the gubmint says so," it's legal because it's not a fraudulent money-making scheme designed to enrich the leader.
Splitting hairs. Of course the intent isn't to defraud, but they function in the same manner (need a constant supply of new investors [workers] to pay off the old investors [workers]) and have the same failure mode.
No, not really splitting hairs, as the solution for each is consequently is going to consequently be different. Ponzi schemes get banned because they are a form of fraud and have little redeeming value. The solution to a Ponzi scheme is to shut it down and arrest the con artist.
Social Security and other pay-as-you-go schemes aim to reduce poverty, especially elderly poverty. By this measure, it has succeeded quite well (http://www.nber.org/bah/summer04/w10466.html), and the probable reason pay as you go was chosen I imagine was to provide immediate benefit (recall this scheme was launched during the Great Depression). I would consider it radical (and would want one to provide considerable justification) if one wanted to ditch Social Security entirely.
A better debate in my mind, of course, would be whether to phase Social Security into a fully funded model versus pay-as-you-go model. I can buy that kind of argument, a fully funded retirement scheme is more secure than a PAYGO type.
But even as it stands, the current Social Security gap doesn't sound like a complete disaster. Part of it actually is because Social Security is not completely pay as you go -- Congress raised payroll taxes in 1983 in part to cover this gap (http://www.pewresearch.org/fact-tank/2015/08/18/5-facts-abou...). Part of it is because we have some variables to play with -- raising the retirement age or raising the payroll tax cap, for instance. Medicare actually sounds like its in worse shape at this moment.
Social Security and other pay-as-you-go schemes aim to reduce poverty, especially elderly poverty. By this measure, it has succeeded quite well (http://www.nber.org/bah/summer04/w10466.html), and the probable reason pay as you go was chosen I imagine was to provide immediate benefit (recall this scheme was launched during the Great Depression). I would consider it radical (and would want one to provide considerable justification) if one wanted to ditch Social Security entirely.
A better debate in my mind, of course, would be whether to phase Social Security into a fully funded model versus pay-as-you-go model. I can buy that kind of argument, a fully funded retirement scheme is more secure than a PAYGO type.
But even as it stands, the current Social Security gap doesn't sound like a complete disaster. Part of it actually is because Social Security is not completely pay as you go -- Congress raised payroll taxes in 1983 in part to cover this gap (http://www.pewresearch.org/fact-tank/2015/08/18/5-facts-abou...). Part of it is because we have some variables to play with -- raising the retirement age or raising the payroll tax cap, for instance. Medicare actually sounds like its in worse shape at this moment.
[deleted]
That's an accounting detail.
It is your money that they spend now instead of properly invest. Regardless of what should be, there is little hope that it will be worth much to us in the future.
[deleted]
"You need to change that attitude or your complacency will allow politicians to take it from you."
I really don't like the glibness of that sentiment, even if the idea is fine. As a voter or constituent, yeah, fight for Social Security, try to maintain it.
But as an investor? Recognize that your personal view has approximately no impact on whether Social Security exists unless you run for high office or devote your life to the topic. Make your best guess and save accordingly.
People shouldn't make their individual choices around the political views they support, because most individuals have virtually no influence on national outcomes.
I really don't like the glibness of that sentiment, even if the idea is fine. As a voter or constituent, yeah, fight for Social Security, try to maintain it.
But as an investor? Recognize that your personal view has approximately no impact on whether Social Security exists unless you run for high office or devote your life to the topic. Make your best guess and save accordingly.
People shouldn't make their individual choices around the political views they support, because most individuals have virtually no influence on national outcomes.
In fact, I will argue that the commenter's attitude is MORE harmful. He or she is placing the responsibility on the individual, when this clearly is something where the individual has no authority. The notion that if you just vote REALLY HARD the people in power will treat you well, and that if you're not treated well you must not have voted hard enough, only helps maintain the status quo.
Haven't you ever heard that "the squeaky wheel gets the grease"? There's a reason the Christian right has a political voice far out of proportion to their actual numbers: they're active and loud.
No, of course the answer isn't to "vote really hard", but that phrasing is simply rhetoric built to disparage the poster you're responding to. Everyone has only one vote. But the people who make noise, the people who are politically active, gain power far beyond their single vote. And get enough of them together -- it doesn't necessarily take that many -- and you can orchestrate some real change.
No, of course the answer isn't to "vote really hard", but that phrasing is simply rhetoric built to disparage the poster you're responding to. Everyone has only one vote. But the people who make noise, the people who are politically active, gain power far beyond their single vote. And get enough of them together -- it doesn't necessarily take that many -- and you can orchestrate some real change.
I don't know why you're being down-voted - everything you said is correct as a matter of fact. Pretty much any how-to guide to political activism focuses on practical techniques for getting your message heard, and getting it seen to be heard eg ensuring that media show up to cover you confronting a politician or other powerful figure. These things don't happen spontaneously, in general.
70% of Americans identify as Christians (source: Wikipedia), and 50 to 70% of Christians are leaning Republican (source: Pew Research) (depends on denomination, Mormons and Evangelicals higher, Catholics lower). So we have 1/3 to half of the population. Do you think it's not large enough group to have strong political voice? I think it is. I'm not sure what "far out of proportion" claim is based on.
Correction: turns out 70% was for white evangelicals (missed a note), so the number is surely lower than half and probably around 1/4. The point still stands - 1/4 of the population is a huge block.
So, shout but prepare not to be heard? That meshes pretty well with OP's comment.
> they're active and loud.
So now our livelihood has resorted to a shouting match? Thanks but no thanks.
Voting is like praying, where if you pray with all your passion then god might listen. But there's also the saying pray for what you want, work for what you need.
So now our livelihood has resorted to a shouting match? Thanks but no thanks.
Voting is like praying, where if you pray with all your passion then god might listen. But there's also the saying pray for what you want, work for what you need.
Yes, but this is what's actually happened. The active and loud people kept pushing to the point that they now enjoy huge political power and get to do what they want for the next while, regardless of how it impacts you.
Your not wanting to participate in this understandable but if you don't then you have no guarantee of retaining what you have worked for anyway.
Your not wanting to participate in this understandable but if you don't then you have no guarantee of retaining what you have worked for anyway.
There is no guarantee either way. The safest guarantee are the resources under your control - given the government doesn't confiscate your savings account, which I wouldn't rule out.
People wonder why bitcoin is rising. It's because their competition is total crap. Government issued security is no security at all.
People wonder why bitcoin is rising. It's because their competition is total crap. Government issued security is no security at all.
It's called social security for a reason.
The politicians are itching to hand the pot of money over to Wall Street who will extract fees from it.
The politicians are itching to hand the pot of money over to Wall Street who will extract fees from it.
as though the social security administration has no costs associated with its operation?
i'd put my vanguard expense ratios up against the ssa's effective expense ratios any day of the week.
i'd put my vanguard expense ratios up against the ssa's effective expense ratios any day of the week.
When Bush the younger tried to privatize SS in the early 2000's as a favor to his cronies, he made sure the defaults were e.g. John Hancock at 2.4% fees.
With effort you could have run it through Vanguard but most people are confused by investing and would have ended up being robbed in broad daylight by borderline criminal "asset managers."
With effort you could have run it through Vanguard but most people are confused by investing and would have ended up being robbed in broad daylight by borderline criminal "asset managers."
You need to change that attitude or your complacency will allow politicians to take it from you.
That's quite dismissive of his statement, and uncalled for. It's a pragmatic statement: politics aside, don't budget your retirement funds as if you'll still get the benefits promised to you as of today. Cram money in that 401K as if you won't be getting a dime of your money back from your SS contributions.
What you want to talk about is a different, and mostly unrelated, to what parent is talking about. Doesn't make it unimportant, just not relevant.
That's quite dismissive of his statement, and uncalled for. It's a pragmatic statement: politics aside, don't budget your retirement funds as if you'll still get the benefits promised to you as of today. Cram money in that 401K as if you won't be getting a dime of your money back from your SS contributions.
What you want to talk about is a different, and mostly unrelated, to what parent is talking about. Doesn't make it unimportant, just not relevant.
>" The fact is you pay ~16% of your paycheck into social security."
Not quite. This is actually split between the employee and the employer. With each contributing 6.2%.
https://www.ssa.gov/pubs/EN-05-10022.pdf
Also why are you admonishing the OP? He has every right to pessimistic about this current state of social security.
Not quite. This is actually split between the employee and the employer. With each contributing 6.2%.
https://www.ssa.gov/pubs/EN-05-10022.pdf
Also why are you admonishing the OP? He has every right to pessimistic about this current state of social security.
But your employer is perfectly capable of doing accounting. So they pass through their 6.2% to you.
In practice the mechanism is that every employer figures it in to their offers, such that every offer you ever receive is ~6.2% lower than it would be if SS didn't exist.
In practice the mechanism is that every employer figures it in to their offers, such that every offer you ever receive is ~6.2% lower than it would be if SS didn't exist.
In practice, every employer pays what it needs to get employees, and nothing more. Unless something changes the number of employees available, salaries don't change.
Tax cuts go straight into the employer's pocket, as the employer will happily tell you to your face:
https://theintercept.com/2017/01/05/corporations-prepare-to-...
Sure, it's theoretically possible that the employer could pass all tax cuts to its suppliers. McDonald's could call up and offer to pay more for frozen hamburgers and fries. Walmart could tell its Chinese shoe makers that it plans to pay double for all future pairs, just because. But, why would that happen as opposed to rewarding the shareholders?
Tax cuts go straight into the employer's pocket, as the employer will happily tell you to your face:
https://theintercept.com/2017/01/05/corporations-prepare-to-...
Sure, it's theoretically possible that the employer could pass all tax cuts to its suppliers. McDonald's could call up and offer to pay more for frozen hamburgers and fries. Walmart could tell its Chinese shoe makers that it plans to pay double for all future pairs, just because. But, why would that happen as opposed to rewarding the shareholders?
> such that every offer you ever receive is ~6.2% lower than it would be if SS didn't exist
Every offer is up to 6.2% lower. I have a business with employees but their pay is sufficiently low (compared to the revenue of the business; their pay is above market for the jobs they do) that SS does not enter into our calculations. If the employer portion of SS was eliminated tomorrow we would not give anyone a 6.2% raise, nor would future employees get offers 6.2% greater.
I'm sure somewhere there is an employee whose salary is a big piece of a business's income and they would have gotten a little more money had that tax not been there. But I'm pretty sure that's the exception rather than the rule, if for no other reason than SS taxes are capped so you reach a point where more salary does not equal more SS tax.
Every offer is up to 6.2% lower. I have a business with employees but their pay is sufficiently low (compared to the revenue of the business; their pay is above market for the jobs they do) that SS does not enter into our calculations. If the employer portion of SS was eliminated tomorrow we would not give anyone a 6.2% raise, nor would future employees get offers 6.2% greater.
I'm sure somewhere there is an employee whose salary is a big piece of a business's income and they would have gotten a little more money had that tax not been there. But I'm pretty sure that's the exception rather than the rule, if for no other reason than SS taxes are capped so you reach a point where more salary does not equal more SS tax.
Maybe you will have to give them a raise when they notice that pay elsewhere has gone up. Of course if they already get 6% more than they would at the next comparable job today there is no economic reason to give them the raise, but there is not economic reason to pay them so much currently either.
>" if for no other reason than SS taxes are capped so you reach a point where more salary does not equal more SS tax."
Indeed, social security isn't taxed on anything above 118K.
Indeed, social security isn't taxed on anything above 118K.
My employer also calculates health care and 401k matching, ie the full cost of employment to the department who will be bearing the cost. A salary of $100k is really a cost of ~$125k.
[EDIT] With health care costs being fixed at crazy high amounts (in the US at least.)
[EDIT] With health care costs being fixed at crazy high amounts (in the US at least.)
I don't believe for a minute that if it Social Security were to be phased out everyone would see their salary rise 6.2%.
It is not your money, it is a tax on income like any other. The Supreme Court established in 1960 (Flemming v Nestor) that contributions to Social Security are not your property and the government has no obligation to ever pay you benefits regardless of contribution. People have had this entitlement revoked in practice, though the targeting tends to be selective for out-groups and not a substantial fraction of the population.
The government strongly encourages belief in the myth that Social Security is something other than a welfare tax with no implied obligation to the taxpayer because that notion makes the tax much more palatable than the reality.
The government strongly encourages belief in the myth that Social Security is something other than a welfare tax with no implied obligation to the taxpayer because that notion makes the tax much more palatable than the reality.
Yes. I wish more people understood this.
The other one nobody seems to want to talk about or understand is Medicaid. People think they are getting health insurance (or whatever they want to call it) when, in reality, they are accumulating debt with the government and a debt most states are required, by law, to collect.
This is one of the huge problems (outside of costs and lies) I have with Obamacare. The claim is that millions of people now have insurance when, in reality, millions of people were shoved into Medicaid and are accumulating a non-trivial financial obligation with the government. To say this is dishonest is probably cutting it short.
https://www.medicaid.gov/medicaid/eligibility/estate-recover...
The other one nobody seems to want to talk about or understand is Medicaid. People think they are getting health insurance (or whatever they want to call it) when, in reality, they are accumulating debt with the government and a debt most states are required, by law, to collect.
This is one of the huge problems (outside of costs and lies) I have with Obamacare. The claim is that millions of people now have insurance when, in reality, millions of people were shoved into Medicaid and are accumulating a non-trivial financial obligation with the government. To say this is dishonest is probably cutting it short.
https://www.medicaid.gov/medicaid/eligibility/estate-recover...
I'm not sure why you're saying that using Medicaid is equivalent to accumulating debt with the Federal government. Medicaid is health insurance.
It's true that Medicaid will seek reimbursement for procedures that should not have been covered, but that's not different much different than what happens when a private insurance company refuses to pay a benefit. The hospital is free to pursue the person directly for the balance they owe.
It's true that Medicaid will seek reimbursement for procedures that should not have been covered, but that's not different much different than what happens when a private insurance company refuses to pay a benefit. The hospital is free to pursue the person directly for the balance they owe.
> I'm not sure why you're saying that using Medicaid is equivalent to accumulating debt with the Federal government. Medicaid is health insurance.
Please read the info in the link I provided. It's from the Medicaid website itself so no bias or fabrication at all.
Medicaid is not health insurance. It provides access to health services but the patient is on the hook for the cost of those services. In certain states things are a bit different. With some 64 million people enrolled in Medicaid it is probably safe to say that tens of millions of people are accumulating debt with the government.
My point of contention is that almost nobody knows this because it is swept under the rug for the political gains afforded by saying that millions more have "health insurance" when, in fact, they don't.
It also really bothers me that a good number of those in the program are poor and probably not very educated and don't realize they are signing over their estate to the government.
This really bugs me. We need to provide health services to those who cannot afford the cost and we need to do so without making an underhanded grab for what little they may possess.
This, to me, is nothing less than fraud. A private enterprise would be destroyed by lawsuits and people would end-up in jail if they had such provisions in their contracts and they were not fully disclosed ad-nauseum as a condition for entering into that contract.
Not sure why we accept this from government other than, per my findings, almost nobody knows how Medicaid actually works.
Please read the info in the link I provided. It's from the Medicaid website itself so no bias or fabrication at all.
Medicaid is not health insurance. It provides access to health services but the patient is on the hook for the cost of those services. In certain states things are a bit different. With some 64 million people enrolled in Medicaid it is probably safe to say that tens of millions of people are accumulating debt with the government.
My point of contention is that almost nobody knows this because it is swept under the rug for the political gains afforded by saying that millions more have "health insurance" when, in fact, they don't.
It also really bothers me that a good number of those in the program are poor and probably not very educated and don't realize they are signing over their estate to the government.
This really bugs me. We need to provide health services to those who cannot afford the cost and we need to do so without making an underhanded grab for what little they may possess.
This, to me, is nothing less than fraud. A private enterprise would be destroyed by lawsuits and people would end-up in jail if they had such provisions in their contracts and they were not fully disclosed ad-nauseum as a condition for entering into that contract.
Not sure why we accept this from government other than, per my findings, almost nobody knows how Medicaid actually works.
If you use Medicaid, you're expected to first deplete almost all of your financial resources to pay. It's not unusual to even have your home become an asset that will be eventually taken by the government.
After ACA this is no longer true in Medicaid expansion states.
There is no asset test, and there is no paying back benefits if you are under 65 when you took them.
Medicaid expansion is quite literally the best insurance that money can't buy.
In CA, for example, a family of 4 earning less than $33,500 gets MediCal [1]. If you just want free coverage for the kids, you can earn $64,600. [2]
[1] - http://www.dhcs.ca.gov/services/medi-cal/Pages/DoYouQualifyF...
[2] - http://hbex.coveredca.com/toolkit/renewal-toolkit/downloads/...
There is no asset test, and there is no paying back benefits if you are under 65 when you took them.
Medicaid expansion is quite literally the best insurance that money can't buy.
In CA, for example, a family of 4 earning less than $33,500 gets MediCal [1]. If you just want free coverage for the kids, you can earn $64,600. [2]
[1] - http://www.dhcs.ca.gov/services/medi-cal/Pages/DoYouQualifyF...
[2] - http://hbex.coveredca.com/toolkit/renewal-toolkit/downloads/...
ACA is likely about to be repealed.
And maybe that's a good reason why it should be.
A progressive tax system should not be paired with a regressive subsidy as massive as ACA. It adds up to nearly a 100% tax on the first $60,000 of income for unhealthy / chronically ill families, and a 60% effective tax rate for healthy ones.
A progressive tax system should not be paired with a regressive subsidy as massive as ACA. It adds up to nearly a 100% tax on the first $60,000 of income for unhealthy / chronically ill families, and a 60% effective tax rate for healthy ones.
I'm actually quite aware of this (my partner used to do nursing home placements). But if you're going into a nursing home, the implication is that you will never need those assets again. While I don't agree with this process, it's difficult to argue it is without merit. I suppose if survivors wanted to inherit those assets, they could take on the care of their elderly family members.
It's also worth noting that, in most of the US, the alternative to medicaid was/is filial support laws, in which the nursing home could take the assets of the children of the patients in their care.
It's also worth noting that, in most of the US, the alternative to medicaid was/is filial support laws, in which the nursing home could take the assets of the children of the patients in their care.
The point is that people on Medicaid don't really have health insurance. They have a line of credit with the government. They are accumulating debt. In most -not all- states the law requires the state to collect on the debt. Again, by law. They can and do place liens on your property, etc.
This is very, very far removed from the idea of health insurance. Your property becomes the property of the government. With real health insurance nobody places a lien on your home for medical services rendered.
This is very, very far removed from the idea of health insurance. Your property becomes the property of the government. With real health insurance nobody places a lien on your home for medical services rendered.
I don't think most people understand how social security works. You can read about it here: https://en.wikipedia.org/wiki/Social_Security_(United_States...
SS is not quite a pension fund, but it is also certainly _not_ a "tax on income like any other". The funds taken all go to directly to the SSA fund, they aren't available for general use like basic income tax is. For another difference, it is payroll tax, so if you don't have income from wages (e.g., all income is through interest and dividends) there is no SS tax at all.
Importantly, although it's possible that the fund could become exhausted if payments aren't reduced (as baby boomers age and the elderly grow to far outnumber the young), the size of payments would be reduced far before that point. Also, since there will always be at least some young people paying into SS, even if the fund itself was basically exhausted there would still be a continuous stream of incoming payments to distribute out to the elderly, just much reduced from the current size of outgoing payments.
SS is not quite a pension fund, but it is also certainly _not_ a "tax on income like any other". The funds taken all go to directly to the SSA fund, they aren't available for general use like basic income tax is. For another difference, it is payroll tax, so if you don't have income from wages (e.g., all income is through interest and dividends) there is no SS tax at all.
Importantly, although it's possible that the fund could become exhausted if payments aren't reduced (as baby boomers age and the elderly grow to far outnumber the young), the size of payments would be reduced far before that point. Also, since there will always be at least some young people paying into SS, even if the fund itself was basically exhausted there would still be a continuous stream of incoming payments to distribute out to the elderly, just much reduced from the current size of outgoing payments.
Just try considering all the old people communists, not deporting them, but also not paying them their benefits (however real or imaginary) and see where this goes. It would be uproar, and thus irrational. The case held that withholding benefits from Nestor wasn't irrational. Broadly doing to a whole population what was done to Nestor would hardly be rational, and certainly would not be smooth sailing.
ALL tax money is your money. We cant avoid taxes but that does not change the fact government's right to take our money away from us to do something as personal as retirement planning does not make sense and is morally extremely wrong.
If I wanted government to plan my life I would have lived in Cuba not in USA.
If I wanted government to plan my life I would have lived in Cuba not in USA.
Taxation is theft.
I'm in the same boat; I view my social security "contributions" as a lifestyle tax from the last generation, and I'd opt out of them in a second if I could. Instead, I'm planning my retirement around Roth IRAs and 401k savings.
I think this is definitely a common sentiment amongst us youngsters.
I think this is definitely a common sentiment amongst us youngsters.
I thought that way in my early- to mid-20s.
I read lots of thoughtful articles about how SS was broke, wouldn't last, etc.
As I got a little older, I started reading more about the history of SS, how it's always needed various adjustments over time, how people have always said it's going broke, it's unsustainable, etc.
I realized that, for most of its history, the people who have said those things are actually more likely the ones who'd like it to go away entirely.
While everyone else just makes the changes necessary to keep it going.
After a while, I found I'd move into the "let's just make the changes necessary to keep it going, because it's a good program and has always had its detractors" camp. (which is where I am now.)
I read lots of thoughtful articles about how SS was broke, wouldn't last, etc.
As I got a little older, I started reading more about the history of SS, how it's always needed various adjustments over time, how people have always said it's going broke, it's unsustainable, etc.
I realized that, for most of its history, the people who have said those things are actually more likely the ones who'd like it to go away entirely.
While everyone else just makes the changes necessary to keep it going.
After a while, I found I'd move into the "let's just make the changes necessary to keep it going, because it's a good program and has always had its detractors" camp. (which is where I am now.)
To pile on to this. Even is SS makes no changes whatsoever, they can still pay out ~75% of the benefits starting in the late 2020's or early 2030's and all the way through the 2080's or 2090's based on the SS Trustee report. SS is going to be around unless we choose to elect officials that dismantle it. The fear mongering and apathy needs to stop.
I'm sorry, but this statement is not true. These numbers require the use of the Social Security trust fund. The Social Security trust fund is a "special issue treasury bond" in which money is deposited and then spent by the US government.
So, when the trustees say that Social Security can pay 75% of the benefits, what they mean is that there are enough IOUs in the trust fund to pay 75% of the benefits. But when we start redeeming the IOUs, we will quickly discover that the money isn't in existence. We are going to have to raise taxes or cut spending or otherwise get the money from somewhere else. The trust fund is just a very very clever way of obfuscating the fact that the government has no money saved at all for Social Security.
So, when the trustees say that Social Security can pay 75% of the benefits, what they mean is that there are enough IOUs in the trust fund to pay 75% of the benefits. But when we start redeeming the IOUs, we will quickly discover that the money isn't in existence. We are going to have to raise taxes or cut spending or otherwise get the money from somewhere else. The trust fund is just a very very clever way of obfuscating the fact that the government has no money saved at all for Social Security.
All you are saying is that the US needs to continue to service its debt without defaulting. Since there is no sign that we will default now or later, this is simply more fear mongering.
Actually, the 75% number is when there is no trust fund whatsoever and all outgoing payments are funded directly by incoming payments.
> But when we start redeeming the IOUs
You are aware, I'm sure, that said IOUs have been redeemed every year of SS's existence.
> But when we start redeeming the IOUs
You are aware, I'm sure, that said IOUs have been redeemed every year of SS's existence.
Until they aren't. Bear Stearns paid its bills every year until it suddently didn't.
It's worth noting that if there are benefit cuts of 25% that it's unlikely that each individual will see a 25% cut. It's more likely (in my opinion at least) that we'll see some sort of means testing where seniors with other income (from 401Ks, private pensions, other savings) see their benefits cut much more than 25% while those with low incomes retain their full benefits.
So if you are saving a lot it could, ironically, be a self fulfilling prophecy that you get no social security.
So if you are saving a lot it could, ironically, be a self fulfilling prophecy that you get no social security.
SS is not a money transfer from today's young to tomorrow's old--it's a transfer from today's young to today's old. Don't think of it as "savings" you're "contributing" toward.
Isn't this similar to investments or savings where you put in money expecting to receive something in the future? That money isn't static, it's actively being used in other ways. For example, money I deposit in my bank account today is going out into loans the bank is issuing today. I'm not taking a position on Social Security, just wondering if the analogy does much useful work.
No; investments go toward productive work to create economic value. Social Security doesn't have any element that would actually create wealth. It works exactly like a Ponzi scheme.
This is almost too ridiculously misinformed a statement to even justify replying to, but since it's easy enough, the SS trust funds earn interest through investment as necessitated by law. They've also been used as an intergovernmental loan vehicle, acting to keep gov't debt lower than it would otherwise have been. It's not a Ponzi scheme.
The trust fund is an accounting fiction.
Social Security is paid out entirely by proceeds from people paying into the system. If ever the number of new people paying in is not enough to cover the outflows, then the system collapses. That is how a Ponzi scheme works.
Social Security is paid out entirely by proceeds from people paying into the system. If ever the number of new people paying in is not enough to cover the outflows, then the system collapses. That is how a Ponzi scheme works.
Or, the inflows are increased, or the outflows are decreased. All of which can be done with a stroke of a pen.
If, for instance, we get rid of the contribution cap tomorrow, Social Security becomes 100% funded - in perpetuity.
Madoff was in no position to do so. Congress is.
If, for instance, we get rid of the contribution cap tomorrow, Social Security becomes 100% funded - in perpetuity.
Madoff was in no position to do so. Congress is.
Mercedes dealers and developers of luxury apartments in Singapore, London, etc. would love this.
I don't see how the analogy requires or implies the creation of economic value or productive work or any other particular use of the money, only that the money put in today is being used today for whatever purpose.
Again, I'm not arguing for or against Social Security, just whether or not the original analogy is apt. If it's not, it does no harm to those arguing against Social Security unless the argument relies largely on the analogy being sound. I can't imagine that's the case at all. If it is apt, I think it likely can be expressed in a way that more clearly shows its intent.
Again, I'm not arguing for or against Social Security, just whether or not the original analogy is apt. If it's not, it does no harm to those arguing against Social Security unless the argument relies largely on the analogy being sound. I can't imagine that's the case at all. If it is apt, I think it likely can be expressed in a way that more clearly shows its intent.
To be fair, when I buy a company's stock on the public stock market, it's more of a lottery ticket than an investment. It's not as if buying a stock actually puts money into the company's pocket for them to use to "create economic value". Buying a stock puts money into the pocket of whoever last bought that stock so that they can continue gambling.
This is not entirely correct.
By buying stock in a given company you increase demand for that company's stock and increase its value. A company's market cap is a very real thing that allows it to engage in economic activity that it would otherwise be unable to execute on.
By buying stock in a given company you increase demand for that company's stock and increase its value. A company's market cap is a very real thing that allows it to engage in economic activity that it would otherwise be unable to execute on.
Is buying real estate or a business an investment? You're not creating economic value, just putting money into the pocket of the previous owner.
I guess it depends on your definition of "creating economic value". If I buy something for $110 from someone who paid $100 for it, I guess you could argue that either you or I just "created" $10 of economic value. I don't subscribe to that. Value is only created when you improve something.
Buy a lump of gold for $100 and turn it into a $110 bracelet -> value created.
Buy a lump of gold for $100 and sell it to someone 1 second later for $110 -> no value created.
Buy a lump of gold for $100 and turn it into a $110 bracelet -> value created.
Buy a lump of gold for $100 and sell it to someone 1 second later for $110 -> no value created.
I didn't mention gold. I asked about two cash-flow generating assets that would be considered investments by most people (but of course you can have your own definition of investment).
I'm more debating the definition of "value creation" rather than "investment". But admittedly I did conflate the two terms in an earlier response. I'd offer: not all investments, even the ones that provide monetary returns, do so by creating value.
How do a business provide monetary return if not by creating value? A house also provides value (in the form of housing), why would anyone want to pay rents otherwise?
Well, you hope. The value of investments can go down as well as up.
I don't see why changing the tax rules around retirement accounts (like taxing Roth withdrawals) would be any more difficult than changing Social Security payouts. You never know what may happen in the future. The government could even make owning gold illegal.
That's amusing. I'm 45 and said the same thing when I was in my mid-20's. And now I think it's just naive. The most docile 60 year olds I know become positively vitriolic at the idea of even the age of benefit payout being changed by 5 years. If Social Security were just done away with, I guarantee you the violent revolution they'd be considering wouldn't involve clever devices that take people's heads off cleanly, quickly and painlessly like the French did. Vlad the Impaler would be seen as a massage therapist in comparison.
So if Social Security (and don't forget Medicare it's part of the same FICA taxation) were to go away, it definitely means some nasty calamity happened first, like Yellowstone or a meteor just blew up half the country, in which case we've got other problems.
The thing to be concerned about is privatizing it. That's a con game to dump a shit ton of money into the stock market, with the ensuing distortion inflating the stock prices of the very wealthy. It's about helping them. It doesn't do squat to help the people who will depend on Social Security. They will not make more money. And just like with getting rid of it, there's no way it's tenable to tolerate the inevitable short term loss of asset value with recessions. We can't have retirees experiencing 5% let alone 20% loss of income for 1 month let alone 1 year let alone 5-8 years for a recovery. Old people would sooner pick up axes and make you shoot them, because shooting your grandma in the head is kinder than this Republican privatization of Social Security nonsense. Grandma is not going to go back to dumpster diving and living under a bridge again like the 1930's.
And you've got the same financial concern with an unbalanced 401K - that could leave you in a lurch the same way a privatized Social Security plan can. So take the risks in that 401k while you're young, but at some point probably in your 50's, you'll want to start moving it to inflation indexed treasuries.
Young people right now are more likely to be savers, because of 2007/2008. They saw what it did to the unprepared, so they know that sort of thing can happen. Gen X and the Baby Boomers didn't have anything nearly that scary.
So if Social Security (and don't forget Medicare it's part of the same FICA taxation) were to go away, it definitely means some nasty calamity happened first, like Yellowstone or a meteor just blew up half the country, in which case we've got other problems.
The thing to be concerned about is privatizing it. That's a con game to dump a shit ton of money into the stock market, with the ensuing distortion inflating the stock prices of the very wealthy. It's about helping them. It doesn't do squat to help the people who will depend on Social Security. They will not make more money. And just like with getting rid of it, there's no way it's tenable to tolerate the inevitable short term loss of asset value with recessions. We can't have retirees experiencing 5% let alone 20% loss of income for 1 month let alone 1 year let alone 5-8 years for a recovery. Old people would sooner pick up axes and make you shoot them, because shooting your grandma in the head is kinder than this Republican privatization of Social Security nonsense. Grandma is not going to go back to dumpster diving and living under a bridge again like the 1930's.
And you've got the same financial concern with an unbalanced 401K - that could leave you in a lurch the same way a privatized Social Security plan can. So take the risks in that 401k while you're young, but at some point probably in your 50's, you'll want to start moving it to inflation indexed treasuries.
Young people right now are more likely to be savers, because of 2007/2008. They saw what it did to the unprepared, so they know that sort of thing can happen. Gen X and the Baby Boomers didn't have anything nearly that scary.
> The most docile 60 year olds I know become positively vitriolic at the idea of even the age of benefit payout being changed by 5 years.
I guess I'm afraid of a slow rollout. ie. everyone who's 40 and older gets normal social security, if you're ~35 now, you'll have to wait a few years more. It's exactly the kind of "we got ours" BS that the boomers are so known for.
I guess I'm afraid of a slow rollout. ie. everyone who's 40 and older gets normal social security, if you're ~35 now, you'll have to wait a few years more. It's exactly the kind of "we got ours" BS that the boomers are so known for.
Honestly, I don't think its such a bad idea. Life expectancy in 1935 was 62. Today its 79. So if we want the program to be solvent, we have to adopt one or more of the following solutions: keep increasing the SS-eligibility age in tandem with life expectancy, increase the FICA tax, cut benefits
Dependency ratios (the number of workers compared to the number of people dependent on workers) may actually be lower than they were in the 60s simply because fewer people are having children.
Even if that weren't true, the idea that we have to keep putting the age up is predicated upon productivity remaining static.
Productivity has gone up consistently and will likely continue to go up.
Curiously some people are breathlessly optimistic about automation when it's a convenient scapegoat for high unemployment but immediately lose all faith in it when it comes to social security projections. These people probably don't have our best interests at heart.
Even if that weren't true, the idea that we have to keep putting the age up is predicated upon productivity remaining static.
Productivity has gone up consistently and will likely continue to go up.
Curiously some people are breathlessly optimistic about automation when it's a convenient scapegoat for high unemployment but immediately lose all faith in it when it comes to social security projections. These people probably don't have our best interests at heart.
You left out adding more people into the system, although that's usually considered in the context of demography rather than mortality. One accounting reason to consider it from this perspective, though, is that adult immigrants have typically been raised and educated at some other country's expense so their productive entry to the US workforce is free of any debt overhang, ie no public monies were spent by the US on educating so they're basically coming to help out with the national debt for free. Of course the flip side of this is a brain drain for countries that see too many people leave.
I mean, the FICA taxes were increased in 1983 in part as preparation for the Boomer's retirement. When that bubble is past us, we shouldn't need to increase again for a couple generations, even accounting for increased average lifespan.
Grandfathering would be unjust though.
You could also choose what the U.S. is choosing now, which is to reduce U.S. life expectancy.
> It's exactly the kind of "we got ours" BS that the boomers are so known for.
The boomers are just recipients of an anomalous post-war economic order that heavily benefitted the US for a couple decades.
The average 60-year old had no role in pulling the rug out from millennials.
The boomers are just recipients of an anomalous post-war economic order that heavily benefitted the US for a couple decades.
The average 60-year old had no role in pulling the rug out from millennials.
Right. The average Boomer had nothing to do with it. To be fair, the Boomer politicians and business managers didn't screw the Millennials, either. Not directly. They pulled the rug out from the Gen-Xers, and let the domino effect take out the Millennials, too. Yeah, as a generation, we still exist, even though nobody talks about us.
The Boomers were the beneficiaries of post-war prosperity, but they also decided to steal money from the future to finance their generational party/gravy train. The Greatests gave them a gift of some free money, but then they also decided to smash open their own childrens' and grandchildrens' piggy banks and fill them full of promissory notes. Except they aren't IOUs that are promises from the parents to pay their kids back. They are UOMEs that obligate the kids to pay their parents more money, if they ever actually get some.
I'm biased by anecdote, because I'm old enough to have seen typical (late) Boomer lifestyles and compare them to typical Gen X lifestyles in the same age range. In other words, I'm old enough now to compare my own life with that of my parents when they were the age I am now.
The Boomers were the beneficiaries of post-war prosperity, but they also decided to steal money from the future to finance their generational party/gravy train. The Greatests gave them a gift of some free money, but then they also decided to smash open their own childrens' and grandchildrens' piggy banks and fill them full of promissory notes. Except they aren't IOUs that are promises from the parents to pay their kids back. They are UOMEs that obligate the kids to pay their parents more money, if they ever actually get some.
I'm biased by anecdote, because I'm old enough to have seen typical (late) Boomer lifestyles and compare them to typical Gen X lifestyles in the same age range. In other words, I'm old enough now to compare my own life with that of my parents when they were the age I am now.
> The Boomers were the beneficiaries of post-war prosperity, but they also decided to steal money from the future to finance their generational party/gravy train.
I hear this a lot, but what exactly do you mean?
The real reason we don't have the same great lifestyles our (let's be honest - mostly white, male) parents and grandparents did is because no one can get a good paying factory job right out of high school anymore - an inevitable, global, structural change that no one could've prevented.
I hear this a lot, but what exactly do you mean?
The real reason we don't have the same great lifestyles our (let's be honest - mostly white, male) parents and grandparents did is because no one can get a good paying factory job right out of high school anymore - an inevitable, global, structural change that no one could've prevented.
I don't know about your family, but 50% of my ancestors were female.
What I mean is that as Boomers took control of government and business from the previous generation, they overwhelmingly preferred current consumption over future growth. They preferred to benefit their own generation rather than attempt to improve the lot of future generations. And in many cases, they took on a lot of public debt, spent it for private benefit, and mailed the bill ahead to the year 2030. Then they forgot to build the businesses, infrastructure, and capital investments that are absolutely required to be able to pay not just the interest, but the principal, too.
So now we get events like interstate highway bridges collapsing into the Mississippi River. But we can't have that, so instead how about we sell an interstate highway bridge to a private company and let them collect tolls on it? Then maintenance is their problem, right? Oh, and hey, we're driving cities into bankruptcy with the benefits we voted to ourselves, so let's make sure that rather than avoid the bankruptcy by stepping back some of our own foolish economic choices, we instead focus our efforts on making sure they can't discharge those future obligations when the bankruptcy happens. And when retirement benefits finally exceed the productive capacity of all the working people in the nation, the Boomers will mostly be dead already, and the Gen-Xers will be the ones stuck scavenging meals from the garbage while dodging the roving bands of Gen-Z cannibal marauders in their spiky, Mad-Max-style wasteland buggies.
It's all just exactly what can go wrong when you have too much democratic leverage in your republic. The Boomers had just enough of a numeric advantage over other generational voting blocs that they got a disproportionately large share of representation. Then they just voted themselves all the cookies out of the cookie jar.
What I mean is that as Boomers took control of government and business from the previous generation, they overwhelmingly preferred current consumption over future growth. They preferred to benefit their own generation rather than attempt to improve the lot of future generations. And in many cases, they took on a lot of public debt, spent it for private benefit, and mailed the bill ahead to the year 2030. Then they forgot to build the businesses, infrastructure, and capital investments that are absolutely required to be able to pay not just the interest, but the principal, too.
So now we get events like interstate highway bridges collapsing into the Mississippi River. But we can't have that, so instead how about we sell an interstate highway bridge to a private company and let them collect tolls on it? Then maintenance is their problem, right? Oh, and hey, we're driving cities into bankruptcy with the benefits we voted to ourselves, so let's make sure that rather than avoid the bankruptcy by stepping back some of our own foolish economic choices, we instead focus our efforts on making sure they can't discharge those future obligations when the bankruptcy happens. And when retirement benefits finally exceed the productive capacity of all the working people in the nation, the Boomers will mostly be dead already, and the Gen-Xers will be the ones stuck scavenging meals from the garbage while dodging the roving bands of Gen-Z cannibal marauders in their spiky, Mad-Max-style wasteland buggies.
It's all just exactly what can go wrong when you have too much democratic leverage in your republic. The Boomers had just enough of a numeric advantage over other generational voting blocs that they got a disproportionately large share of representation. Then they just voted themselves all the cookies out of the cookie jar.
It's also because they consistently cut taxes and public investment in infrastructure while passing legislation to inflate the costs of basic life necessities such as housing.
I'd point to the massive amounts of privatization of what was public infrastructure.
If you're into documentaries, I'd really recommend some of Adam Curtis's stuff on the topic; he covers the topics much more completely and eloquently than I.
https://en.wikipedia.org/wiki/The_Trap_(TV_series)
https://en.wikipedia.org/wiki/All_Watched_Over_by_Machines_o...
If you're into documentaries, I'd really recommend some of Adam Curtis's stuff on the topic; he covers the topics much more completely and eloquently than I.
https://en.wikipedia.org/wiki/The_Trap_(TV_series)
https://en.wikipedia.org/wiki/All_Watched_Over_by_Machines_o...
No - that's an important structural reason, but I dispute your claim that it's the overarching economic factor or that it's entirely out of our control.
You're right, but the many boomers have been happy to accept the benefit even while seeing the cost fall on succeeding generations, though it's hard to blame individual people from drifting along with their cohort.
This is already the case, since 1983. Also note that there's a huge difference in the payout depending on whether you go for early or full benefit age.
https://www.nasi.org/learn/socialsecurity/retirement-age
Only there's now bi-partisan recognition that SS is insolvent and something must be done. The left wants to increase taxes and remove the cap, who knows how far they could get to taking that if the populist Sanders side takes over, and the right wants to reduce benefits and/or privatize. If the stagnation keeps up until retirement, I guess they'll just quit writing checks.
Social Security insolvency is a myth.
https://www.ssa.gov/OACT/ProgData/fyOps.html
https://www.nasi.org/research/2016/social-security-finances-...
The risk to a stable society (the purpose of Social Security, which is part of its name) is essentially zero by raising the cap.
The risk is substantial by either reducing benefits or privatizing. And I know this because the instant the conversation goes down this road the contra agent devolves to this:
I will pick a pocket first, and shoot grandma in the head second, before this nonsense of reducing benefits or privatization. Benefit reduction, a risk of which is endemic to privatization (grandma might become rich, or she might get kicked out of her apartment, who is to say except the glory of the free market), is objectively more unethical than either picking pockets or shooting old people.
The risk to a stable society (the purpose of Social Security, which is part of its name) is essentially zero by raising the cap.
The risk is substantial by either reducing benefits or privatizing. And I know this because the instant the conversation goes down this road the contra agent devolves to this:
I will pick a pocket first, and shoot grandma in the head second, before this nonsense of reducing benefits or privatization. Benefit reduction, a risk of which is endemic to privatization (grandma might become rich, or she might get kicked out of her apartment, who is to say except the glory of the free market), is objectively more unethical than either picking pockets or shooting old people.
I truly believe that whatever people think about social security not being around when they retire, that it will be around at some level. We will almost certainly reduce benefits and/or increase retirement age. What is the alternative?
There are far too many people who really can't save for retirement due to low wages for a significant part of the population. We aren't going to let these people live in abject poverty, and they aren't going to have any money to cough up to support themselves.
It's the same for Medicare. Paul Ryan wants a premium support system where seniors receive part of the cost of their insurance premium from the government and pay the rest on their own. For many people, the will absolutely not have the money to spend on this. If they can't afford it, they will go to the emergency room and receive care (they legally can't turn you away) once their condition becomes severe enough. We can either force the hospitals to care for these people (and jack up the prices for the rest of us to compensate) or we can have a sane system where we all pay a reasonable price and split the burden over a larger population.
I'm not arguing for some European style social welfare system. I think we ought to have a system that comports with the laws and norms we have in place now (norms/laws I understand: people can go to the ER and get care regardless of their ability to pay, elderly folks do not live in poverty).
There are far too many people who really can't save for retirement due to low wages for a significant part of the population. We aren't going to let these people live in abject poverty, and they aren't going to have any money to cough up to support themselves.
It's the same for Medicare. Paul Ryan wants a premium support system where seniors receive part of the cost of their insurance premium from the government and pay the rest on their own. For many people, the will absolutely not have the money to spend on this. If they can't afford it, they will go to the emergency room and receive care (they legally can't turn you away) once their condition becomes severe enough. We can either force the hospitals to care for these people (and jack up the prices for the rest of us to compensate) or we can have a sane system where we all pay a reasonable price and split the burden over a larger population.
I'm not arguing for some European style social welfare system. I think we ought to have a system that comports with the laws and norms we have in place now (norms/laws I understand: people can go to the ER and get care regardless of their ability to pay, elderly folks do not live in poverty).
> There are far too many people who really can't save for retirement due to low wages for a significant part of the population. We aren't going to let these people live in abject poverty, and they aren't going to have any money to cough up to support themselves.
The history of the US in the past several decades suggests that yes, we absolutely are going to let these people live in abject poverty. Unfortunately.
The history of the US in the past several decades suggests that yes, we absolutely are going to let these people live in abject poverty. Unfortunately.
What history is that? The history that has shows the % of seniors living in poverty consistently decrease over time? It's half of what it was 40 years ago.
The history of the human race suggests that "letting" these people live in abject poverty will result in their "letting" a bunch of government buildings explode, whereas paying them the Social Security we owe them will not.
Old people are not violent. No violent episode in history was committed by 70yos.
The downstream effects on consumer spending would absolutely result in this being fixed. The alternative is large numbers of people going bankrupt and that's going to hit several sacred cows in this country, particularly housing. There's lots of reasons that I'm damn near convinced that SS will still be around, principally that the gap is actually not that bad if it's dealt with in advance so that the trust funds can take advantage of compounding interest. But even absent that, the fact that corporate america is going to be Victim #2 almost guarantees a fix.
> sacred cows in this country, particularly housing
That sacred cow needs to be slaughtered, the sooner the better, and its flesh distributed.
That sacred cow needs to be slaughtered, the sooner the better, and its flesh distributed.
This seems to be the sentiment of younger professional workers. My wife has this view (we are both 32). I used to have it, but I doubt that SS won't be around in some form. It may pay out less or be means tested in the future, however.
I have not heard this sentiment from younger blue collar and service workers, who are much more likely to need to rely on social security. I'm planning our retirement without needing any SS money, and whatever we get will just be some extra on top. Many non-professionals don't have this luxury.
I have not heard this sentiment from younger blue collar and service workers, who are much more likely to need to rely on social security. I'm planning our retirement without needing any SS money, and whatever we get will just be some extra on top. Many non-professionals don't have this luxury.
I'm 36 and in ~17 years of being a developer professionally, I've yet to find employment at a single company that offers any kind of retirement plan at all.
I max out my IRA each year, but my retirement plan is to basically work until I can't, then hop on an iceberg.
IMHO, between Americans being drastically underprepared for retirement and mass job automation, the country is on the cusp of a devastatingly colossal social disaster.
I max out my IRA each year, but my retirement plan is to basically work until I can't, then hop on an iceberg.
IMHO, between Americans being drastically underprepared for retirement and mass job automation, the country is on the cusp of a devastatingly colossal social disaster.
What kind of developer job doesn't have a 401k? Even the minimum wage job I had my first summer out of high school had one.
You had a minimum wage job with a 401k? That was a firm with a bigger HR department than it needed.
> You had a minimum wage job with a 401k? That was a firm with a bigger HR department than it needed.
Aren't there giant companies that employ low wage workers (e.g. McDonalds and Starbucks) that might reasonably offer 401ks to all employees, even the minimum wage ones?
Ignoring the question if a minimum wage person can realistically afford to save, or course.
Aren't there giant companies that employ low wage workers (e.g. McDonalds and Starbucks) that might reasonably offer 401ks to all employees, even the minimum wage ones?
Ignoring the question if a minimum wage person can realistically afford to save, or course.
Large firms can have low-paying entry-level jobs.
I'm in Southern Utah, so it's not very competitive for tech work. I should move, but inertia and a bit of luck stumbling into the few webdev jobs that are around here has kept me in place so far.
Plenty of high paying Boston companies.
I'm 31 and couldn't agree more. I know I'll never have a pension in my life. I also don't expect Social Security to be around.
I think it _could_ still be around, but I expect it to be replaced with something else or scrapped entirely.
IMO, it's life or death to save properly for retirement.
I think it _could_ still be around, but I expect it to be replaced with something else or scrapped entirely.
IMO, it's life or death to save properly for retirement.
You think the stock market will be around when you are old enough to need your 401k? I max my contributions but I have no faith they won't be wiped out in some future crash.
You buy shares in the stock market, not dollars, so a crash shouldn't hamper your ability to retire, unless you want to retire during the crash itself (although diversity of assets would help with this).
The stock market recovered years ago from the Great Depression and is doing really well again.
The stock market recovered years ago from the Great Depression and is doing really well again.
I'm not sure if "crash" is the problem. Crashes happen in markets, it's part of the business cycle.
OP is discussing a 30+ year time horizon, though. I can think of a few potential things that would precipitate not just a crash, but a long-term economic malaise:
- Climate change - Political/social unrest (extrapolate Brexit, Trump, etc) - Mass unemployment caused by automation (you can't "retrain" 5MM 50yo truck drivers) - Empire collapse (has happened with every single empire in history - what makes the U.S. exempt?) - Nuclear exchange (tensions with Russia steadily increasing) - Grey goo / UFAI (I know, crazy, but still, 30+ year time horizon)
While I'm sympathetic to the view that alarmist "the crash is coming" thinking is likely incorrect, whenever one discusses decades-long time horizon in an era of accelerating technology and political uncertainty, I don't think it's unreasonable to suggest that the VIX is not considering tail risk of unlikely, but highly impactful events.
OP is discussing a 30+ year time horizon, though. I can think of a few potential things that would precipitate not just a crash, but a long-term economic malaise:
- Climate change - Political/social unrest (extrapolate Brexit, Trump, etc) - Mass unemployment caused by automation (you can't "retrain" 5MM 50yo truck drivers) - Empire collapse (has happened with every single empire in history - what makes the U.S. exempt?) - Nuclear exchange (tensions with Russia steadily increasing) - Grey goo / UFAI (I know, crazy, but still, 30+ year time horizon)
While I'm sympathetic to the view that alarmist "the crash is coming" thinking is likely incorrect, whenever one discusses decades-long time horizon in an era of accelerating technology and political uncertainty, I don't think it's unreasonable to suggest that the VIX is not considering tail risk of unlikely, but highly impactful events.
I choose to ignore serious but unlikely events like that in my planning. A nuclear exchange or grey goo scenario is going to ruin my retirement plans no matter if I keep my investments in cash or in stocks. I'll have bigger problems than if I can sell my investments or not.
> Empire collapse (has happened with every single empire in history - what makes the U.S. exempt?)
The US isn't anything like traditional historical empires for one. It hasn't built its prosperity on invading other nations to annex them and plunder their national wealth, which is traditionally how empires temporarily sustain themselves. The US built its immense wealth today (just under half of all private wealth on earth is owned by Americans) overwhelmingly through invention, engineering, industry, trade, manufacturing, radical productivity gains spanning two centuries, and lots of immigration. Historical empires have always run out of lands to conquer and wealth to steal from other nations, and then they collapse as they fail to placate their own people or get defeated militarily by the lands they previously conquered.
The USD global reserve is a vulnerability? That's one potential issue. However, the US was the world's largest economy - by about 1890 - long before it had the global reserve currency. Japan has a disastrous situation on its hands economically, and a currency they're very aggressively abusing, and yet they're still the world's #3 economy with a substantial GDP per capita. The notion the US would just wilt without the global reserve currency, is absurd.
What lands has the US annexed that it's going to get pushed out of (and lose the plunder/tax from said nations)? What nation/s is the US stealing all of its prosperity from, such that that is going to end soon? Are we taking $5 trillion annually from Vietnam and Mexico (it's actually the other way around given the vast US trade deficit, we're sending hundreds of billions to the rest of the world)?
Further, the US was the first Capitalist nation. From day one it was heavily built on the principles of the free market and trade, not invasion and plunder. (and before anyone chimes in to loudly proclaim that the US has never been a perfect Capitalist nation: no kidding, such wasn't implied) Otherwise there would be no Canada, at some point in the last century we would have invaded for their natural resources. The US also would have pulled a Russia, and taken Japan and parts of Europe, using its rather wild military & resource advantage at the end of WW2.
The US isn't anything like traditional historical empires for one. It hasn't built its prosperity on invading other nations to annex them and plunder their national wealth, which is traditionally how empires temporarily sustain themselves. The US built its immense wealth today (just under half of all private wealth on earth is owned by Americans) overwhelmingly through invention, engineering, industry, trade, manufacturing, radical productivity gains spanning two centuries, and lots of immigration. Historical empires have always run out of lands to conquer and wealth to steal from other nations, and then they collapse as they fail to placate their own people or get defeated militarily by the lands they previously conquered.
The USD global reserve is a vulnerability? That's one potential issue. However, the US was the world's largest economy - by about 1890 - long before it had the global reserve currency. Japan has a disastrous situation on its hands economically, and a currency they're very aggressively abusing, and yet they're still the world's #3 economy with a substantial GDP per capita. The notion the US would just wilt without the global reserve currency, is absurd.
What lands has the US annexed that it's going to get pushed out of (and lose the plunder/tax from said nations)? What nation/s is the US stealing all of its prosperity from, such that that is going to end soon? Are we taking $5 trillion annually from Vietnam and Mexico (it's actually the other way around given the vast US trade deficit, we're sending hundreds of billions to the rest of the world)?
Further, the US was the first Capitalist nation. From day one it was heavily built on the principles of the free market and trade, not invasion and plunder. (and before anyone chimes in to loudly proclaim that the US has never been a perfect Capitalist nation: no kidding, such wasn't implied) Otherwise there would be no Canada, at some point in the last century we would have invaded for their natural resources. The US also would have pulled a Russia, and taken Japan and parts of Europe, using its rather wild military & resource advantage at the end of WW2.
The factors you outlined are definitely a part of the equation, but I'd argue that the US role in geopolitics post-WWII has had a much larger role in its success.
First, Bretton Woods established a system that heavily favored US interests -- it was based on dollars and gold, and the US had most of the gold supply. The US was able to achieve this favorable position thanks to its place as the major merchant-state, lender, and latecomer ally/victor in WWII. Among other effects, this system led to the dollar becoming accepted as the foundation for most international trade in the latter 20th century.
After the dollar's position became less favorable in the late 1960s, the US ended the Bretton Woods system and worked out agreements with OPEC to shift oil trades into dollars. This had the effect of cementing the USD as the currency of global trade (among other benefits), as all countries needed to hold dollars in order to purchase oil. This "agreement" was backed up by US military and economic hegemony.
Additionally, during this time, the global "south" was being pillaged for resources -- particularly oil, but also cropland (see bananas and sugar) and other scarce resources. The US established and propped up dictatorships that were favorable to its aims under the guise of fighting Communism. The USSR was doing the same thing in reverse, of course -- a grand game of chess, with the spoils to the victor.
Finally, the US "won" against the USSR through a combination of clever psychology, propaganda, and economic warfare, as well as Soviet mismanagement. When the USSR collapsed, the US obtained some economic benefits from the disentangling of the Soviet system, prolonging its advantage.
The US position was unsustainable, though, and this is when the shift occurred. With the relative increase in global stability and international "free" trade, as well as the power of the Internet, corporations no longer needed the protection of the US system quite so badly. Outsourcing and distributed operations became more and more common. The US position is not so rosy as it once was. The petrodollar system seems to be unwinding as well.
I do live in the US, so I do hope that the inevitable correction is a slow one. I also hope that we can avoid starting new conflicts in an attempt to prolong or reestablish our advantage.
First, Bretton Woods established a system that heavily favored US interests -- it was based on dollars and gold, and the US had most of the gold supply. The US was able to achieve this favorable position thanks to its place as the major merchant-state, lender, and latecomer ally/victor in WWII. Among other effects, this system led to the dollar becoming accepted as the foundation for most international trade in the latter 20th century.
After the dollar's position became less favorable in the late 1960s, the US ended the Bretton Woods system and worked out agreements with OPEC to shift oil trades into dollars. This had the effect of cementing the USD as the currency of global trade (among other benefits), as all countries needed to hold dollars in order to purchase oil. This "agreement" was backed up by US military and economic hegemony.
Additionally, during this time, the global "south" was being pillaged for resources -- particularly oil, but also cropland (see bananas and sugar) and other scarce resources. The US established and propped up dictatorships that were favorable to its aims under the guise of fighting Communism. The USSR was doing the same thing in reverse, of course -- a grand game of chess, with the spoils to the victor.
Finally, the US "won" against the USSR through a combination of clever psychology, propaganda, and economic warfare, as well as Soviet mismanagement. When the USSR collapsed, the US obtained some economic benefits from the disentangling of the Soviet system, prolonging its advantage.
The US position was unsustainable, though, and this is when the shift occurred. With the relative increase in global stability and international "free" trade, as well as the power of the Internet, corporations no longer needed the protection of the US system quite so badly. Outsourcing and distributed operations became more and more common. The US position is not so rosy as it once was. The petrodollar system seems to be unwinding as well.
I do live in the US, so I do hope that the inevitable correction is a slow one. I also hope that we can avoid starting new conflicts in an attempt to prolong or reestablish our advantage.
You've taken some factoids from history and attached some simplistic "just so" explanations for events. The U.S. has egregious acts in its history but it's inaccurate to presume that its success is solely due to plundering the world economy. Do remember that European, African, Asian, Oceanic, and Latin American countries experienced a massive improvement in their economies post-war; how could that happen if they were haplessly at the mercy of a cruel victor's reserve currency?
1. Bretton Woods worked out to the disadvantage of the U.S. in the long term. Massive budget deficits brought on by Vietnam War borrowing and ballooning social programs, as well as trade deficits, led European countries to withdraw gold from the U.S. in order to preserve the value of their currency reserves. Leaving it was the only option to both stop the drain of gold and also to escape currency pegging so the dollar could be floated to reflect the trade deficits.
2. The reason why OPEC adopted the dollar was for maximum convertibility; at its inception, the dollar was the most circulated currency in the world. It was, at the time, the one backed by the most gold. The Euro did not exist and the Yen was not as strong or stable.
3. Resource pillaging surely occurred, but in that time period, massive improvements in domestic manufacturing, resource extraction, and agriculture accounts for the largest increase in U.S. citizens' wealth. Multinationals accounted for a small proportion of U.S. revenue.
4. The U.S. didn't "win" against the USSR despite what Mr. Reagan may told you on TV. The USSR failed economically due to a drop in oil prices due to its undiversified economy and the political impossibility of stopping social and military expenditures without upsetting Communist Party elites. The U.S. received paltry economic benefits from the Soviet unraveling. If anything, it received increased competition from suddenly available labor pools. Political advantage does not translate to economic advantage.
5. Outsourcing began long before the internet was significant. The cause of outsourcing was the improved political stability of countries with competing pools of labor and the improvement and commoditization of technology.
It's convenient to adopt a zero-sum outlook on global trade, to assume that if a country does well it must be at the expense of others. However, study of history does not support this conclusion.
1. Bretton Woods worked out to the disadvantage of the U.S. in the long term. Massive budget deficits brought on by Vietnam War borrowing and ballooning social programs, as well as trade deficits, led European countries to withdraw gold from the U.S. in order to preserve the value of their currency reserves. Leaving it was the only option to both stop the drain of gold and also to escape currency pegging so the dollar could be floated to reflect the trade deficits.
2. The reason why OPEC adopted the dollar was for maximum convertibility; at its inception, the dollar was the most circulated currency in the world. It was, at the time, the one backed by the most gold. The Euro did not exist and the Yen was not as strong or stable.
3. Resource pillaging surely occurred, but in that time period, massive improvements in domestic manufacturing, resource extraction, and agriculture accounts for the largest increase in U.S. citizens' wealth. Multinationals accounted for a small proportion of U.S. revenue.
4. The U.S. didn't "win" against the USSR despite what Mr. Reagan may told you on TV. The USSR failed economically due to a drop in oil prices due to its undiversified economy and the political impossibility of stopping social and military expenditures without upsetting Communist Party elites. The U.S. received paltry economic benefits from the Soviet unraveling. If anything, it received increased competition from suddenly available labor pools. Political advantage does not translate to economic advantage.
5. Outsourcing began long before the internet was significant. The cause of outsourcing was the improved political stability of countries with competing pools of labor and the improvement and commoditization of technology.
It's convenient to adopt a zero-sum outlook on global trade, to assume that if a country does well it must be at the expense of others. However, study of history does not support this conclusion.
I think you've read my post as more harsh than it is.
I don't necessarily see the US's actions in the late 20th century as predatory, per se -- in fact, they were very likely a logical response to the cutthroat political situation of the time. With perspective, we now understand more intuitively that the global economy is not a zero-sum game. It's not clear to me that this was the perception in the postwar period, especially since the USSR was seen by many as an existential threat to freedom.
1. I disagree that the agreement was a negative for the US in the long term. Bretton Woods actually led to a trade surplus in the short term, putting the US on a solid footing for international investment and foreign military deployments. During this time US trade relationships and influence were firmly established. In the longer term the financial situation changed, which is why the US decided to leave the agreement.
2. Partially true; this situation was due to the success of Bretton Woods in establishing the dollar as a worldwide reserve currency. However, the other side of this is that OPEC nations had a huge surplus and needed a way to invest their earnings. The US established a relationship with them encouraging huge purchases of US treasuries (often without public awareness) in exchange for military aid. See this article for more info: https://www.bloomberg.com/news/features/2016-05-30/the-untol...
3. I was just stating that this was an added factor. It certainly didn't drive the entire economy.
4. This ignores the effect of US operations (such as the "Star Wars" defense) that were almost entirely for show, as well as an increasingly erratic and aggressive US military posture. The effect of this was to drive the Soviets to "spend themselves to death," which they certainly did. Again, I also agree that Soviet mismanagement was certainly a factor.
5. It began before the Internet, but only really took off once technology made international communication easier. Otherwise I agree with you here. (The post-Soviet era certainly looked more secure for investment though.)
I don't necessarily see the US's actions in the late 20th century as predatory, per se -- in fact, they were very likely a logical response to the cutthroat political situation of the time. With perspective, we now understand more intuitively that the global economy is not a zero-sum game. It's not clear to me that this was the perception in the postwar period, especially since the USSR was seen by many as an existential threat to freedom.
1. I disagree that the agreement was a negative for the US in the long term. Bretton Woods actually led to a trade surplus in the short term, putting the US on a solid footing for international investment and foreign military deployments. During this time US trade relationships and influence were firmly established. In the longer term the financial situation changed, which is why the US decided to leave the agreement.
2. Partially true; this situation was due to the success of Bretton Woods in establishing the dollar as a worldwide reserve currency. However, the other side of this is that OPEC nations had a huge surplus and needed a way to invest their earnings. The US established a relationship with them encouraging huge purchases of US treasuries (often without public awareness) in exchange for military aid. See this article for more info: https://www.bloomberg.com/news/features/2016-05-30/the-untol...
3. I was just stating that this was an added factor. It certainly didn't drive the entire economy.
4. This ignores the effect of US operations (such as the "Star Wars" defense) that were almost entirely for show, as well as an increasingly erratic and aggressive US military posture. The effect of this was to drive the Soviets to "spend themselves to death," which they certainly did. Again, I also agree that Soviet mismanagement was certainly a factor.
5. It began before the Internet, but only really took off once technology made international communication easier. Otherwise I agree with you here. (The post-Soviet era certainly looked more secure for investment though.)
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> It hasn't built its prosperity on invading other nations to annex them and plunder their national wealth, which is traditionally how empires temporarily sustain themselves.
That is exactly how it has built its wealth, what?
That is exactly how it has built its wealth, what?
The US didn't plunder their wealth. It extinguished / concentrated the previous civilizations and created a new civilization in it's place.
Even if the US experienced severe economic, military, and social decline, Illinois isn't going to turn back into the Illiwek Confederation. Those people don't exist anymore.
To put it more simply, America isn't a patchwork of nations and nationalities. Empire's are several nations aggregated into one political union.
If America were in decline, we might lose parts of the southwest to Mexico (due mostly to heavy immigration, not because we stole the land from them), maybe Hawaii, and the colonial territories (Guam, Puerto Rico, etc.).
In a total collapse (post apocalyptic), new nationalities would form, but that takes a long time.
Even if the US experienced severe economic, military, and social decline, Illinois isn't going to turn back into the Illiwek Confederation. Those people don't exist anymore.
To put it more simply, America isn't a patchwork of nations and nationalities. Empire's are several nations aggregated into one political union.
If America were in decline, we might lose parts of the southwest to Mexico (due mostly to heavy immigration, not because we stole the land from them), maybe Hawaii, and the colonial territories (Guam, Puerto Rico, etc.).
In a total collapse (post apocalyptic), new nationalities would form, but that takes a long time.
> The US didn't plunder their wealth. It extinguished / concentrated the previous civilizations and created a new civilization in it's place.
It did plunder their underlying wealth in natural resources. That's not to mention what we've done in the Middle East, South America, Africa, Asia, and even Europe if you go back to the world wars.
I get what you're saying about there not being enough of substrate national power to undermine the US on its own territory but I think externally anti-imperialism is gaining currency just about everywhere. And that will come back to bite us one way or another.
It did plunder their underlying wealth in natural resources. That's not to mention what we've done in the Middle East, South America, Africa, Asia, and even Europe if you go back to the world wars.
I get what you're saying about there not being enough of substrate national power to undermine the US on its own territory but I think externally anti-imperialism is gaining currency just about everywhere. And that will come back to bite us one way or another.
> OP is discussing a 30+ year time horizon, though. I can think of a few potential things that would precipitate not just a crash, but a long-term economic malaise
...
> Climate change
The climate change consequences big enough to cause a long-term economic malaise are far enough out to not affect most of today's workers. We'll mostly just get things that cause short term disruption, like more large storms, more weather variability, more record high tides, and similar things.
The big things, like sufficient sea level rise to require abandoning significant parts of many major cities, long term changes in water availability that significantly change agriculture for whole regions, and so on are usually forecast to be in the 100+ year timeframe.
This is one of the frustrating things about climate change. Over the long term it likely has disastrous consequences for humanity, but it can be largely averted or at least limited if action is taken early enough. But "early enough" puts you a time when the consequences are still localized and intermittent, and so it is easy for people to overlook it (especially when they can make more money by doing so).
...
> Climate change
The climate change consequences big enough to cause a long-term economic malaise are far enough out to not affect most of today's workers. We'll mostly just get things that cause short term disruption, like more large storms, more weather variability, more record high tides, and similar things.
The big things, like sufficient sea level rise to require abandoning significant parts of many major cities, long term changes in water availability that significantly change agriculture for whole regions, and so on are usually forecast to be in the 100+ year timeframe.
This is one of the frustrating things about climate change. Over the long term it likely has disastrous consequences for humanity, but it can be largely averted or at least limited if action is taken early enough. But "early enough" puts you a time when the consequences are still localized and intermittent, and so it is easy for people to overlook it (especially when they can make more money by doing so).
> The climate change consequences big enough to cause a long-term economic malaise are far enough out to not affect most of today's workers.
Source?
Source?
I actually worry about a large-scale "privatization" of the stock market in the distant future. I believe that the concentration of wealth will get so bad that small groups of people will be able to create private equity firms capable taking all the largest companies private.
We are already to the point where there's so much private equity that startups don't need IPOs. So it's entirely possible that the next Google, Facebook, Amazon, Apple and Microsoft will never be exchanged on open markets.
We are already to the point where there's so much private equity that startups don't need IPOs. So it's entirely possible that the next Google, Facebook, Amazon, Apple and Microsoft will never be exchanged on open markets.
it took 30 years for people's stocks to recover that bought them right before the great depression.
The very nature of saving in a 401k is that you never at one time put in a high percentage of your balance into it. The max individual contribution is $18,000 a year.
Let's say you have been doing around $10,000 the first 10 years of your career and the economy tanks. You now have 30-40 years until retirement, and you start doing $15,000 or so a year. That money that you put in before this huge crash may not grow that much before retirement, but the money you put in after the crash will be bought at low rates and will grow for a long time. You will also have put in a lot more money post crash anyway.
Let's say you have been doing around $10,000 the first 10 years of your career and the economy tanks. You now have 30-40 years until retirement, and you start doing $15,000 or so a year. That money that you put in before this huge crash may not grow that much before retirement, but the money you put in after the crash will be bought at low rates and will grow for a long time. You will also have put in a lot more money post crash anyway.
You can contribute more after a certain age as a way of catching up.
True.
And you can also do other savings vehicles outside of your 401k to save even more money. I just wanted to illustrate that it's not like people put all of their money into their retirement account on one day and if a crash happens the next they are screwed.
And you can also do other savings vehicles outside of your 401k to save even more money. I just wanted to illustrate that it's not like people put all of their money into their retirement account on one day and if a crash happens the next they are screwed.
True, I haven't been 401k eligible h(or even Roth), so I have a lot of savings in post tax cash. I just got my Chinese pension contributions refunded, at least, but I'm way behind even on my social security contributions.
How do you define "recover"? Stocks were ahead of 10-year T.Bonds by 1945.
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/...
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/...
If you want to correct someone, please correct them properly. You buy shares or instruments traded on Exchanges, which make up the "Stock Market". However, you don't always buy on Exchanges (OTC/Over the Counter Trading). Those instruments can be equities (shares of a company) aka stocks, securities, futures, options, etc.
The Dow Jones Industrial Average (a common benchmark index such as the Standard and Poor's 500) is literally at an all time high and is on the cusp of 20,000: https://www.google.com/finance?cid=983582
Edit: Changes "shares in instruments to shares or instruments". It was a bit ambiguous and I was originally trying to make it more obvious that shares are considered instruments (along with several other things traded).
The Dow Jones Industrial Average (a common benchmark index such as the Standard and Poor's 500) is literally at an all time high and is on the cusp of 20,000: https://www.google.com/finance?cid=983582
Edit: Changes "shares in instruments to shares or instruments". It was a bit ambiguous and I was originally trying to make it more obvious that shares are considered instruments (along with several other things traded).
The point of my post is that you are buying shares of something, and that crashes and downturns don't permanently harm your 401k. Also, crashes when you are young are good because you get to buy cheap shares.
I could have gone into more detail, as you have done here, but that's not the point. The point is that downturns like the Great Recession do not permanently harm someone's retirement.
I could have gone into more detail, as you have done here, but that's not the point. The point is that downturns like the Great Recession do not permanently harm someone's retirement.
> If you want to correct someone, please correct them properly. You buy shares in instruments traded on Exchanges, which make up the "Stock Market"
Shares are instruments [1]. (You say this later, but nobody buys "shares in instruments").
Exchanges, together with ECNs, OTC markets, broker-dealers, other market makers, buyers, sellers, arbitrageurs, investment banks, et cetera make up the stock market.
[1] https://en.m.wikipedia.org/wiki/Financial_instrument
Shares are instruments [1]. (You say this later, but nobody buys "shares in instruments").
Exchanges, together with ECNs, OTC markets, broker-dealers, other market makers, buyers, sellers, arbitrageurs, investment banks, et cetera make up the stock market.
[1] https://en.m.wikipedia.org/wiki/Financial_instrument
Totally correct. I had to reword that a few times but figured less people would understand it otherwise :)
fair enough, but if there's a broad based and persistent market crash then there will be broad based and persistent deflation. Ergo, you won't need to have saved all that much money to retire.
then how about you invest in gold, its traditionally been a good fear hedge. or more appropriately adjust the weighting between gold & market based on your perception of risk.
Note that I am not actually recommending investing in gold just making your abstract fearful thesis into something real. IMO unless you are talking about some civilization hurting disaster (like yellowstone .. not even then perhaps) markets recover from crashes. in a way they are a measure of optimism for future. so I'd factor than into my plans.
Note that I am not actually recommending investing in gold just making your abstract fearful thesis into something real. IMO unless you are talking about some civilization hurting disaster (like yellowstone .. not even then perhaps) markets recover from crashes. in a way they are a measure of optimism for future. so I'd factor than into my plans.
Forget the stock market, will you still be around. I'd plan accordingly (tongue in cheek)
I read this a lot. Why do you expect this to be the case?
Social Security may become unable to pay the benefits that you're expecting at some point because the input from workers will not be enough to pay those benefits. But that doesn't mean it will pay nothing. It will just pay less. You'll still get some payments.
Social Security may become unable to pay the benefits that you're expecting at some point because the input from workers will not be enough to pay those benefits. But that doesn't mean it will pay nothing. It will just pay less. You'll still get some payments.
Agree wholeheartedly with this. The "Social Security is Failing" headlines are all ginned up to support political ends, they don't have much to do with the reality of the program.
Large adjustments were already made to accommodate the baby boomer generation. That's why we have a $2.8 trillion-dollar trust fund. With current demographics, we should be able to pay 100% of promised benefits until the late 2030's. Afterwards, with a pure pay-go system, we'd only be able to pay ~80% of benefits.
There are simple fixes that could dramatically extend the reserve depletion date to sometime in the 2050s. Not doing so is purely a political question.
Trust fund stats: https://www.ssa.gov/oact/STATS/table4a3.html
Large adjustments were already made to accommodate the baby boomer generation. That's why we have a $2.8 trillion-dollar trust fund. With current demographics, we should be able to pay 100% of promised benefits until the late 2030's. Afterwards, with a pure pay-go system, we'd only be able to pay ~80% of benefits.
There are simple fixes that could dramatically extend the reserve depletion date to sometime in the 2050s. Not doing so is purely a political question.
Trust fund stats: https://www.ssa.gov/oact/STATS/table4a3.html
There are simple fixes that could dramatically extend the reserve depletion date to sometime in the 2050s. Not doing so is purely a political question.
Increasing the marginal rate of income tax for anyone making more than $120,000 by 12%+ may be a "simple" fix or just a matter of politics, but it's some pretty hard politics! (And also might lead to some unfortunate economic outcomes.)
Increasing the marginal rate of income tax for anyone making more than $120,000 by 12%+ may be a "simple" fix or just a matter of politics, but it's some pretty hard politics! (And also might lead to some unfortunate economic outcomes.)
> Increasing the marginal rate of income tax for anyone making more than $120,000 by 12%+ may be a "simple" fix or just a matter of politics, but it's some pretty hard politics! (And also might lead to some unfortunate economic outcomes.)
Two things come to mind; The politics shouldn't be that hard in the current populist environment since only ~6% of taxpayers earn above the max.[1] Secondly, employees would 'only' see a 6% marginal tax increase since the employer portion isn't included with AGI.
But there are numerous other options to extend the program as well. The top 5% of taxpaying households earned at least ~$170k in 2011. As a simplifying assumption, let's just say they all meet the cap. There were 6.8 million returns above this level, which would mean that only $800 billion of the $2.8 trillion in AGI earned that year was subject to the social security tax. If you levy a 1% tax on income above the FICA limit, it would raise an additional $40B/year which with simple perpetuity math would mean an additional $1.2 trillion into the trust fund.[2]
Alternatively, since the top 5% of income payers receive something like 1/3 of their income from capital gains (which aren't subject to any FICA taxes), a 1% levy on capital gains would likely raise a similarly large amount.
I don't have any specific preference for those two ideas, but they're just a few examples.
[1] - https://www.ssa.gov/policy/docs/policybriefs/pb2011-02.html
[2] - Base figures from here: http://www.mybudget360.com/wp-content/uploads/2015/06/irs-ta...
Two things come to mind; The politics shouldn't be that hard in the current populist environment since only ~6% of taxpayers earn above the max.[1] Secondly, employees would 'only' see a 6% marginal tax increase since the employer portion isn't included with AGI.
But there are numerous other options to extend the program as well. The top 5% of taxpaying households earned at least ~$170k in 2011. As a simplifying assumption, let's just say they all meet the cap. There were 6.8 million returns above this level, which would mean that only $800 billion of the $2.8 trillion in AGI earned that year was subject to the social security tax. If you levy a 1% tax on income above the FICA limit, it would raise an additional $40B/year which with simple perpetuity math would mean an additional $1.2 trillion into the trust fund.[2]
Alternatively, since the top 5% of income payers receive something like 1/3 of their income from capital gains (which aren't subject to any FICA taxes), a 1% levy on capital gains would likely raise a similarly large amount.
I don't have any specific preference for those two ideas, but they're just a few examples.
[1] - https://www.ssa.gov/policy/docs/policybriefs/pb2011-02.html
[2] - Base figures from here: http://www.mybudget360.com/wp-content/uploads/2015/06/irs-ta...
Appreciate the thorough response. Sorry to have been somewhat glib: I've just run into a few too many folks who argue that SS solutions are as easy as "lifting the cap".
I think voters (especially the high income voters who would be affected) aren't likely to be fooled by the employer/employee split, even putting aside those who are self-employed. And raising taxes on a whole bunch of "moderately" high earners in deep blue, high cost-of-living cities isn't particularly popular even with Democrats: They worked hard in the last go-round to push President Obama to only end the Bush rate cuts for the "truly" wealthy households at $400K+.
I also think you're slightly over-estimating the money available over the cap: There are presumably many more households with two earners closer to $85,000 each than households with one earner at $170k, and SS taxes are collected per-earner.
A little calculation from here...
https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2016/f...
...suggests that the total taxed income base of Social Security is around $6.4T. Total AGI is somewhere around $9T, so 1% of the difference is $26B (and of course that AGI includes capital gains, so that's all you can get in total with both tweaks). Maybe another $10B or so since the taxes could come off gross income rather than adjusted gross.
Anyway, it's certainly not impossible to make the numbers work, especially if the economy doesn't go into a Trump-induced tailspin.
I think voters (especially the high income voters who would be affected) aren't likely to be fooled by the employer/employee split, even putting aside those who are self-employed. And raising taxes on a whole bunch of "moderately" high earners in deep blue, high cost-of-living cities isn't particularly popular even with Democrats: They worked hard in the last go-round to push President Obama to only end the Bush rate cuts for the "truly" wealthy households at $400K+.
I also think you're slightly over-estimating the money available over the cap: There are presumably many more households with two earners closer to $85,000 each than households with one earner at $170k, and SS taxes are collected per-earner.
A little calculation from here...
https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2016/f...
...suggests that the total taxed income base of Social Security is around $6.4T. Total AGI is somewhere around $9T, so 1% of the difference is $26B (and of course that AGI includes capital gains, so that's all you can get in total with both tweaks). Maybe another $10B or so since the taxes could come off gross income rather than adjusted gross.
Anyway, it's certainly not impossible to make the numbers work, especially if the economy doesn't go into a Trump-induced tailspin.
> With current demographics, we should be able to pay 100% of promised benefits until the late 2030's.
The Baby Boomers will be dying off at a hefty rate by 2030. It includes people born between 1946-1964, which will mean they will be between 64-84.
Generation X is quite a bit smaller than the Millennial generation, so SS should start running a surplus again by the 2040s. There are plenty of things that can be done to bridge the 10 year gap. But reverting to pay-as-you-go for a short time isn't a terrible outcome.
The Baby Boomers will be dying off at a hefty rate by 2030. It includes people born between 1946-1964, which will mean they will be between 64-84.
Generation X is quite a bit smaller than the Millennial generation, so SS should start running a surplus again by the 2040s. There are plenty of things that can be done to bridge the 10 year gap. But reverting to pay-as-you-go for a short time isn't a terrible outcome.
Bear in mind that "it goes broke" isn't the only failure mode, and it's certainly not what I consider most likely. Every few years there's another push to privatize Social Security - you don't just have to count on the mathematical solvency of the program but also its political viability.
It's one of the most popular social programs ever run in this country and that's why 'every few years' the efforts to privatize it go nowhere. Even the current unified Republican government won't dare touch it, and no one would want to more than Paul Ryan.
Social Security is a money funnel from the young to the old. It will end if and when young voters ever outnumber old voters. Pretty simple.
Likely will not happen while the Boomers are still alive because as a generation they're huge and they vote, but I can't imagine that today's Millennial generation is going to keep Social Security around for us relatively few Gen-Xers when we need it.
Likely will not happen while the Boomers are still alive because as a generation they're huge and they vote, but I can't imagine that today's Millennial generation is going to keep Social Security around for us relatively few Gen-Xers when we need it.
How do you support this assertion?
Page 12 and 13 of this report https://www.ssa.gov/oact/tr/2016/tr2016.pdf.
It's a pay-go system, it works that way by design
Maybe a little out of scope, but, is it not the important issue if the society we live when we retire is richer or poorer than the society today?
I mean, if we live in a society, for instance, three times richer (per capita) than today, it would be very strange that old people will have a hard time.
In the other hand, if it's a poorer society, even people with savings are probably to have a hard retirement.
I mean, if we live in a society, for instance, three times richer (per capita) than today, it would be very strange that old people will have a hard time.
In the other hand, if it's a poorer society, even people with savings are probably to have a hard retirement.
It could be a problem if, using your example, society is 3 times richer but that comes from 10% being a lot richer and 90% being somewhat poorer.
Inequality, it seems, is rising over time.
Inequality, it seems, is rising over time.
I suppose that what surprise me is the contradiction between the optimism about the future of HN crowd and their pessimism in this issue, as if nothing could be done (in the case that you think something should be done, of course).
The inequality thing is far from unavoidable. In a democracy, at least, a society perceived as more fair for the majority should be attainable.
The inequality thing is far from unavoidable. In a democracy, at least, a society perceived as more fair for the majority should be attainable.
> The inequality thing is far from unavoidable. In a democracy, at least, a society perceived as more fair for the majority should be attainable.
This is a nice thought in theory, but not really true as long as campaigns themselves are funded by private capital. And any attempt to change that leads to private capital (cough Koch brothers cough) funding candidates to stop it.
I'm not super optimistic this will change without some kind of dramatic event (revolution, war, SS being defunded and lots of old people starve, etc.).
This is a nice thought in theory, but not really true as long as campaigns themselves are funded by private capital. And any attempt to change that leads to private capital (cough Koch brothers cough) funding candidates to stop it.
I'm not super optimistic this will change without some kind of dramatic event (revolution, war, SS being defunded and lots of old people starve, etc.).
> but not really true as long as campaigns themselves are funded by private capital
As long as funding correlates strongly with winning, or at least appears to correlate strongly with winning. If that ever goes away, legislators are going to look at lobbyists with a more skeptical eye.
As long as funding correlates strongly with winning, or at least appears to correlate strongly with winning. If that ever goes away, legislators are going to look at lobbyists with a more skeptical eye.
Yeah I'm doing the exact same thing. Max out 401k / IRA every year + additional savings.
I'm assuming that SS wont be around but if it is, great! Unfortunately, I have a feeling Republicans are really going to fuck people my age (mid 20's) over with some sort of slow phase-out so I'm also hedging my bet.
I'm assuming that SS wont be around but if it is, great! Unfortunately, I have a feeling Republicans are really going to fuck people my age (mid 20's) over with some sort of slow phase-out so I'm also hedging my bet.
This is my real fear here. I am an immigrant in valley for a while now. I have always thought that the reason america has such a thriving service sector based economy is because they have a safety net to fall back to, which allows ppl to be free to take more risks & be generally more consumptive. My fear is that slowly as republicans take that safety net away it will force people to fix these problems at the individual level which will make them more conservative. overall I feel that (alongwith the fkups on science education) will have a detrimental effect on american competitiveness & larger economy.
I do think that privatizing SS & medicare will give markets a one time boost & generally help those who are 'better vested'.
I do think that privatizing SS & medicare will give markets a one time boost & generally help those who are 'better vested'.
[deleted]
I was thinking it may be boomers putting in catch-up funds. Younger folks today may still be trying to get started on a mortgage down payment, let alone saving for kids' college or maxing out the 401k.
> I'm not planning on Social Security being around by the time I'm old enough to tap into it
But you assume your 401k will retain its favorable tax treatment?
Why? Because it was promised, implictly, when you paid into it?
But you assume your 401k will retain its favorable tax treatment?
Why? Because it was promised, implictly, when you paid into it?
I just turned thirty and I can echo your sentiments; I'm saving aggressively and investing across a wide array of assets and tax sheltered accounts with the idea that I may at best retire early and be capable of taking care of myself into old age.
For self employed, it is even better. You can put up to 54,000 for 2017 [0]. If you are self employed and can afford to do this, do it. It usually splits in 2 parts:
- Employee portion: $18,000 that you can put as an employee.
- Employer portion: Up to 25% of W-2 wages.
The total of the 2 above cannot exceed 54K for 2017. One more thing, you can make contributions for employer portion until the calendar year end which is March. So even for 2016, you can still make the employer portion if you were enrolled in a self employed 401K. Another thing is that the employer portion can be shown as an expense of your business as well.
If you use Fidelity or Vanguard, stick most of it in an index fund and you have the S&P 500 returns by doing nothing.
I highly recommend any self employed to read this IRS publication.
[0] https://www.irs.gov/retirement-plans/one-participant-401k-pl...
- Employee portion: $18,000 that you can put as an employee.
- Employer portion: Up to 25% of W-2 wages.
The total of the 2 above cannot exceed 54K for 2017. One more thing, you can make contributions for employer portion until the calendar year end which is March. So even for 2016, you can still make the employer portion if you were enrolled in a self employed 401K. Another thing is that the employer portion can be shown as an expense of your business as well.
If you use Fidelity or Vanguard, stick most of it in an index fund and you have the S&P 500 returns by doing nothing.
I highly recommend any self employed to read this IRS publication.
[0] https://www.irs.gov/retirement-plans/one-participant-401k-pl...
Even though I'm doing all the right things like maxing out 401k etc., I can't help but feel that I will regret it later.
It feels like everyone grew up hearing the same thing (people are poor planners, people go broke in retirement) and now as adults have vowed that will never be them.
The problem is that now everyone thinks this way - index funds are on the rise, people are saving into their 401k, I can't help but think that I should be zagging here when everyone is zigging. Unfortunately, however, I can't figure out what that other thing should be.
It feels like everyone grew up hearing the same thing (people are poor planners, people go broke in retirement) and now as adults have vowed that will never be them.
The problem is that now everyone thinks this way - index funds are on the rise, people are saving into their 401k, I can't help but think that I should be zagging here when everyone is zigging. Unfortunately, however, I can't figure out what that other thing should be.
I've been feeling the same way. Having millions of people and billions of dollars blindly dumped into index funds leaves me uneasy. Many view index funds as a "7% return machine". The conventional wisdom is "buy and hold", blindly, regardless of what the market does, what companies fail, or who you're investing in. Most 401k users probably couldn't name more than 10 stocks that their fund is comprised of. Stock markets assume people buy stocks because they believe in some fundemental value of the stock, and have thus done analysis to believe so. When markets are composed of people who don't adhere to this philosophy... I'm not sure what happens next. Having such a large mass of investors who are not thinking rationally about their investment seems like a recipe for disaster, but I'm no economist.
REITs, small-cap funds, international stocks, and perhaps commodities seem like the best choices if you're looking to diversify. The reality is if everyone's investment behavior precipitates a large collapse, pretty much no sane investment strategy is going to do well. Diversify, hedge your bets, and just stop worrying about it. That's the conclusion I've come to, anyway.
REITs, small-cap funds, international stocks, and perhaps commodities seem like the best choices if you're looking to diversify. The reality is if everyone's investment behavior precipitates a large collapse, pretty much no sane investment strategy is going to do well. Diversify, hedge your bets, and just stop worrying about it. That's the conclusion I've come to, anyway.
The whole point of index funds is to insulate yourself from a single company failing. What happens when 1 of the 500 S&P 500 companies even declines is that it is substituted for with another, stronger company. Index funds are not static, they just sometimes appear that way.
Far from "everyone" - the majority of Americans are massively undersaving. If you are able to max out your 401k every year and track the market in index funds you'll be far ahead of the vast majority of people at retirement.
The first generation of people who were expected to save privately are yet to retire. 29% of 55 and older have ZERO savings, and the average of those who do is $104k, which is a $310/mo annuity (GAO, 2015). There is a generational crisis brewing.
The first generation of people who were expected to save privately are yet to retire. 29% of 55 and older have ZERO savings, and the average of those who do is $104k, which is a $310/mo annuity (GAO, 2015). There is a generational crisis brewing.
Just wait until the young people of this generation reach retirement. Those numbers will likely be even scarier.
Investing is simply buying something you think will increase in value over time. US stocks have traditionally been an excellent vehicle due to their rates of growth. You could also invest in bonds, purchased annuities, real estate, gold and silver, foreign currencies & companies, Bitcoin/Ethereum, your offspring, domain names, collectibles...
What do you think people will value in the next 10, 20, 50 years?
What do you think people will value in the next 10, 20, 50 years?
guns, lots of guns [insert matrix gif]..
You can always put some of your 401k into short term stuff like a money market account if you think the market is overpriced. That way you have money on the side you can throw into the market after it corrects. I've got like 20% of my 401k in a money market account for just this reason.
Same. I've maxed my 401k since my first job. Now just breaking into 30s... decided to move some of what I would be contributing to 401k into RE investments. Huge tax advantages in this space, and with 15 yr loans you can be cash flowing pretty solidly in your 40s (the earlier you start, the better).
Are there enough funds outperforming the index tracking funds to even start thinking about zagging?
FWIW "Billions of dollars" should be considered in the context that 1 million people * $1,000 = $1 billion. The US is ~300m people. So, this headline is something like "1/3 of 1% of the US is putting an extra $1,000 in their 401k recently" (really more like 1-2% of the _workforce_ but the point remains)
Am I the only one that is scared of 401ks? It sounds nice: put your money into an account tax-free, let it grow tax free over 30-40 years. When you retire, you have this nice large fund to pull money from.
My biggest fear is that in 30-40 years the US government and/or 401k funds are so poorly run that they tax 50/60/70% of the income (withdrawals) out of the 401k to sustain theirselves. Lots of people tell me "that won't happen" but when I study history, I realize that the only people who think that are ones who have never lived through a major war. Wars = higher taxes. To me, putting money in a 401k is trusting that everything will be ok for a long time to come, and it's just hard to justify that the way history books show the cycles of war.
It scares me so much that I'd rather pay the taxes now, and invest as I please.
Edit: as omouse mentioned, that is my other fear. That through technology and healthcare innovations, as well as the government recognizing the need to "adjusting" the retirement age, how do I know I will get my 401k at 65? What if it is 85? That's too risky for me :/
My biggest fear is that in 30-40 years the US government and/or 401k funds are so poorly run that they tax 50/60/70% of the income (withdrawals) out of the 401k to sustain theirselves. Lots of people tell me "that won't happen" but when I study history, I realize that the only people who think that are ones who have never lived through a major war. Wars = higher taxes. To me, putting money in a 401k is trusting that everything will be ok for a long time to come, and it's just hard to justify that the way history books show the cycles of war.
It scares me so much that I'd rather pay the taxes now, and invest as I please.
Edit: as omouse mentioned, that is my other fear. That through technology and healthcare innovations, as well as the government recognizing the need to "adjusting" the retirement age, how do I know I will get my 401k at 65? What if it is 85? That's too risky for me :/
> It scares me so much that I'd rather pay the taxes now, and invest as I please.
If government is desperate enough to tax retirement funds at 2x the previous rates, they're desperate enough to tax everything at higher rates, so "investing as you please" won't get you anywhere better.
> That's too risky for me
If technology and healthcare innovations raise the healthy life expectancy by 20 years, why would that be too risky for you? Is it because you have non-standard medical problems?
If government is desperate enough to tax retirement funds at 2x the previous rates, they're desperate enough to tax everything at higher rates, so "investing as you please" won't get you anywhere better.
> That's too risky for me
If technology and healthcare innovations raise the healthy life expectancy by 20 years, why would that be too risky for you? Is it because you have non-standard medical problems?
You don't quite understand 401ks. You can choose either contribute tax free (traditional) or have tax-free growth (Roth). You can't do both in the same account.
This doesn't change the fact that the rules may be changed at some point, but given the ridiculously low limits on 401k contributions anyway you might as well put some money in one. Worst case scenario is you wind up paying taxes on t anyway, but then again you might not.
No matter how you slice it you won't wind up paying more taxes than you will if you pay them now and invest without any tax sheltering.
This doesn't change the fact that the rules may be changed at some point, but given the ridiculously low limits on 401k contributions anyway you might as well put some money in one. Worst case scenario is you wind up paying taxes on t anyway, but then again you might not.
No matter how you slice it you won't wind up paying more taxes than you will if you pay them now and invest without any tax sheltering.
Nitpick, but both a traditional and Roth provide tax-free growth. A Roth allows tax-free distribution is what I believe you intended to say.
I'm not confusing them. My concern is the tax that is paid when withdrawing at eligible retirement.
I'm not interested in Roth for arguments sake.
I'm not interested in Roth for arguments sake.
I suppose that (barring any fundamental transformation of the structure of our society during the intervening time) the income tax rates will still be progressive, and that the lowest brackets will be quite low - perhaps similar to the current ones.
If you assume that, and you've paid off your mortgage by the time you retire, and aren't planning to blow lots of money on air travel and hotels, then probably the rate at which you withdraw from your 401k will place you in one of those low-rate, bottom brackets.
If you assume that, and you've paid off your mortgage by the time you retire, and aren't planning to blow lots of money on air travel and hotels, then probably the rate at which you withdraw from your 401k will place you in one of those low-rate, bottom brackets.
You should be scared, in Canada the government pushed the retirement age from 65 to 67 so that's 2 years more of working and 2 more years before you have access to your own cash.
That is for CPP/OAS which is the equivalent of US Social Security. You don't get access to your own cash - that goes to current retirees. You pay to current retirees for longer and start getting access to current workers' cash later.
Canada's RRSPs are actually a much better system. They are straight up tax deferral. You can put money into your RRSP at any age up to 70 so long as you have contribution room (ie: you're employed). Later, if you wind up unemployed and therefore in a lower tax bracket than when you put money in, you can take the money out.
If the Canadian government instituted some sort of tax on RRSPs, they wouldn't be able to act fast enough to prevent people from massively draining their RRSPs before new rules took effect.
In the US, you have to wait until you are 59.5, or you begin collecting periodic payments (ie: as if it were a pension), or you pay a 10% penalty.
Canada's RRSPs are actually a much better system. They are straight up tax deferral. You can put money into your RRSP at any age up to 70 so long as you have contribution room (ie: you're employed). Later, if you wind up unemployed and therefore in a lower tax bracket than when you put money in, you can take the money out.
If the Canadian government instituted some sort of tax on RRSPs, they wouldn't be able to act fast enough to prevent people from massively draining their RRSPs before new rules took effect.
In the US, you have to wait until you are 59.5, or you begin collecting periodic payments (ie: as if it were a pension), or you pay a 10% penalty.
Thanks for the corrections!
If you are scared of the tax rate rising (which is reasonable, since tax rate in the US is at like an all time low historically speaking), consider Roth type stuff that is taxed now, not later. Or do both, as a hedge.
Honestly asking: do you know if there are any protections in place to prevent Roths from becoming taxed on withdrawal in the future?
History says everything eventually gets taxed if things go bad. Roth's would be an easy one.
If you expect taxes to be higher in the future, then the obvious answer would be to borrow utility from your future self and consume more in the present.
This is sort of a self-fulfilling prophecy, or at least it was when the Boomers made the same decision...
Because of arbitrary rules that do not take cost of living into account, I cannot contribute to a Roth :/
I also have this bad feeling Roth's will face some type of tax / fee in the future :/
I also have this bad feeling Roth's will face some type of tax / fee in the future :/
It's interesting when the 401k was introduced it was meant to be one leg in a "three-legged stool" for retirement planning.
Those three legs consisting of pension, social security and savings when it was introduced.
For people in the private sector that is now a two-legged stool as pensions went the way of the evening news paper and indemnity health care plans.
Its interesting to note that law makers in Washington DC all have pensions and indemnity health care plans. Only the best for them. I've often wondered at how different things would be if they were subject to the same health care and retirement options as the rest of the population.
http://www.investopedia.com/ask/answers/09/three-legged-stoo...
http://financialanswers.com/page.php?b=24549975-0&c=1027
Those three legs consisting of pension, social security and savings when it was introduced.
For people in the private sector that is now a two-legged stool as pensions went the way of the evening news paper and indemnity health care plans.
Its interesting to note that law makers in Washington DC all have pensions and indemnity health care plans. Only the best for them. I've often wondered at how different things would be if they were subject to the same health care and retirement options as the rest of the population.
http://www.investopedia.com/ask/answers/09/three-legged-stoo...
http://financialanswers.com/page.php?b=24549975-0&c=1027
I wonder what percentage of 401k contributors has an IRA. General rule of thumb is to contribute enough to 401k to get maximum company matching and max out your Roth IRA contribution first. IRA is generally preferred because you can choose your own fund (e.g. Vanguard) and has more flexibility in certain situations. By having both pre-tax (401k) and post-tax (Roth IRA), you would be also diversifying your tax liability in your retirement.
One problem with the Roth IRA is the income phase out limits. If you're single, if you AGI is >117K, you can only contribute some percentage of the $5000 allowed for the Roth. If you're >132K, you can't contribute anything. For a married couple, those limits are 184K/194K. Granted, you can reduce your AGI by contributing to a 401K first, which allows you to take $18K off the top.
I know this doesn't affect many, but for the high-paid tech crowd, these limits right around the point in your career where you want to be pumping in money.
I know this doesn't affect many, but for the high-paid tech crowd, these limits right around the point in your career where you want to be pumping in money.
Those are still pretty high limits, well above the median tech salary even in the Bay Area. If you're in "income phase out" territory you're probably not worried about your retirement.
The thing I don't like about Roth is that you're contributing with post-tax money during your prime working years--the time when your taxes are probably as high as they will ever be. Especially true as a tech worker where your salary plateaus in your 20s. I'd rather save pre-tax now, and then pay taxes later when I'm 60 and back in the lowest tax bracket.
The thing I don't like about Roth is that you're contributing with post-tax money during your prime working years--the time when your taxes are probably as high as they will ever be. Especially true as a tech worker where your salary plateaus in your 20s. I'd rather save pre-tax now, and then pay taxes later when I'm 60 and back in the lowest tax bracket.
My issue with the Roth is that I don't trust the rules to remain the same in the future. I pay taxes now, before the money goes in, with the promise of tax-free withdrawals. I fully expect that money to become taxable on the back-end at some future time. It might be a lower rate (like capital gains today) or be income-based, but that pot of $ will be too tempting to ignore, I fear.
So worst case scenario is that you wind up paying the taxes you'd have paid if you didn't use the Roth? Not really a reason to not use one when it's only a possibility and not a certainty.
If things get dicey enough that they start taxing Roths, you can bet that they'll tax traditional accounts enough to claw back the original tax deduction plus interest.
Adjusted gross income includes things like bonus and RSUs vested during the tax year, no? If that is the case then anyone starting straight out of college at a large tech company (Google, Facebook, Apple, etc.) will likely be above the phase out limits.
EDIT: Specify vested RSUs per reply below.
EDIT: Specify vested RSUs per reply below.
> Adjusted gross income includes things like bonus and RSUs, no?
It doesn't include RSUs while they're only in paper - they get counted when you actually sell the stock and can spend the money.
It doesn't include RSUs while they're only in paper - they get counted when you actually sell the stock and can spend the money.
As far as I know, you're not taxed when the shares are granted, but they are taxed as income when they vest, and then later as capital gains if you sell for more than the price when they vested.
Just curious, what are the median Bay Area salaries? I'd think most married couples in bay area tech are above the contribution limit.
According to PayScale[1] and Glassdoor[2], average/median salary for software engineer in the Bay Area is around $110K. Caveat: Self-reported data and base salary only.
1: http://www.payscale.com/research/US/Job=Software_Engineer/Sa...
2: https://www.glassdoor.com/Salaries/san-francisco-software-en...
1: http://www.payscale.com/research/US/Job=Software_Engineer/Sa...
2: https://www.glassdoor.com/Salaries/san-francisco-software-en...
You can get around this by contributing to a traditional IRA and then converting it to a Roth. This is easy to do (until law changes) unless you have an existing traditional IRA where you can take a tax hit.
... And you can roll your trad IRA into your company 401K before doing the backdoor Roth, thus avoiding the tax hit.
No - no you can't. Someone has given you some odd and confusing advice.
It's true that many tech workers are eventually affected by the contribution limit, but my understanding is that it's essentially always smart to contribute to tax-advantaged accounts while possible.
It's not quite that simple, it really depends on what you suspect your tax rates are going to be. Roth contributions are essentially taxed at your marginal rate right now, but traditional 401k withdrawals are taxed like income when you make the withdrawal.
There are lots of situations where you would want to lower your tax burden now instead of go for the Roth.
Note that you can also have a Roth 401k or a traditional IRA.
There are lots of situations where you would want to lower your tax burden now instead of go for the Roth.
Note that you can also have a Roth 401k or a traditional IRA.
Worth noting that the limits are different between Roth IRAs and Traditional IRAs, though, if you have a retirement plan at work. A married couple making between 119k and 186k wouldn't get any deduction for the trad IRA, so might as well go with the Roth even if they think their income will be much lower in the future.
The Roth also lets you pull out contributions later without penalty, which is a nice worry-free safety net in case the emergency fund runs out.
The Roth also lets you pull out contributions later without penalty, which is a nice worry-free safety net in case the emergency fund runs out.
> By having both pre-tax (401k) and post-tax (Roth IRA), you would be also diversifying your tax liability in your retirement.
The way your comment is written, it implies that 401(k)s are necessarily pre-tax and IRAs are necessarily post-tax. Both 401(k)s and IRAs come in Traditional and Roth forms, so you could also use pre-tax money for contributing to your IRA, and post-tax money for contributing to your 401(k), or any combination thereof.
You can also split contributions - ie, contribute to all four accounts in the same year - as long as your total contributions are within the limits.
The way your comment is written, it implies that 401(k)s are necessarily pre-tax and IRAs are necessarily post-tax. Both 401(k)s and IRAs come in Traditional and Roth forms, so you could also use pre-tax money for contributing to your IRA, and post-tax money for contributing to your 401(k), or any combination thereof.
You can also split contributions - ie, contribute to all four accounts in the same year - as long as your total contributions are within the limits.
Yes, that is correct. I generally prefer to have my 401k all pre-tax (traditional) and my IRA post-tax (roth) to make it easier to manage. Also, this would open doors for backdoor roth IRA contribution once you go over the government's income limit for contributing to IRA, but this is a whole different topic.
There is also the mega-backdoor Roth, but your 401k plan needs to support it.
Everyone here is commenting on the Roth income limits. Look up what a backdoor Roth contribution is. Basically avoid having a tIRA by keeping all your pre-tax money in a 401k and then you can contribute to a Roth IRA every year. The only problem with this is if your 401k has horrible funds. I'm luckily in that my company recently added Vanguard funds to our 401k funds and I switched nearly all of my money to those.
How often would one need to use a backdoor Roth contribution? Seems like something you would need to execute every year.
yea, you do it every year. its maybe ten more minutes of work than contributing to a just a tIRA, which you're doing every year anyway if you contribute to IRAs. like the above said, the only downside is hiding rolled over money in an expensive 401k or having to pay taxes on it
I do it through Vanguard and it takes roughly 10 minutes. The process is nothing more than clicking buttons to put money into a tIRA, transfer to a Roth IRA, and purchase shares. Although it is suggested to leave the money in the tIRA for some amount of time (some say others, other weeks) before doing the transfer.
You have a yearly contribution limit of $5500 and you're correct in that you would do this process every year.
You have a yearly contribution limit of $5500 and you're correct in that you would do this process every year.
Yep, you do it every year.
That's a very interesting point about diversifying your tax liability. Is it a fairly common tactic to contribute evenly across pre-tax and post-tax buckets? I've mostly stuck to contributing to one bucket but spreading out contributions across buckets makes a lot of sense. If you have any sources about the pros/cons of diversifying tax liability in this way, I'd be very interested.
There's no one-size-fits-all type of advice because everyone's situation is very different. There are some great resources available online to get started though. This one [1] is for physicians but could also apply to everyone. The bogleheads [2] and their wiki page are also great resources for these topics.
[1] http://whitecoatinvestor.com/the-proper-ratio-for-retirement... [2] https://www.bogleheads.org/
[1] http://whitecoatinvestor.com/the-proper-ratio-for-retirement... [2] https://www.bogleheads.org/
Note that Roth IRA has an Income Limit. Ex. You can't contribute at all as a single filer if you make more than $131k.
https://en.wikipedia.org/wiki/Roth_IRA#Income_limits
https://en.wikipedia.org/wiki/Roth_IRA#Income_limits
If your employer 401k plan allows it, you can roll over after-tax 401k contributions to a Roth IRA (a.k.a. mega-backdoor Roth IRA).
By having both pre-tax (401k) and post-tax (Roth IRA), you would be also diversifying your tax liability in your retirement.
What about Traditional IRAs and Roth 401ks?
Tax deferral strategy (Roth v Traditional) is orthogonal to the plan type (IRA v 401k).
What about Traditional IRAs and Roth 401ks?
Tax deferral strategy (Roth v Traditional) is orthogonal to the plan type (IRA v 401k).
This also makes sense if you do not have access or have limited access to low cost funds (i.e. Vanguard) in your 401k/403b portfolio.
More money enters when the market is hot. I expect the contribution percentage closely mirrors the price of the S&P. The graph doesn't show the 2007-8 crash but I'd also expect contributions dropped at that time, also providing a depressed baseline for the current gain. Of course, people would have been better served by contributing after the drop, and one could also be nervous about record dollars chasing the market now at its highest point.
along these lines, note how many news stories etc are currently touting the power of stock indices and index investing. given a shiller pe of ~28, i'd say most are in for a very rude awakening (again and forever).
http://www.multpl.com/shiller-pe/
http://www.multpl.com/shiller-pe/
Solely discussing stock valuations without also considering bond yields is a little misleading. With interest rates so low on a historical basis (albeit now possibly picking up), higher stock pricing is expected and isn't necessarily "overpriced"
A good recent discussion of this: http://brooklyninvestor.blogspot.com/2016/11/bonds-down-stoc...
A good recent discussion of this: http://brooklyninvestor.blogspot.com/2016/11/bonds-down-stoc...
I'm not sure where that guy is getting his data, but I think the average stock market P/E when 10 year treasury rates are in the 4-6% range is more like 19. But maybe he's looking at 'forward P/E' or something.
http://qvmgroup.com/invest/2013/06/22/sp-500-pes-versus-10-y...
http://qvmgroup.com/invest/2013/06/22/sp-500-pes-versus-10-y...
Agreed, but bullish sentiment remains strong and most people are oblivious to valuation metrics.
As long as people don't panic sell in the next crash, they should be able to ride it out and break even in a decade or two. Unless we end up like Japan, that is.
As long as people don't panic sell in the next crash, they should be able to ride it out and break even in a decade or two. Unless we end up like Japan, that is.
If they take away my social security... I want my payments back.
Social security is not a savings account. It's not "you paying for future you". It's you paying for others now, and later, others will be paying for you.
If they cancel some welfare program (like free lunch for poor school kids), do you want your money back that you paid into the program while it existed?
What sense does this make?
What sense does this make?
Not the best comparison. Besides being a requirement, you pay into social security based on the assumption that you'll get benefits when you're older. If you paid for 20 years and then the program went bust and you didn't receive anything, I think you'd rightly feel ripped off.
> you pay into social security based on the assumption that you'll get benefits when you're older.
No. If you think this is how social security works then you have been tricked.
Social Security is a welfare program for old people.
A better analogy is if you paid for free lunches for kids, then you have a kid and also become poor, but they cancel the program, you'd feel ripped off.
The reason it doesn't intuitively feel the same way (even though it is) is because middle class people have a much higher chance of ever becoming old than ever becoming poor.
No. If you think this is how social security works then you have been tricked.
Social Security is a welfare program for old people.
A better analogy is if you paid for free lunches for kids, then you have a kid and also become poor, but they cancel the program, you'd feel ripped off.
The reason it doesn't intuitively feel the same way (even though it is) is because middle class people have a much higher chance of ever becoming old than ever becoming poor.
Easy to accommodate: either continue your SS with a benefit of $100/mo; or take away your benefit and return you your inflated dollars.
The ROI on future social security payments for most tech workers is already ~0%, so inflated dollars would be an improvement on that.
If the employer does any matching at all, a 401(k) is a no brainer in most cases.
Anyone else around here that does not have a pension account?
On the basis that technology will have changed the economic system (for good or worse) in such fundamental ways so we either have greatly expanded life span, "free" handouts such as basic income, or major financial busts that have wiped out most pension savers.
On the basis that technology will have changed the economic system (for good or worse) in such fundamental ways so we either have greatly expanded life span, "free" handouts such as basic income, or major financial busts that have wiped out most pension savers.
I would ask the inverse: anyone around here have a pension account?
When I joined my current company I was given an option to join the pension (maybe the last year it was offered to new people??). I didn't take it for a couple reasons:
When I joined my current company I was given an option to join the pension (maybe the last year it was offered to new people??). I didn't take it for a couple reasons:
1. figured I probably wouldn't be here for 30 years (!!!!)
2. Stories of rampant pension mismanagement scare me off. (Reasonably sure it wouldn't happen with my employer, but...)Just to clarify on #2, it doesn't even have to really be in your employer's control. One of the biggest sales targets of mortgage-backed securities prior to 2008 were pension plans, they were AAA-rated securities.
I have no pension account.
My first software job was with a pensions administration firm, where I had to take numerous courses on the economics behind pensions. Boring stuff, but the one thing that the teachers drilled into us over and over was that, for my cohort (currently <30yo), pensions would be a waste of our money - with the exception of the few "gold-plated" ones still offered by certain employers.
If anyone's interested, I have instead chosen to aim for the so-called Lean-FIRE, and my "investment", if you can call it that, is in fertile land in a stable country and extensive experience in permaculture. I'm about 5 years away from being able to semi-retire and being reasonably self-sufficient in food, power and water.
My first software job was with a pensions administration firm, where I had to take numerous courses on the economics behind pensions. Boring stuff, but the one thing that the teachers drilled into us over and over was that, for my cohort (currently <30yo), pensions would be a waste of our money - with the exception of the few "gold-plated" ones still offered by certain employers.
If anyone's interested, I have instead chosen to aim for the so-called Lean-FIRE, and my "investment", if you can call it that, is in fertile land in a stable country and extensive experience in permaculture. I'm about 5 years away from being able to semi-retire and being reasonably self-sufficient in food, power and water.
I'm counting on basic income being a thing when I retire.
Basic income will come with a corresponding increase in prices for consumer goods across the board. As demand for everything beyond the most essential staples goes up, prices will be adjusted upward until supply is able to satisfy new demand.
Even if you're right, you will still want to have saved some money.
Even if you're right, you will still want to have saved some money.
Yes a price increase is a first order effect of demand increasing. In capitalist economies demand is great because of the second and third order effects.
Duh, just vote for the guy that promises a higher basic income!
What do you think Social Security is?
Not what we mean when we talk about basic income.
Basic income means "everyone gets a check for $1000 a month, regardless of how old or young they are, or whether or not they work."
Social Security means "everyone gets a check for $X a month, once they are old enough, variable based on how much they earned when they worked."
Basic income means "everyone gets a check for $1000 a month, regardless of how old or young they are, or whether or not they work."
Social Security means "everyone gets a check for $X a month, once they are old enough, variable based on how much they earned when they worked."
The OP said, "I'm counting on basic income being a thing when I retire." -- He is counting on Social Security.
ProAm(3)
401k is such a scam, you get a handful of high fee funds to invest in. Wall Street thieves billions of dollars, all sanctioned by the government and encouraged by the financial advise industry.
Employees should only contribute to a 401k up to any employer match. Beyond that put your money in an IRA.
Employees should only contribute to a 401k up to any employer match. Beyond that put your money in an IRA.
My 401k has better funds than I could ever get in my IRA. Yes, many 401k's have terrible fund choices but by no means do all of them fall prey to that.
Also, if you're maxing out both your IRA and 401k limits, even if you have a lousy 401k, you now have tax-advantaged dollars that you can roll over to Vanguard or Fidelity when you change jobs.
Also, if you're maxing out both your IRA and 401k limits, even if you have a lousy 401k, you now have tax-advantaged dollars that you can roll over to Vanguard or Fidelity when you change jobs.
It sucks that we have to use our employer's 401k vendor. We should be able to have our 401k contributions sent to any valid 401k provider like Vanguard/Fidelity/etc instead of only being able to move it when we switch jobs.
Why do you think the funds in your 401k are better than you could ever get in your IRA? You can open an IRA account anywhere you want. If the funds available where you are now aren't good, just move somewhere with better choices.
A 401k plan can offer low fee Vanguard funds. If your employee has crappy 401k fund options, you should take the issue up with your employer. They likely chose a inexpensive 401k administrator to run the plan to cut costs and left the employees with expensive funds to pick from. Alternatively, if you are self-employed you can open your own i401k through Vanguard. IRAs are great, but the contribution limits are not very high.
Not all 401(k)s are created equal. If you work for a large company it's entirely possible you have access to funds with lower fees in your 401(k) than in an IRA.
Headline is shameless click-bait. Percentage change is much more valuable than absolute dollars. From the article: "An increase in retirement savings of 0.6 percentage points [from 2010 to 2015]".
Reading is fundamental. 0.6 on a rate of 6.2. That's roughly 10%. What would you do if your savings was 10% larger?
As the article also says, though, that's a ten percent increase. That's significant.
With more money chasing after the same quantity of equities, I would have thought the market prices would have been going up. But they've been essentially flat over the past year. Even though firms have been buying back their stock. There must be another reason why they've been stagnant.
Where are you seeing markets as flat over the past year?
https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&...
https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&...
There are also potentially even more people withdrawing money from the markets as baby boomers are retiring en mass now.
But also having said that, they haven't been flat over the past year. 2015 was a flat year, maybe that's what you're thinking of?
But also having said that, they haven't been flat over the past year. 2015 was a flat year, maybe that's what you're thinking of?
Really? Its been a very good year for me. IIRC approximately 13% returns.
S&P 500 is up 20% in 2016... not sure what you're talking about.
My funds are doing quite well. Gains of about 7%.
Having a somewhat paranoid personality, I find myself wondering if auto-enroll and (especially) auto-escalation - which my job has - are designed with the employee's well-being in mind, or just a ploy to prop up the stock market?
Honestly, which do you think is most likely?
1) Your HR department is part of a nation-wide conspiracy to prop up stock market prices.
2) Your HR department is trying to help their employees be properly prepared for retirement.
3) HR don't give a fuck, and are just told to do the thing the business wants to do because it is incenivized to do so.
The benefit to the employees and ability for HR to feel positive about their position in the role are arbitrary. The employees could also suffer when business wants to do something that negatively impacts them, and HR can be used to carry that out too. e.g: Switching to a shittier health plan to save money.
The benefit to the employees and ability for HR to feel positive about their position in the role are arbitrary. The employees could also suffer when business wants to do something that negatively impacts them, and HR can be used to carry that out too. e.g: Switching to a shittier health plan to save money.
The most likely is 3) Your HR department doesn't want their highly compensated employees' contributions to be rejected because the plan is top-heavy and is too cheap to make a safe harbor contribution to avoid that.
There are a lot of rules in regards to auto-enroll and qualified investments. If you are auto-enrolled, you are going to be in a mix of bonds and stocks appropriate to your age (conservatively), or just a balanced fund. So not really designed to prop the stock market.
You're too paranoid. I think it's more easily explained by the company executives acting in self-interested ways to get participation up so that the 401(k) plans don't run afoul of anti-discrimination rules.
See koolba's comment:
>Companies auto enroll people into 401(k) programs because of participation requirements. For "highly paid employees" (i.e. executives) to be allowed to contribute to a 401(k), there requires a minimum level of participation from the rest of the workforce at the company.
>Companies auto enroll people into 401(k) programs because of participation requirements. For "highly paid employees" (i.e. executives) to be allowed to contribute to a 401(k), there requires a minimum level of participation from the rest of the workforce at the company.
Say what you will about government incompetence, but the idea of tying things like my retirement and healthcare to my employer just sounds terrible.
Also, auto-enrolling people into 401K sounds kinda like... ya know... social security.
Also, auto-enrolling people into 401K sounds kinda like... ya know... social security.
> Also, auto-enrolling people into 401K sounds kinda like... ya know... social security.
Companies auto enroll people into 401(k) programs because of participation requirements. For "highly paid employees" (i.e. executives) to be allowed to contribute to a 401(k), there requires a minimum level of participation from the rest of the workforce at the company. The easiest way to do so is to auto enroll people on day one.
Companies auto enroll people into 401(k) programs because of participation requirements. For "highly paid employees" (i.e. executives) to be allowed to contribute to a 401(k), there requires a minimum level of participation from the rest of the workforce at the company. The easiest way to do so is to auto enroll people on day one.
Just learned about this the other day, Safe Harbor 401Ks:
The Problem Safe Harbor 401(k)s Are Designed to Solve
Before you try to understand what a safe harbor 401(k) is, you should know why someone would want one. Most 401(k) plans face an annual non-discrimination test. The IRS checks to see if a highly compensated employee or business owner is maxing out 401(k) contributions for the year, while the rest of the employees lag in their savings.
The IRS wants to see that all employees are taking advantage of the retirement plan, not just those with the high paying jobs. So it tests the plan to find out if the average contributions of highly compensated employees (those who earned at least $120,000 in 2016 or own more than a 5 percent stake in the business) do not exceed the average contributions of everyone else by more than 2 percent.
If you're a business owner and your 401(k) has low adoption rates or saving rates among rank-and-file employees, it may raise a flag for the IRS. According to Plan Sponsor Council of America (a lobbying business for the retirement planning industry), most businesses pass the test, but around 40 percent claim to have reported refunding or restricting plan contributions to do so.
That's right, refunding contributions! The IRS can actually reject a retirement plan contribution that it feels is excessive.
https://www.thebalance.com/what-is-a-safe-harbor-401-k-28942...
The Problem Safe Harbor 401(k)s Are Designed to Solve
Before you try to understand what a safe harbor 401(k) is, you should know why someone would want one. Most 401(k) plans face an annual non-discrimination test. The IRS checks to see if a highly compensated employee or business owner is maxing out 401(k) contributions for the year, while the rest of the employees lag in their savings.
The IRS wants to see that all employees are taking advantage of the retirement plan, not just those with the high paying jobs. So it tests the plan to find out if the average contributions of highly compensated employees (those who earned at least $120,000 in 2016 or own more than a 5 percent stake in the business) do not exceed the average contributions of everyone else by more than 2 percent.
If you're a business owner and your 401(k) has low adoption rates or saving rates among rank-and-file employees, it may raise a flag for the IRS. According to Plan Sponsor Council of America (a lobbying business for the retirement planning industry), most businesses pass the test, but around 40 percent claim to have reported refunding or restricting plan contributions to do so.
That's right, refunding contributions! The IRS can actually reject a retirement plan contribution that it feels is excessive.
https://www.thebalance.com/what-is-a-safe-harbor-401-k-28942...
> For "highly paid employees" (i.e. executives)
Highly Compensated Employees are not just executives. Anybody who makes more than $115,000/year qualifies, which applies to a lot of engineers. Also, anybody who controls more than 5% of the business qualifies, whether or not they are an executive, and regardless of their salary.
Highly Compensated Employees are not just executives. Anybody who makes more than $115,000/year qualifies, which applies to a lot of engineers. Also, anybody who controls more than 5% of the business qualifies, whether or not they are an executive, and regardless of their salary.
They'd qualify but I'm pretty sure when the law was first written it didn't have them in mind. It was specifically to prevent top level executives or business owners (>=5% of company) from creating 401k plans for only themselves.
> They'd qualify but I'm pretty sure when the law was first written it didn't have them in mind. It was specifically to prevent top level executives or business owners (>=5% of company) from creating 401k plans for only themselves.
Even if that was the rhetoric used when creating the rule, I'd be very skeptical of assuming that was the case, rather than it being motivated by a desire to increase tax revenue, as a lot of these tax rules are designed to do. $115,000 is a really low threshold to use to define "executive" - many blue-collar workers make far more than that.
(And furthermore, the rule still does not prohibit highly-compensated employees from contributing; it just requires them to pay taxes on the excess of the permitted amount.)
Even if that was the rhetoric used when creating the rule, I'd be very skeptical of assuming that was the case, rather than it being motivated by a desire to increase tax revenue, as a lot of these tax rules are designed to do. $115,000 is a really low threshold to use to define "executive" - many blue-collar workers make far more than that.
(And furthermore, the rule still does not prohibit highly-compensated employees from contributing; it just requires them to pay taxes on the excess of the permitted amount.)
> 115,000 is a really low threshold to use to define "executive" - many blue-collar workers make far more than that.
Quantify "many".
$115K/year comes out to an hourly rate of $57.5 (assuming 2K hours). Even factoring in overtime (1.5x) or double time (2x), I doubt a significant percentage of people make that much at a blue collar job.
Quantify "many".
$115K/year comes out to an hourly rate of $57.5 (assuming 2K hours). Even factoring in overtime (1.5x) or double time (2x), I doubt a significant percentage of people make that much at a blue collar job.
I'd challenge you on many. According to Wikipedia, only seven percent of workers make more than 100,000, never mind "far more than 115k": https://en.wikipedia.org/wiki/Household_income_in_the_United....
Also, wouldn't this rule lower revenue because more workers end up contributing? (Assuming that executives would adjust their plans rather than pay extra taxes.)
Also, wouldn't this rule lower revenue because more workers end up contributing? (Assuming that executives would adjust their plans rather than pay extra taxes.)
[deleted]
>Anybody who makes more than $115,000/year qualifies, which applies to a lot of engineers.
For instance I imagine Apple's automatic 401k enrollment is in part because without the participation of retail employees, their engineers in Cupertino would be caught in this.
For instance I imagine Apple's automatic 401k enrollment is in part because without the participation of retail employees, their engineers in Cupertino would be caught in this.
It may be true that companies have self-interested reasons to auto enroll people. However, as was being discussed the other day in a different context, defaults can also be a pretty powerful lever for encouraging people to make the "right" choice, where right = some policy outcome that is generally considered positive. Default 401-K enrollment at some level has been advocated by some economists like Richard Thaler as a way of improving the overall savings rate.
The argument boils down to that you're going to have a default anyway, even if it's zero. So why not make the default a value that's is at least closer to the optimum.
The argument boils down to that you're going to have a default anyway, even if it's zero. So why not make the default a value that's is at least closer to the optimum.
Oh.. thanks for that tidbit. I didn't know there was an incentive for them.
> Also, auto-enrolling people into 401K sounds kinda like... ya know... social security.
Except that you have control over how your 401(k) gets allocated, along with additional ways to access those funds early (with a penalty) in case of emergencies.
Furthermore, 401(k)s are explicitly not comingled, whereas the entire premise of Social Security is that the funds are comingled.
Except that you have control over how your 401(k) gets allocated, along with additional ways to access those funds early (with a penalty) in case of emergencies.
Furthermore, 401(k)s are explicitly not comingled, whereas the entire premise of Social Security is that the funds are comingled.
Yea, but it also says a lot of people auto invest in target date funds. So essentially it's saying it works better when people just leave it alone.
But yes, I understand your point.
But yes, I understand your point.
401(k) plans are set up by your employer but any money you put into it and gains are legally yours.
> Say what you will about government incompetence, but the idea of tying things like my retirement and healthcare to my employer just sounds terrible.
It's government rules that create that reality.
It's government rules that create that reality.
If your employer offers a matching program for some percentage of your contribution, hey, it's free money.
Personally, I've also got some outside IRAs and mutual funds as well; better to not have all the eggs in one basket, I figure.
Personally, I've also got some outside IRAs and mutual funds as well; better to not have all the eggs in one basket, I figure.