SL 682

I’m strangely fascinated by the diet and exercise regime of “The Rock.”

Cuomo proposes free tuition for middle and low-income students to CUNY and SUNY.

I haven’t tried Korean saunas yet, but here in Northern New Jersey, we’re immersed in Korean culture. Along with our Italian food, Jersey people devour Korean tacos, Korean barbecued beef and short rib, and bibimbap.

The early champions of 401Ks regret their decisions.

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21 thoughts on “SL 682

  1. I read the article on 401K’s. I really wonder how it will play out, as more and more risks are borne by the individual. Of course I’m comparing the current to only the recent past of fixed pensions, health care provided by employers, affordable college, union-based employment protections, and long-term employment.

    I make the calculation periodically, and the fund that we’ve held without changing for the last 17.5 years, roughly 2/3 in stocks & 1/3 in bonds has an annualized rate of return of 4.7%. CNN’s retirement calculator assumes a rate of return of 6%, and assumes that income grows at 3.8%,. At those optimistic assumptions, a person making 100K, 35 years old, planning on retiring at 67, would have to save 22% ($22,000) of their income to save enough to retire with 85% of their income (having saved 3.8 million).

    I know that people at that income level aren’t generally on track to make that kind of savings, but do the wise money managers accomplish the task?

    1. The stock fund is at 5.1% as of this year. Of course it’s been much worse in past years, which is one of the problems. Holding for a long time doesn’t prevent you from needing the money when a great recession starts.

    2. McMegan has a really swell column at Bloomberg: https://www.bloomberg.com/view/articles/2017-01-03/the-401-k-problem-we-refuse-to-solve
      There is no easy fix for retirement. As she says, you can’t do 25 years in school at the beginning of your career and then work 40 years and then have enough to live on for another 30-40 years without truly heroic savings during the work part of your life. Doesn’t matter whether you try to pay for it through tax supported pensions or 401ks or private pensions – getting 85 per cent for the rest of your life is not on.
      FDR copied Bismarck in setting 65 as retirement age for Social Security. And Bismarck did okay with that because people tended to shuffle off this mortal coil just a few years after 65. My mother is 94 and hasn’t worked for salary since she was 60. My dad died at 85 and hadn’t worked for salary since he was 58. They had fortunate investments, whose returns dwarfed those which Beejay is invoking – most people won’t.
      So the origin of all this is the success of modern medicine, and those wildly increased life spans. I’m in favor of modern medicine! I am still getting high quality mom services, and advice, and I love her to pieces! But we probably have to abandon the 85 per cent idea, and the should-be-able-to-retire-in-Manhattan idea. Chillicothe, here we come!

    3. “At those optimistic assumptions, a person making 100K, 35 years old, planning on retiring at 67, would have to save 22% ($22,000) of their income to save enough to retire with 85% of their income (having saved 3.8 million).”

      Eh, there’s no way we would need 85% of current income at 67. We certainly didn’t need $80k a year as DINKs.

      I’m pretty sure 80% of our current expenses are kid related, and our house will be paid off by the time my husband hits 60 (Lord willing and the creek don’t rise). Also, either my husband or I will keep working at least a little as long as possible.

      Health care and home care expenses are a wild card, of course.

      I’ve got a 95-year-old grandfather, and that does rather focus one’s mind as to the actuarial probabilities.

      1. One of Kellyanne Conway’s smart remarks, when somebody asked how in Hell she was going to do a White House job with all those little kids was, well, she had no mistress and she didn’t play golf so that freed up some time… this 85 per cent business is for people who have boats, and golf habits, and mistresses, and second homes. Which is why it was so hard for them to save twenty two per cent in the first place!

  2. Per today’s paper, the Cuomo plan is for families with incomes under $125K in 2019 (so about $120K today). And annual tuition at the schools in question was only about $6000 anyway. I feel like the people who are really facing a change in circumstances compared to 30 years ago are those in the $120K to $400K bracket (i.e., from about the 90th to the 98th percentiles), who don’t get scholarship aid (and they still don’t, from Cuomo). They will have to develop new spending and living patterns to cope with the two new realities of expensive college and long retirements.

  3. “Of course I’m comparing the current to only the recent past of fixed pensions, health care provided by employers, affordable college, union-based employment protections, and long-term employment.”

    This seems like a fantasy. Union membership peaked in the 1950s around 35%, About 38% of workers had a fixed pension in 1980, In 1975, only about 21% of 25-29 yr olds had a college degree, today, more 33% do. Long term employment? Again, only for a privileged few. And let’s remember how many unions were openly involved in discriminating against minorities. (Detroit in 1940s and 1950s was a notable exception.)

    So, you may argue that times were better for those who had those things, they were never the majority. Certainly not among people I know and grew up with. I understand your frustration, but please stick to facts. Your nostalgia for times gone by when people like me and minorities were very clearly excluded is just gross.

    1. Tulip, I don’t see Beejay as pretending that that past golden time was working for everyone. It was wonderful for those inside the magic circle, but the circle was never very big and it is shrinking. I’ve got a defined benefit pension coming when I retire, it’s wonderful for me and my family, and as McMegan suggests, this can’t be afforded at the levels which were once promised.
      A situation where it is there for a few of us and the others are pressing their noses to the glass looking in is unstable and will lead to a LOT of resentment – look at the votes for Walker and the Reeps in Wisconsin which had a lot of oomph from private sector workers’ resentment of the state workers’ and teachers’ deals on pension.
      In some ways, the current situation is not too dreadful – Social Security will keep you from starving and let you rent a double-wide on the outskirts of Biloxi, and if you want to stay in Staten Island you have innumerable financial advice mavens in the paper telling you you better pump up your 401(k).

    2. I was understanding that I was referring to a short-term period, some of which was simply nostalgia (and, ignoring the discrimination against women and minorities). But, 38% of people with fixed pensions is a pretty big number. That’s not a “few”.

      I am wary of using college degree statistics as a measure of relative improvement, since I am not sure those degrees have all brought concrete benefits (though think the expansion significantly improved the lot of some individuals, I also think there has been a diploma inflation that has reset expectations without necessarily increasing qualifications).

      I am not arguing that things are worse overall. The increase in the opportunities for women and non-white men, compared to the 70’s, swamp lots of other changes.

      But I think we need new thinking on how we’re going to pay for retirement, health care, and education as a society, each of which will consume more of our resources.

      1. Also, some of those folks were not eligible for social security — I believe through the 80’s, many public employees, including those at state colleges and state and city government, could opt out of social security in favor of their state-supported fixed pensions.

      2. Beejay, I think Congress is going to have to do something about bankrupt state and muni pension systems, and that it probably has to be sooner rather than later. We are about out of road, down which to kick the can! Although the sudden Trump boost for stock prices may lessen the pressure just a bit. The form this takes will probably be pretty different from the Trumpists than it would have been from the Hillists. Both blue and red states have big problems here. This was not an area of discussion during the campaign, and I don’t know which candidate it would have favored if it had been.

  4. I think McCardle is zooming in on a fundamental issues, which is that 40 years of work isn’t going to pay for 50 years of not working and that all mechanisms for paying for the period of non-work have benefits and drawbacks.

    The 401K leg is that it completely individualizes risk. Social Security collectivized risk but produced the fiction of the “trust fund” and the mixing of the regressive tax structure of SS with the general fund. This in turn, has meant an overall more regressive tax structure for federal government and the delusions that led to tax cuts for those most able to pay for the collective burden of paying for non-working periods. Pension plans also shared risk and shifted costs across larger populations. But, they encouraged promises instead of decisions in worker negotiations, which in turn created burdens for companies and city/state governments that they couldn’t fulfill.

    But, in describing the problem, McCardle ignores the need for multifaceted solutions, which include sharing risk, shifting funds from winners to losers (say, in the form of taxes on investment returns that produced significantly different outcomes, based on whether funds were drawn in 2006 or 2008), increasing retirement age for some, but having more generous disability benefits for others (as a start).

    1. The 401K leg is that it completely individualizes risk.

      Yes. Any system that requires every person as an individual to pay for the long-tail risk of aging is bound to fail.

      1. The apologists for the current cock-up have often talked about a three-legged stool, Social Security as one leg, private pensions as the second, investments/401(k) as the third. It’s gotten pretty wobbly, with the private pension leg breaking! It’s hard to imagine the political consensus permitting Social Security/government old age pensions being paid for at a much higher level than today, which will rent you a rundown double-wide in a second-tier trailer park in North Florida and out to dinner three or four times a month. Private pensions are a big problems, all the chinwaggers suggest that future careers won’t generally involve working 30 years for Ford, if you work three years one place and two at another, that doesn’t vest you. So something like the 401k is hard to avoid, if you are going to stay out of the trailer park.

  5. Wapo was scathing about the Cuomo tuition deal today: https://www.washingtonpost.com/opinions/cuomos-free-tuition-plan-isnt-progressive/2017/01/09/9505c37e-d457-11e6-a783-cd3fa950f2fd_story.html?utm_term=.fd4c34ca4cfc
    I think they are quite right that it is poorly targeted if the aim is helping the poors, but I suspect the aim is better if it is to enhance folks’ loyalty to Cuomo. I think we are probably overproducing college grads already – more BSs than there are jobs which need them. There is a fairness issue of helping lower-quintile kids have a fair chance of getting college, and this does something to help on that, but it will likely result in a lot of kids, both lower and upper quintile, finding themselves with credentials about which no one cares very much. The proverbial sociology BA driving Uber and trying to pay off four years of room and board debt and lost income.

  6. ” I think we are probably overproducing college grads already – more BSs than there are jobs which need them. ”

    Although I think that’s true, in the sense that the BS’s (really, not BA’s) that people are getting aren’t really relevant for the jobs they find. But, some of those jobs require them anyway. I recently looked up “Medical Coding” as an occupation (medical coding is taking descriptions of medical procedures/diagnoses/etc and turning them into numbers). There are bachelor’s level programs in medical coding! Who would have thought! As with other jobs where I have that reaction, indeed, the job did not require a college degree. But now, they can hire people with degrees, so the figure they will.

    So, the question of “overproduction” becomes complicated.

  7. I have come to the conclusion that you cannot help the poor without helping people who are more than poor, at least on a graded scale. One of the aspects of the ACA interviews that I find quite interesting is the bitterness those receiving ACA subsidies feel for those who got insurance as part of the Medicare expansion. My conclusion is that many people just aren’t going to buy the argument that someone else might be in more need than them, and thus get benefits because of that need. I’m guessing their right often enough that it’s not irrational to believe that all cutoffs exclude some who are equally needy or deserving.

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