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My Faith-Based Retirement
April 29, 2012 2:07 AM   Subscribe

My Faith-Based Retirement. NYT business journalist Joe Nocera discusses being financially unable to retire.
posted by lalex (156 comments total) 31 users marked this as a favorite

 
Hi! Turning 50 this year, $765.00 in my 401k. Too busy working to protest.
posted by Devils Rancher at 2:44 AM on April 29, 2012 [26 favorites]


As an Australian, with a modest, government funded superannuation scheme (albeit with ine that has more than $800 in it), even I am depressed by this story.
Since apparently when I retire I'll have about six months wages to live off before I go onto the pension.

I lived, or survived, on the dole once. I never want to salivate over cat food again. And I gather we have quite a generous scheme, especially compared to the USA.
posted by Mezentian at 2:52 AM on April 29, 2012


Someone just told me that living outside the US for 5 years could disqualify me for Social Security benefits - I told them that I never expected to get them anyway.
posted by dubold at 3:03 AM on April 29, 2012 [9 favorites]


I'm in favor of a robust welfare system and I think the problems with Social Security system are easily solved if we do something as simple as make the wealthy pay all the same Social Security taxes as the rest of us (and credit them for those taxes) but it sounds like this guy has no retirement savings at 60 because in his mid-50s he blew his 401K on a home that was going to be difficult to maintain on the money he would have in retirement. I'm not sure that the welfare system really needs to protect the kind of people who do this from eating cat food.

Now the healthcare system, on the other hand...
posted by XMLicious at 3:12 AM on April 29, 2012 [8 favorites]


Someone just told me that living outside the US for 5 years could disqualify me for Social Security benefits

Is it living outside the U.S. or is it not paying social security taxes for a number of years? Because people who aren't even U.S. citizens can receive social security benefits if they've paid the taxes for long enough, in my understanding.
posted by XMLicious at 3:16 AM on April 29, 2012


Here is another twist. The Social Security system has something called the "windfall provision". In my state, state employees DO NOT pay into social security. But many of these employees have paid substantial amounts of SS taxes through prior jobs. So now all you have is your 401K (no guaranteed state pension anymore). And it doesn't matter if that 401K is in tatters. If you are able to draw out 1 dollar a month from that 401K, you have technically received a windfall and are ineligible for SS. But get this. If you don't retire from the state, you can begin receiving SS (based on your prior contributions) at 62 while you are still working. It is a bizarre rule that apparently makes no distinction between a $1 per month salary from a 401K and a 1,000,000 per month salary.
posted by Seymour Zamboni at 3:41 AM on April 29, 2012



Is it living outside the U.S. or is it not paying social security taxes for a number of years?


Living outside the US for five years continuously, without residing in the US for a six month stretch, is how it was presented to me. I don't have any reference other that what I was told, and it was presented to me as a new development.
posted by dubold at 3:49 AM on April 29, 2012


His situation seems at least in part due to his own decisions:

The bull market ended with the bursting of that bubble in 2000. My tech-laden portfolio was cut in half.

I bought a house that needed some costly renovations. [...] I threw another chunk of my 401(k) at the renovation.

Over-invested in a bubble. Bought a money pit. Poured retirement funds into said money pit.
posted by We had a deal, Kyle at 3:57 AM on April 29, 2012 [12 favorites]


Yeah, there's no cure for stupid. Not that he doesn't deserve sympathy, but it is hard to design a system in which you can't end up in trouble if you try hard enough. And this guy tried really, really hard.
posted by Justinian at 4:08 AM on April 29, 2012 [5 favorites]


...disqualify me for Social Security benefits - I told them that I never expected to get them anyway.

Unfortunately, this erroneous attitude that SS is going to be gone by the time you hit retirement has become so pervasive as to have become an accepted truth throughout the population. This belief makes it far more easy for legislators to work toward killing SS outright, and fulfilling the mistaken prophesy. "If the people believe it's dead anyway, they won't care if we make it official and bury the corpse."
posted by Thorzdad at 4:12 AM on April 29, 2012 [87 favorites]


Oh you own a home and are gainfully employed? Poor baby!
posted by Brocktoon at 4:14 AM on April 29, 2012 [11 favorites]


And I gather we have quite a generous scheme, especially compared to the USA.

Yes and no.

The Australian pension rate is two legislated rates (one rate for singles, one rate for a member of a couple), that is then reduced by your current fortnightly income and assets. The single pension rate, including full supplement rates and rent assistance, is currently a bit less than $AUD 23k per annum. A joint-couple pension with full supplement but no rent assistance is a bit over $AUD 27k per annum. There is a lot of craziness around how your income and assets are calculated when determining reduction, but everyone (*) gets the same maximum rate, and the wealthier you are, the lower your actual rate will be. The average annual individual pension was around $AUD 14.4k per annum in 2010-11.

The US system is different: your rate is influenced by how much social security payroll taxes you paid over your lifetime and when you retire. From my understanding of the SSA website, a worker who retires at 66 and has had income enough to push themselves in to the top tax bracket every year since age 21 will get a bit over $USD 30k per annum. The average Retirement Insurance Benefit in March 2012 equated to $USD 14.7k per annum (I'm not sure how spouse benefits play in to these numbers - are these individuals, or worker+spouse? Any US SSA gurus willing to provide some advice?)

So, the US system pays out more than the Australia system, but it pays it out in a regressive manner. It doesn't matter if you didn't work a day in your life in Australia - so long as you're over 65~67 and resided in Australia for 10 or more years, you qualify.

(*for a given value of everyone - there are all sorts of grandfathered and closed-to-new-entrant benefits in the legislation, but if you're not already on the pension then these don't concern you unless you're interested in the history of social welfare policy.)
posted by kithrater at 4:16 AM on April 29, 2012 [6 favorites]


In truth, I’m one of the lucky ones. I do work that I love, which requires no heavy lifting and has no mandatory retirement age. If I become incapacitated, I will have assisted-living insurance. Otherwise, I can keep writing till I drop.

Does he not work in an "at-will" situation? If he does, wait until he discovers that the NYT is run like a business -- there will be some young person, educated within an inch of their lives to fit new education expectations, loaded up with debt to the point of desperation, and willing to take on big jobs for little pay. He pay not plan to leave his post, but the NYT might compare what they pay him to what they could pay for a young, energetic young person, and make the choice for him.

I hear lots of baby boomers (but not all) talk about working until they die, even though in many cases they are eligible for pension and 401k and Social Security, but they never think about how they compare to younger (cheaper) people, or the way an older person might need to take more time off for medical care, might move a little slower and need mid-day naps, might become increasingly out-of-touch with the needs of the majority of their customers, and so on. Really bad plan, but they cannot be convinced. And a lot of these baby boomers I talk to were in their position as a result of actions like this writer -- bad planning and overspending. They are bitter because they won't be able to live in the manner to which they've grown accustomed, and yet they never were able to afford that manner of living to begin with. Now, they want more from Social Security, when it was never designed to replace savings -- it was designed to be a safety net, a way to ensure a minimum so that people didn't starve.

Maybe people in his situation can be of best use by serving as an example to younger generations that you must live below your means. Yes, it's nice to have the latest gadget or the fun vacation or the new house or whatever it is commercials try to convince us that the Jones have, but having no worries about the (increasingly lengthy) retirement years is nicer. And, unless you will be pulling in massive dollars each year, you're best saving a little every year than putting it off until you are in your 60s and your big plan is hey, hope your employer will keep you around forever.
posted by Houstonian at 4:29 AM on April 29, 2012 [15 favorites]


As a new junior faculty-member fresh out of grad school and stupid about all things money-related, I was given a choice between an IRA and a nice state pension system. I asked a colleague which I should take. Unbeknownst to me, he was a conservative, and gave me a one-sided and very negative assessment of the state system. 17 years later, I discovered my terrible error. Given that I didn't even get out of grad school and get a job until I was well over 30, and that my school is renown for paying almost nothing, I should be able to retire at about age 75 or so... Thanks, [name of colleague redacted]!
posted by Fists O'Fury at 4:36 AM on April 29, 2012 [3 favorites]


I just never really understood the idea that any significant percentage of the population could afford to not work for a third of their lives. "Retirement" wasn't really a thing a century ago. No one did it. Now, with the advent of Social Security, it seems somehow expected that everyone should be able to stop working and receive a decent amount of money forever.

Someone want to explain to me why this makes any kind of sense? To spend twenty or thirty years without doing any work for money? I mean, it makes sense if we assume that we all live like eighteenth-century English gentlemen, but not even any decent percentage of the eighteenth-century English population were able to do that. Why should we?
posted by valkyryn at 4:43 AM on April 29, 2012 [5 favorites]


I'm 35 and live in Europe and when I read this I thought, my god, I'll probably end up in the same position - I also have no state pension, I've raided my equivalent of a 401k earlier this year hoping to buy real estate, which I didn't and the money has just been lying around, waiting to be invested.

My principal safety will probably be the house that I'm building mortgage free. Hopefully, when I'm too old to earn and my investments will not support me I can sell the house, buy/rent a much smaller place to live and use the rest for a period of time.

I still believe that I'll have the discipline to follow Graham, Buffett and the rest and build a decent, albeit small, portfolio of stocks, etfs, metals and income-earning estate to have at least some cushion when I no longer can work. But I also don't see ''work" as gainful activity you stop doing once you hit 65 (or whatever the pension age will be), but the sum of all things you do to stay alive and well. And I'm not planning to stop doing that until I go underground.

Now, IF, in spite of my plans, I cannot support myself beyond, say, 65, I'll just have to make sure to keep a dissolvable, liquid reserve planned for a period of time (say 120 months until my death at 75), of about 400 euros per month in today's money, so about 50.000euros.

The worst-case scenario is that I live beyond this last reserve and then, unless I'll have anything else left to sell, I'll probably be at the mercy of my family. After all, I understand that in much of Asia children support their parents in old age.

So all things counted I'm not that worried in this respect.

What I am worried about is the implication in the article that investing for old age is not for everyone and can even be harmless for the masses.

I firmly believe that investing intelligently is about the only thing (next to solving problems creatively) that schools, family and life should teach children from age 0. I believe investing soundly is the single most important skill one can acquire (and acquire one can). Who else should magically produce the pensions? It will not be the young taxpayer when the old/young ratio hits 1:1.
posted by Laotic at 4:43 AM on April 29, 2012 [1 favorite]


Maybe he should grab a beer with this guy.
posted by The Card Cheat at 4:53 AM on April 29, 2012 [2 favorites]


I just never really understood the idea that any significant percentage of the population could afford to not work for a third of their lives....Someone want to explain to me why this makes any kind of sense? To spend twenty or thirty years without doing any work for money?

Good heavens - is the average life expectancy in the US really 85? That's pretty impressive.
posted by lesbiassparrow at 5:20 AM on April 29, 2012 [2 favorites]


"Retirement" wasn't really a thing a century ago. No one did it.

A century ago, if you were age 30 and living in the western would, you would expect to die at around age 65 (not whole-of-life expectancy, but remaining-life-expectancy-at-30. If you were born in 1910, you would have expected to die around age 50). The first pension systems recognised these demographic facts, e.g. when Australia introduced its aged pension in 1908, it set the eligibility for men at age 65.

So, yes, retirement wasn't a common thing a century ago because relatively few people lived long enough to get a chance to do it. Things people also didn't really do a hundred years ago: let women vote, or vaccinate. That there are three things that weren't common a century ago has little relevance to the issues of today.

Now, with the advent of Social Security, it seems somehow expected that everyone should be able to stop working and receive a decent amount of money forever.

Who expected? The goal of the Social Security Act was "to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age". I don't see anyone but strawmen making the argument that everyone should be able to retire for two or three decades and get given money without doing any work to do so.
posted by kithrater at 5:20 AM on April 29, 2012 [30 favorites]


That data starkly backs up Ghilarducci’s contention. According to the Employee Benefit Research Institute, for instance, only 22 percent of workers 55 or older have more than $250,000 put away for retirement. Stunningly, 60 percent of workers in that same age bracket have less than $100,000 in a retirement account. Ghilarducci told me that the average savings for someone near retirement in America right now is $100,000.

As a 32 year-old college dropout who is within four digits of that last number, I have to say the biggest financial scam out there is the idea of a career, this notion that acquiring a skillset, developing it over time, and remaining in it over most of a lifetime is the way to get ahead financially. Drawing a salary is an incredibly inefficient and risk-prone manner of making a living. People would be much better off thinking of their real job as being the proprietor of Me, Inc. Any professional career should only serve to produce seed money for other businesses & investments that will eventually replace the income derived from an employer and its duration should be limited.

Career thinking traps people into the mindset that working toward financial independence (which is essentially what "retirement" really is) is something that can be put off indefinitely. Rather, working on developing income that is divorced from direct labor should be a young person's primary emphasis. Thus the particular insidiousness of student loan debt. At the time in life when people have the least responsibilities, the greatest potential, and most energy to strike out and take the kind of risks that can lead to financial independence, they are instead saddled with huge debts to repay that forces them to take whatever shit job they can. Next thing they know, there are kids, a house, car payments... and there's no extra money to sock away for savings, starting a side business, etc.

Make no mistake, a career is a system for inculcating financial helplessness and dependence, which in turn serves to produce a distracted and compliant populace. It's only people who don't have to worry about making the mortgage or what the boss will say if they go AWOL from the cubicle who have time and freedom to become and remain informed about what the ruling class is up to and to do something about it.
posted by ferdinand.bardamu at 5:24 AM on April 29, 2012 [74 favorites]


I just never really understood the idea that any significant percentage of the population could afford to not work for a third of their lives. "Retirement" wasn't really a thing a century ago. No one did it.

This isn't true. You can find mention of "pensioners" in English literature going back centuries, Roman soldiers retired after 25 years, and here for example is a passage from a book about civil servants (educated people from all classes - albeit mostly upper classes - who had studied for years to pass one of the civil service exams) in Ming Dynasty (1368-1644) China:
Seventy was the normal retirement age, and if a retired official was in danger of impoverishment he could apparently expect a pension of four bushels of rice a year and the service of household servants assigned by the local magistrate. One could retire because of physical disability after the age of fifty-five with similar expectations. In these regards, as in the case of salaries of officials on active duty, the Ming dynasty seems to have been less generous to its civil servants than was customary under earlier native dynasties.
Not everyone had running water either but retirement has definitely been a thing for thousands of years.
posted by XMLicious at 5:30 AM on April 29, 2012 [38 favorites]


Good heavens - is the average life expectancy in the US really 85? That's pretty impressive.

If you make it to retirement age at 65, then yes, the average life expectancy is an additional 18 years for men and 20 years for women.
posted by drlith at 5:31 AM on April 29, 2012 [4 favorites]


I just never really understood the idea that any significant percentage of the population could afford to not work for a third of their lives. "Retirement" wasn't really a thing a century ago.

A century ago fewer people made it to that age, many of those lived with their families, they also had debtors prisons and poor farms.

I would like to add, that most of the improvement in life expectancy in the last 100 years is due to a dropping infant mortality rate. Not to say that some of the improvement isn't due to medicine and workplace safety, but that is the minority.

There were plenty of old people 100 years ago.
posted by psycho-alchemy at 5:33 AM on April 29, 2012 [5 favorites]


I just never really understood the idea that any significant percentage of the population could afford to not work for a third of their lives

I've never understood how you can expect blue-collar workers to even be able to work until 65. How many people that age are physically able to keep working? My dad had to give up working as a mechanic when he was around 55 because he just couldn't do the work and if he hadn't had my step-mom's income and insurance for the years before he qualified for SS and Medicare, he'd have been homeless.
posted by octothorpe at 5:59 AM on April 29, 2012 [25 favorites]


retirement has definitely been a thing for thousands of years.

Not really. True, there are mentions of "pensioners" going back a way, and yes, Roman soldiers did stop working for the legion after their term was up. But in the former case, "pensioners" generally weren't expected to live for three-plus decades after "retirement," and in the latter, they didn't stop working, they just stopped working for the legion.

And to those saying that this is just because life expectancy has gone up, that's certainly true. But if life expectancy has gone up, shouldn't the portion of one's life one works go up accordingly? The way it is, expectations seem to be that one works as long as one would have a century ago, but lives 50% longer, while consuming a massive amount of health care that wasn't available back then. That ain't gonna work.
posted by valkyryn at 6:02 AM on April 29, 2012 [3 favorites]


"Retirement" wasn't really a thing a century ago. No one did it. Now, with the advent of Social Security, it seems somehow expected that everyone should be able to stop working and receive a decent amount of money forever.

Not sure if you're having a lend, but I'll bite. The answer is (as, indeed, it is with socialised healthcare): 'because we can'.

The way it is, expectations seem to be that one works as long as one would have a century ago, but lives 50% longer, while consuming a massive amount of health care that wasn't available back then. That ain't gonna work.

Productivity has gone up, in Western economies at least, far more than life expectancy over the same time period.
posted by pompomtom at 6:19 AM on April 29, 2012 [2 favorites]


The answer is (as, indeed, it is with socialised healthcare): 'because we can'.

That's begging the question in its purest form.
posted by valkyryn at 6:21 AM on April 29, 2012


Someone want to explain to me why this makes any kind of sense? To spend twenty or thirty years without doing any work for money?

I'm not American so I don't know, but I thought Social Security was people's own worked-for money that the government held back until they got old. No?
posted by two or three cars parked under the stars at 6:22 AM on April 29, 2012 [16 favorites]


Anyway, the alternative of people incapacitated by old age having to choose between struggling to go to work each day and living on the street or whatever seems barbaric. Also are there even enough jobs to go around for old people to keep on working until they drop dead?
posted by two or three cars parked under the stars at 6:26 AM on April 29, 2012 [10 favorites]


And to those saying that this is just because life expectancy has gone up, that's certainly true. But if life expectancy has gone up, shouldn't the portion of one's life one works go up accordingly? The way it is, expectations seem to be that one works as long as one would have a century ago, but lives 50% longer, while consuming a massive amount of health care that wasn't available back then. That ain't gonna work.

Sure. When a scheme that relied on there being a certain ratio of workers to non-workers sees that ratio slip, then the scheme needs to change. Many countries are adjusting their universal retirement schemes to address this problem. I don't see what this has to do with your claim that Social Security and pensions are emblematic of allowing people to "spend twenty or thirty years without doing any work for money".
posted by kithrater at 6:28 AM on April 29, 2012 [1 favorite]


Someone want to explain to me why this makes any kind of sense? To spend twenty or thirty years without doing any work for money?

My father just retired this year at age 75. He loved his job with LA county as an upper level bureaucrat with a nice office and several assistants. I have no idea what he is going to do now because aside from physical activities like bike riding and running (which he can no longer do) he never developed any hobbies. He isn't religious like my in-laws and my mother, all of whom fill their retirement years with church activities. He enjoys traveling but I doubt he can afford to do as much as he would like.

I guess he will be sitting at home reading and watching TV-- sedentary activities guaranteed to shorten his life.

On the other hand, Mother retired at 65 with an impressive investment portfolio. She is busier than ever filling her days with social events and volunteer work. She'll be 75 this year, still lives in her own home, still drives. She doesn't need to work for money partly because she spent the last 15 years or so of her working life socking half her paycheck away (and thereby accustoming herself to living on less money.) However, a very large part of why she was able to do that is because she bought a house in Southern California in 1965, never moved, never refinanced. She paid off the mortgage early and her taxes are kept artificially low by Prop 13.
posted by Secret Life of Gravy at 6:28 AM on April 29, 2012 [3 favorites]


That's begging the question in its purest form.

OK, fair point.

'Because massive improvements in productivity have allowed us to attain this obvious benefit'.
posted by pompomtom at 6:30 AM on April 29, 2012 [4 favorites]


they didn't stop working, they just stopped working for the legion

You mean that they retired from their careers as travelling professional soldiers and started their new lives as subsistence farmers? Yes, that's what I meant. I think you are the one who is misconstruing here the meaning of retirement, that it necessarily means getting to never work again, or that Social Security is a "decent amount of money" replacing all other income.

It's no more than a supplement and even fairly wealthy people who have much more than that can find themselves working as landlords, for example, after they retire. Elderly people feeding themselves by growing their own gardens or family gardens their children and grandchildren eat from would probably be classed as "agricultural laborers" in historical statistics or in developing countries today.
posted by XMLicious at 6:34 AM on April 29, 2012


I don't quite know what to think of this. On one hand, I feel for anyone who is facing the aging process without a cushion and I think the sort of "wah, baby, cry" response is kind of missing the point. It takes some guts to own up to this and like Houstonian I think he may be kidding himself a little bit about how set he is unless there is more to the story.

On the other hand, this isn't anyone, it's a writer for one of the largest journals on earth whose beat is tech, taxes, investment and business. He used to be the editor of Fortune. For me, this is the Judith Miller/WMD article of someone who writes about stocks and tech; you can be really wrong, and you can be really wrong because you were fed wrong info because you were too chummy with machiavellian people, but maybe after being that wrong you need to step down from the position of presumed expertise.

What sat really badly with me was the whole "ow, remember that whole horrible dot-bomb thing that happened to us all?" tone of explaining what happened to his 401k. It was his beat, he is well-connected, and the industry hucksters could never have put that one over without the credulous, greedy, too-cozy-by-an-order-of-magnitude, conflict-of-interest-laden financial media. Here is an ultra-depressing-in-hindsight defense of market journalism in 2000 (written, unknowingly, during the slide) featuring the argument that there is no crisis in tech stock journalism because it's brought us great new voices like Henry Blodget and Jim Cramer and anyway compromised journalists don't affect the value of the holdings of competent investors who invest for the long haul.

Closing graf: "Investing has never been easy, especially for the little guy. A generation ago, one of the things that made it difficult was the lack of timely information. Today, one of the things that makes it difficult is the plethora of information. It takes effort to wade through it all, to decide what is valuable and what is junk. The fact that many people can do so is proof that small investors are far savvier about the market than ever before. And for that, the financial press deserves at least part of the credit--police chief Kurtz notwithstanding."

Nocera didn't act like Cramer (in fact, I guess I'd have to assume that he was used by his friend Jim if he came out behind), but he was in an excellent position to apply some journalistic skepticism and counteract the craziness.
posted by Your Time Machine Sucks at 6:35 AM on April 29, 2012 [15 favorites]


I thought Social Security was people's own worked-for money that the government held back until they got old. No?

Not entirely, because there's no way to know how long a person lives, and so there's no way to divide the amount you paid in by the number of months you will draw money out. We pay into the system, and then they use a set of calculations to decide how much money you will get every month until you die. It is possible to pay in less than you get out (see the fourth chart here). That, of course, is a problem. Possible solutions are to pay more in, or to push back the date you start receiving, or receive less each month. A different problem is the difference in people for each generation. The money that is being spent on Social Security benefits now is coming from the younger generation -- necessitated by our start, when people needed SS but the program was new. A third problem is sometimes referred to as "lock box" -- the idea that we will protect this program and its money from being gutted... or not, as it is a temptingly large amount of money.

The Social Security Administration periodically sends out a letter and list of all the payments you've made each year. The last one I got included an alarming statement that they are out of money in 2033 unless something changes. I'll be 63 in 2033, so that was unpleasant to read.
posted by Houstonian at 6:44 AM on April 29, 2012


Retirement is vital, and getting more so. Improvements in production have brought us to the point where the number of hours of work required to feed and care for the population is quite small. In order to keep everyone employed we have had to push consumer culture further and further, but there are hard limits to that in terms of environmental impact and natural resources. At some point we will have to recognize that there is not enough to do to keep us all busy, and a society built around work only functions if there is enough of it. In short, we treat "stuff to do" like an inexhaustible resource, but it's not.
posted by Nothing at 6:46 AM on April 29, 2012 [18 favorites]


But I also don't see ''work" as gainful activity you stop doing once you hit 65 (or whatever the pension age will be), but the sum of all things you do to stay alive and well. And I'm not planning to stop doing that until I go underground.

I hear people talking this way all the time. But what I don't hear is how well that plan will work if you have health issues. Work until you die is a great plan as long as you stay healthy, but as soon as you are dealing with complex, life-altering health problems, it's not going to work nearly as well.
posted by Forktine at 6:46 AM on April 29, 2012 [8 favorites]


two or three cars parked under the stars: I'm not American so I don't know, but I thought Social Security was people's own worked-for money that the government held back until they got old. No?

No.

The Federal government collects money from current incomes, and uses that money to pay current beneficiaries. Any excess money is saved, and if there isn't enough money to pay all the current beneficiaries, the savings are drawn from.

It gets a lot more political, with retirement rates, population growth, the use of the trust fund as intergovernmental debt, etc.
posted by the man of twists and turns at 6:50 AM on April 29, 2012


I thought Social Security was people's own worked-for money that the government held back until they got old. No?

If I want to eat a banana today, it's not the product of the labor of someone 30 years ago. Social security is a system for redistributing resources from the working population to the non-working population, so the non-working population doesn't starve/become homeless/go without medicine

Social security will fail if as a country we decide to stop helping each other. Money is a social construct, and the only thing the government can't run out of
posted by crayz at 6:54 AM on April 29, 2012 [1 favorite]


Yeah, and not everyone who works is eligible for SS. I'm not - not at my current job, that is - so I have to trust entirely to my own savings. It's kind of scary. I'm in my mid-thirties and doing my best - and I have a fantastic financial planner I check in with periodically - but I can't help worrying.
posted by Salieri at 6:56 AM on April 29, 2012 [1 favorite]


@ferdinand.bardamu: Fascinating comment, and right on in a number of ways. I do think the conspiracy of the wealth against the working is a bit over-blown, but that's a tangental point.

Drawing a salary is an incredibly inefficient and risk-prone manner of making a living.

I think it's worth looking at three points in that context: 1) the changing world of work, 2) where the pension system came from, and 3) what happens now.

As you say, today, salaries are incredibly inefficient and risk-prone. It's essentially the lowest common denominator between employee and employer, the minimum an employee will take, and the maximum an employer can afford. There is little consideration of 'value' in salaries. Or should I say was. As technology has developed, we can pinpoint exactly who is creating value, and how much value they are creating.

Salaries were a system of rough approximation. You had a group of middle managers, they each did a job, you don't know what their individual value is, but you know the team does well. Thus, they provide the labour, you pay them a fixed wage, and you take the difference between their costs and their revenue.

Government jobs are a great example. The pay scales and pay tracks. If business is designed for performance, government is designed for reliability. It doesn't matter how well one does in many government jobs, either great or poor, the variable affecting income is length of service.

As mentioned, the very basis of work itself is changing now that we 1) have evolved technology to replace labour, and 2) where we cannot replace labour, we can granularly quantify performance. Professional sports are a great example of this. There are now a few superstars that are paid tremendously well, and a lot of middle of the road players necessary for the game to proceed.

The issue, however is not a problem of salaries. Salaries were never a great answer. They were a compromise -- an innovation that suited a certain time. If you look at the natural world, there is no salary anywhere. No other organism exists isolated from it's real-time performance. Fat deposits may have been the first 'salary' but they're a far cry from our system.

It's very similar to how the news discusses that "Europe is in recession". Europe is not in recession, as much as this is The New Normal. To discuss salaries 'returning to previous levels' or economies 'returning to previous growth' assumes that the previous measurement remains a valid measurement. Europe is not in recession. World markets have changed, and that which Europe has to offer is less valuable today than it was yesterday.

Salaries are the same way. "When are salaries going to come back?" Salaries are not going to come back, for they were a compromise and a bit of a dumb instrument to begin with. What will take their place I imagine are time or output-based contracts. Like sports contracts. "You will come for three years and get us at least into the playoffs twice." Already, these changes have hit non-core industries like entertainment, consulting, remodelling, etc. There are already heaps of jobs where salaried roles are in the minority, and are shrinking. Because we're able to quantify value in a much more detailed way, and our ability to distribute resources is getting finer and finer.

On the point of pensions, pensions seem to be an analogue to jobs that literally consume human bodies. If you think about fieldwork, assembly, or manual labour, and Company Men. Veteran employees that would spend their lives at one company (talk about history!). Those men were trading the functionality of their bodies, for wages. But what happens after wages finish? The body is still consumed. Thus, corporate pensions were really part of the pay package, but a part segmented off for the future. Since people are shit at saving, the company found it worked best when those funds were handled separately and dolled out as post-paychecks.

The same with the military. Similarly, when you leave the military, often the body is consumed and there is not a functional way to make a living after that.

The problem came when you extended those pensions to all jobs. Including white collar jobs or Congress, where after departure, the individual is readily able to continue working. Congress is a great example. Those guys can go on and have wonderful post-government careers. Yet they have a wonderful pension scheme, don't they.

The real knife in the side of the pension system was the 401K. That was always going to be a disaster for workers and contributors. The one's who benefitted from the 401K provision primarily was the industry. Finance gets access to loads of cash previously earmarked for boring safe investments. Suddenly, pension funds, which should be VERY BORING (tax-free muni bonds) become very exciting, investing in things like private equity, distressed debt, etc. The pension fund managers aren't bothered. They're closest to the hunt, so they certainly get meat. When the system collapses, and all those fund mangers go bankrupt, they've sectioned their assets off, and it's the 401K contributors that take the loss.

And it's a particularly nasty trick because the way that the 401K was sold was 1) you're losing out on what you could get if you put it in the stock market, and 2) because of inflation, you need that extra growth because that quantity of money will not be worth as much in the future.

Okay, great. Except for the fact that part of the reason for inflation is over-financialisation and corruption! So that's the second point. And on the first point, inviting consumers into finance is a Bad Idea. It's like taking a football fan and putting him into a match. What chance does a VP of marketing trading in a 401K stand against Goldman Sachs?

The stock market is a casino for non-professional investors. A casino with a big flashy sign, lots of promises, and occasional anecdote from someone that won, and lots and lots of heartbreak.

What do we do now? The problem with debt is that it's backward looking. So the debt of mortgages and student loans is based on the past. Well, the future is much different. This was the whole battle of mark-to-market, the idea that previous debts should be marked to present value. Else, you have a very perverse incentive for finance to load debt all over the society, and basically walk away when everything collapses.

Wait, is that story familiar? It sounds familiar.

Pensions are similar. Pensions were granted as part of a pay package. And if the company had simply left them in boring investments, that would have been fine for the most part. Except they wouldn't have grown. Ha! They grew anyway didn't they. They grew the wrong way. Down.

So the problem with the pension is that it is based on the salary. The problem with the salary is that the nature of work has changed. Thus we need new ways of working. Problem is that we cannot get to new ways of working as long as we are hide-bound by old commitments.

It's a particularly vexing problem to solve whilst 1) not destroying incentives, and 2) minimising the amount of abuse people inflict on each other.
posted by nickrussell at 7:01 AM on April 29, 2012 [24 favorites]


The last one I got included an alarming statement that they are out of money in 2033 unless something changes.

I think you're referring to the date that the Social Security Trust Fund is projected to be exhausted and thus benefits will have to be paid entirely out of SS taxes. If you look at the 2012 Trustee's Report (follow the "Summary of the latest report" link) it says, "Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086. "

In this solvency scenario from a 2010 report, simply requiring everyone to pay social security taxes on all income and crediting those contributions (right now no one has to pay any SS tax on income over about 110k or 115k I think) basically fixes the problem. (From a list of other solvency provisions to address the problem.)
posted by XMLicious at 7:08 AM on April 29, 2012 [8 favorites]


I know the guy sounds like a dunce... He has a job, right? And a house, right? What the fuck is he complaining about? But once upon a time the writer would have been called middle class, and his expectations would have been considered to be perfectly normal expectations, maybe not attainable by everyone in society, but perfectly reasonable all the same.

So, instead of sniping at the writer for his foolish past mistakes and gauche sense of entitlement, take a look at his basic premise: the 401k system of financing retirement does not work, thanks to a market where the house always wins, and thanks to basic human psychology.

And Boomer or not, middle class or not, facing old age with no pension is not good for anyone.
posted by KokuRyu at 7:08 AM on April 29, 2012 [13 favorites]


The last one I got included an alarming statement that they are out of money in 2033 unless something changes.

No, it didn't. It really is important that people stop buying into this conservative myth. What it said was that the so-called "trust fund" is projected to expire by 2033--that is, 2033 is the year when the SS system ceases to have a reserve surplus that it can draw on to supplement the income that comes in directly from payroll taxes. That is not remotely the same thing as being "out of money." They will still be receiving all the money from payroll taxes in 2033, so even in the highly unlikely circumstance that the Govt. has done nothing whatsoever to reform the system between now and then and the even more unlikely system that the Govt. just sits on its hands and says "oh, what the hell, let's just let the shit hit the fan" when that crunch occurs they will still be able to pay everyone on Social Security approximately two thirds of what they are owed.

That will represent a nasty cut, of course, but it is a radically different proposition from Social Security simply "disappearing" or "running out of money." As someone said above, the most powerful weapon the conservatives have unleashed against the SS system is persuading people that it is inevitably fated to disappear within their lifetimes. So it seems almost pointless trying to even talk about ways it might be strengthened and preserved.
posted by yoink at 7:10 AM on April 29, 2012 [25 favorites]


As a new junior faculty-member fresh out of grad school and stupid about all things money-related, I was given a choice between an IRA and a nice state pension system.

Now that states and municipalities have hit on the idea that they can fill financial holes by changing pension plans retroactively, this may not be such a bad bargain, after all. Weird that private citizens cannot tell their creditors "well, I misfigured how well this plan was going to work, given changes in the economy, so I am just going to reduce my payments...."
posted by GenjiandProust at 7:12 AM on April 29, 2012 [5 favorites]


So, instead of sniping at the writer for his foolish past mistakes and gauche sense of entitlement

The thing is, this guy is a high-profile finance journalist at NPR and the New York Times. If the country is bad enough off that his own future is this bleak, so bleak that all he can even think to do about it now is write an impotent "omg my finances are screwed and I can't retire ever" piece, what, really, are the rest of us to do? Invest in guillotine wholesalers?
posted by crayz at 7:16 AM on April 29, 2012 [3 favorites]


Oh you own a home and are gainfully employed? Poor baby!

That's unhelpful.
posted by John Cohen at 7:22 AM on April 29, 2012 [5 favorites]


In this solvency scenario from a 2010 report, simply requiring everyone to pay social security taxes on all income and crediting those contributions (right now no one has to pay any SS tax on income over about 110k or 115k I think) basically fixes the problem.

Or we could, you know, just print more fucking money. The way they do it for every predator drone and bank bailout and torture prison and NSA wiretapping outpost. I've never seen the Pentagon produce a "we're due to run out of funds in 2033" report - it seems like the money can only run out when it's going to commoners
posted by crayz at 7:24 AM on April 29, 2012 [2 favorites]


"Retirement" wasn't really a thing a century ago. No one did it.

Tom Paine proposed a universal old-age pension scheme (with payments starting at age 50) in the late C18th. He clearly envisaged retirement for most at age 60. See for example this passage from The Rights of Man:
At fifty, though the mental faculties of man are in full vigour, and his judgment better than at any preceding date, the bodily powers for laborious life are on the decline. He cannot bear the same quantity of fatigue as at an earlier period. He begins to earn less, and is less capable of enduring wind and weather; and in those more retired employments where much sight is required, he fails apace, and sees himself, like an old horse, beginning to be turned adrift.

At sixty his labour ought to be over, at least from direct necessity. It is painful to see old age working itself to death, in what are called civilised countries, for daily bread.
Paine's proposal was "To pay to every...person of the age of fifty years, and until he shall arrive at the age of sixty, the sum of six pounds per annum out of the surplus taxes, and ten pounds per annum during life after the age of sixty." And he insisted that this was not a "charity" but a "right" proceeding from the interest on the taxes they'd paid throughout their lives.

My point being that the notion that the vision embodied in Social Security would be unimaginable "a hundred years ago" is demonstrably incorrect.
posted by yoink at 7:25 AM on April 29, 2012 [21 favorites]


And Boomer or not, middle class or not, facing old age with no pension is not good for anyone.
It hasn't been for some time, but nobody seemed to give a shit when it didn't affect the oh-so fucking stupid bewmers.

He's an idiot and I'm sure the harsh realities of writing for he New York Times will force him to an early grave, but maybe he and his peers shouldn't, through a gargantuan display of self-obsessed greed, have fucked up the golden opportunity history presented to them.

I'm tired of hearing about the destruction of the middle class, where the fuck was everybody when the working classes were being destroyed?

Oh yeah "I became such an enthusiast of the new investing culture that I wrote my first book, in the mid-1990s, about what I called “the democratization of money.” It was only right, I argued, that the little guy have the same access to the markets as the wealthy. In the book, I didn’t make much of the decline of pensions. After all, we were in the middle of the tech bubble by then. What fun!"

Prick.
posted by fullerine at 7:25 AM on April 29, 2012 [9 favorites]


Or we could, you know, just print more fucking money. The way they do it for every predator drone and bank bailout and torture prison and NSA wiretapping outpost.

Um...that's not actually how they fund military expenditure you know.
posted by yoink at 7:26 AM on April 29, 2012


I just never really understood the idea that any significant percentage of the population could afford to not work for a third of their lives.

You must be young, then, and don't understand that getting older isn't just a number. You find, whether you want to or not, things which were once easy to do become difficult or even impossible because your body and mind just don't work the way they once did. People who are in denial about death are also in denial about aging

The hidden assumption is this "lack of understanding" is that retirement is some kind of welfare system. You might as well make the same argument about child labor, then. Why should children not have to work for a living?
posted by Obscure Reference at 7:27 AM on April 29, 2012 [19 favorites]


I love reading my social security statement.

"If you retire at 65....you get this amount. BUT if you retire at 72 (if you're alive), you'll get this amount."

Fuck you life. I remember my dad retiring with a buy out at 52. Not that he did anything with his life but still....must be nice (that means I would be retiring in 12 years. Would be nice).
posted by stormpooper at 7:27 AM on April 29, 2012


I was given a choice between an IRA and a nice state pension system. I asked a colleague which I should take. Unbeknownst to me, he was a conservative, and gave me a one-sided and very negative assessment of the state system.

An IRA? Do you mean a 403b, which is like a 401k for nonprofits? Most state universities have a 403b choice. Academics commonly choose the 403b over the state pension, and recommend doing so, for a few good reasons.

The first and biggest is that state pension systems commonly treat workers who are there for less than fifteen or twenty years in downright exploitative ways, and academics are relatively likely to be in that group either because they have to move because they didn't make tenure or because getting an outside job offer is pretty much the only way to get a significant raise in academia.

The second is a question about how much you trust the voters in your state. It's not crazy to worry that they'll find some way to fuck you over or just not pay your pension, but that money in your 403b is your money.
posted by ROU_Xenophobe at 7:28 AM on April 29, 2012


My point being that the notion that the vision embodied in Social Security would be unimaginable "a hundred years ago" is demonstrably incorrect.

Indeed. Trawling through the SSA website turned up this interesting article about the German pension system, introduced in 1889:
The idea was first put forward, at Bismarck's behest, in 1881 by Germany's Emperor, William the First, in a ground-breaking letter to the German Parliament. William wrote: ". . .those who are disabled from work by age and invalidity have a well-grounded claim to care from the state."
posted by kithrater at 7:31 AM on April 29, 2012 [2 favorites]


Um...that's not actually how they fund military expenditure you know.

2012 deficit: $1.3 trillion
2012 defense spending: $1.0–$1.4 trillion
posted by crayz at 7:33 AM on April 29, 2012 [1 favorite]


If you look at the natural world, there is no salary anywhere. No other organism exists isolated from it's real-time performance.

Every social organism in the world is "isolated" to some extent from its own real-time performance.

This sort of "only eat what you kill" nonsense is, well, nonsense. As a species, we've always allowed some people to eat more than they kill — and so have the lions and wolves and orcas and all the way down to the goddamn carnivorous ants. Altruism is found in every social species, no matter how economically irrational it might seem.

It may well be that the salary system is on its way out. It may well be that we'll replace it with something even more ridiculously individualistic and anti-cooperative, like the pro-sports-style contracts for everyone that you're advocating. But there will be nothing "natural" about such a system.
posted by nebulawindphone at 7:36 AM on April 29, 2012 [8 favorites]


I think part of the reason that this sort of thing happens is that you can raid 401(k)s. So people use them as piggy banks for silly things like home renovations on houses they could barely afford in the first place. I have my super back in Australia. I can't touch it till I turn 67. I looked into cashing it out and taking it to the US and nope, I just plain can't touch it until I turn 67.

The stock market is a casino for non-professional investors. A casino with a big flashy sign, lots of promises, and occasional anecdote from someone that won, and lots and lots of heartbreak.

This is a very axe-grindy attitude to take. If you go into the casino thinking you're going to be the one to take them to the cleaners of course you're going to be blinded by greed and lose all of your money rather quickly.

One thing I have noticed is that American "retirement 20xx" plans in America are very agressive. By the time I reach retirement age they still want 60% of my money in stocks. 60% of your money in a growth asset at retirement age? These people are absolutely suicidal. By the time you get to retirement age you want 60% or more of your money in defensive assets. Silly things like this is what wipes people out in 401(k)s.
posted by Talez at 7:39 AM on April 29, 2012 [1 favorite]


Someone want to explain to me why this makes any kind of sense? To spend twenty or thirty years without doing any work for money?

Well, Paul Ryan, in his infinite Objectivist imbecility, recently phrased this as "our society is becoming more takers than makers" -- which is really the WSJ's old insult about those in poverty being "lucky duckies" than anything factual. But you, and he, both fail to get at the real question, which is what if this is what happens to us? That is, what if enough of us are too old to work, just because we are? Particularly with retirement ages pressured to edge upward, this question needs to be addressed.

Ageism exists in the workplace. To some extent it underlies a lot of objections to pensioned workers such as teachers: the older ones are the vested ones who will collect the most. We've seen Nocera -- and anyone else like him, who confesses to an inadequate situation -- savaged for his poor investment decisions. But the teachers and sanitation workers and housing inspectors and benefit analysts who end up with a good retirement are similarly savaged for having a "gold-plated retirement". Private union workers also come in for similar blame for driving manufacturing overseas. I'm in Wisconsin. It's ugly as hell. It's awful to hear: it reflects true hatred you don't expect for people who have dedicated their lives to helping you.

But the "reforms" we are experiencing, including a recent executive order from the governor, are going to have a long-term deflationary effect on salaries, meaning more are more retirements now and replacement by younger, less-experienced workers. So ageism is actually part of the solution being touted.

In other words, it's very clear that nobody wants to pay for retirement, or at least any knd of guaranteed retirement. But, again, especially now that it's clear we're a society willing to toss people out of the workplace at gae 50 simply for earning too much, what if that's what we become anyway?

In other words, are we supposed to fund retirement as if we aren't human? Or are we human, and therefore required to fund retirement that reflects human capability and lifespan and working/non-working ratios?
posted by dhartung at 7:40 AM on April 29, 2012 [8 favorites]


Prick.

Meh. The snippet you quote from the article is something he's clearly holding up for ridicule himself. He's saying "look at the stupid argument I used to make!" I think it's a pity that he chose to drag his own situation into this piece, actually, because it clearly works to obscure his main point which is that the whole private retirement account model is broken--that it simply doesn't work given both the real-world deficiencies of people as money-managers and the vagaries of the markets.

As for everyone grousing about how he's not really suffering because he has a good job and a house etc.--well, duh. That's why he calls himself "one of the lucky ones." He recognizes perfectly well that he's not, personally, an example of the suffering that will be caused by the privatization of retirement funding. Again, his point is that for people who don't have cushy jobs that they can easily keep performing into old age that large-scale movement towards the privatization of risk will have grim consequences. He can be right about that even if he used to part of the problem and even if he, personally, isn't going to be reduced to eating cat food.
posted by yoink at 7:40 AM on April 29, 2012 [2 favorites]


2012 deficit: $1.3 trillion
2012 defense spending: $1.0–$1.4 trillion


You do realize that deficit spending is not the same thing as "printing money," don't you?
posted by yoink at 7:42 AM on April 29, 2012


Um...that's not actually how they fund military expenditure you know.

Fifth Platoon, Minting Corps. Saw a lot of action in 2007. Lost a lot of good men holding off the bond vigilantees. I've seen things you can't imagine - fingers crushed in presses, an entire squad wiped out by paper cuts when the paper-bill sorter overheated and exploded. The rattle of pennies on blood-slicked floors haunt my every waking moment.

But victory comes at a price. And that's why you call in the Minting Corps.
posted by kithrater at 7:42 AM on April 29, 2012 [15 favorites]


2012 deficit: $1.3 trillion
2012 defense spending: $1.0–$1.4 trillion


But the deficit actually increased the national debt. It wasn't paid for by "printing money".
posted by XMLicious at 7:43 AM on April 29, 2012


I just never really understood the idea that any significant percentage of the population could afford to not work for a third of their lives

It's a shame that people don't understand why we really have these government-sponsored retirement schemes. It's simply because the alternative is much worse from an economic point of view. Forget about the fact that no sane person really wants to live in a society where the elderly eat catfood and put aside the fact that the minimus definition of civilization is the helping of the helpless. The simple truth is that if the government didn't support the elderly then the young would have to do it. That is you'd have the youngest and most able bodied caring for their parents for decades. This would severely depress economic growth. Seriously if you sit down and run the numbers you'd realize it would be the end of modern capitalism. People would be a lot less eager to go out and spend and invest if they were on the hook for such a huge, difficult-to-measure uncertainty like, say, caring for their mother.

So, yes, modern retirement schemes like SS really help the rich far more than they help anybody else. And what's funny is that if conservatives the world ever do succeed in killing such schemes they will absolutely destroy their cherished free market.

That said it's hard to feel sympathy for people like Nocera who essentially gambled away his retirement. The reality is that for the same reason we insist people pay retirement taxes we can't really insist they behave responsibly. We want them to make stupid bets and invest and consume. So people like Nocera will get the minimum government-designated amount they need to live with dignity. Anything more is really just a luxury and you can't expect anybody to provide a luxurious retirement for you. This is the trade Nocera made and so he gets to reap it.
posted by nixerman at 7:43 AM on April 29, 2012 [13 favorites]


Wikipedia even has a graph of defense spending including a calculation of the interest we pay on past debt attributable to defense spending. The interest we pay on debt attributable to past social security spending is zero, because keeping old people from eating cat food isn't a cause worthy enough to our nation to be worth incurring a debt - we'll take that money from today's working population or else there won't be any

You do realize that deficit spending is not the same thing as "printing money," don't you?

Err, do you really want to get into the fractional reserve banking system, or can I use a shorthand to make a point? We are willing to fund defense with deficit spending, but not our major social programs. Is that clear enough for you?
posted by crayz at 7:44 AM on April 29, 2012 [1 favorite]


No. The reason we don't pay interest on debt attributable to past social security spending is because there is a Social Security Trust Fund. So far we have saved up the money ahead of time to pay for it rather than borrowing.
posted by XMLicious at 7:49 AM on April 29, 2012


So far we have saved up the money ahead of time to pay for it rather than borrowing.

This is not correct. The Social Security Trust Fund's amounts are an accounting device, denominated in special-issue bonds from the US Government to itself. When the Trust Fund begins to redeem those bonds in around 2022, the US Government will have to raise taxes, cut expenditure, and/or change SSA benefits to meet the obligations of the Trust Fund.
posted by kithrater at 7:51 AM on April 29, 2012 [1 favorite]


“They have faith that it will somehow work out.”

and it will. There may be a gap, or perhaps chasm, between what you would like, what you once may have thought it would be, and what the reality brings, but in the end, we all seem to somehow get by.
posted by caddis at 8:03 AM on April 29, 2012


When the Trust Fund begins to redeem those bonds in around 2022, the US Government will have to raise taxes, cut expenditure, and/or change SSA benefits to meet the obligations of the Trust Fund.

This is nonsense. Seriously, take a step back and think about this. The US Government can make money. Literally, when I say make, I mean make, they push a button and money shows up in various private sector accounts. It costs nothing and they do it every single day. The idea that the SS funds will immediately have some sort of fiscal impact like raising taxes is just silly. The government will pay those obligations the same way they pay every other obligation: by selling more bonds and/or buying those assets. This is so obvious that it's shocking that people really believe that America will hit some sort of fiscal Armageddon "when the bill comes due." Seriously, the government is not like you and me, it can literally make money.

60% of your money in a growth asset at retirement age? These people are absolutely suicidal. By the time you get to retirement age you want 60% or more of your money in defensive assets. Silly things like this is what wipes people out in 401(k)s.

For this same reason people who continue to pile into bonds are going to be in for a nasty surprise when inflation takes away their real purchasing power. I have a feeling when people wake up to the reality of the hard money in bonds they're going to be very, very upset. But it just goes to show that the boomers keep falling to these disasters of their own making; after being mauled by two stock bubbles they run off to create another bubble. Some people never learn.
posted by nixerman at 8:04 AM on April 29, 2012 [1 favorite]


Yes, I forgot to add borrowing more money as one of the options. But my point still stands - the Trust Fund is not a big bucket of valuable assets that can be sold off when required. When those bonds start to be redeemed, the US Government will have to take some action. Borrowing or printing money are actions with consequences too.
posted by kithrater at 8:09 AM on April 29, 2012


Yes, I understand the basic structure of how FICA taxes make their way into Social Security and Medicare. My point is that it is a unique and regressive system designed to take money from the working population (and in fact has run a net surplus since the restructuring in the 80s, meaning it has de-facto acted as a regressive way of redistributing the general tax burden onto FICA (since the surplus ends up used for general funds - no "lock box")

So if you're the military or other programs, you get to spend money now and pay for it out of general funds/deficit (i.e. reallocate resources from all of us, and write an IOU for more resources in the future, in return for the military programs of today). If you're Social Security/Medicare, you get to spend money only from your restricted and much more regressive tax base, and you are never allowed to promise future resources from society - in fact you must maintain a positive balance of money paid in to money paid out

The actual structure of how these programs are funded is completely perverse. Here's a graph of the social security trust fund "assets" - i.e. a $2.5 trillion account device that represents the amount of money that's been paid in excess of program costs by a regressive tax on the working poor to our government. And now this program is in "crisis" and we need to either cut benefits or raise more money with a slightly less regressive tax
posted by crayz at 8:09 AM on April 29, 2012


If the past 30 years or so have taught me anything it's that no matter how responsible/intelligent/thought-out/logical/obvious/structured/diligent/disciplined/independent/self-directed/etc. your retirement planning is, when the big boys on Wall Street decide they need to change things up a little, flex some muscle and pad their pockets a bit more, all your smart planning and gee-whiz investment tools will be revealed to be nothing more than parts of a shell game that they've been running on you. And they always knew exactly which shell your money was under.

Was.
posted by Thorzdad at 8:14 AM on April 29, 2012 [16 favorites]


For this same reason people who continue to pile into bonds are going to be in for a nasty surprise when inflation takes away their real purchasing power. I have a feeling when people wake up to the reality of the hard money in bonds they're going to be very, very upset. But it just goes to show that the boomers keep falling to these disasters of their own making; after being mauled by two stock bubbles they run off to create another bubble. Some people never learn.

a) You can invest in TIPS and inflation indexed bonds and most good defensive funds will do this.
b) Inflation is the enemy of established wealth. They've learnt their lessons and are keeping inflation as low as possible. Witness the ECB saying "fuck the periphery we've got non-existant inflation here!"

I must admit it's harder to keep your savings in bonds and cash in the US when they don't pay for shit. When you live outside the US/UK it's much easier to park your funds in cash at 4.5% on a 2-3% inflation rate because your central bank is constantly trying to attract forex.
posted by Talez at 8:20 AM on April 29, 2012


Yes, I forgot to add borrowing more money as one of the options.

Again, I think it's a shame that people don't really understand how modern economy works. But no, the government doesn't really borrow money either. If they did then there might be concern that they cannot pay their bills but, seriously, there's a reason government debt is priced as the risk-free rate of return.

If you take a larger step back and ignore the numbers it should be clear that any modern economy should always be able to devote some relatively small amount of the surplus to take care of the elderly. The only time this breaks down is when (1) the economy is not modern and thus productivity is not increasing -- ie, historical economies where everybody farmed using the same tools as their grandfathers and (2) the elderly so outnumber the young that to support them would literally be a fulltime job and (3) the people are under attack and virtually all time/energy must be allocated to blowing up other people. So I would presume that as long as we have a modern economy with ever increasing productivity and we're at peace then, yes, we will always be able to support the eldery with a dignified retirement. Whatever accounting tricks this calls for are just that -- tricks. We can afford it. And the alternative is much worse: forcing the private sector to solve this problem kills the private sector.

That said there are a lot of problems with the implementation of SS, today. And really America has done such a piss poor job allocating capital that it's understandable that people might have some doubt whether the economy will continue to keep growing. There could be severe problems, frankly, if we continue down this path of malinvestment and under-investment. But then you could hit by a bus tommorow. So, really, worrying about the Trust Fund isn't productive. Thinking about how to put people in productive jobs (so they can then be taxed) is a much more fruitful use of your time.
posted by nixerman at 8:26 AM on April 29, 2012 [2 favorites]


they will still be able to pay everyone on Social Security approximately two thirds of what they are owed. That will represent a nasty cut.

The actual number is 75% and it is not as nasty as you may think. Initial benefits are indexed to rising wages, so the person in 2033 will have a real, inflation adjusted benefit that is about 150% of today's benefits. If you get only 75% of that benefit (75% of 150%), you will have a richer benefit in real dollars that is 112% of what retirees are getting today, even if the trust fund expires.

So, yes, the whole "social security will be bankrupt" meme is a conservative myth to destroy peoples faith in social security so they can kill it. Those who parrot that myth are doing the work of the Republicans.
posted by JackFlash at 8:37 AM on April 29, 2012 [5 favorites]


The thing is, this guy is a high-profile finance journalist at NPR and the New York Times. If the country is bad enough off that his own future is this bleak, so bleak that all he can even think to do about it now is write an impotent "omg my finances are screwed and I can't retire ever" piece, what, really, are the rest of us to do?

Finance writers are good for entertainment, not much else. If they really knew what they were talking about, why would they be writing for a living?
posted by KokuRyu at 8:40 AM on April 29, 2012 [4 favorites]


I'd prefer that social security and medicare were replaced with a basic income and universal health care honestly, support not only the elderly but everyone who faces difficulties making ends meet.
posted by jeffburdges at 8:44 AM on April 29, 2012 [9 favorites]


When the Trust Fund begins to redeem those bonds in around 2022, the US Government will have to raise taxes, cut expenditure, and/or change SSA benefits to meet the obligations of the Trust Fund.

The social security and medicare trust funds represent only about 30% of all government debt. Most of the debt is in bonds held by the public and foreign nations like China. When you or anyone else cashes in one of your savings bonds does that mean the government has to raise taxes or cut expenditures. Hundreds of billions in bonds are redeemed each year? Why do you think social security bonds are different?

If the government did not borrow money from the social security trust fund, it would have to issue public bonds and borrow from, for example, the Chinese. So do you think the government should continue to pay the Chinese for their bonds but should stiff senior citizens on their bonds?
posted by JackFlash at 8:53 AM on April 29, 2012


When do we get to the part about the air speed velocity of swallows?
posted by kithrater at 9:04 AM on April 29, 2012


Suddenly, pension funds, which should be VERY BORING (tax-free muni bonds)

You haven't been following the muni bond market in the US, have you?
posted by enn at 9:19 AM on April 29, 2012 [2 favorites]


Of course it's pervasive that my generation is not confident in the future existence of Social Security. I'm in my early 20s and I already am trying to funnel as much money as possible into a retirement account, because I have the luxury of doing so. Many of my friends are not so lucky, and will likely reach their mid to late 20s still living paycheck to paycheck. We make gallows humor about it.

I can't max my contributions out because I'm not sure whether I'll be employed in a year, so I have to hoard as much savings as possible in investments that can be liquidated easily.


We also are asked to have faith that our IRAs will retain tax-deferred status for the next forty years, another big bargain, but we are suspicious because the conservatives led by the 1% have shattered every societal bargain that we have made with them. How are we supposed to trust them?

What we are being asked by the conservative robber barons to do is have faith that forty years from now, the American social compact will still be in place. We aren't stupid.

You elected Reagan and we suffered the consequences.

You dismantled pensions and we will suffer the consequences.

You dismantled the estate tax and capped the property taxes that helped fund, directly and indirectly, the schools and universities that gave our generation hope that we would exceed the fortunes of our parents funded out of the pockets of those who succeeded.

You have refused to raise the exemption for the richest Americans that prevents them from paying a single dime into Social Security past $200,000.

You asked us to become more productive, and refused to share increased wages with us.

We finally have a shot at decent health care, the single biggest limiting factor to labor mobility, and you are trying to repeal it.

We have now transitioned from the New Deal that brought us the Great Convergence and a sense that we were collectively responsible for providing a basic level playing field to all to a society where every dollar gained in GDP goes straight to the pockets of concentrated wealth, accumulating unhindered by the basic fairness of the estate tax.

The Chinese had a saying which was repeated to me a few times by my parents (as the Chinese have spent well over 10,000 years coming up with these): 富不过三代. Wealth does not pass through three generations. In a normal world, this would be true, inherited wealth would not compound upon itself. This proverb teaches us that we have to work for our own wealth, as inheritance alone won't last past the grandchildren.

The super-rich play by different rules now. Wealth is pooling and staying in the same families, and will remain so past three generations if we do not restore the American social compact.

I dream of the day that "conservative" becomes a dirty word, an insult upon you and your family, and the values that you stand for, because the conservative ideology that has taken over the Republican Party today is that of nihilism and the destruction of the social compact that asks us to work in exchange for a fair shot at social mobility. They must be destroyed.

So long as these people exist, those of us who have the ability to must hedge against the failure of Social Security. We will fight tooth and nail to preserve the last tattered remains of the American social compact, and I hope that we will prevail.

This battle will not be won on the tents of Occupy alone, it must also be won by a systematic targeting and elimination of elected officials who do not believe in the social compact that has provided them the opportunity to succeed. It takes electoral action against sclerotic incumbents in contested primaries as well as general election organizing.

It is not one battle against these Republicans, it is a constant defense against an unremitting onslaught by the rich and those they have captured. I fear for those less fortunate than I, while my small hedge against the failure of Social Security takes a spin in an under-regulated roulette wheel of Wall Street, just trying to beat inflation.

This is why we fight.
posted by Hollywood Upstairs Medical College at 9:25 AM on April 29, 2012 [50 favorites]


I'm not sure how you can read "entitled" from this article. The author doesn't purport to deserve retirement, he merely recounts the way in which he and, evidently, many others managed to lose his retirement savings before the time when he would need them.

It's a valid point. Investing is inherently risky. Conservatives replaced the state-run pension with private investment funds and legislated some tax shelters, then called it a day. But to beat inflation, you need to be earning interest on that money. Does the average person have the domain knowledge of investments to understand the implication of taking money out of a 401k and moving it into risky stocks? Or is this another case of the rich saying let them eat cake while slashing social safety nets?
posted by deathpanels at 9:39 AM on April 29, 2012 [2 favorites]


When do we get to the part about the air speed velocity of swallows?

Are you trying to imply that asking what you actually mean by your claim is a silly frivolous question and that's why you aren't going to answer?

Special-issue securities get redeemed all the time so it sounds to me like what you're talking about is how, if nothing is fixed and the Social Security Trust Fund begins to be exhausted, these bonds will have to be redeemed early, before maturity, and thus the Fund will lose part of the interest revenue from its investments.

Which would be an issue of the Federal Government meeting obligations to the Fund, not meeting any obligations of the Fund to someone else. The fact that this is even an issue - that we need to act to avoid the Social Security Administration being forced to do something dumb with its investment assets - actually is evidence to me that they're real investments, not some accounting device.

When a political candidate loans himself money for his campaign and then pays it back later it doesn't mean that he has printed money or that the accounting is meaningless. His finances aren't just fakery at that point, though makes it more complicated to read his personal balance sheet and those of the entities he owns. This is why crayz mentioning the size of the deficit and the size of the military budget doesn't demonstrate that we fund the military by printing money.

It isn't all just trickery and sleight-of-hand. Social security taxes are a real revenue stream that accumulates in real instruments: this is exactly why some interests want to privatize social security, or why they would want publicly tradeable bonds to be bought instead and re-sold into the market, so that the revenue stream accumulates in private hands and they can extract value from it.
posted by XMLicious at 9:48 AM on April 29, 2012 [7 favorites]


Rant Alert.

In 2033, when the trust fund is depleted (if it actually goes dry by then), the demographic bulge that we baby boomers represent will mostly be dead and buried. It doesn't take a math maven to grasp the inflow/outflow strategy involved here. I'm more worried about the way the SS trust fund is managed, because, as you know, they don't put the money in a locked room. It goes into the same room with the rest of the taxes, and now and then somebody gets permission to raid--I mean borrow from--the pile. Sometimes it gets paid back.

SS was intended to supplement a person's living after he retires from his job, not to be his main source of income. For the average wage earner, it doesn't really work out that way, on account of the clever hiring practices of many businesses. This aspect of our system gives rise to the idea that people should not die because they can't afford to hire a goddam doctor, hence evolves Medi-meta notions: -care, -cade, food stamps and such.

I guess the 401's were supposed to finance the house in Bimini and keep gas in the Mercedes. When you bitch about mandatory this and mandatory that, think about the guy, above, who is one of the wizards of finance, and who probably is a decent guy, but now he's standing around with his pants around his ankles wondering how he's going to deal with having been so clever.

Anyhow, my wife's 401 packet was cut in half in the mid oughts. It's almost back up to where it was before the great rollercoaster started at the end of B43's regime. We penciled out that we'd have been better to have put it in a MM account and let the bookkeeper worry about gains tax.

Forgive me for abandoning my rant here. Cat on keyboard.
posted by mule98J at 9:52 AM on April 29, 2012


Someone just told me that living outside the US for 5 years could disqualify me for Social Security benefits - I told them that I never expected to get them anyway.

It's been said upthread, but this pervasive attitude shows that the rich and their propagandamiesters are winning.

Straight talk on Social Security:

"Here’s what Social Security is not:
• going broke;
• a Ponzi scheme;
• expected to stop paying out benefits in your lifetime;
• bankrupting our nation or future generations."

And to update a post I offered on askme, here's a 2012 reading list for the serious Student of Social Security, all of the finances, projections and actuarial assumptions are publicly available:

Required background for understanding:
Historical Background and Development of Social Security
2012 Social Security Trustee's Report (and here's 2011)
Reading the Social Security Report: "What is crisis? In context?"
Budget Concepts and Budget Process (from the White House budget proposal)

Future fiscal health:
Budget and Economic Outlook: Fiscal Years 2011 to 2021 (Congressional Budget Office, Jan 2011)
The Long-Term Budget Outlook (CBO June 2010)
CBO's 2011 Long-Term Projections for Social Security: Infographic
2011 Long-Term Projections for Social Security: Additional Information (and 2010)
Social Security Policy Options (CBO July 2010)
The Future Financial Status of the Social Security Program (SSA Chief Actuary 2010)
Proposals Addressing Trust Fund Solvency (Office of the Chief Actuary)
Raising the Ages of Eligibility for Medicare and Social Security (Jan 2012)

The Right's plan to kill Social Security:
Social Security: Continuing Crisis or Real Reform? (Cato 1983)

And a rebuttal from it's biggest defenders:
Social Security The Phony Crisis (Dean Baker and Mark Weisbrot 1993)
posted by T.D. Strange at 10:04 AM on April 29, 2012 [125 favorites]


Both of my parents struggled to survive until the day they died; I expect nothing different from my life, and reality is living up to my expectations, to the last detail.
posted by dbiedny at 10:36 AM on April 29, 2012 [4 favorites]


On the other hand, this isn't anyone, it's a writer for one of the largest journals on earth whose beat is tech, taxes, investment and business.

That doesn’t mean a thing. The Times has had regular rounds of retirement buyouts and layoffs now almost every year since 2008.

In 2008, the target was 100 positions. 74 employees accepted buyouts. 26 who didn’t accept buyouts were laid off. 15-20 journalists were among them.

In 2009, 200 more jobs were cut. Meanwhile, Arthur Sulzberger and chief executive Janet Robinson gave themselves huge raises and asked for “sacrifice.” The writers on the chopping block that year included writers and editors such as Jennifer 8. Lee, Louis Uchitelle, Geraldine Fabrikant, Alex Berenson, Jonathan Glater, Jack Curry, Leslie Wayne, David Stout, Stephen Labaton, Clayborne Ray, Nancy Sharkey, and Neil Lewis.

Robinson herself was bought out for about $15.4 million at the end of 2011.

That same month, many other well-known Times writers were given the buyout-or-boot option, including veteran sports columnist George Vecsey (with the paper since 1968), veteran metro columnist Clyde Haberman (with the paper as a writer since 1977; he’d started there as a copy boy in 1964), arts writer Andrea Stevens (with the paper since 1984), fashion editor Andy Port (with the paper since 1992), education correspondent Sam Dillon (also with the paper since 1992), and science writer Nicholas Wade (with the paper for 29 years), business reporter Diana Henriques (20 years), and arts columnist Jody Alesandro (23 years). Some of these writers were offered contract jobs to continue writing freelance.

According to the Times in October 2009, “The Times’s news department peaked at more than 1,330 employees before the last round of cuts. The current headcount is about 1,250; no other American newspaper has more than about 750.”

Look for more cuts at the Times. Not fewer. Around the nation, 15,000 newspaper employees lost jobs in 2009 alone.

It’s hard to see how Nocera writes until he drops in an environment like that. Other than as a freelancer. Who knows, he probably has connections and could get a job elsewhere fairly easily.
posted by blucevalo at 10:42 AM on April 29, 2012 [3 favorites]


Social security taxes are a real revenue stream that accumulates in real instruments: this is exactly why some interests want to privatize social security, or why they would want publicly tradeable bonds to be bought instead and re-sold into the market, so that the revenue stream accumulates in private hands and they can extract value from it.

Thanks--that's an excellent point.
posted by gimonca at 10:54 AM on April 29, 2012 [3 favorites]


Social security taxes are a real revenue stream that accumulates in real instruments: this is exactly why some interests want to privatize social security, or why they would want publicly tradeable bonds to be bought instead and re-sold into the market, so that the revenue stream accumulates in private hands and they can extract value from it.

And re-quoted again for f-ing truth.
posted by darkstar at 10:57 AM on April 29, 2012 [4 favorites]


This is a very axe-grindy attitude to take. If you go into the casino thinking you're going to be the one to take them to the cleaners of course you're going to be blinded by greed and lose all of your money rather quickly.

There's a good analogy that comes from the gaming industry:

Always bet on the butcher (never bet on the pig)

Here are some questions to be pondered:
• Why is the movement to 'Occupy Wall Street' and not 'Occupy Washington'?

• What does that say about the true locus of power in American society?

• If, as you say, most Americans portfolios are maladjusted given their real needs, we must then ask who the real customer is? What industry can survive by not serving fundamental customer needs? Is it possible that maladjusted portfolios are serving someone's needs?

• Is it possible to be in a casino that you do not know is a casino? From the proprietor side, the ideal scenario would be to operate a game of chance as a game of little/no risk, as then the players would incorrectly anticipate risk, and therefore allocate capital more aggressively.

• Are there structural weaknesses in a system in which corporate horizons are quarterly, government horizons are in increments of four/five years, and societal needs are 30 years?

• How has the reintegration of church and state in political discourse changed the conversation and decision-making by the electorate? What are the consequences of that change in public and private allocations of capital?

An example is that the Republican party uses religion as a lever to promote socially-caustic financial policy. The electorate is voting against abortion, and in doing so, votes for corrosive tax regimes.

It's not an axe-grindy attitude, really. It reminds me of working in television, where the first lesson you learn is that the 'product' sold is the attention of the audience to the advertisers. In the case of financial markets, the 401K may well be the same. That which is being sold are workers to the financial markets.

In finance, the ideal position is that of taking fees, as if one takes fees, one does not necessarily care about the performance of individual assets. Hence the problem incentives of Private Equity. Private Equity is famous for extracting value from assets, leaving them as bankrupt shells a short time later. The fund managers walk off with great management and performance fees, the LPs made a tidy return, leaving everyone else holding the bag. Thus, the real customer for private equity is in fact, themselves.

In a casino, the most profitable games on the floor are the slot machines, for they operate on a fee-basis, essentially. Slot-machines are set to pay-out a certain percentage of money put in, and the casinos can set this. If you see a sign in Las Vegas that says "105% loose slots!" that means that there are a few machines that will pay-out more than paid-in. Thus, in setting the winning percentage, the casino is really setting it's margin. If you have 10,000 machines set to pay out 97%, your margin is 3% of the take of those 10,000 machines. If each machine cycles through a million a year, your take is $300M a year.

If you want to change your income, you need to get more bodies in front of machines. How do you do that? Show advertisements of happy people, of winners, make people believe that will be them. Discount room rates, offer package holidays, and comp dinners. Because for the casino, all of those activities fall under operations, and therefore, tax is not paid on them. It does not cost them $150 a night to give you a $150 room. In fact, if you are going to put $1,000 a day into a machine (their profit being $30 a day) and they have an empty room, they'll give you the empty room at a slight marginal cost and take the $30 a day.

Is this how most people think about the gaming industry? Probably not, from the conversations that I have. People don't expect to win all the time, but they also do not understand how severely the deck is stacked against them, and where and how the casinos are actually taking their profit.

Now that's fine for the gaming industry -- an adult entertainment sector. Nobody is forced to get on a plane and go to Las Vegas. But if we take that same operating style and apply it to the financial markets that are "too important to fail"? How does that sit? No casino got a government bail-out in the crisis, because everyone knows what a casino looks like.

Now, if I could make a casino that operated a game of chance, and then cover it in layer after layer of facade that screams, "I am not a casino", what would you think of that casino? Would you like to find yourself in a casino that you did not know was a casino? It sounds like an unpleasant experience.
posted by nickrussell at 11:13 AM on April 29, 2012 [28 favorites]


Drawing a salary is an incredibly inefficient and risk-prone manner of making a living. People would be much better off thinking of their real job as being the proprietor of Me, Inc. Any professional career should only serve to produce seed money for other businesses & investments that will eventually replace the income derived from an employer and its duration should be limited.

I don't know if this applies to everyone. I have the skills to draw a salary and the common sense to save a proportion (shocked to read above that I have saved more than most people). But if I tried to invest my money into business ventures, I'm pretty sure I'd lose all of my money -- I just don't have the acumen. I think it's a great idea for those people who do have those skills.
posted by ClaudiaCenter at 11:30 AM on April 29, 2012 [1 favorite]


"Retirement" wasn't really a thing a century ago. No one did it.

We have records of retirement plans from the 14th century. These were private retirement plans - someone giving over a farm to a child in exchange for support in their old age, for example - but it definitely was a kind of retirement.

In the 17th century, along with from widows and orphans, older people who could not work due to their age were the primary recipients of poor relief (either in cash, or in workhouses/almshouses). I have read an article mentioning a letter from an elderly 18th century man expressing his belief that his parish owed him relief, as he had paid into the poor law system his whole working life.

Retirement has been with us for a long time. Not all people could make use of it, but a great many did.

/a public sevice announcement from social historians everywhere
posted by jb at 11:31 AM on April 29, 2012 [15 favorites]


How does that sit? No casino got a government bail-out in the crisis, because everyone knows what a casino looks like.

Balls. No casino got a bailout because the failure of a casino has almost zero consequences for the overall performance of the economy. The failure of the financial system would have been disastrous not just for "Wall St. fat cats" but for ordinary "main street" Americans. Yes, the bailout could have been better policed and yes the opportunity for tighter control of the financial system could have been seized more effectively, but this whole "we shoulda just let them collapse!" bit is utterly ridiculous and bizarrely blind to the very real suffering for millions upon millions of working class and middle class Americans (and, indeed, others) that would have ensued.
posted by yoink at 11:33 AM on April 29, 2012 [3 favorites]


a public sevice announcement from social historians everywhere

Ha! I knew you were going to show up to comment on that issue, that's why I didn't make much of an effort to research things in the English-speaking world.
posted by XMLicious at 11:36 AM on April 29, 2012


It isn't all just trickery and sleight-of-hand. Social security taxes are a real revenue stream that accumulates in real instruments... This is why crayz mentioning the size of the deficit and the size of the military budget doesn't demonstrate that we fund the military by printing money.

4.4% - 2011 social security effective interest rate on it's $2.5 trillion in funds
3.0% - 2011 inflation rate

Everyone can decide for themselves whether it makes sense for the working class to put $2.5 trillion of their money in a pool where it gets spent today towards everything the government does, and they get this as a return on their investment. There is simply no good reason social welfare funding ought to be prepaid decades in advance out of payroll taxes
posted by crayz at 11:40 AM on April 29, 2012


Someone want to explain to me why this makes any kind of sense? To spend twenty or thirty years without doing any work for money? I mean, it makes sense if we assume that we all live like eighteenth-century English gentlemen, but not even any decent percentage of the eighteenth-century English population were able to do that. Why should we?
posted by valkyryn


Just to add to my previous comment: a decent percentage of the eighteenth-century English population did have access to poor relief when they could not work due to age. Certainly, they did not live like gentlemen, but if they qualified (there were settlement rules) they were provided with some support. The elderly were definitely considered to be the "deserving poor" when it came to poor relief, and some (particularly women, who may have been widowed and lived longer than their husbands) could have spent a decade or more being supported. This support could take the form of cash disbursements (often called out-relief), goods in kind (fuel was often purchased by overseers of the poor, often enough that a friend of mine has used their accounts to study fuel pricec) or placements in almshouses or workhouses (which rarely involved work in the 18th century). It was a far from luxurious life - really just room and board - but I heard a paper on the board bit and they were being fed very well in that workhouse c1700.

There is a huge literature on the 18th century English poor law, which could (in certain times or places) be more generous than the 1834 New Poor Law that replaced it.
posted by jb at 11:41 AM on April 29, 2012 [5 favorites]


The failure of the financial system would have been disastrous not just for "Wall St. fat cats" but for ordinary "main street" Americans.

Personally, I've yet to see compelling proof of this and I strongly suspect it's a lie. The problem is that people confuse paper and wealth. Paper is not wealth. I cannot emphasize this enough because it's one of the key fallacies, if not the Big Lie, that threaten modern democracies. It's the reason why from 2002-2008 people were pointing to the growing stock market and the growing "assets" of Americans and proudly saying that things were going great and we'd broken the boom-bust cycle of capitalism.

If the banks had been wiped out it would've meant the destruction of a lot of paper but of very little real wealth. Main street Americans would've been just fine if the government had been willing to simply nationalize the banks (that is, wipe out the bond and equity holders but keep paying the employees to ensure the cogs continue to turn). The wealth of the country is not tied up in stocks and bonds, it's tied up in real people and real places and this was never under any threat. There would have been dislocation -- a period of a lot of confusion -- but there wouldn't have been much real destruction of wealth.

And this is the reason why people who quote big scary numbers about the deficit and the debt are so silly. We're 14 trillion dollars in debt. Ooooh, scary. But what does that mean? What is the real impact on the living standards of the citizens? Well, it turns out a 14 trillion dollar economy can easily service that debt when the next biggest game in town is China, a country that probably really is a real ponzi scheme. (We'll see but there's real doubt that much of the capital allocation in the last 10 years in China has gone to actually productive purposes.)

If people understood that paper isn't wealth we wouldn't have these big arguments about something as basic as government-guaranteed retirement. The reality is that it benefits everybody for obvious reasons. When retirement debts are made into "hard money" (that is, they're treated as private debt) economies often cannot grow and economies that don't grow... collapse. Modern economies that are driven by consumers can't have the majority of their present income streams diverted into caring for the elderly.

And what's funny is that it really highlights another important fact: many, many people don't really understand how late capitalism works. The West doesn't understand why the West is so rich. Our economy wasn't designed, it wasn't carefully architected, and if anything the West became rich despite attempts of politicians and the like to carefully manage the economy. The real danger now is that as transition into this new phase, one of what can basically be called deleveraging, people will rush to fix a crisis of their own imagining and this will result in a real crisis that could easily lead to war. (War is the only alternative to economic stagnation.)

The number one concern of everybody at this point should be putting people back into productive jobs because at the end of the day this is what will create real wealth. And if the bailout funds had been focused on this instead of propping up really-insolvent banks like Citi it's quite probable we'd be in much more solid place three years after the crisis than where we are now.
posted by nixerman at 12:26 PM on April 29, 2012 [7 favorites]


There is simply no good reason social welfare funding ought to be prepaid decades in advance out of payroll taxes

I hear what you're saying but the danger of not having any retirement tax is that this good will be mispriced a la colleges today. It's important that people pay something for their retirement today so that we don't get a massively distorted market around retirement. The only real question is how much we decide to make them pay. Because, at the end of the day, we are the ones that are going to actually take care of the elderly (one way or another) we are essentially deciding on the value of our own work and the value of the elderly. A big problem in our democracy is that, unlike SS, a lot of government programs are not funded by special, targeted taxes. If there was a "war tax" and a "student loan tax" and a "prison tax" we might see some conrete improvements in these concerns. As it is now it's very difficult to understand the real price of these government-directed operations and the result is almost certainly malinvestment. "Tax and spend" is an insult in America but this is actually exactly what modern democracies should be doing.
posted by nixerman at 12:37 PM on April 29, 2012


but in the end, we all seem to somehow get by.

Oh yes, my mother did, if by "get by" you mean "after seeing 40 years of working go down the tubes when the crash took her savings and her house, was forced to move in with her only child who had the means to support her. Unfortunately he lived out in BFE so finding a Medicare doc was extremely hard and her multiplying medical issues (exacerbated by a very understandable and untreated depression, because try finding a therapist in BFE) led her to die nearly 20 years earlier than her own mother did."

She got by all the way to the funeral home. My kid will never know her. But hey, whatever makes you feel better.
posted by emjaybee at 1:04 PM on April 29, 2012 [9 favorites]


The failure of the financial system would have been disastrous not just for "Wall St. fat cats" but for ordinary "main street" Americans.

I'm with Nixerman, I don't believe that the world would have collapsed as the fear would indicate. The people on control of the media and the rest of the archetypes of power had a lot to lose -- and that includes some people on main street, the local Murdochs and small-shop Dimonds. But as for the rest? I don't see how a collapse of a small number of global entities would destroy local economies. It would have changed local economies but there's no evidence as to the vector of that change. It could be better, it could be worse.

If you think about wealth and capital, wall street makes its money gate keeping and allocating capital. Thus when you see the rewards they exact, it must be asked if those rewards are valid, given the activity. If this institutions disappeared, that is capital freed back to local communities -- less of a tax extracted.

Reading the comments above, about people, about their families, and their hardships... How can you think too big to fail is true? Too big to exist is more like it, when you look at the social costs being exacted.
posted by nickrussell at 1:24 PM on April 29, 2012


Charles Koch to Friedrich Hayek: Use Social Security!
posted by homunculus at 1:34 PM on April 29, 2012 [1 favorite]


nixerman: The problem is that people confuse paper and wealth. Paper is not wealth.
I agree with you, but one of the brilliant tricks in moving just about everyone to retirement schemes based on personal investment decisions is that just about everyone now has a huge stake in that paper. Nocera's tale of woe is a case in point.

I also agree that letting the banks drown would have been preferable to what's happened, I just think it would have been much more complicated than you're suggesting, because people like Nocera wouldn't deserve to be part of the collateral damage.
posted by Coventry at 1:59 PM on April 29, 2012 [3 favorites]


This guy tried and failed to be a capitalist. I can't totally fault him. America's big new lie is that we are capitalist. I'm not. I'm labor. I work for my money. People who sit on piles of money and invest some of it sufficiently so as to live solely on the proceeds of the capital they own are capitalists. The American dream is not to be a capitalist. It is not even about wealth. It is about doing what you want in life and if what you do has value to society, you will be making a decent enough living to do better than your parents did, to be free from worry about crushing debt and religious persecution from repressed assholes, and to raise the next generation in a better America than we inherited. Not looking good there for the current generation :/
posted by lordaych at 3:08 PM on April 29, 2012 [10 favorites]


I gotta find a way to rephrase that so that it reads like Conan's response to the question "what is best in life?" I left out retirement...I think it is obvious that after working your ass off your society should allow you to stop, allowing the next generation to get cracking. And by allowing you to stop I mean providing sufficient benefits to keep seniors from eating cat food and splitting their blood pressure pills.
posted by lordaych at 3:12 PM on April 29, 2012 [2 favorites]


You haven't been following the muni bond market in the US, have you?
posted by enn at 9:19 AM on April 29


Hey, I would love if you could elaborate on what you mean here. I have been invested in muni bonds that are tax-exempt federally and in my state for the last couple years, and they have appreciated about 5% in terms of price and are kicking out 2% in annual yield (that's the SEC-approved figure, more like 3.5% if you just look at the trailing 12, practically speaking). Granted that's only on par with inflation at the moment but it's a helluva lot better than savings account yields lately and plus it's tax-free.

So what are you talking about? Genuinely curious.
posted by Joey Buttafoucault at 3:17 PM on April 29, 2012


it seems like his investment-side problems would have been solved if he would have been investing in a "target" retirement account.
posted by cupcake1337 at 3:31 PM on April 29, 2012


I'm late to the party, but it bothers me when people (boomers mostly) use the "its my money, I paid into the system" line. There may be some accounting demarcation between funds, but its still just revenue. Meanwhile, while all these people were paying into SS, they also ran up what - $15trillion in debt? fuck that. Minus the debt they ran up we would have no problem keeping SS intact, but with it the task will be incredibly difficult. Poor investment decisions may hurt your retirement, poor government fiscal decisions affect everyones. And yes, I think its reasonable to hold a generation accountable for decades of electing politicians willing to drive us off a cliff.
posted by H. Roark at 4:44 PM on April 29, 2012


Weird that private citizens cannot tell their creditors "well, I misfigured how well this plan was going to work, given changes in the economy, so I am just going to reduce my payments...."

To be fair, this sounds to me quite a bit like what Chapter 13 bankruptcy does.
posted by dixiecupdrinking at 4:55 PM on April 29, 2012


The number one concern of everybody at this point should be putting people back into productive jobs

Oh and its so easy to get "productive jobs" for everyone when all sources of credit have disappeared.

Jesus people, this isn't some wacky hypothesis--we've seen credit crunches and their horribly debilitating effect on economies before.
posted by yoink at 5:55 PM on April 29, 2012 [1 favorite]


valkyryn: "The way it is, expectations seem to be that one works as long as one would have a century ago, but lives 50% longer, while consuming a massive amount of health care that wasn't available back then. That ain't gonna work."

I realize you work a white collar job so this is foreign to you, but there are a lot of people whose bodies are spent by 50, much less 65.
posted by wierdo at 6:33 PM on April 29, 2012 [5 favorites]


I realize you work a white collar job so this is foreign to you, but there are a lot of people whose bodies are spent by 50, much less 65.

How about 74?
posted by T.D. Strange at 8:01 PM on April 29, 2012


but in the end, we all seem to somehow get by.

This is some seriously lazy bullshit. If you mean humans as a species, yes, the germline continues to this very day, and likely will for a long while. If you mean individual people, no, of course not, how stupid do you want to sound?
posted by adamdschneider at 8:10 PM on April 29, 2012


T.D. Strange: "I realize you work a white collar job so this is foreign to you, but there are a lot of people whose bodies are spent by 50, much less 65.

How about 74?
"

Yeah, that's about as misleading as any other Republican talking point. If you're rich and white, yes, you live a lot longer than you used to. If you're not white or you're poor, well, fuck you. We're going to index that shit to the rich whites because they're more deserving or something.
posted by wierdo at 8:31 PM on April 29, 2012 [1 favorite]


And yes, I think its reasonable to hold a generation accountable for decades of electing politicians willing to drive us off a cliff.

Thank you, young H. (Howard? Hubris?) Roark, for accepting as your own the sins of your entire generation. You did mean to do that, yes?
posted by bricoleur at 10:07 PM on April 29, 2012 [1 favorite]


A century ago, if you were age 30 and living in the western would, you would expect to die at around age 65 (not whole-of-life expectancy, but remaining-life-expectancy-at-30. If you were born in 1910, you would have expected to die around age 50).

Nope. All these statistics are borked due to abnormal fatality rates due to the World Wars. If you exclude accidental deaths, it pretty much doesn't matter how far you go back - if you make it to 20, you can expect to make it to 80. There are some exceptions during particularly disease/famine-ridden patches of history, eg. Northern Europe, hence why early explorers marveled at the health of North American natives. The massive gains in life expectancy observed in the latter half of the 20th century are almost entirely due to reductions in infant mortality. The idea that people fell over dead at the end of their working life is bunk.

I've actually seen statistics showing life expectancy in lower quintiles has dropped significantly in America in the last 40 years, but I don't have those on hand right now. Here's digby on the same topic... once of many posts she has written attempting to explode the life expectancy myth:

In 1940, men who survived to age 65 had a remaining life expectancy of 12.7 years. Today, a 65 year old man can expect to live not quite three years longer than he might have in 1940, or 15.3 years beyond reaching age 65.

The suggestion that gains in economic productivity realized in the last 70 years can't make up the difference in SS support required by life expectancy gains is simply not supported by reality.
posted by mek at 10:14 PM on April 29, 2012 [4 favorites]


I have no 401K & I'm near 50, so I'll never be able to retire.
posted by mike3k at 10:23 PM on April 29, 2012 [1 favorite]


The real knife in the side of the pension system was the 401K. That was always going to be a disaster for workers and contributors. The one's who benefitted from the 401K provision primarily was the industry. Finance gets access to loads of cash previously earmarked for boring safe investments. Suddenly, pension funds, which should be VERY BORING (tax-free muni bonds) become very exciting, investing in things like private equity, distressed debt, etc. The pension fund managers aren't bothered. They're closest to the hunt, so they certainly get meat. When the system collapses, and all those fund mangers go bankrupt, they've sectioned their assets off, and it's the 401K contributors that take the loss.

This isn't true. Pensions and 401(k)s are vastly different. Pension funds have a fund manager whose job it is to deal with a huge pile of money. Your 401(k) is your account. You can do with it what you wish, tax free, until you start withdrawing.

You can pick the default allocations for your target retirement date, you can hold it all in cash (don't do this), you can pick your own set of index funds or ETFs (probably wise), hell you can even speculate and day-trade with your 401(k) if you want (don't do this.) The point is, a pension fund is everyone's money in one place, managed by a fund manager. A 401(k) is your money, in a special kind of brokerage account, managed by you.

Not everything is a conspiracy. The 401(k) is an amazing vehicle for savings and investment if you know how to use it. Most people don't know how to use it. If you don't have a 401(k), I'm sorry, this information won't help you. If you do have one, and you don't know what to do with it, I offer some advice. If you're still somewhat young-ish, it's not too late to turn your situation around.

First off, if you have access to a 401(k) and can afford to contribute 100%, you should do so. If you can't afford 100% ($17,000 per year as of 2012) figure out how much you'd be comfortable putting in, and add 10% (you'll feel uncomfortable, but you'll be doing right by your future self.) Your tax liability today will be eased and you defer those tax payments as you withdraw on the account after you retire.

Secondly, if your employer matches your contributions in any way (50% is a common amount for biggish companies) you should absolutely contribute 100%. With a 50% match, you are getting a return on your money that Wall Street managers would kill their mothers for. It's free money, and lots of it. I cannot stress this enough. If your employer has a 401(k) match, contribute AS MUCH AS YOU CAN to maximize their contribution. A 50% match at today's rate for a 35 year old translates into a quarter of a MILLION dollars. And that's just their contribution, before interest.

If you understand finance, this won't be a surprise. If you don't, I am about to blow your dome. If your various employers, over 30 years, contribute 50% of a 100% max contribution, they contribute a total of about 250k. But invested in simple, low-cost, index funds. When you retire, their contribution alone is worth over $860,000 (7% year over year). That's why Albert Einstein called compounded interest the most powerful force in the universe. That $860k... that's not even the portion of your 401(k) that YOU put in. That's just the icing that your employer added.

Finally, know what to put your money into. Read Millionaire Teacher, A Random Walk Down Wall Street, and The Bogleheads Guide to Investing. Avoid funds with money managers. Stick with simple index funds. Figure out how your diversification should be spread (the books will help you with that.) Find the lowest cost funds you can find (Usually Schwab or Vanguard.) Fund managers and fees destroy your earnings and add NO VALUE. Pick a dumb, headless, no load index fund set from Schwab or Vanguard and never look at your portfolio again. Just contribute proper amounts to keep them balanced. Rebalance no more frequently than once a quarter.

Avoid the mistakes the author made. If you're nearing retirement and the only way to remodel your kitchen is to dip into your 401(k), you should make the choice NOT to remodel your kitchen. This is the money you need when you have no other income. Treat it sacred.

Again, sorry if you don't have a 401(k), wish I could help. My only advice is to save. The reality is, much of the middle class wastes its money on stupid things like SUVs and kitchen remodels that it can't afford. I'm solidly middle-class, and I drive an old beat-up van that's paid for, I don't plan to remodel my kitchen, and I'm on track to retire comfortably.

It can be done, provided you have a foothold in middle-classdom. If you don't, we need a better set of answers for you, currently we don't have them, but you deserve them.
posted by braksandwich at 10:44 PM on April 29, 2012 [24 favorites]


If the banks had been wiped out it would've meant the destruction of a lot of paper but of very little real wealth.

You don't understand "on paper" wealth. Investments in the stock market, considered "unrealized gains" is not "paper wealth." It's unsold wealth. This is different from pre-IPO "on paper" wealth. Unrealized gains are real wealth. If you bought Apple stock last year at 300, it's now worth over 600. Just because you haven't sold it yet doesn't make it not real wealth. It's liquid.

Liquidity is the difference. For the next week or so, Mark Zuckerberg has billions of dollars in "on paper" wealth. Once the IPO is done, its real wealth, even though it's not stored in cash.

The reality these days is that most wealth is electronic. I wish pre-IPO wealth was called "theoretical wealth" because its easy to confuse "paper wealth" with an investment statement. That's not what it means. The difference is liquidity. If I can sell X today, it's real, liquid wealth. If I have to wait for some set of circumstances involving banks, SEC filings and an underwriter, that's paper wealth.

Huge difference.
posted by braksandwich at 11:38 PM on April 29, 2012 [2 favorites]


If you exclude accidental deaths, it pretty much doesn't matter how far you go back - if you make it to 20, you can expect to make it to 80.

This is mostly true, but is not crucial to answer "why retirement wasn't common/a social norm/whatever a century ago". What is crucial to answer that is the portion of population which makes it to age 65. That portion has been steadily increasing since the mid 1800s, from around 2 per cent then to around 13 per cent now. As a larger portion of society is over age 65, a retirement system provided by the state becomes increasingly necessary and increasingly a reality.
posted by kithrater at 11:57 PM on April 29, 2012


If you exclude accidental deaths, it pretty much doesn't matter how far you go back - if you make it to 20, you can expect to make it to 80.

I don't know if you're including childbirth and war in the accidental death category or not, but for women it's if you get past child bearing years. For men in societies where there is a citizen army, it would be after whatever age you stop having to serve in that army, surely?

This isn't true. Pensions and 401(k)s are vastly different. Pension funds have a fund manager whose job it is to deal with a huge pile of money. Your 401(k) is your account. You can do with it what you wish, tax free, until you start withdrawing.

That sounds delightful until you realise that a) the onus is now suddenly switched on to the contributor to take all the risk, b) apart from the odd seminar offered to people we get bugger all training on how to manage such things, and c) you are being guaranteed nothing at all unlike a pension.
posted by lesbiassparrow at 3:42 AM on April 30, 2012 [1 favorite]


Missed correct title: Financial Journalist Unable To Invest Well; Makes Money For Years Giving Bad Advice.
posted by jaduncan at 4:03 AM on April 30, 2012 [2 favorites]


Someone just told me that living outside the US for 5 years could disqualify me for Social Security benefits - I told them that I never expected to get them anyway.

Um, no
posted by Gringos Without Borders at 5:03 AM on April 30, 2012


The more I think about this column, the less sympathetic I get toward Nocera. Is his point that investing one's retirement in speculative stocks at the height of a bubble and then spending the rest on a kitchen shouldn't impact one's ability to retire? He got greedy, gambled, and lost.

The real lesson here is: If you ever find yourself thinking that prices will continue to go up forever, you need to realize you are wrong, and you should not make your future financial well-being contingent on it being true.

If you ever find yourself thinking that a $200 stock is definitely going to be worth $500 next year, consider that there are two possible reasons it isn't worth $500 today, minus some time-value discount. Either you have better information than the market (doubtful, most of the time) or there is a significant risk it will not actually be worth $500 next year. Is that a risk that you should be investing in?

The main point worth taking from the article, and I see the same tendency from my parents to think this way, is that there is no natural force driving stock prices up and up forever. The reason you get a return on your money invested in the stock market is because you're taking a risk with it. You can't beat the system.
posted by dixiecupdrinking at 7:27 AM on April 30, 2012


Hold on a minute -- New York Time business journalist?! So then, after a career in which he's had an opportunity to observe various bubbles, panics, earlier collapses of 401(k)-based retirement funds, stagnant wages for most amidst ever-climbing productivity and the constant redistribution of wealth upward to the 1%, Nocera is only now figuring out that the game is rigged, and not in his favor?

Either he's been complicit all along and is only squawking now he discovers that he's a sucker too, or he's somehow managed to miss the big picture despite an allegedly prestigious journalistic post. Either way, it's hard to shake the sense that while most Americans don't deserve the raw deal that the modern economy presents, Noceral, arguably, does.
posted by Gelatin at 7:41 AM on April 30, 2012


Gelatin, I think the bigger frustration here is that the game really isn't rigged for someone in Nocera's position (who, I think it's safe to say, has had a comfortably upper-middle class career for a long time). If he had invested conservatively instead of gambling with his money, he'd be set to retire. Of course hindsight is 20/20 and I have some compassion for the fact that conventional (herd) wisdom was wrong about the tech bubble stuff, but, still. This isn't a guy who is getting laid off from some Detroit factory with his pension gone.
posted by dixiecupdrinking at 7:48 AM on April 30, 2012 [1 favorite]


What is crucial to answer that is the portion of population which makes it to age 65. That portion has been steadily increasing since the mid 1800s, from around 2 per cent then to around 13 per cent now. As a larger portion of society is over age 65, a retirement system provided by the state becomes increasingly necessary and increasingly a reality.
posted by kithrater 8 hours ago [+]


That is a very good point. What we really are looking at now is not a new concept (retirement), but a new proportion of people in retirement.

But it's not just survival, but also the relative size of each generation -- the reason that we are talking about retirement now is that we have the baby boom moving into retirement age. More people were born in the 50s and 60s than in the immediate generation after.

Do you know the numbers on what percentage of the population will be 65 in 2025?
posted by jb at 8:44 AM on April 30, 2012


(actually - i don't know if it was more people born - just that the birthrate/x numb of people was higher)
posted by jb at 8:45 AM on April 30, 2012


The fundamental idea behind a 401(k) is that an individual can make better decisions with his or her money than some anonymous pension fund manager who has nothing to gain or lose from the investments. There have certainly been enough high profile pension fund failures, systematic underfunding of pensions, and cases of outright theft to make that argument plausible.

But if someone whose job is to tell people how to manage their money can do it this poorly, you have to despair for the entire system.
posted by miyabo at 9:10 AM on April 30, 2012 [2 favorites]


you can pick your own set of index funds or ETFs (probably wise)

Most companies offer only a dozen options or so, all of which are far higher cost than you could get on your own. I think there is some merit to the idea that Wall Street supports 401(k)s because they make more from them than individual savings.
posted by miyabo at 10:09 AM on April 30, 2012 [1 favorite]


We have records of retirement plans from the 14th century. These were private retirement plans - someone giving over a farm to a child in exchange for support in their old age, for example - but it definitely was a kind of retirement.

Some people would will their property to monasteries, and in return the monks would care for them in their old age.
posted by atrazine at 11:25 AM on April 30, 2012 [2 favorites]


dixiecupdrinking: "The more I think about this column, the less sympathetic I get toward Nocera. Is his point that investing one's retirement in speculative stocks at the height of a bubble and then spending the rest on a kitchen shouldn't impact one's ability to retire? He got greedy, gambled, and lost. "

The point is that he shouldn't have been in a position to gamble with his retirement fund in the first place. He shouldn't be able to borrow from it for lifestyle purchases like a new kitchen and he shouldn't be able to put it all in high-risk stocks. It's only from this thread that I've realised these retirement funds are self-managed and voluntary which, for the majority of people, is one of the dumbest ideas I've ever heard. People, by and large, can't be trusted to look after their own future in this way and nobody should be surprised when they fail to do so.
posted by dg at 2:38 PM on April 30, 2012 [3 favorites]


The point is that he shouldn't have been in a position to gamble with his retirement fund in the first place. He shouldn't be able to borrow from it for lifestyle purchases like a new kitchen and he shouldn't be able to put it all in high-risk stocks.

Well, perhaps, but there are two opposing things going on in this thread. One is people saying, "Why are people's retirement funds at the mercy of managers who can lose it all through bad investments without suffering any consequences themselves?" That isn't 401(k)'s, that is pension funds. The other is your point, that people shouldn't be allowed to make these decisions themselves. Obviously there is a third way here, but you can see the tension and you can see why, particularly given American political tendencies, 401(k)'s seemed like, and to many people still seem like, a good compromise situation.
posted by dixiecupdrinking at 2:57 PM on April 30, 2012


The guy is not going to be out on the street, by the way. There is still a social safety net for the elderly in the form of Social Security and Medicare. Obviously this is insufficient to sustain an upper-middle class lifestyle, but, many people live on less throughout their working lives, let alone in retirement. Should there be more money for him? I don't know, it'd be nice, but honestly I'd prefer that if we were going to enrich the welfare state it goes to the working poor, not to providing this guy a foolproof pension plan.
posted by dixiecupdrinking at 2:59 PM on April 30, 2012 [1 favorite]


That sounds delightful until you realise that a) the onus is now suddenly switched on to the contributor to take all the risk, b) apart from the odd seminar offered to people we get bugger all training on how to manage such things, and c) you are being guaranteed nothing at all unlike a pension.

So, for point A, you are exposed to risk by merely participating as an actor in the economy. By not investing your money, you are guaranteeing that it will be worth less and less every year by means of inflation. There are other risks as well, including the risk that your pension fund will invest in risky instruments and go bankrupt.

B- read the books I mentioned, do not attend seminars. People who run seminars do not want you to be wealthy, they want you to either pay for the seminar or take fees from you when you buy their managed funds.

C- I have an interesting story on this one. I know a retired fire chief who is drawing a pension at 90k a year. Let's say he lives to be 85. That's $1.8MM. Now, If he had had a 401(k) for the past 40 years instead, and contributed the maximum, he'd have $3.77MM coming to him. If he had a 50% match on that, he'd have $5.66MM. (I'm ballparking a 7% year-over-year.) Clearly, he'd have been better off with a 401(k), by a lot, with or without an employer match

I know a lot of people who think of investments as "gambling" and I've heard people refer to the stock market as a "giant, unregulated casino." I've used those words in the past myself, they are colorful. It is also a terrible comparison.

In a casino, when you lose at the roulette wheel, you lose everything. When you lose in the stock market, you lose a little bit. If you're smart and just hold index funds (and you're smart, so that's what you do) on a bad day, you'll go down with the market. Maybe 1%. But since you're patient and in it for the long return, this doesn't worry you. After all, it'll go back up next week. And it does, because it always does.

I wish I had cash on hand in 2008 when the economy went to hell, because I would have gone on a spending spree that would have made Paris Hilton blush. I would have emptied my bank account getting bargain basement prices on very good funds.
posted by braksandwich at 3:08 PM on April 30, 2012


Man, I'd like to know where will match your contributions to the tune of $8,500.
posted by adamdschneider at 3:17 PM on April 30, 2012 [1 favorite]


braksandwich: "Avoid the mistakes the author made. If you're nearing retirement and the only way to remodel your kitchen is to dip into your 401(k), you should make the choice NOT to remodel your kitchen. This is the money you need when you have no other income. Treat it sacred."

First off, you're insane if you think that 7% is a realistic return for most people. Secondly, if you had actually read the article, no really read the article, you would have noticed that the reason Nocera gives for it being a rational thing to do to remodel the kitchen with the 401k money is that there was far too little to make any appreciable dent in his retirement. Better to put it into a kitchen which he'll probably see some appreciation on, given where he lives.

If you'd like to know what you can realistically expect out of a 401k, it's not much. Over the past 3 years, my SO's 401k has basically been flat. Her employer's contributions have been paying for the losses on the stocks and bond funds that make up about half her portfolio. The remainder is in Treasuries, which are not losing value, but are also not making up for the losses elsewhere. Almost all the increase in value over that period is her contributions. I will say this, though: It's a good thing she took a loan when she did. That saved thousands upon thousands of dollars from becoming tens upon tens. Even after the "penalty" of repaying the loan with after tax funds she's far, far ahead.

Right now, her rate of return is about 3.5% over the last year. The first four months of this year have gone well, but expecting the same 13% appreciation over the rest of the year is just insane.

As far as investment direction goes, the conventional wisdom is to put the vast majority of your 401k into equities when you're young and gradually move toward bonds and "fixed" value assets as you age. The idea being that you can afford the risk when you're young. Tell that to the person that's been contributing 5% of a generous salary and getting a 50% employer match on it and still only has $30k in their 401k after 10 years.

Somehow we seem to have forgotten about the majority of people who don't have 401ks or defined benefit pensions other than Social Security. I guess they can just go get bent?
posted by wierdo at 3:30 PM on April 30, 2012 [2 favorites]


Somehow we seem to have forgotten about the majority of people who don't have 401ks or defined benefit pensions other than Social Security. I guess they can just go get bent?

That's a pretty wild characterization of what I'm saying. I explicitly stated in my first comment:

It can be done, provided you have a foothold in middle-classdom. If you don't, we need a better set of answers for you, currently we don't have them, but you deserve them.

And yeah, I did read the article, and just because he was able to rationalize a way to withdraw early from his 401(k) to remodel his kitchen doesn't mean he made a wise choice.

Finally, the past 3 years of this economy have been extraordinary (in a bad way.) Just because you had record low temperatures and a snowstorm in your city this year does not mean that global warming has stopped. Likewise, a short-term, drastic correction in the markets has little bearing on the long term prospect that economic growth in US companies will continue forward.
posted by braksandwich at 4:05 PM on April 30, 2012


dixiecupdrinking: "
...but there are two opposing things going on in this thread. One is people saying, "Why are people's retirement funds at the mercy of managers who can lose it all through bad investments without suffering any consequences themselves?" That isn't 401(k)'s, that is pension funds. The other is your point, that people shouldn't be allowed to make these decisions themselves. Obviously there is a third way here, but you can see the tension and you can see why, particularly given American political tendencies, 401(k)'s seemed like, and to many people still seem like, a good compromise situation.
"

Yeah, based on the little that I know about American political tendencies, this is probably a better compromise than the one you have reached on health care, I guess and maybe has had very similar influences historically? The concept that each individual is in charge of their own future, regardless of whether they are capable of doing so, seems to hold a lot of sway in the US collective psyche.
posted by dg at 4:11 PM on April 30, 2012


c) you are being guaranteed nothing at all unlike a pension.

Oh, but you are forgetting. 401ks became possible in 1978. Before then, people would accept lower take-home pay to make sure that they had a good pension. They were shown lots of paperwork that told them that, after working X number of years, they could depend on retiring with $x/month and not worry.

At the beginning of 401ks, a lot of people worried that this was a bad thing for the individual. Sure, it gave them more options, but it could go wrong, they could make bad decisions, and so on. And then the 1980s brought us corporate raiders. Who sold out the pensions, along with all the assets of a corporation. After decades of trusting (and paying into, by taking less money) pension plans, these people were left with nothing.

And that's why 401ks look pretty good.
posted by Houstonian at 5:20 PM on April 30, 2012 [2 favorites]


braksandwich: "Finally, the past 3 years of this economy have been extraordinary (in a bad way.) Just because you had record low temperatures and a snowstorm in your city this year does not mean that global warming has stopped. Likewise, a short-term, drastic correction in the markets has little bearing on the long term prospect that economic growth in US companies will continue forward."

There's not much reason to believe we're going to go back to a time of reasonably expecting a 7% return on an index fund any time soon. Maybe in a decade. Maybe not. As long as the conditions that brought us the financial crisis continue unresolved, there will be no real recovery and there will continue to be significant downside risk and little upside potential.

If you can time the market, you can do really well in this environment. If not, well, sucks to be you.
posted by wierdo at 5:55 PM on April 30, 2012


There's not much reason to believe we're going to go back to a time of reasonably expecting a 7% return on an index fund any time soon. Maybe in a decade. Maybe not. As long as the conditions that brought us the financial crisis continue unresolved, there will be no real recovery and there will continue to be significant downside risk and little upside potential.

I disagree, but I concede that it's tough to know for sure. I advise against timing the market, however. No one is good at it. I actually like the slow growth we're having at the time being. It shows people are being cautious, trying to avoid a new bubble, or at least one in equities.

At any rate, it is impossible to stop the slow juggernaut of inflation. Investments are the best vehicles I know to combat them. Until we reach a crisis of double digit interest rates like in the 80s (in which case I'd throw all my money in simple, guaranteed CDs and earn an astonishing return with no risk) I intend to keep investing in index funds, knowing that at a bare minimum I will at least beat inflation.
posted by braksandwich at 7:58 PM on April 30, 2012 [1 favorite]


Investments are based on the assumption that there will be (exponential) growth in the future.

There are tons of indications that this will not be the case:
- limited resources (peak oil etc.)
- deteriorating environment (depleted oceans, no more rain forest etc.)
- an aging population, meaning not only fewer workers have to support more retirees, but also less consumption and at the same time old people trying to cash in on their investments, driving the price of the same down

All of the above compound each other and are becoming visible right now (they were noticed, but not nearly as visible to the naked eye 20 or 30 years ago), meaning that the basic assumption of perpetual growth might be wrong. This may lead to deteriorating trust in the economy, and I believe we are seeing the first signs of this with the debt crisis around the world. Forget Spain and Italy. The first hedge funds are betting against Germany. It's only a matter of time before it's the turn of Japan and the US, starting another downward spiral. We have not nearly reached the bottom yet.

So in short, if your retirement strategy is based on the (questionable) assumption of perpetual growth, then you might be in for a surprise.
In fact, it looks like having (two, three, four) kids might be one of the better strategies. If you do, treat them with respect and get them the best possible education. It will eventually pay off.
posted by sour cream at 9:54 PM on April 30, 2012 [2 favorites]


Now, If he had had a 401(k) for the past 40 years instead, and contributed the maximum, he'd have $3.77MM coming to him. If he had a 50% match on that, he'd have $5.66MM. (I'm ballparking a 7% year-over-year.) Clearly, he'd have been better off with a 401(k), by a lot, with or without an employer match.

Nonsense. His 401k would have started with contributions in line with his pay when he started his career. This would be far smaller than they are at the end where you are computing from.

And a 7% ROI ? Year over year ? Magic. That's the only explanation.

Without this mathematical sleight of hand, his theoretical 401k is junk.
posted by Pogo_Fuzzybutt at 10:45 PM on April 30, 2012 [1 favorite]


braksandwich: "I intend to keep investing in index funds, knowing that at a bare minimum I will at least beat inflation."

Yes, my SO's index funds have not been doing so well. She doesn't get much choice due to regulatory and independence issues. Stock indexes, bond indexes, and treasuries. Lots of choice. Little appreciation.

And yes, (broad) inflation can be staved off indefinitely. All we have to do is continue with output being less than capacity. Obviously there's no stopping the inflation in energy costs so long as we refuse to build enough renewables and rein in speculation, but elsewhere there isn't really enough demand to bring about any real inflation. Maybe that will change, but not with declared austerity in most of Europe and effective austerity here at home driving down demand.

P.S. Any time you invest you are implicitly timing the market. Whether you leave it to chance or not timing is everything.
posted by wierdo at 12:00 AM on May 1, 2012


braksandwich, can you (or anyone else) provide a good reason why, fundamentally, we should expect the market to continue to go up, always, over the long run? I just don't see it other than "it always has."
posted by dixiecupdrinking at 5:05 AM on May 1, 2012


If you can time the market, you can do really well in this environment. If not, well, sucks to be you.

EXACTLY! People cannot always time their lives to be optimmal!

Think of those who can't retire at the "right" time, due to factors out of their control -- such as their date of birth, an accident that makes them unable to work, or a global economic collapse. And there are other situations where bad timing results in "sucks to be you," like those kids who graduate during a recession and whose incomes never recover.

If it Sucks To Be Me and I could not have done anything about it, what am I to do?

Note that I have so far been lucky in terms of timing, and am damn grateful for it. But I still find this question of keen interest.
posted by wenestvedt at 6:15 AM on May 1, 2012


I have an interesting story on this one. I know a retired fire chief who is drawing a pension at 90k a year. Let's say he lives to be 85. That's $1.8MM. Now, If he had had a 401(k) for the past 40 years instead, and contributed the maximum, he'd have $3.77MM coming to him. If he had a 50% match on that, he'd have $5.66MM. (I'm ballparking a 7% year-over-year.) Clearly, he'd have been better off with a 401(k), by a lot, with or without an employer match

Or, you know, that 401(k) could have lost a lot of value and he'd have been screwed. It's a little ironic, given that this article is about a man whose job it is to do financial reporting and know about markets and who still made enormous whopping mistakes including investment mistakes, that anyone thinks reading three (or more books) is going to make people into financial whizzes capable of managing their own destinies.

I don't want to a millionaire teacher. I don't want to have a huge retirement income (why would anyone sit around thinking a 90k pension is a bad deal?). I pretty much just don't want to be stuck selling apples by the side of the street or working until I die. And I don't want to live in a world where I am doing amazingly well due to a few strokes of luck, but other people are living off cat food.
posted by lesbiassparrow at 7:32 AM on May 1, 2012 [1 favorite]


(That came out a little grumpy. It wasn't meant to; I know the advice is meant well, it just seems to presuppose a lot of things going upwards, when I've seen enough sure things go downwards.)
posted by lesbiassparrow at 7:33 AM on May 1, 2012


kithrater upthread outlines aussie pensions, which have to be close to world's best practice, at least in terms of delivering both life with dignity and potential for a lucrative retirement.
What they failed to mention is Australia has an equivalent of the 401k scheme, but instead of being and option it is a compulsory requirement to save 9% of every employees wage, and that cannot be cashed out before retirement (well, unless you are just about dying).
This can then be invested in a range of investments, typically in various index funds, but if you want to make the effort, you could invest in stamps or art or model T Fords.
The sweet spot is when you have around $25k a year in private earnings from investment, plus a chunk of the earlier mentioned pension (which can be paid to all, but on a diminishing scale, so if you earn over $50k or so you no longer qualify).
In this sweet spot you also qualify for enhance government medical support, like cheap pharmaceuticals, and you pay no income tax.
Americans might be wondering how we Aussies can afford such a generous system?
It's probably a three prong approach - 1) we tax everyone for medical stuff. So even when you are 24 and costing close to nil in medical costs your tax dollars (about 8%) go toward medicare - the crucial difference being we are ok with that because the little health care younger people need comes free too.
2) We only pay age pensions/government social security to more needy people. Even if you paid a million dollars in taxes for decades, you get no old age pension unless you have fairly modest earnings (from labour and investments) in retirement.
3) We fucked over the young, by raising eligibility age from 65 to 67 for people born after the 1950s a couple of years ago. This makes a huge difference to the funding bill yet got very little political venom because it was so far in the future for those it affected.
PS - i realise I am just talking in the wind here because america has such a strong 'not invented here' culture that you could never adopt any of these ideas - but they really could solve 99% of the problems in this thread almost painlessly.
posted by bystander at 7:41 AM on May 1, 2012 [1 favorite]


and I think what lesbiassparrow was driving at is, show me a way to invest to secure a retirement income and I will be happy. To date, most investment vehicles aimed at retirees have failed in the long term(when they are needed) due to sovereign risk issues or market timing problems. To be clear I understand there has been a generation who largely got what was promised, but few before them, and by the look of it, few after them.
My own retirement planning is based around the assumption that private property will probably still be legal, and real assets will retain some value. This is very far away from the mainstream investment advice that growth is infinitely on the agenda, the government will continue it's largesse indefinitely and the stock market will return 7% on average.
I have a stake in the mainstream, in terms of a potential pension if everything comes up rosy, and a likely a house paid off, but it is probably wise to consider how additional retirement savings are squirreled away.
I could double down (triple down?) and invest heavily in high volatility equities. This is a magnified bet on everything going well indefinitely, and would return me a princely sum in retirement, or leave me with no extra if growth is stalled/negative in the longer term.
Or I could invest in middle of the road assets (some bonds, some equities, some property) with an eye to supplementing my base pension with modest growth. As we have seen since 2009, it is hard to maintain capital even in 'safe' investments when things get ugly.
Or I could invest in property/utilities/metals and stuff that may go up with inflation or perhaps a bit above/below but is less likely to go severely negative (i.e >50% decline). To me, this makes more sense for an investment that you hope to rely on.
My current aim is to take the safest path, with a small risk supplement where I invest up to 2 years returns of my core portfolio in high risk/return/speculative investments, that I research the hell out of, and that total one such investment every year or two.
The goal is to boost the total yield by a percent or two through some well measured, shorter term risk exposure, while maintaining 100% of capital, and sitting out if I can't find a suitable candidate for investment.
posted by bystander at 8:08 AM on May 1, 2012 [1 favorite]


You guys should really look at moneychimp.com. You'll see why it's impossible to time the market (even missing a couple of "good days" could destroy your returns), and why you won't see 7% returns over inflation over the long term (average is more like 5%). The site is run by finance geeks and isn't trying to sell anything; it's about four trillion times better than the idiotic drivel from Jim Cramer and the Motley Fool.
posted by miyabo at 9:30 AM on May 1, 2012


And a 7% ROI ? Year over year ? Magic. That's the only explanation.

Without this mathematical sleight of hand, his theoretical 401k is junk.


The average annual return of the S&P 500 over the last 30 years was 11.7%

http://en.wikipedia.org/wiki/Stock_market#United_States_S.26P_stock_market_returns

The longer you hold, the better off you are.

you won't see 7% returns over inflation over the long term (average is more like 5%).

I talk about inflation a lot in some of my previous posts. I should have specified that this return is simply your dollar amount return, not adjusted for inflation.
posted by braksandwich at 11:02 AM on May 1, 2012


The average annual return of the S&P 500 over the last 30 years was 11.7%

That number is almost meaningless. If (hypothetically) the index gained 100% one year and lost 50% the next, the "average return" over two years would be 75% -- even though you've made no money at all! And of course hucksters will use that kind of math to convince you to use whatever investment tool they're selling.

The number you are looking for is one column to the right. The compound annual growth rate (CAGR) -- the number that you can compare to the inflation rate or a bank interest rate -- is 6.2%.
posted by miyabo at 11:13 AM on May 1, 2012 [1 favorite]


the number that you can compare to the inflation rate or a bank interest rate -- is 6.2%

Good catch. Although I'm having trouble verifying this. Because according to this calculator on moneychimp (a site mentioned by another commenter somewhere up-thread), the 30-year CAGR is actually 10.46%, which is in line with other things I've read. My 7% wild assumption was intended to be moderately conservative, and if moneychimp is right, it is. *shrug*
posted by braksandwich at 11:29 AM on May 1, 2012


Or, you know, that 401(k) could have lost a lot of value

This has been my experience, based on (seemingly sound) choices advised by professionals. And my experience has been shared by many of my peers. But unlike some of them, I haven't obeyed the suggestions to max out my contributions, because I don't see much difference between investing in stocks and bonds and gambling at the casino.
posted by Rash at 1:43 PM on May 1, 2012


Rash: "This has been my experience, based on (seemingly sound) choices advised by professionals. And my experience has been shared by many of my peers. But unlike some of them, I haven't obeyed the suggestions to max out my contributions, because I don't see much difference between investing in stocks and bonds and gambling at the casino."

You should always take your employer's free money, if they give it. You can always dump it in treasuries and be mostly assured of at least not losing principal to anything other than inflation. The downside, of course, is the penalty for early withdrawal, although if your plan allows loans, that may not be as much of an issue.
posted by wierdo at 3:21 PM on May 1, 2012 [2 favorites]


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