Median tenure of American workers has been less than five years for the past seven decades. Median tenure for workers age 55+ has been under 10 years for the last five decades. Department of Labor studies suggest workers often have 12 different employers by the time they reach age 50. So, individuals who are working at age 62 or age 65 or older likely have a different employer than the one they had at age 50. If you look at Form 5500 data, you will see that 1 in 5 retirement savings accounts belong to someone who is term vested. There is no effective option for capturing all of the retirement assets that have already been distributed - and, surveys suggest that many older Americans who are subject to RMD have not spent that money - but invested it elsewhere, gifted it to others, used it to pay down debt, etc. Bottom line, looking at balances in existing 401k accounts is informative, but, not likely to be conclusive - especially for older Americans.
Yes, there is a better, simpler way to address retirement income needs. You are correct that "the HD community is not representative of the general population. Talk about the 4% rule, bond ladders, guard rails, Monte Carlo calculations even asset allocation, heck spreadsheets never mind SWRs with a friend and more often than not you will see a blank stare." But, enhanced financial literacy won't work. Here is what you are dealing with. "... Across all age groups, ... and fewer than a third (30 percent) get all three questions correct" See: https://www.nber.org/system/files/working_papers/w17108/w17108.pdf Nearly two decades ago, we corrected three of the four major issues in retirement savings via deployment of automatic features - (1) No access to a plan - IRAs available to all since 1982, and, 95+% of American workers are paid electronically, allowing for split paychecks, (2) Not saving - widespread automatic enrollment in 401k and IRAs (in some states), (3) Not saving enough - automatic increases, and (4) Leakage (which we haven't solved as Congress keeps expanding pre-retirement withdrawal options). So, the solution in decumulation/retirement income is to change the default from a lump sum to ... I vote for deferred commencement of Social Security. See: https://401kspecialistmag.com/auto-everything-including-auto-decumulation/ For those who need additional guaranteed, inflation-indexed income in retirement, defer commencement of Social Security at least to Full Retirement Age, if not to age 70. Then, if that is not enough guaranteed, inflation indexed income, chances are that individuals should consider alternatives other than RMD.
Thank you. If I ever get the opportunity to again speak at a retirement planning session, I will use your recommendation by highlighting the two rules of thumb, "Don’t spend too much each year, and don’t sell stocks during down markets", and attribute it to you. Answers one of the top three questions everyday, low- and middle-class workers, ages 50's and 60's workers had who participated in the pre-retirement seminars I conducted for my Fortune 100 employer back in the 1980's and 1990's. Best to you. Jack
For the holiday gatherings, make everything you want, in an excessive amount. That's why God created freezers. And, yes, many desserts do freeze and are just as good thawed months later.
Half empty, half full, pessimist, optimist - reminds me of Oscar Wilde: “A pessimist is somebody who complains about the noise when opportunity knocks.”
"... It’s a long term investment folks! Not to be borrowed from or used for hardship expenses. Think of it as a lockbox for your future security. ..." Nope. Times changes. Labor economics changed as well. Lockbox, yes! But not in the way you suggest. Think of your 401k as a "lifetime financial instrument" - something that you will keep for the rest of your life (and that of a surviving spouse). Keep in mind that 70+% of Americans live paycheck to paycheck and that most Americans have accumulated debt and current financial commitments. So, if people only save what they believe they can afford to earmark for a distant, uncertain, perhaps unlikely retirement which is decades away, where monies are "locked up" and unavailable for 30, 40 or 50 years, they won't save early, nor will they save enough. Minimize leakage? Yes. Eliminate hardship withdrawals, curtail post-separation, pre-retirement distributions. Replace it with tax-free liquidity! Think of your 401k as the "Bank of Dick" - where you are both the lender (future self) and the borrower (current self). So, if you don't have the discipline to save and to repay a loan to yourself ... well, better to have saved and spent, than never to have saved at all. Remember, 90+% of plan loans are successfully repaid. Most who default do so at separation (median tenure of American workers has been less than 5 years for the past 7 decades). Defaults at separation occur, in part, because most firms loan processing is still limited to payroll deduction (which is so 20th Century)! Bottom line, when it comes to saving more (and retaining those savings until retirement), most workers need tax-free access via 21st Century loan functionality. Workers need to be confident that the money is available if needed. "The US needs a better universal retirement system, more user friendly, more uniform, guaranteed employer participation, but that’s something for the next generation to solve." Nope. We've had a universal retirement system since 1982 - consistent saving starting at age 25 of the maximum amount in an Individual Retirement Account, earning say 6% on investments, when coupled with Social Security, provides a more than adequate (90+%) pay replacement for those who retire at Social Security Full Retirement Age 67 (anyone born after 1960). The IRAs offered by Fidelity, Vanguard and others are as user friendly and uniform (index investments) as anyone might want. Guaranteed employer participation? Like Social Security, that diverts wages and reduces worker control, and ability to prioritize. So, if you are one who believes employer participation is essential, factor that into your decision-making regarding employment - as there are 700,000+ employers who already offer 401k and other retirement savings plans.
Hands down, for me and for you, Ben Franklin. My favorite? Read: Michael Meyer's, Benjamin Franklin's Last Bet : The Favorite Founder's Divisive Death, Enduring Afterlife, and Blueprint for American Prosperity A copy should be in every library, and it should be required reading for every parent and grandparent. All who have children obviously believe in a future. Ben provided for many children of others, individuals he would never meet, never know ... Ben believed in America's future ... so should we all.
In my pre-retirement seminars, back in the 80's and 90's, I referred to inflation as Rule of 72, "in reverse". Rule of 72: Take the annual interest rate, divide into 72, and you get the number of years it takes for money to double (for example: 6(%) into 72 = 12 years, assuming earnings are tax deferred). Rule of 72 "in reverse": Now take the inflation rate, divide into 72, and you get the number of years for your purchasing power to be halved (for example: 3(%) into 72 = 24). So, assuming retirement at age 65, without an increase in the nominal amount, a 3% annual inflation rate will halve the purchasing power by age 90. That said, inflation ≠ CPI. The CPI is someone else's market basket of goods. You are a practicing economist - in terms of how you deal with price inflation - every time you go to buy something. At the grocery store, if beef is too expensive, you buy chicken or pork, or go meatless. These decisions are made almost unconsciously (except for the griping about ever increasing costs), at the snap of your fingers, one decision after another. So, your household market basket of goods is changing all the time - with exceptions for housing, and a few other essentials where demand is inelastic or difficult to quickly adjust. The only way to confirm what inflation you actually suffered is look back on what you spent, and how your market basket of goods changed.
Both are true because much if not all of the saving while working is for periods without employment or after employment ends (if you are a retiree). Modigliani called this the life cycle, and consciously or unconsciously, all are at risk who ignore it.
Best option for financing LTC? Find an employer who is willing to innovate with respect to employee benefits. Innovative designs might include a modular cafeteria plan with employer contributions ordered in a specific manner/priority, group term life insurance with a LTCi rider convertible upon separation, and a Health Savings Account capable health plan. Working on this.
Comments:
Median tenure of American workers has been less than five years for the past seven decades. Median tenure for workers age 55+ has been under 10 years for the last five decades. Department of Labor studies suggest workers often have 12 different employers by the time they reach age 50. So, individuals who are working at age 62 or age 65 or older likely have a different employer than the one they had at age 50. If you look at Form 5500 data, you will see that 1 in 5 retirement savings accounts belong to someone who is term vested. There is no effective option for capturing all of the retirement assets that have already been distributed - and, surveys suggest that many older Americans who are subject to RMD have not spent that money - but invested it elsewhere, gifted it to others, used it to pay down debt, etc. Bottom line, looking at balances in existing 401k accounts is informative, but, not likely to be conclusive - especially for older Americans.
Post: The Que sera, sera retirement planning strategy.
Link to comment from January 18, 2025
Yes, there is a better, simpler way to address retirement income needs. You are correct that "the HD community is not representative of the general population. Talk about the 4% rule, bond ladders, guard rails, Monte Carlo calculations even asset allocation, heck spreadsheets never mind SWRs with a friend and more often than not you will see a blank stare." But, enhanced financial literacy won't work. Here is what you are dealing with. "... Across all age groups, ... and fewer than a third (30 percent) get all three questions correct" See: https://www.nber.org/system/files/working_papers/w17108/w17108.pdf Nearly two decades ago, we corrected three of the four major issues in retirement savings via deployment of automatic features - (1) No access to a plan - IRAs available to all since 1982, and, 95+% of American workers are paid electronically, allowing for split paychecks, (2) Not saving - widespread automatic enrollment in 401k and IRAs (in some states), (3) Not saving enough - automatic increases, and (4) Leakage (which we haven't solved as Congress keeps expanding pre-retirement withdrawal options). So, the solution in decumulation/retirement income is to change the default from a lump sum to ... I vote for deferred commencement of Social Security. See: https://401kspecialistmag.com/auto-everything-including-auto-decumulation/ For those who need additional guaranteed, inflation-indexed income in retirement, defer commencement of Social Security at least to Full Retirement Age, if not to age 70. Then, if that is not enough guaranteed, inflation indexed income, chances are that individuals should consider alternatives other than RMD.
Post: I’m depressed, not very optimistic about retirement by R Quinn
Link to comment from January 12, 2025
Thank you. If I ever get the opportunity to again speak at a retirement planning session, I will use your recommendation by highlighting the two rules of thumb, "Don’t spend too much each year, and don’t sell stocks during down markets", and attribute it to you. Answers one of the top three questions everyday, low- and middle-class workers, ages 50's and 60's workers had who participated in the pre-retirement seminars I conducted for my Fortune 100 employer back in the 1980's and 1990's. Best to you. Jack
Post: Spending It
Link to comment from January 11, 2025
For the holiday gatherings, make everything you want, in an excessive amount. That's why God created freezers. And, yes, many desserts do freeze and are just as good thawed months later.
Post: Pass the mashed potatoes by Quinn
Link to comment from January 4, 2025
Half empty, half full, pessimist, optimist - reminds me of Oscar Wilde: “A pessimist is somebody who complains about the noise when opportunity knocks.”
Post: Filling Our Cups
Link to comment from December 28, 2024
"... It’s a long term investment folks! Not to be borrowed from or used for hardship expenses. Think of it as a lockbox for your future security. ..." Nope. Times changes. Labor economics changed as well. Lockbox, yes! But not in the way you suggest. Think of your 401k as a "lifetime financial instrument" - something that you will keep for the rest of your life (and that of a surviving spouse). Keep in mind that 70+% of Americans live paycheck to paycheck and that most Americans have accumulated debt and current financial commitments. So, if people only save what they believe they can afford to earmark for a distant, uncertain, perhaps unlikely retirement which is decades away, where monies are "locked up" and unavailable for 30, 40 or 50 years, they won't save early, nor will they save enough. Minimize leakage? Yes. Eliminate hardship withdrawals, curtail post-separation, pre-retirement distributions. Replace it with tax-free liquidity! Think of your 401k as the "Bank of Dick" - where you are both the lender (future self) and the borrower (current self). So, if you don't have the discipline to save and to repay a loan to yourself ... well, better to have saved and spent, than never to have saved at all. Remember, 90+% of plan loans are successfully repaid. Most who default do so at separation (median tenure of American workers has been less than 5 years for the past 7 decades). Defaults at separation occur, in part, because most firms loan processing is still limited to payroll deduction (which is so 20th Century)! Bottom line, when it comes to saving more (and retaining those savings until retirement), most workers need tax-free access via 21st Century loan functionality. Workers need to be confident that the money is available if needed. "The US needs a better universal retirement system, more user friendly, more uniform, guaranteed employer participation, but that’s something for the next generation to solve." Nope. We've had a universal retirement system since 1982 - consistent saving starting at age 25 of the maximum amount in an Individual Retirement Account, earning say 6% on investments, when coupled with Social Security, provides a more than adequate (90+%) pay replacement for those who retire at Social Security Full Retirement Age 67 (anyone born after 1960). The IRAs offered by Fidelity, Vanguard and others are as user friendly and uniform (index investments) as anyone might want. Guaranteed employer participation? Like Social Security, that diverts wages and reduces worker control, and ability to prioritize. So, if you are one who believes employer participation is essential, factor that into your decision-making regarding employment - as there are 700,000+ employers who already offer 401k and other retirement savings plans.
Post: Bashing the 401k scam – looking for a better idea. RDQ says it’s misunderstood
Link to comment from November 30, 2024
Hands down, for me and for you, Ben Franklin. My favorite? Read: Michael Meyer's, Benjamin Franklin's Last Bet : The Favorite Founder's Divisive Death, Enduring Afterlife, and Blueprint for American Prosperity A copy should be in every library, and it should be required reading for every parent and grandparent. All who have children obviously believe in a future. Ben provided for many children of others, individuals he would never meet, never know ... Ben believed in America's future ... so should we all.
Post: Something About Harry
Link to comment from October 19, 2024
In my pre-retirement seminars, back in the 80's and 90's, I referred to inflation as Rule of 72, "in reverse". Rule of 72: Take the annual interest rate, divide into 72, and you get the number of years it takes for money to double (for example: 6(%) into 72 = 12 years, assuming earnings are tax deferred). Rule of 72 "in reverse": Now take the inflation rate, divide into 72, and you get the number of years for your purchasing power to be halved (for example: 3(%) into 72 = 24). So, assuming retirement at age 65, without an increase in the nominal amount, a 3% annual inflation rate will halve the purchasing power by age 90. That said, inflation ≠ CPI. The CPI is someone else's market basket of goods. You are a practicing economist - in terms of how you deal with price inflation - every time you go to buy something. At the grocery store, if beef is too expensive, you buy chicken or pork, or go meatless. These decisions are made almost unconsciously (except for the griping about ever increasing costs), at the snap of your fingers, one decision after another. So, your household market basket of goods is changing all the time - with exceptions for housing, and a few other essentials where demand is inelastic or difficult to quickly adjust. The only way to confirm what inflation you actually suffered is look back on what you spent, and how your market basket of goods changed.
Post: Hedging your bet in retirement-dealing with inflation. What’s your strategy? R Quinn
Link to comment from October 5, 2024
Both are true because much if not all of the saving while working is for periods without employment or after employment ends (if you are a retiree). Modigliani called this the life cycle, and consciously or unconsciously, all are at risk who ignore it.
Post: Can your retirement survive a financial shock? It seems many can’t. Have you thought about it? Rdq
Link to comment from September 10, 2024
Best option for financing LTC? Find an employer who is willing to innovate with respect to employee benefits. Innovative designs might include a modular cafeteria plan with employer contributions ordered in a specific manner/priority, group term life insurance with a LTCi rider convertible upon separation, and a Health Savings Account capable health plan. Working on this.
Post: Long Term Care? Who has it?
Link to comment from August 17, 2024