- In effect, we have kicked two of the legs out of the three-legged retirement stool. Individual savings have stagnated along with wages, as more and more of workers’ paychecks cover little more than everyday needs. The pension has been substituted with a stock plan that was never intended to serve as an adequate replacement. The new 401(k)’s “were initially viewed as a supplement to traditional pensions,” Morrissey said. “It’s not surprising that they haven’t worked out, because they weren’t intended to serve that purpose.”
When I decided to start managing our own IRA, I was surprised that our financial manager didn't make any effort to dissuade me. He just nodded, and said "ok". We were being charged almost 2% of the principle annually to trail the indexes. On top of that, it's all a black box. I can't see what trades were made. The highest resolution I had was a pie chart that had slices like "emerging markets" and "global targeted returns fund". They are skimming. That's my bet. Old people are moving in with the kids again. At least that might present some social benefits for the grandkids.“The timing couldn’t have been worse for switching to a 401(k) system,” Morrissey said. But they are so lucrative to Wall Street fund managers, with much higher fees than pensions, that reverting back to pensions wholesale is an unlikely scenario.
I watched The Big Short last night. It wasn't very good. In addition to being really shitty storytelling, it also flat out incorrectly explained a lot of the brilliance of the book, which gives you a very clear understanding of the mortgage crisis and its makings. However, it did outline (in a crude and clumsy manner) that Wall Street is largely populated by business majors that have little understanding of algebra and above and that the overwhelming majority of the confusion related to money is due to obfuscation by an industry that substitutes opacity for acumen. It would not surprise me if financial managers, at least at the IRA level, abide by the "Nigerian prince" model of customer service - do deliberately dumb, sloppy shit so that the smart ones leave of their own accord before they can hassle you and drag down your efficiency.
That much is clear to me. I am sure that some rare managers have a clue, but unlike many scientific, technical, and trade disciplines, in the realm of gambling, it takes time to distinguish talent from imitation. If you load up on a bunch of financial terms of art, you can create a pretty good screen. If you do well for a time, you will likely even convince yourself of your acumen. My wife and I still laugh about a time that we listened to a FM pitch for about an hour until he said "1 million", and we both corrected him at the same time with: "No, you mean 100 thousand". I haven't read the book, but I found the movie entertaining. The celebrity explanations were terrible and unnecessary, however. Also, the narration and the talking to the camera. ...I guess my bar could be higher.Wall Street is largely populated by business majors that have little understanding of algebra and above and that the overwhelming majority of the confusion related to money is due to obfuscation by an industry that substitutes opacity for acumen.
Jared Dillian pointed out that the ones that are any good at it have no reason for you to know they exist. They play with their money, make more of it, and have little reason to involve you in the equation in any way shape or form. In fact, considering how much obfuscation is going on, your awareness of their presence and actions substantially hampers their success. The movie was entertaining, to a point. The book was orders of magnitude better.
This is really weird. My 401k is through fidelity, who gave me a bunch of different choices -- buy the tech index, buy the emerging markets index, etc, etc. I bought vanguard general. I know the exact composition of the thing, not that it matters, because it's the s&p. No one "manages" it. Course it's not going anywhere, but I don't really mind at the moment.
Check the fees. My wife had a 'managed' and 'unmanaged' 401k through Prudential and both of them were charging more than a percent. Lookin' at a friend's Fidelity 401k right now (he doesn't understand this shit so he gave it to me to tell him what to do). They talked him into a T Rowe Price mutual fund that charges 1%. One of the tricky things about funds is that yes - they tell you what's in there but not with a lot of specificity. "The S&P 500" - well, what does that mean? In a mutual fund, that means a synthetic blend of trades that model the S&P within whatever error bars they have buried underneath the fine print. With Vanguard it's probably very specific; right now, they're listing all their shit as of a week ago. With Fidelity? That's a quarterly prospectus. ETFs have, buried deep somewhere on the Internet, their daily .csv of holdings; I've found it for a couple of my etfs a couple times. Funds, managed or otherwise, will tell you that shit four times a year and in between, you really have no idea.
Vanguard doesn't really have fees. I think it comes out to $25 a year or something if you add the various fine print up, but you can get a chunk of that back if you sign up for paperless everything. It's been a while since I looked closely. The variable part is tiny. As far as composition, usually an index fund owns pretty much everything you've heard of. A "passive" plan doesn't change much. Vanguard's one of the best. I just bought most of a condo, so I'm certainly not banking on the stock market for my retirement. francopoli details elsewhere why that's nuts.
1) You're with Fidelity. The fact that you're paying little in fees for Vanguard funds is a function of Vanguard, not Fidelity. Again, check the fees Fidelity is making. 2) Index funds do not "own pretty much everything you've heard of." Index funds track indices and even two S&P funds from two different companies have different compositions and different fee structures. 3) Don't talk to me like I'm an idiot. 4) It's entirely possible that even paid in full, you don't own your condo. You own a legal share of a 99-year-lease. That's the mechanism by which many condominium associations enforce their rules.
I finally got around to reading this. I didn't know that the 401(k) was billed as a replacement to pensions. Who would be surprised that participation in retirement saving would go down if the responsibility for funding and management went from employer to employee? I opened a Roth IRA last summer with $300 in an S&P 500, large-cap, and medium cap indices. This was in June, and in two weeks there was a market correction and I found out I lost $50 like that, over 15% . I think it had something to do with China. And interest rates. I think about how I've tried to educate myself and how short I am of understanding, even in big-picture terms, what's going on. And I can't help but think, God we are boned. PS- reading Other People's Money by John Kay now. I hope to continue pushing back the ignorance
I'm way above average according to this article, but the idea of relying on 401(k)s for retirement has bothered me for a long time. klein - I believe you and I have discussed this, actually, in passing. I don't trust that 401(k)s basically rely on the market forever and always trending upwards thereby guaranteeing your initial investment will be reliably worth that much more over time. I do absolutely believe 401(k)s became popular because they are so less expensive to employers than pensions, and that possibly everyone has been sold on theories regarding market and investment as opposed to what will actually happen. I don't know. I have a 401(k) and I contribute what, apparently, is "far above average" - according to this article - so clearly I buy in on some level, but I guess when faced with "doing something that might be beneficial if/when I retire" vs. "not," well, it's no choice at al and I'm going to have to go with the first over nothing. I wish this article was longer and talked more about other potential flaws in 401(k)s besides just the simple fact that people aren't putting (enough) money into them. I think there are more flaws than that.
So the market will forever and always trend upward. If markets weren't inherently positive-sum, no one would participate in markets. The theory in market participation is sound, it's the practice that's whack. Because it's a complicated financial system that employees are sheep-dipped into with no prep whatsoever, it's very easy to lose a shit-ton of money because you don't know about the little gotchas. This is by design: the people who run the industry make their money on the gotchas. The idea that shit's gonna go down and oh holy fuck why put your trust in your retirement fund is facile. You've got two choices: hoard guns'n'gold under your mattress or trust in the system. Something that happened a surprising amount up here in WA foreclosure courts: Washington State gives the foreclosed the right to demand that the forecloser "produce the note." This means that for Bank of America to kick you out of your house, Bank of America has to find the paper mortgage with their name on it. Which should be easy, but when your mortgage has been sold eighteen times, tranched six, securitized eleven and dissolved in bankruptcy court, it's kinda tricky to lay hands on that fucker. So what would happen is a bank would take Joe Destitute to court, Joe Destitute would say "produce the note," the bank would fail, and the judge would say "Congratulations, Joe, you own the house free'n'clear." And if you're behind on your payments, what you got to lose? After all, the worst they can do is throw you out, which they're gonna do anyway. And that's what collapse looks like: if you're in it, you own it until someone with a bigger claim comes along. As fundamental collapse has never hit a modern nation outside of war, there will be large, highly-motivated organizations attempting to keep shit working. That's you, your retirement fund and your mortgage, cooking along through thick and thin, forever and ever amen. The primary flaw with a 401(k) is it may not be efficient. There may be better instruments for investment. From tax purposes they kind of rock hard.
Where "working" means "you're just desperate enough to play the game, but not so desperate pulling out the torches and pitchforks looks like a better option", which isn't quite the same asAs fundamental collapse has never hit a modern nation outside of war, there will be large, highly-motivated organizations attempting to keep shit working
That's you, your retirement fund and your mortgage, cooking along through thick and thin, forever and ever amen.
Practically speaking, it's the same. No, walk with me. We're all "just desperate enough to play the game." NONE of us feels as if the way things are right now is serving us the best, but it's serving us well enough that it's totally not worth the risk of tearing it all down. What was the quote? Democracy is the system where everyone loses equally? Nearlly all of us, were the sky to fall tomorrow, would defend that shit we intrinsically know to be our shit. We would fight for those things that we intrinsically know belong to us. We would further band together with those people we know, who are also fighting for their shit, against "those" who would take it from us. "Those" are the people that intrinsically know that the system has been cheating them, that band together with those people that are also working to right an injustice. To them, equalizers. To us, looters. And just like that, it's a civilization again. A shaky one, a rough one, but realistically speaking, you're taking up arms to defend your mortgage, not your house. You're fighting for the status quo. That's why the gears keep turning. Because while we all dream of better things, we don't want to hack our neighbors to death with a machete to get them. Neither do they. You need to start painting up things like nationalism and racism and ethnic cleansing and shit to get people to tear their neighbors apart in the name of justice and you'll see that shit coming. THAT is when you need to take a long hard look at what your mortgage is worth and whether you want to take the penalty on your IRA.
I think I might have been too terse. You've got it pretty good, but I bet you wouldn't be mixing reality tv if you didn't have obligations that require money. I've got it pretty good too, but I wouldn't piss on people who call other people "resources" if they were on fire if I didn't have a father nearing retirement with ridiculous medical bills and no savings because I used to have a mother with ridiculous medical bills. Like everyone says whenever anyone speculates about how things might be done better, "but who will be the garbage man?" "Keeping shit working" means when you have the Great Depression you get the New Deal, but it also means you roll it back when people get too comfortable, on pain of there be no one obliged to drive the garbage trucks.
Right there with you. Buy a space to live, somewhere to be in the event that your 401k collapses. Pay off the mortgage aggressively. Pray to god or hell that you have enough money for food, heat and property taxes until you die. Or ethereum works to I guess.
I told my parents that their generation was a fluke of demographics and that they are going to be the last ones as a generation to have a retirement. My generation is going to have to keep working to keep the lights on, and the idea of idle time at the end of one's life will be a dimming memory. Kids in their 20's are screwed over. Housing, health care, education all exploded in costs while incomes mostly flat-lined. When the realization hits for enough people to become a political issue, it is not going to be pretty. My parent's reply? I'm a member of a spoiled generation who does not know how good I have it, that I spend too much on lifestyle choices and I need to save more. They then asked me if I was ever going to move back to California where housing is 4x as expensive as it is out here. I love them to death but they don't get it.
Both are in their 70's, so yeapers. Sitting on SSI payouts and a pension and a 401(k). And a house fully paid off. (!!!!) They are both set up as long as they don't live too much longer than 100 so I don't have to worry about them living on the streets, or worse in my house.
That may have something to do with the time in which they lived... But clearly they have made some sound life decisions. I know a dozen people their age who are barely eeking it out week by week. Those SSI payments? If they're lucky that's like $1500 per month. That Medicare? It doesn't cover everything. Be glad they made the choices they did at the times they could. On the other hand... As a dude trying to scrape by today... Feeling like the world is stacked against me... I hear ya. The chances of me retiring like my parents have (at 71) seems like a distant pipe dream.Sitting on SSI payouts and a pension and a 401(k). And a house fully paid off. (!!!!) They are both set up as long as they don't live too much longer than 100
Had lunch with a buddy yesterday. He was ranting that his mom was guilting him about them ending up homeless and alone because their kids weren't taking care of them. He said "They're collecting $4200 a month in pension. They've got $2200 a month from social security. They live in a fully-paid-for house worth $650,000 and they have a hundred grand in laddered CDs. They can tap a hundred grand in liquidity and their worst-case-scenario is sixty four hundred a month. And they're giving ME shit for eating out too much." I should bitch. According to this article I have more retirement savings than a disturbing multiple of my peers.
And they have medicare. And if they go to talk to a city official odds are they get a chat because old people vote and young people don't. Which is another post and angry screed all in itself. If you have more than $10,000 in an IRA/401(k) or retirement account you have more money than 2/3 of adults in their 30's. That scares me. I paid just south of $14K in total taxes last year; unlike many people out here I see the benefits that money gives me as someone who lives in a (relatively) clean environment, low crime, schools, working courts and at least the bones of a social safety net. I'm doing some of the taxes for a few buddies and I have to take deep breaths and calm myself to keep from bitch-slapping some sense into these guys. 20 years from now, we are going to see a serious contraction in the economy, IMO as the people in my age group go to retire and have fuck all of nothing to fall back on. They are either going to have to drop all spending and do nothing but save or say screw it and either keep working or accept the income cut and go on SSI because there are no pensions any more. People in their 40's right now if they don't wake up are going to end up working till they die which will prevent the next generation from advancing in the corporate ladders as well. I already work with people in their 60's and 70's whining about Social Security and wondering why we spend so much on schools... people making more in SSI than most 20 year olds make working. Bitching into the void of the internet does not do anything but make me pissed off that I was not paying more attention when i was younger. But a few of my friends are going to have a serious talking to about emergency funds, tax withholding and not buying stupid shit they don't need. Maybe I can get through to some of them. If not, I anticipate the smack down from you when I come back here and go off on a rant about my dumb-ass friends.I should bitch. According to this article I have more retirement savings than a disturbing multiple of my peers.