I think the Money Moustache guy has a much better take on this than someone trying to figure out the complexities of finance.
Yes there is a limit to how much you can put into a retirement account that isn't taxed by the government, but there is no limit on how much of your income you can save, caveat you need some of it to live on.
And while saving and investing can get as complicated as you want it can also be greatly simplified with funds investing.
MMM gets so much right it's not even funny. I question some aspects of his plan--my time discount is higher than his, so I think it makes more sense to save up less and transition to part time labor more quickly, which is what he did de facto anyway except with a couple extra years of unnecessary shitty corporate work.
The guy in this article talks about how to safely retire you must have saved up eleven times your annual income. Which is wrong: the key value is about thirty times your annual consumption if you want to transition to full time retirement (with no market labor involved). And if you add in maybe $10k of market labor a year, that amount of required savings drops very sharply. $20k, and hell, you're probably able to increase your nest egg if you watch your consumption at all.
I'm a big fan of the "lazy portfolio." Three funds, nothing more: Vanguard total domestic stock, total international stock and total bond market. Buy and hold forever (rebalancing towards more conservative assets as you near retirement).
True, and I'm in one of those right now. Once you have enough in your account however you're better off handling the rebalancing yourself and using Vanguard's Admiral shares which have lower expense ratios.
I think the limit on IRA and 401(k) contributions was just a passing comment in the article, not the main point.
The main question he seems to be asking is how the average American is expected to effectively plan for retirement when companies no longer feel they can manage pension funds with professional investors.
The real answer to this, IMHO, is that companies definitely could provide pension plans. Some do (Chevron comes to mind). They just don't want to because it's cheaper to just give your employees a 401(k) and only put company money into it if your employees contribute.
Companies didn't transition to 401(k)s because pensions were impossible to pull off. They transitioned to 401(k)s because they realized they could still sell their benefit plan as offering a "retirement plan" to their employees, but the majority of their employees wouldn't even utilize the matching, thereby saving them tons of cash.
That's the Snidely Whiplash version. Some other reasons:
+ The character of work and the workforce changed markedly in America over the years, from an economy where a man employed by BigCo could reasonably be assumed to work for BigCo until the day he died, to an economy where men and women work, labor force participation is often interrupted, and stints exceeding 3 to 5 years at a company are unusual enough to be remarked upon, to say nothing of 40+ years.
+ Defined-benefits pensions come bundled with a few other expectations, such as lifetime employment and tenure, which are sort of on the outs at US companies.
+ Defined-benefits pensions are highly correlated to workplaces which are toxic to work in, because you'll frequently find yourself surrounded by clockpunching deadwood whose sole goal in working is not doing anything to upset their chances of making pension. If you've worked in government or a union shop, you know what I mean. If you haven't, try doing software development for a week in a union shop, then evaluate whether receiving a pension is sufficient to have yourself sentenced to doing that for 40 years.
As long as you don't have kids :-) Or perhaps you're counting on them to pay for their own education. But yes, if you save your money and budget well, retirement is simply an 'if condition' rather than a 'when.'
That said, he doesn't cover variable costs as much as he should (rent changes, taxes, sudden medical issue) this is something that fixed income folks have lived with so there is a lot of stuff out there for managing those events as well.
While I don't agree with everything this article says, this is the money quote: "If professionals who benefit from the economies of scale cannot reasonably be expected to provide me with a stable retirement without outside intervention, how can I be expected to do that for myself?"
And is spot on IMO. Whatever else is going on, we as a society are doing poorly at this particular type of specialization. We have done insufficient incentive engineering to make sure people don't regularly get scammed. It is not a solved problem, it is not an easy problem. But it looks like we aren't even working towards a solution right now.
The reason retirement doesn't work the same way as a bicycle shop is because the incentives can get badly misaligned. With a bicycle shop, the better you are at fixing bicycles, the more money you make, at least to a good-enough order of approximation. Taking your customer's money just isn't possible unless you give them back a working bicycle. But retirement--especially "defined contribution" retirement--has a much weaker requirement. You give money to a mutual fund, and then who knows what'll happen? The mutual fund takes their fee off the top regardless. You let the company that's servicing your 401k or IRA pick funds for you and they'll just pick some plausible combination of their own funds. At least with pensions they have to maximize their return to have any hope of profiting.
Probably the closest analogy to retirement is auto repair and maintenance. You go in for an oil change and you get back a hundred-something-point inspection where they want to do a thousand dollars worth of work on your car. If you don't know anything about cars, there's no way to tell whether they're ripping you off. With retirement it's even worse, because you started off by giving them the money without any guarantee of how much money makes its way back to you. And the only solution is to actually know something about investing, which was pretty much what you were paying these companies for in the first place.
Is it just me, or is this article incredibly full of crap? First he goes on about how the Fed is lying about inflation, then he kicks OWS. If he threw in a claim that Fannie Mae caused the housing bubble, we'd have the insider trifecta.
Not just you, there's so much wrong about this article that I don't know where to begin. My father is a retired Statistician, and I know that the computation of inflation is a seriously considered matter by a lot of smart people. The statement that "What’s important to note is that the government is incentivized to report as low of an inflation number as possible and to keep real inflation as high as tolerable." is completely false.
You appeal to vague authority.
Inflation is looked at by smart people, but many of the smart people whose job it is to define inflation computation are appointed, paid and appreciated according to the perception of inflation.
Bernanke is destroying the USD. It might even be the right thing to do, but he is definitely not frank about what and why he is doing it. Similarly, there might be good reasons to overinflate and underreport - but the official explanation and methodology around things like owner-equivalent-rent and hedonistic correction are ad-hoc, not verifiable or repeatable, aquifer random and somehow mostly reduce reported inflation.
CPI closely matches every other inflation index, like the Billion Price Index. In my experience people who claim The Man is lying about inflation usually are just saying "zomg oil" or another small handfuls of commodities, and don't really have any evidence beyond "everyone knows the government is a bunch of lying liars".
Oil may be rising faster than inflation, or not, and energy costs could even be rising faster than inflation. That would probably have profound implications for the economy, but it don't make it inflation.
The BPI was apparently constructed to track CPI - there is no chance it would track as closely as it does otherwise. But I can't find any documentation about how its weighting is set or updated - can you point me to such documentation?
Lets ignore subtle semantics, shall we? Definitions of inflation differ - some restrict it to discussions of money supply (in which case, CPI is not inflation), and some to cost of living (in which case, CPI is a measure of inflation, but not necessarily a good or unbiased one)
OK, I'll be more specific. The CPI is determined by the Bureau of Labor Statistics, a group of professional career civil servants. The article makes the vague claim that the "government" is incentivized to report as low as rate as possible. I guess if you believe in conspiracies this is possible, but I don't believe that the BLS is part of any such conspiracy.
As far as Bernanke destroying the USD, the US Dollar Index is up substantially over the last year.
> The CPI is determined by the Bureau of Labor Statistics, a group of professional career civil servants.
Who get their instructions from congress and promotions for being politically helpful. http://www.investopedia.com/articles/07/consumerpriceindex.a... gives a not-very-conspiration-theory view of this. The fact that revisions to CPI computations always originate in congress and always have the property of (on average) reducing the inflation rate supports the government manipulation thesis in a non-trivial way.
> I don't believe that the BLS is part of any such conspiracy
They are either part of some coordinated effort to make data look better, or are grossly incompetent at a level unseen anywhere else in the government. For example, every single job claims number in the last 2 years at least (perhaps more) is revised upwards about a month or two after publications (without getting any attention, whereas the original, wrong, numbers get a lot of media attention).
Also, the BLS job birth-date model is not public, is officially stated to not apply except in times of economic calm, and yet is assumed to be correct 100% of the time.
> As far as Bernanke destroying the USD, the US Dollar Index is up substantially over the last year.
Well, other central bankers can play the "drive your fiat currency to zero game", and they started to do that too around 2007. If you start looking at 2000 (Greenspan, granted, Bernanke wasn't the first), the DXY has dropped 30% or so. (Not that I agree with DXY as a measure of USD strength, but that's what you chose).
We can't really even match the long-term stock market averages. We tend to make more money when times are good (when the market is high), and less money when times are bad (when the market is low), so if we invest money as we save/earn then we're generally buying high.
At some point you wonder if you should just give up on saving and instead invest it into a business or a duplex or something.
As our society discovers and creates, we must cope with our combined knowledge growing faster than our individual capacity to know things. Our solution - thus far - has been to specialize. When what is known expands, each individual becomes responsible for less breadth and more depth.
Back in the olden days there was only one kind of computer scientist. Before that there was only one kind of car mechanic. And even before that there was only one kind of doctor, who was also a barber. We used to know a lot less about cutting hair.
Except that there has also been a trend away from specialisation. e.g. food: instead of a baker, butcher, grocer and fishmonger, you now have a supermarket. e.g. household goods: instead of a chandler, tailor, cooper or haberdashery, we have clothing & household shops.
Isn't there substantial evidence that Goldman Sachs were telling clients to make investments into areas they were themselves betting against? I am not sure if they are the best people to use as support for any economic argument, but especially given the wealth of other critics of pension sustainability who don't have such a track record.
Sometimes I wonder if the way out of the recession is to declare 401K and IRA failed policies and just let people have the money and spend it now to get the economy moving.
People with 401Ks or IRAs are people who have taken active measures to improve their own financial security decades from now in exchange for lower in-pocket funds at this moment.
If retirement accounts were ended tomorrow and all that money was deposited directly into their checking accounts, they wouldn't go out and spend it on televisions and new rims. They would invest it, probably into the same low-risk ETFs or mutual funds that were being held in the retirement accounts.
The only difference would be a change in when the money is taxed.
The money that is moved from a 401k to the market, so they can spend and save it as they wish. You don't have to spend all the money you make that doesn't end up in a 401k; in fact, if you do, you're doing it wrong.
The only people whose retirement would be adversely affected are mutual fund managers.
How about everyone who has to suddenly start paying taxes on the money they're saving for retirement? 401k is just a tax shield. You want to raise taxes to stimulate the economy??
You can't move money from a 401k to "the market", because 401k accounts are already a vehicle for market investment in the form of low-fee ETFs or mutual funds.
"The occupy movement rallied against what they perceived to be a rigged game: a financial system that required their participation but did not offer them a seat at the table. Then they went home - maybe because the weather got bad"
Occupy Wall Street was cleared out by police starting at 1 AM on Tuesday, November 15th, 2011. It was done at 1 AM as they only had to deal with people staying at the park at that time. They arrested 200 people in a well-planned operation.
One of the reasons given for clearing the park was unsanitary conditions, which I can personally attest was BS - OWS was always sanitary, and when the mayor began using sanitation as a reason to clear things out OWS became fanatical about cleanliness. I watched people sweep the same spot of ground multiple times an hour. Compare that to the parks and recreation cuts where some NYC parks can go more than a week without any cleanup.
The police pushed back attempts to re-occupy the park in the day of November 15th and November 16th. A more organized effort to get back in the park was tried on New Year's Eve, and was met by pepper spray, dozens of arrests etc.
While this is the reality, which can be easily verified, I realize there is this hegemonic false way of thinking. I realize this requires reporting that OWS were a bunch of trustafarians not affected by Wall Street shenanigans, and who went home when it got cold. Because to talk about what really happened, as opposed to the invented ideas of what would happen from someone embracing a propagandistic model of explanation, would require revealing things which are not allowed to be revealed.
While I embrace ideas that came out of OWS, I didn't go for the first week or two even though I knew about it before it happened, because I didn't see how occupying an area would do anything, and I didn't think people were interested. On that latter point I certainly misjudged - people from NYC and surrounding areas who had pent-up frustration about unemployment and the economy came flooding into OWS. Any how, it's funny how Russian governments or Chinese governments and their press organs lied, and much of the population knew its BS, yet the corporate press organs in the U.S. lie and say it got too cold so OWSers went home, and it is accepted as fact by so many. That the press lies is not surprising, that Americans are so credulous is what's surprising. I guess with so much fundamentalist religion among the working class and a different sort of warped thinking among professionals in the US, I shouldn't be continuously surprised by this, but I am.
Of all the things that piss me off about OWS, what's probably the worst is this: our corporate media have somehow foisted some kind of collective amnesia on us. People ask, "Ugh, I hate our financial sector, and OWS had some good rhetoric but they just gave up because they were cold, lazy, and bored." As if one of the biggest domestic displays of government violence in recent times didn't even happen!
There are plenty of other critiques of OWS that I embrace wholeheartedly--sites became gathering points for the homeless and hurt more widespread appeal, new people who went in were not on-boarded effectively--which we can debate on end. But the idea that one day people just got bored and gave up... that drives me nuts.
They were arrested, infiltrated, and attacked at multiple locations, over many months. They keep coming back, too, but that doesn't make the news. Right now, they're doing this thing called the Rolling Jubilee.
Also, hundreds of local OWS support protests and encampments happened, and they got raided, pepper sprayed, etc. just like NYC. Many of them are also persisting and fighting. One such group is Occupy Fights Foreclosures, which fights illegal foreclosures.
What is destroying the OWS image is the media, which actively ignores OWS. For some reason, they'll give a dozen TEA party people news coverage, but a larger (but still small) OWS protest doesn't get reporters.
The occupy movement was really just a long running protest. There where similar things going on in DC but they where hardly occupying wall street and they all got forcibly disbanded.
I'm just suggesting we keep some perspective. Civil rights succeeded despite dogs and firehoses. I thought OWS was going in a potent direction after Sandy, but apparently once they lost access to a private park, a fatal blow had been struck.
Well, yes and no. OWS was indeed shut down by municipalities using tough and even exceptional tactics, but the fact that it could be was a sign of deeper problems.
I think it's important to keep in mind the distinctions between broader social moods, specific organizations, and tactics, all of which together make up a social movement.
The American Civil Rights movement is an interesting comparison point, because it's a social movement that met with some success and is pretty well-known. It had organizations like SNCC and the SCLC that organically grew from a broader social base--the burgeoning black middle class, well-educated liberal whites--that gave it staying power. And it was able to rationally coordinate specific tactics that went beyond pushing legal briefs and went toward crystallizing specific instances of the injustices of the South. To make a retronym, it could Occupy the front section in public buses and seats at restaurants. And the power of those actions is that it would force governments to either react against them, revealing the profound violence involved in the system, or show that the government was unwilling to enforce its laws, which would effectively repeal them. (This is all very stylized, of course.) And individual tactics could and did coalesce into an organizational strategy, which is the key point.
How does OWS compare? You definitely have the discontent and the social base for it. And you have the tactics. God, you have more tactics than you can count. New forms of government, a bold attempt to force governments to instantiate violence by throwing your bodies in an area you'd live in and occupy, crews of people who, in a matter of weeks, managed to construct some level of waste management and food provision.
But, if you remove the people from the area they've Occupied... all those tactics fall apart. If you pull out that keystone, the whole logic of it crumbles. And then all you are left with is the original generalized discontent.
I think it would be very fair to lay the blame for that at Occupy's doorstep, if Occupy had a doorstep. Building a movement out of a tactic and social malaise leaves you vulnerable to the fact that as soon as anyone finds a way to respond to the tactic, the movement dies on the vine.
Also, for people who are skeptical that any organizations are capable of being effective in today's world, I'd suggest you look toward the immigration organizations (who have organized marches on DC several orders of magnitude larger than the NYC Occupy to less media acclaim) and managed to put it on an agenda, as well as to a lesser extent 350.org which is focused on climate justice.
Now imagine how difficult it is to wake up every morning and throw yourself into that all over again, particularly once you've been dispersed and have lost the tactical advantage of being garrisoned together in one space. The most hardcore people I know became afraid to go back into that, as were veterans of war.
It is inevitable that the moment ruptured (as it was for the globalization, biotech, and war moments before this). However, I think this Zizek speech at OWS captures the value of that inevitability really well:
Is Occupy Oakland comparable, directly, to the Zucotti Park protesters of OWS? As I understand it, from friends who live in Oakland, the Occupy Oakland protests were marked by violence and vandalism; they broke glass windows, threw bricks, and destroyed ATMs.
I read that start to finish, since I'll generally read anything you tell me to, and the conclusion I drew from it is that if that piece is representative of your feelings about direct action violence (or "violence"), it's probably best you & I don't talk about the morality of violence.
But that aside: I didn't ask the question because I wanted to condem Occupy Oakland.
I asked because the thread started with the suppression of the assiduously nonviolent (or "nonviolent") Zucotti Park protests.
But if our friends in Oakland are reporting those protests accurately, there was little chance of the Oakland protests not meeting a violent police response; Occupy Oakland was breaking windows, throwing bricks, destroying ATMs, and assaulting residents.
There were instances of property destruction (but not assaulting residents?) at actions organized as OO, but not at Oscar Grant Park, where the evictions happened. It's not as if the evictions were a situation where police were "responding" to property destruction.
Occupations across the country and the world met similar evictions through the use of force, although the use of tear gas specifically has been rare in the US.
If there was any qualitative difference in the police response, I think it has more to do with the character of OPD than the character of OO. The same thing happened at the port of oakland occupation in 2003 (where there was zero property destruction), which was equally brutal: https://www.commondreams.org/headlines03/0407-07.htm
First off Occupy Wall street was in the short term moderately successful considering it's ambiguous goals and moderate funding.(1) What 'killed' it the fact it lasted for months and people just started ignoring it. The simple truth is sitting around in parks is something homeless people do and as a protest it's just inflectional. As to dogs, well people with guns and riot gear showed up and said leave and don't come back, there is only so much you can occupy at that point. You can come back, but so do the people with guns and after a while that process will break most people.
(1) There are some pieces of legislation that where influenced by the occupy movement. But, it the impact was more a demonstration of an actual grass roots organisation demonstrating that people where unhappy. A few of of those organisations are still around they just don't get the same sort of press.
Anyway, compared to the environmental movement (aka stop killing people) or the civil rights movement saying bankers are fucking us over only get's so much play.
PS: Also, there where a lot of parks being occupied. However, the one in New York had a lot of symbolic value.
Yes there is a limit to how much you can put into a retirement account that isn't taxed by the government, but there is no limit on how much of your income you can save, caveat you need some of it to live on.
And while saving and investing can get as complicated as you want it can also be greatly simplified with funds investing.