Something most people don't seem to understand... to retire comfortably (in the US at least) you need to consistently save some percentage of your income all of your life, or a significant portion of your income most of your life. I don't know if their parents or education system is failing these people, but something needs to change.
I kind of think we have proven that most people are not, and cannot be, capably responsible for their own retirement. The 401k was an experiment, and that experiment has largely failed.
The answer is probably a more generous and better funded Social Security, except that fund keeps getting raided for other purposes.
> I kind of think we have proven that most people are not, and cannot be, capably responsible for their own retirement.
This is one of the reasons I suggest people buy a house rather than renting. The financials may not always make sense, but it forces savings in a way that many people would not otherwise do.
How many people do you think would manually pay a large chunk of their paycheck into a savings account every months before deciding whether they can afford an extra order of curly fries?
Rent eats first and having a mortgage lets you actually save some of that (once you get past the substantial interest heavy starting year).
> The 401k was an experiment, and that experiment has largely failed.
Retirement accounts are not the problem. It’s a general lack of financial education. People can barely calculate simple interest. Compound interest is even less natural. Calculating the present value of a fixed payment annuity in 25 years? We’re a slim minority that can do that from scratch.
Some of the best savers are the ones that do not even understand the financial constructs, but take the savings rates and methods as gospel. Faithfully putting away percentages of their salaries that are orders of magnitude higher than the rest.
> The answer is probably a more generous and better funded Social Security, except that fund keeps getting raided for other purposes.
Social security is claimed to be “money you paid into”. But that cannot be true if the net amount grossly exceeds what you paid in. That system simply would not work without another revenue source.
People have to pay massively more into it over their entire working lives.
And if someone wants a pension the financial product exists. Except nobody wants to actually pay for it because an inflation adjusted guaranteed annuity for life is incredibly expensive! So the present value of it divided out would be more than people are willing to actually pay.
I would love to buy a house, was saving and planning to do so ten years ago, then prices started to skyrocket and never went down. One story mold ridden shacks with 2 rooms and 1.5 baths going for $400k+ here in Oregon because I can’t compete with all the people with money fleeing California. Especially after the fires a few years ago that created emergency demand for house and less wood to build them.
Sure, had I gone full throttle into a house back then, I could pat myself on the back right now, but at that point my employment wasn’t anywhere near as much of a certainty, and money was sit tight so the wisest thing to do with the information I had was wait a few years.
While I think things may be slightly better now and I need to do my yearly review of how things are, for most people getting stable enough to do anything other than split rent is out of reach. I’m one of the few people I know that could stop working and not be out on the street in 3 months.
I’m fortunate in that at least I have a pension I’ve been putting into over the matched amount all this time.
> Retirement accounts are not the problem. It’s a general lack of financial education.
The 401k experiment is not failing because people don't understand how interest and capital gains work. It's failing because people are not funding their 401Ks and the ones who do, don't sufficiently or consistently fund them. I know so many people my age (mid 40s) who don't even save at all. Like zero. They are playing a dangerous game of chicken where they believe the USA ultimately won't let the elderly die en masse in the street, and they think they'll be rescued. They think I'm the sucker for saving the max every year and then saving more.
This isn't a lack of financial education, it's deliberate. People can save but they won't because they don't think they're going to meet the consequences. Or they don't save enough because they don't think they need to. I also know people who say things like "I plan to die the day after I stop working, so I might as well spend everything now."
And that doesn't even consider the large number of people living paycheck to paycheck who literally can't save. It's going to be a shit show in 20-30 years.
I have to agree. When I was working with a carpenter union, one of their big problems was that members would see their pension balance get large at which point they would stop working long enough to trigger emergency access to the pension and then withdraw the money to buy a truck or other expensive item they wanted. As a result, even though the union had a pretty good pension system, many of their members were sabotaging their retirements.
I feel there is a vast and pervasive misunderstanding of Social Security, and I want to shout from the rooftops: "It's an insurance policy! Literally! Anyone pretending it's an investment account is a banker trying to trick you into letting them take all the money!"
If you reframe SS/OASDI as "someday starving because unable to work insurance", many different facets of its rules and financing fall into logical place.
As is, I feel like I'm watching people paying premiums for "house burns down" insurance and then being angry about "their money" not being "all paid back" when their house never has any problems. ("That's not how it works, that's not how any of this works.")
A very unusual point of view, but you haven't provided any biologic or evidence to support it.
So here, I'll give you some from the other side.
First, the "Old-Age, Survivors, and Disability Insurance" really is literally Insurance because it's literally in the damn name and I don't know how much clearer I can make that.
Second, you can tell it's insurance because larger payouts are conditional based on bad things happening to you. That is not true for an investment account, therefore they are different.
Third, you can tell it's insurance because the benefits are typically not transferable (inheritable) to another thing (person) being insured. That is not true for an investment account, therefore they are different.
> To the recipient, SS resembles an investment account more than an insurance policy.
Being deeply misinformed doesn't make something true.
> the "Old-Age, Survivors, and Disability Insurance" really is literally Insurance because it's literally in the damn name and I don't know how much clearer I can make that.
> If you reframe SS/OASDI as "someday starving because unable to work insurance"
You might want to contact the Social Security Administration with your gripe, because they present SS as a "retirement benefit":
And look at your annual Social Security Statement. Mine says:
Retirement Benefits: You have earned enough credits to qualify for retirement benefits.
These explained benefits are not linked to bad things happening to you.
Earlier you said:
> As is, I feel like I'm watching people paying premiums for "house burns down" insurance and then being angry about "their money" not being "all paid back" when their house never has any problems. ("That's not how it works, that's not how any of this works.")
I disagree, because people expect their SS retirement benefits to pay out even if the house doesn't burn down. Which is why I'm saying I don't think people view it as "insurance" even if it technically is. People just want the income stream (aka "retirement benefit") that they earned (this is the language used by SSA) by contributing over their entire working life.
> How many people do you think would manually pay a large chunk of their paycheck into a savings account every months before deciding whether they can afford an extra order of curly fries?
People are irrational. I have a loved one who told me they can’t afford car insurance, but subscriptions to Spotify, Netflix, Duolingo, and uses DoorDash, etc.
I think people are wired to think that small purchases are ok but that long term things are “not possible.” Of course there’s also a sense of people wanting to have some joy in their life now and choosing to gamble away future prosperity.
> People are irrational. I have a loved one who told me they can’t afford car insurance, but subscriptions to Spotify, Netflix, Duolingo, and uses DoorDash, etc.
Yes, that's the Avocado Toast problem. You point out that maybe, just maybe, they don't need all of these optional luxury expenses if they can't afford to do "normal adulting". The response is always a cornucopia of excuses and fatalism: "Saving $5 is not going to make me financially stable!" and "There's no way I'll ever retire--I might as well live a little today!" and "I can't just eat rice and beans every day!" and "Why shouldn't someone have just one little luxury to make them feel happy?" and "The cost of my flagship smartphone is trivial, just 1% of my student debt!"
It's not the actual Toast that's the problem, it's the attitude that excuses the toast.
The avocado toast problem is that an average house in my city costs just over $1m (aud), while avocado toast averages $20. So that is about 45 years of eating avocado toast 3 times a day, hell even just getting enough for a deposit will take 9 years.
The reality is saving $5 here or there will not make a difference. You need to be saving 60 bucks a day for 10 years just for a deposit. Or over a hundred for a more palatable 5 year saving.
The average wage in Australia is around $1400 per week, tax is around 20% and average rent is around $300 per person. So that leaves you with $120 for everything else.
“To the capitalist, every luxury of the worker seems to be reprehensible, and everything that goes beyond the most abstract need – be it in the realm of passive enjoyment, or a manifestation of activity – seems to him a luxury.“
A lot of people struggle with regular literacy despite being educated on it for their entire life. I don’t think more education will help these people.
The notion that a nation can save for retirement is a fundamental misunderstanding of money.
Money is pieces of paper that determines how a nations resources are divided.
Having more money in a "Social Security fund" is useless. If the social security fund is massive when it comes time to withdraw money from it but there are no resources to divide, then inflation will ensure the fund is worthless. If the fund is tiny but there are lots of resources to divide, the money will go a long way.
Individuals can save money to ensure they get a larger share of the resources in the future. But overall money is a zero sum game -- if one person has a greater share, everybody else has a lesser share.
As a country, to support retirees you invest in the productive capacity of the country -- train nurses, build infrastructure & housing, et cetera.
The vast majority of people aren't even taught how money works. There also seems to be as assumption with certain people that everyone has an interest in it because they do.
From an anecdotal point of view, I have never cared for money in the sense that I have not been busy maximizing my money whether it be salary, retirement, etc. not to mention "investments". I could not care to play the game of money/investments, I want to do other things with my time and headspace. However, in our Western society I'm forced to play the money game and to "be on top of it" otherwise later in life I am f*ked.
"Money" seems to be mostly an "interest" of some people and somehow we seem to have pivoted our entire society around that.
> Something most people don't seem to understand... to retire comfortably (in the US at least) you need to consistently save some percentage of your income all of your life, or a significant portion of your income most of your life.
The reason most people don't understand this is because retirement has historically been a pipe dream for 99% of the population. You worked until you were no longer able to get up physically (from illness or general deterioration).
Nowadays people don't just want to retire, but retire "comfortably", whatever that means. Presumably living in your paid off suburban home, while travelling and owning multiple cars? It's not sustainable and will revert back to the mean, unfortunately.
After the collapse in 2008, they decided to drop the effective interest rate to 0.0% on personal savings accounts, like the one my parents were counting on.
The 5-8% per annum, which everyone older expected to live off of, was stolen to prop up the banks which got us into the mess in the first place.
It's not their lack of planning, not their generations fault. They they shouldn't be the ones to pay for the crash of 2008. There should be thousands of former bankers starting their second decade behind bars... but there are NONE.
Technically, it's both. Parents don't teach their kids because they didn't/don't really know. Financial literacy isn't in the curiculum at all pre-college level. Even then it's not a "core" competency in any degree that isn't finance related. Even just ~10-15 years ago I wouldn't say the topic itself had as wide of discussion as it does today.
The big thing that happened to these people was the pension crisis. They were told, while working they would get a decent pension early in their career Plus when most started, it was expected you would be with the company your full lives.
Then the 70s and 80s happened, people did not realize there would be a paradigm shift in the work force. So here we are, and back then IRAs were limited on what you could save and I think there were no 401k's at all.
Simply knowing how it would have to work doesn't magically grant you the capacity to do it. Life is full of unexpected surprises, and they can be very expensive.
I think a lot of these people get caught in the loop of renting and bad luck and healthcare spending and never have much left over. plus, kids. They just never seem to get it together. Half the population has an IQ below 100. I imagine these people will naturally struggle at saving compared to the other half.
Yes, saving 20% when you have $20 left over your paycheck (or sometimes even negative dollars) might net you a solid $100k when you’re retirement age but I doubt you’ll be able to stretch it very fair since it’ll be likely you’re still renting and still have debts dragging you down.
I think what we will see is a return to generational housing in America. More out of a necessity, like how divorced couples still lived together during economic strifes across the world.
However, there is 55 and up communities across the country, and they offer affordable housing options. You can get a new trailer for 80k or a camper and live comfortably until you die. I am not buying a house but saving at least 100k for retirement. I’d prefer a million but will see. I’m going to start saving a 500 to a 1000 a month in a high interest account whether it is stocks, bonds, or a CD
Having a low IQ makes no difference in whether a person can save or not. Your answer was in your comment, it’s all based on luck. I know some people who are brilliant but have an alcohol addiction and literally don’t care about anything.
> I don't know if their parents or education system is failing these people, but something needs to change.
Is there any evidence or reason to think that people were just more financially literate in the past and somehow regressed? This theory seems to ignore broad societal trends such as increasing wealth inequality, increasing housing costs, increasing health care costs, stagnation of wages, decreasing employment stability and security over time, and the elimination of employer pensions.
The classic retirement plan was to have a bunch of kids, raise them right, and one of them would take you in your later years. The other half of that bargain was that you’d help take care of the grand kids, teach them, and maybe prepare dinner.
The more kids you had, the more of a buck shot approach it was.
The auto enrollment private pension minimum contribution in the UK is 8% (3% from the employer and 5% from the employee)...and its widely known that this is pathetically inadequate. It needs to be doubled.
Nobody is taught about this stuff in British schools either. Most people don't start worrying about funding retirement until they hit 50
Eh, one alternative as in my shithole in Eastern Europe is that they take 25% out of every pay you get throughout your life and when you do retire, you get some shit money for the 5 years of life expectancy you have left.
I am 72. My father worked for one company his entire life. He worked for one company his entire life, from 1931 to 1976. He started sweeping floors and ended as a Senior VP. In 1975 his employer went bankrupt and my dad received 8 cents on the dollar for his pension.
Later the Federal Government adopted a federal program insuring private pensions but that was no help for my dad. And employers, responsible for paying into the federal program, dropped private pensions like a hot potato.
I never had a pension. Hardly any private companies offered them to my generation. And nobody sat us down and explained 'retirement' and who supports you after you work all your life. Nobody explained it to my dad, who thought he was being provided for. And nobody explained it to 'Boomers' because there wasn't anyone with knowledge to explain 'it' to us. Our parents had pensions. They knew nothing about a world in which there weren't pensions.
The perilous and sad fate facing the Boomers in retirement has had the 'benefit' of at least providing us with the knowledge to educate our children about the perils of life. The hard rules are:
In the United States, you are solely responsible for what happens to you your entire life. Health care and retirement are both your responsibility. As demonstrated by my father's plight, this has always been true - even if there were lies told to you making you think you had a pension (btw, my father's employer was far from the only one that didn't have the funds to pay its pension benefits).
We live in a modern society in a modern world. However, it remains a world of winners and losers. And the losers far outnumber the winners when it comes to parceling out resources once you stop 'working for the man' the majority of your life.
Here is something that I plan on doing as a millennial. I’m currently digging out of a financial mess after my son having cancer, and covid. I don’t plan on buying a house but have a lovely rental property to raise my children in. I’m finally making decent money and continuing my education to make even more. But my partner and I plan on saving 1000 a month or 10-12k a year. We can either do a high interest CD or bond, take it to an agency. At 10-12k a year in savings and calculating interest that would be around a million dollars to retire with. Then we plan on buying a small trailer in a 55 in up community which depending where you live can be under 100k. Will hopefully both have social security or other investments but ultimately we are going to live cheap and save. Buying a house is great but you spend a lot of money fixing, updating, insurance, and taxes. Will never see the equity that our parents did. Those selling their homes in the next five years. The current administration is taking a big piece of the pie in taxes atm. But yeah you need to start saving a lot of money before you are 50.
Most of the people here probably don't especially want to advocate for 25-year jobs that pay a good pension (though mostly not that great in addition to social security) as the pole for retirement. Yes, as the article says, if people don't have retirement savings that isn't great.
And, even with Medicare, healthcare isn't free for good coverage.
I does not make sense to rely on an employer to guarantee your retirement income. Ideally you want it to be managed by an organization that is heavily regulated and specializes in this activity, instead of being a cost center (and a financial temptation) for a generic company.
No argument. I actually have a non-trivial pension coming from a long-ago decade+ employer which I probably didn't even think about at the time but it's hard for me to think that staying at an employer for a decade or two should be a cornerstone of a retirement strategy. (Even given some regulations today about excessive raiding of the fund.)
Wait until Gen X hits retirement, which is coming right up. Markedly lower inflation-adjusted net worth at-same-age than Boomers. And of course Millennials are even worse off than that. Gonna be a large swell of elderly poverty.
We have that and a medical care cost problem set to reach crisis levels around the same time. The only meaningful activity right now that might alleviate any part of either problem is… Ozempic, LOL.
You want real controversy? Medicare/Medicaid is prolonging the lives of people that don't have money and need others to pay their bills/service their needs.
Do corporations exist for humanity or does humanity exist for corporations? (Funny enough I rewatched The Matrix last night. Seems humans exist for AI/imaginary made up beings aka corporations, well actually those that own them and hide behind their limited liability).
I think it's more like a barbell. Some millennials doing really well, like inheritance and big salaries and home ownership, but on the other extreme is the college-educated barista.
Aren’t they comparing medians, so it accounts for the tiny percentage do tech/finance that do well?
I mean there were junk bonds and corporate raiders in the 80s, as well as the 90s stock bonanza and 2000s real estate. Even a state employee could afford a decent house and saw their net worth explode as housing exploded. That isn’t happening for GenX and Millennials…
there are entire subs on reddit communities full of young people with sizable incomes/wealth. FIRE subs, tech subs, investing, and so on. The FANG job is today's '80s Wall Street job. Biased sample, sure, but it's still a lot of people. State employees still make good income. I think the only sector that has done the worst is retail.
That seems to be driven largely by fentanyl, which has quintupled the number of deaths from drug overdose since 2000 (the current tally is over 100k per year). Demographically, these people are unlikely to have much in the way of retirement savings.
When I looked into this a few years ago, it was across the board. The Fentanyl issue is very visible, but it's all the things when you compare generation to generation.
So much for the common myth that all boomers and gen-x enjoyed decades of economic prosperity and thus are wealthier. Some are, but when talking huge groups of people like entire demographics, there is considerable variance. A lot of older people despite the post-war boom still are in a precarious financial situation, and it's not like healthcare has gotten cheaper. There is a reason retail occupations are full of older employees.
Car break down? Roof leak? Furnace go out? Crown fall out of your tooth? All in one year? Congrats, you are now like $30k in the hole. It is easy for budgets to blow up especially if they were lean to begin with.
That's what's so evil about these categories like "White Male", "Boomer" and others and blaming societal trends on them. Within these groups it's usually only a subsection that received the benefits they are being blamed for. For example, poor white cis males get no sympathies from anywhere. All of this painting of groups with such a broad stroke only distracts from the real problem with is income inequality and the erosion of social safety nets. It keeps the little guys fighting each other while the big guys keep moving ahead.
Frankly, they should follow their own advice and just lay off the lattes and avocado toast. Being a millenial, I really do find it hard to care, sorry.
It’s hard for me to feel sympathy for a generation that saw the largest expansion of wealth and failed to put $1000 a year away in an index. Over 40 years that’s just over $200k in current dollars at 7% inflation adjusted return.
> It’s hard for me to feel sympathy for a generation that saw the largest expansion of wealth and failed to put $1000 a year away in an index.
Individuals own wealth, not generations, and individual wealth is distributed extremely unevenly.
"The top 10% of households by wealth had $6.7 million on average. As a group, they held 66.9% of total household wealth. The bottom 50% of households by wealth had $50,000 on average. As a group, they held only 2.5% of total household wealth." https://www.stlouisfed.org/institute-for-economic-equity/the...
That wealth is unevenly distributed. As a Gen-Xer myself, I grew up in the 70s and 80s. In the UK at least in the north of England, there was massive unemployment.
At the start of my career, I earned very little (I was lucky to have a job at all). Certainly no spare money to save for the first decade.
Then house prices went insane, and the financial crash and almost zero interest rates meant we got no value from compounding the minimal amount I could save for most of the rest of my working life so far.
I am lucky in the sense that I now earn a lot compared to my peers. I am fully in catch up mode. Despite what I earn, the majority of it goes to pension contributions and paying off my very large mortgage (on a tiny house next to the railway tracks). I have very little disposable income.
And I am doing a lot better than most of my peers, who don't even have the luxury of having somewhere to live and not being in absolute poverty when they retire.
Some people have obviously done very well in my generation, but most have not.
Exactly. I think people don't realize just how much they're going to need in order to live an arbitrarily long retirement. Retiring with only $200K is pretty much a retirement into severe poverty. $200K at a 3% draw-down is $6,000 a year. If you want to eat into your principal, do a 4% draw-down and you can live on a whopping $8,000 a year. And that's not today's dollars, that's the value of the dollar in the future.
US Poverty level for a couple retiring today is $20K/yr. You need $500K saved up to get that kind of income in retirement. And next year, inflation means you need even more.
Almost every American citizen of retirement age (currently 67) will receive a monthly social security check. Even if you never paid into the system (because for example you never worked a day in your life) you would get $943 for an individual and $1,415 for a couple.
That's simply not true. If you did not pay into Social Security for at least 40 quarter, the only way you can get retirement Social Security is through marriage (spouse benefit or survivor benefit). You can qualify for both benefits even if you're divorced if you were married at least 10 years. I'm ignoring disability benefits for the moment.
For those who qualify for Social Security the minimum benefit for 2024 is $50.90/mo (10 yrs of work) and $1,066.50 for 30 years of work [1].
Most of my neighbors are considered disabled by the Social Security Administration and they all get at least $943 a month from the Administration -- even the ones who never had a paying job -- and when they get old enough (66 years and a few month in one recent case) they no longer have to prove that they are still disabled to continue to receive the income.
For what you write to be true, the Administration would have to have a rule that if you apply for disability income when you are of working age, you get enough to survive for life even if you paid nothing into the system (through FICA), but if you apply past the retirement age and you didn't pay into the system, you get basically nothing. I suppose that could be true (and I'm not going to search the web to try to find out) but it seems unlikely.
If you have a very strong work ethic, but have piss-poor ability to get paid a decent income and never applied for Social Security disability income, you've almost certainly worked some and consequently paid some amount into the system. When you get to retirement age, my strong guess (although I don't have personal knowledge) is that the SSI program kicks in such that the combination of your month Social Security retirement check and the SSI check adds up to $943 if you are single (plus $20 because the first $20 per month of non-SSI income is not counted) just like the millions of chronic schizophrenics that went on SSI in their 20s who never paid any FICA.
But if someone replies saying that they personally know an American with no other sources of income and no savings who has applied, but gets less than $943 a month from Social Security, I'll believe them.
ADDED. If you apply for disability or retirement benefits, the Administration automatically assesses whether you qualify for SSI benefits: one application suffices for both programs.
Yea, I disregarded Social Security on purpose since there is so much political risk around it, especially the closer we get to the financial shit hitting the fan. When you consider it though, yes, it adds a non-trivial baseline amount to these calculations.
I'd agree with that in normal times, but we're not in normal times anymore. We just had a presidential candidate promising he'll "fix it" so people don't have to vote anymore[1]. Who knows what things are going to look like by the time I retire. Literally anything could happen to anything run by the government, and I don't think anyone can take SS for granted anymore.
He's talking to people who normally wouldn't bother to vote, telling them if they actually did it just this once he'd fix the problems the current administration caused that they're facing (one of his standard talking points) so they can go back to business as usual.
Not every person was born into the elite or wealthy or corpo classes. My mom still works minimum wage jobs, she never had the ability to save any money. Especially when raising a family of 5.
You should feel sympathy toward them because not all monetary gains are felt uniformly. If you look at the savings from median Americans and median wages you’ll notice most Americans are not actually wealthy as the media portrays.
When you have the working poor battling payday lenders, bank fees, credit card debt, increasing healthcare costs, or lack of homeownership for their entire lives why would you expect them to suddenly become rich when they retire?
I mean for myself I didn’t start saving aggressively until I was 32 and I didn’t get my first programming job until I was 25. I was 28 when I met the first person in my life that owned stocks (CTO of my second job).
I already have more money saved for retirement than my parents and siblings combined. I honestly attribute this to complete luck too. I could have easily ended up like them financially.
I suppose I should count myself blessed because my parents raised me to value education, a love for learning, and reading books. I’ll forever be grateful for them because I’m positive I’ll be able to provide a better life for my family because of their sacrifice.
There are janitors that are millionaires through hard work and disciplined saving. There are many people that make six figures that are worse than broke. Anecdotes are easy to find.
I’m just tired of the victimhood. How can we blame the system when people had forty YEARS to save and they saved nothing. The US savings rate is abysmal, and we know they _can_ save, because the savings rate spiked during the pandemic even before the checks went out. The majority just choose not to. I get why it’s an emotional issue for some though.
I honestly suggest you go to your local foodbank and talk to the people that use it. You should also go to your local nursing home that takes medicare residents as well.
Tell them to their face what you truly believe after hearing their stories.
