I quit posting here because I don't really enjoy the rough and tumble; I'm more solution-oriented than argumentoriented. I am posting here because, in 2004, this website changed history. I really believe that without FR, the Bush memo would have stood unchallenged, and Kerry would have won. I am reaching here in these three posts not to just have discussions, but to aim towards an idea that I think could once again change history - if you guys agree with me. Maybe you will shoot me down and I'll shut up and go away.
The subject article, written by me, is based on the personal experience I've had and witnessed. 25 years ago, my corp switched from pensions to 401ks. I was told - invest 15% of your salary, and you'll be a millionaire by 2011. I invested, but I only have $400,000, which is not enough to retire on. I feel a little cheated. So do most of my co-workers and people of my age. I'm being meant to feel that I am a failure for not chosing my investments wisely, but every expert said back then - stocks are the best in the long run!
Following the subject article are some good comments. A major criticism is that treasury bonds could have provided a better return than stocks did over the last 30 years. My response to that is (1) that's hindsight, and (2) treasury interest is paid by tax payers. We can't build our retirement system on treasury bonds because that is building our retirement on greater federal spending in the future. (I also want to point out - the DJIA was 11,300 back in 1999. Stocks, on average, have had zero return in 12 years! That's the main reason that our 401ks have been a big disappointment to those of my age.)
If stocks aren’t profitable, then how the hell do you expect SS to remain solvent? The two are both connected to the US economy. The difference is, stocks hurt when the US economy hurts, but SS goes broke when the US economy hurts...or you force the unborn to subsidize your SS.
It really depends on whether you listen to financial ‘advisers’, or use the common sense that you have.
Look at the example in the article. If you have $600K at 65, you don’t have to take anything until you are 70 1/2. Transferring the money to an IRA, investing in good stocks paying solid dividends, and reinvesting the income could increase the money to at least $800K by the time you have to make withdrawals. At that point, your minimum distribution is 3%, which should be less than what the account yields annually. The account should continue to increase in value until you are at least 80, and have to start taking larger withdrawals.
If you can’t do that, then you don’t have enough money to retire. It is better to be working in your 60s than run out of money when you’re 80.
I rolled my 401K over into an annuity. It pays almost as much per year as my SS. I never thought SS would still be around when I was much younger. My 401K is from a job where I worked for 8 years. Even with the hit from 9/11, I have no complaints.
As a part-time "retiree," and let it be said there is NO such thing as being "retired" from daily work, to the end of one's days; here are a few initial comments before a deeper discussion:
1) I am an avid Tea Partier, and I don't think there is any imminent Tea Party agenda to outright eliminate Social Security; at least for those who already are living within the "contract." There is every reasonable belief that that program can be gradually eased to something less than it is today, for instance no sixty-two option and no entitlement until 69 or 70 (viable ages in this modern world).
2) The forty thousand per year used in the spread sheet example is in no way necessary. An individual can live very comfortably in a decent area in the US with parks, tidal access, medical care, telecommunications, etc. on twenty four thousand dollars per year, given Medicare. An elderly couple only increases that comfort with the two incomes.
3) As one of the article comments expresses, taking the individual SS contribution during one's salaried years and diverting that into private investment is every bit as sound as a government Ponzi scheme. This begs the whole question of the productivity of centralized bureaucracy versus capitalistic enterprise. If there is NO free lunch then there is NO reason to trust in government Ponzi schemes over honest productivity.
4) Which brings up my initial point: you do, and should, work until you die. There is a matter of under what stress one wants to do that, but it is silly to believe it simply goes away, no matter how much one initially fools one's self.
FYI the Tea Party is so far ahead of the political elite in terms of understanding, and being sensitive, to human nature, that many of those politico's have come to genuinely hate the revelation. They live on BullCrap.
The US can be entirely prosperous, internally, across its entire population (with elimination of illegals) when that population abandons its phoniness, and faces the realities of civilized life on Earth.
Johnny Suntrade
Social Security is a minimal backstop, and so are retirement accounts, unless one is very expert at using self-directed accounts. Your real money gets made in the real world, not in controlled govt accounts. Live well below your means, and don’t work for someone else, start your own business. Or work for someone, plus have a business on the side. Take chances in your investing rather than in your lifestyle.
Your first 40 hours a week pays your immediate bills, and funds your retirement accounts. Your work after that goes into investments and the management of same. Very few people can earn/save enough in 40 hours a week to attain financial independence.
I semi-retired at 60, my wife retired at 53. It can be done, but you must live below your means for many years.
Our estimated SS payments will not be high as we didn’t make huge incomes. We increased our wealth by investing in real estate. We also got out of most real estate in 2007, when it became obvious what was going to happen. We sold some, and paid off what we wanted to keep.
When Obama got elected, we knew it was time to take early retirement (quasi-Galt). We are conserving resources and waiting for America to throw off the chains so we can go back to investing. We can wait for as long as it takes.
40 hours a week and sitting in front of the TV the rest of the time won’t cut it for the vast majority of people. If you didn’t start early, you really have a problem. You must go into emergency mode, though all them same rules still apply.
“so that the money market managers can reap their 15% of your savings”
If the managers of your 401K are charging 15%, you are being riped off. The top 25 low cost funds charge less than 1/2 of a percent per year:
http://www.theskilledinvestor.com/wp/best-money-market-funds-259.htm
Over time, the government can not do better than an index fund, because it depends on the productivity of companies for its taxes, directly or indirectly.
Not only that, be we are at a low spot in returns on 401K because of the uncertainty imposed on the economy by the current administration. If we return to a stable system with the rule of law, I expect that 401K investments will soar.
“I feel a little cheated.”
You should also look in the mirror and note how naive you were to not learn about investing before you believed someone without verifying what they said.
The market owes you nothing. It doesn’t work that way.
All is not lost, you can live in Ecuador for less than $1,500/month - not to mention Belize, Panama and Uruguay. SS will almost cover your living expenses completely. Ecuador has national healthcare you can participate in for $65/mo as a resident.
Any financial "promise" or forecast is always based on some kind of assumptions.
So you were "told" something, and automatically believed it? The one thing I've learned in my 2+ decades of investing, is that investment returns are based on "windows" of annual earning. Retire at the end of a bull cycle, and you may find your balances looking very well. Retire at the end of a bear cycle, and you will not fare as well.
Good returns are also based on have a sound portfolio re-balancing plan. You have to occasionally take your "winnings" off the table, and put those winnings into something less risky.
All that said, Social Security does not produce returns. It's a "plan" based on the future contributions of others to pay for the current "beneficiaries." In other words, it works like a Ponzi scheme. With a country whose birthrate is decreasing, and with an economy that doesn't appear to be growing any time soon, there are fewer and fewer people who can continue to pay into this program and support everyone else.
How can you possibly hang your hat on Social Security to act as the primary source for retirement for people, knowing this plan isn't viable in the long run?
“The subject article, written by me, is based on the personal experience I’ve had and witnessed. 25 years ago, my corp switched from pensions to 401ks. I was told - invest 15% of your salary, and you’ll be a millionaire by 2011. I invested, but I only have $400,000, which is not enough to retire on. I feel a little cheated. So do most of my co-workers and people of my age. I’m being meant to feel that I am a failure for not chosing my investments wisely, but every expert said back then - stocks are the best in the long run! “
Odd. I started my 401K in 1980. Closed it out last year at 800K. Today it’s about 1Mil. I guess I’m just a lot more aggressive. My 401K was always in high growth funds but now I sell naked puts on DOW stocks and any stock with weekly options. If one gets assigned, I switch to covered calls. My target is to make 12% per year. I’m doing much better than that. My SS check is 2500/mo. Mt IRA earns about $15,000/mo. In the last 3 months I made $14,000 selling options on a single stock.
I think a 401K can make you a millionaire.