Posted on 01/10/2006 7:15:22 AM PST by SirLinksalot
I agree with everything you said. In California, the public employee unions outspent Arnie 10 to 1 with a bunch of lies. They'd probably have to outspend him 25 to 1 if the issue was:
Should newly hired public employees be granted defined benefit pensions instead of 401ks instead of all you voters?
The time for SS reform was when Clinton was in office. Just like Bush could never get through Clinton's welfare reform. Bush repeated the same arguments that Clinton and his commission had and was villified.
"Thats a crock! I have invested 6% in my 401k for 20+ years without touching it. I am now half way to retirement and have less than the equivalent of two years salary in my account."
Let's do the math here. If you are half way to retirement in the circumstance you outline, well...
Two years of pay (pre or after tax?) say $80K (you are probably making more). You are plugging in a measley 6% but even then you are saving perhaps $5K a year with your companies match. Your existing account is or should be paying at least 4% so you also are socking away $3200 from the balance. That means this year you will add about $8K in total to the pot, next year without any pay increases, another $8500, the year after almost $9K. Do the math. If you work another 20 years and never see a pay raise, you will still have over $300K in the account.
If anuitized at a very modest 5%, you should see $1500 a month for life, maybe more.
Now what happens if you bump your contribution to 10%? Your ending total goes up over $100K and your monthly check hits something like $2000 a month. Now add in your social security, even if gutted and you will probably bring home at least $3K a month. If you are smart enough to have paid off your home and eliminate debt by retirement, you will have a retirement well above the average.
Not bad for contributing $4-5K a year.
I may well have underestimated your potential as I made no allowance for either pay raises or smarter investments.
You also OWN the benefit. The company cannot play with it.
I am on my second career. I have only been paying into a 401K plan for 6 years. I have about $28K. My spouse, also very new to the program has about $12K in IRA's and her new 401K plan. If we stop paying in totally next January, we will still have over $50K in the account by age 65 (12 years) If we continue to pay in modestly we will see 60K.
That is over $300 a month for life in the plan I am in now. No vast amount of money, but not bad when combined with a military pension and eventual SS. I expect to have well over $4K a month by 65 in benefits. Again, well above what most people, who make no provisons for retirement get AND, my home will be long paid for and all debts gone.
I can live very comfortably on that amount of money in my own home and with a car paid for. Can I spend my vacations in Cannes? probably not, but I can get around a good bit and make an effort now and again.
If you have 20 years to retirement, get hot and stop complaining. YOU have control.
Dear joesbucks,
"You would think..."
I agree. And yet, most folks manage to fumble through and derive a pretty decent standard of living from the income they do enjoy, even allowing the mismanagement of their household finances in which many engage. I'm not saying most folks are really good at household finances, only that most are good enough that they live decently and don't ever wind up in bankruptcy court (even with the record levels of bankruptcies we've temporarily seen because of the implementation of the new credit card laws, the vast majority of folks manage to stay solvent through life).
And so it will be with "high finance." I doubt most folks will, over a lifetime of investing, manage to obtain a 10% annualized return. Yet, you could get near to that that just by investing in basic index funds. However, even a 7% return will take a person pretty darned far on 10% - 12% of income set aside every year for retirement.
"Agreed, except, my wife's provider has an index fund that is Morningstar ranked two stars. How can an index fund be ranked two stars?"
Because funds are compared to their appropriate peers. If the Morningstar funds have especially high fees, even though they still return, say, market return minus 1%, they'll look poorly next to, say, Vanguard's index funds, which have fees that are much closer to nothing than to 1%.
I don't invest in mutual funds, and I don't really know much about Morningstar's fund family, except a general impression that they're lackluster, but I'd bet that over time, the Morningstar S&P 500 fund will return something approaching the S&P 500 return minus a percent or so. And over time, that would be about 9%. Not too sloppy.
Don't get me wrong. I do NOT believe that most folks are going to become outstandingly astute investors. Most folks will NOT accumulate great wealth through retirement account stock investing. But I do believe that most folks will muddle by and get adequate returns that will provide a decent retirement for them, provided they don't raid their assets prior to their mid-60s or so.
"Most people who can't seem to balance a checkbook also don't know the first thing about money."
Yet, they manage to get by without starving, losing the house, or being evicted. They aren't stellar managers of their household finances, but they have sufficient adequacy to get by.
"As in your case, you've obviously have enough savvy to conduct business affairs. How many people don't have that same 'savvy' blessing?"
To achieve a comfortable retirement doesn't require the savvy that you credit to me [thanks ;-) ].
In my own household, we have two retirement accounts - mine and my wife's. I manage my own pretty aggressively, but my wife's account is all mutual funds, and heavy on the index funds. Nothing fancy. Nothing requiring special knowledge. She stopped working at the end of 1994, after our first child was born. However, if she'd have continued her job (office manager of a very small business), and her contributions had continued and been invested as they have been since then, and she continued to work until 67 (we were born in 1960, so that's our "standard" retirement age) and continued to save and invest as successfully until then, her account would have totaled in 22 years into seven figures.
The secret to her success isn't savvy. It's:
1. Getting an early start. Her retirement account was started at age 24.
2. Leaving the damned thing alone. She'd invest regularly in index funds and other well-rated mutuals, and leave it alone. Re-balance once a year, and forget about it. We didn't bail on Black Monday when the Dow fell over 20%.
And most importantly:
3. Understand that the stock market generally WILL NOT MAKE YOU RICH QUICK!! It CAN make you very well-off, slowly. But DON'T CHASE THE FAST BUCK!!
I don't think that these basic principles amount to a whole heck of a lot of savvy. Yet, employing these basic principles, I think most folks would get near to market returns over the long-term. For folks who get these principles right at least some of the time, they'll do well enough to get a decent retirement out of their efforts.
"If it was a defined pension plan, then they should live up to their promise."
In the current instance, with IBM, they are living up to their promises. All pension benefits earned up until the present are guaranteed by IBM. However, IBM is changing the terms of employment for the future (which an employer is permitted to do, all things being equal). Folks who don't like it can leave and find work elsewhere. Staying at IBM implies acceptance of the new set of promises.
sitetest
I eat up that much in gas driving to town on errands.
Dear Jim Verdolini,
"I am on my second career. I have only been paying into a 401K plan for 6 years. I have about $28K. My spouse, also very new to the program has about $12K in IRA's and her new 401K plan. If we stop paying in totally next January, we will still have over $50K in the account by age 65 (12 years) If we continue to pay in modestly we will see 60K."
Are you saying that you have six more years until retirement, or 12 more years?
sitetest
Dear Looper,
"The time for SS reform was when Clinton was in office."
Yeah, but the Dems would never want to reform Social Security. Then folks would become independent from the government.
sitetest
In addition, the church I attend is having Dave Ramsey's program. Besides me, there is only one other person who has any concept of what an index fund is. There's about 25 people in the class. One is a business owner, most are middle management or professional folks. You'd be surprised how many have their 401k's invested in money markets. I remarried about three years ago. My wife in her early 50's thought I was handling snakes when I started talking about this stuff with her. She had no idea and at first what I was trying to tell her. Even now, she wouldn't know an index fund from money market and the reasons to be invested in either. Hopefully this program will teach her.
Moringstar is a fund evaluator, not a fund provider. They are similar to Lipper Analytical. They ranks a funds net performance against their peers.
Again, no one is owed a retirement. But we really haven't the 401k generation retire and how well they've done over time. It's going to be interesting.
Dear joesbucks,
"They couldn't grasp the concept."
My grandfather scarcely learned English, although he lived in the United States over 60 years.
My grandmother never did learn how to drive a car.
I'll bet you folks who are under 25 will be an order or two of magnitude more knowledgeable and amenable to this stuff than folks who are currently over 45. My father has a degree in MATHEMATICS and doesn't get this stuff. My 11 and 8 year old sons grasp the basics already.
"You'd be surprised how many have their 401k's invested in money markets."
No, I wouldn't. ;-) Guess where I found most of my mother's 403(b) money??
Even still, when I look at my own Social Security contributions, and how much I'll get when I'm 67, the return from a money market account looks GOOD! Two or three percent positive is better than the negative return I'll be getting from the government. LOL.
Morningstar - yes - my goof.
"But we really haven't the 401k generation retire and how well they've done over time. It's going to be interesting."
Folks who are retiring and now, and will be over the next 10 or 20 years, really aren't the 401(K) generation, either. To me, the folks born in the late '60s or after 1970 are the real test.
sitetest
Yeah, I agree with you. But the Dems didn't want his welfare reform either. Kind of like Nixon and Reagan could get arms control deals without being villified by the Democrats; Clinton could get through entitlement reforms without being villified by the GOP.
Dear Looper,
Yeah, but a little welfare reform only affected a few million folks. Social Security privatization would reduce dependence on government signficantly for every working American.
Only a principled Democrat would do that, and even then, it'd be political suicide for him. He'd have to propose it after the mid-term election of his second term, as his entire party would revolt against him. A Democrat president who did this in his first term wouldn't be able to get re-nominated.
And then, the problem is, where do you find a principled Democrat??
sitetest
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