Here's an opinion piece on saving for retirement...
http://www.nytimes.com/2012/07/22/opini ... ef=general
It starts off with the usual "people haven't saved enough" and "people will have to work longer" points, but then she gets to the meat of her argument. Basically, she thinks the current system is a failure because people can't plan and save adequately for retirement.
A quote from the article "Basing a system on people’s voluntarily saving for 40 years and evaluating the relevant information for sound investment choices is like asking the family pet to dance on two legs."
Are people really incapable of saving for their retirement? My first reaction was of course people are capable of saving for retirement, but then I started thinking of my friends and family and how few are prepared for even a layoff or illness let alone retirement.
Is it just that as a society we haven't focused on it enough? Do we grow up relying on a nanny state? Or are we really too senseless to be responsible for ourselves?
Saving for Retirement is Beyond our Capabilities
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SideSteptheRatRace
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Personally I would say that at least 50% of the population thinks much to short term.
"Retirement?? I could die before then!"
Or savings are not even a part of the equation: "Let's see I've got $600 in the bank, I now have enough to go on a trip to see my mom in Cali! Yay!"
Societal focus on this would certainly help tremendously. Why don't we teach personal finance in high schools??
"Retirement?? I could die before then!"
Or savings are not even a part of the equation: "Let's see I've got $600 in the bank, I now have enough to go on a trip to see my mom in Cali! Yay!"
Societal focus on this would certainly help tremendously. Why don't we teach personal finance in high schools??
In the Netherlands, retirement savings (or actually: contributions to a pension plan) start automatically when you start working, at least for most jobs. You can't opt-out either. I must admit that I'm glad they do it like this, if they hadn't I would not have saved a dime until age 29 at least, when I started to become more money-savvy. If I look around at other people in my area, I think many of them would choose being paid $500 more monthly now over having a (higher) pension after age 67, but I know that being forced to save up a bit for later will be beneficial for most people (namely the ones who don't die before that age). Admittedly, we can only hope that by the time my generation is 67 or 70, there is still some pension left. (My ERE plans are one way of preparing for this) For the generations before me (up until those turning 65 about now) it has worked well.
I see a lot of stories on reddit about the US, I read about children who have to support their parents in old age, because those parents failed to save enough money to take care of themselves, or thought they could work forever but got ill or handicapped anyway.
I see a lot of stories on reddit about the US, I read about children who have to support their parents in old age, because those parents failed to save enough money to take care of themselves, or thought they could work forever but got ill or handicapped anyway.
The two-thirds/one-third self-control rule seems to apply here.
In the Stanford Marshmallow Experiment about two-thirds of the kids were unable to refrain from eating the first marshmallow long enough to get a second. One-third of the kids were able to exercise self-control.
http://en.wikipedia.org/wiki/Stanford_m ... experiment
Two-thirds of Americans are overweight or obese.
Two-thirds of Americans have not saved enough to survive a financial emergency
http://articles.latimes.com/2012/jun/25 ... s-20120625
I could go on....
The point is, we are all relying on all of us. If some of us fail, they pull the rest of us down.
In the Stanford Marshmallow Experiment about two-thirds of the kids were unable to refrain from eating the first marshmallow long enough to get a second. One-third of the kids were able to exercise self-control.
http://en.wikipedia.org/wiki/Stanford_m ... experiment
Two-thirds of Americans are overweight or obese.
Two-thirds of Americans have not saved enough to survive a financial emergency
http://articles.latimes.com/2012/jun/25 ... s-20120625
I could go on....
The point is, we are all relying on all of us. If some of us fail, they pull the rest of us down.
I think the article is a pretty good start to a discussion of the retirement system. I don't agree with every word of it, but the key point seems to be that an unacceptably high percentage of people fail to create a secure retirement under the current system. I think this statement, if accurate, suggests that a super-majority of people fail in the current system: "Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts."
I think two things contribute markedly to the failure of the current system. The first problem is what people do with their money during their working lives. We discuss this at length in these fora-- how we are misunderstood for saving, and how those who spend beyond their means are encouraged by our society, our government, and our tax laws. I don't think we'll see people properly save for retirement until we see a clear link between savings and societal reward.
The second problem is the current profit-driven retirement system-- meaning that there is a huge industry that quietly skims off our collective retirement savings with little oversight and seemingly no effective regulation. The objectives of the retirement planning sector seem to be: #1 take money from anyone who is saving, and #2 help some of those people create a secure retirement. What a surprise that this fails.
I think two things contribute markedly to the failure of the current system. The first problem is what people do with their money during their working lives. We discuss this at length in these fora-- how we are misunderstood for saving, and how those who spend beyond their means are encouraged by our society, our government, and our tax laws. I don't think we'll see people properly save for retirement until we see a clear link between savings and societal reward.
The second problem is the current profit-driven retirement system-- meaning that there is a huge industry that quietly skims off our collective retirement savings with little oversight and seemingly no effective regulation. The objectives of the retirement planning sector seem to be: #1 take money from anyone who is saving, and #2 help some of those people create a secure retirement. What a surprise that this fails.
I agree with JasonR. In order to get people to behave in such a way that they delay pleasure - for any reason - you have to persuade them to take themselves off auto pilot, question their own motives, engage in critical thought, etc. Since only a small minority of humanity are wired in such a way that they do those things by default and/or enjoy them, everyone else needs to either cajoled or threatened into putting down the cotton candy and getting off the merry-go-round. And for some it's literally impossible... those folks would absolutely have to be managed.
The math says everyone can do it. Math < reality.
The math says everyone can do it. Math < reality.
"Do we grow up relying on a nanny state?"
No. We are far from a nanny state, especially for those that work.
"Or are we really too senseless to be responsible for ourselves?"
Yes...yes...and more yes. My mother almost had to yell at my aunt to get her to at least put the 3% her company would match in their 401k. That's a 100% return with zero risk for the first 3% of her salary she was giving up.
There definitely should be a required plan that everyone has to contribute to and you just carry it from employer to employer. It can still be tied to the market, but it should much harder not to contribute and it should be part of every job. Even jobs low end jobs such McDonalds or jobs that rarely have 401ks such as waiters/waitresess.
While, my first reaction is to give people "choice" this creates long-term problems when these people are too old to work and have no money to support themselves. We then, being decent human beings, pay for at least a low standard of living, as most people do not want people starving on the street.
So, either we take away some "choices" early in these idiots lives and make them pay for their retirement. Or, we take away everyones choice and make us pay for others to retire when they can't work anymore. I will take the first restriction on freedom.
No. We are far from a nanny state, especially for those that work.
"Or are we really too senseless to be responsible for ourselves?"
Yes...yes...and more yes. My mother almost had to yell at my aunt to get her to at least put the 3% her company would match in their 401k. That's a 100% return with zero risk for the first 3% of her salary she was giving up.
There definitely should be a required plan that everyone has to contribute to and you just carry it from employer to employer. It can still be tied to the market, but it should much harder not to contribute and it should be part of every job. Even jobs low end jobs such McDonalds or jobs that rarely have 401ks such as waiters/waitresess.
While, my first reaction is to give people "choice" this creates long-term problems when these people are too old to work and have no money to support themselves. We then, being decent human beings, pay for at least a low standard of living, as most people do not want people starving on the street.
So, either we take away some "choices" early in these idiots lives and make them pay for their retirement. Or, we take away everyones choice and make us pay for others to retire when they can't work anymore. I will take the first restriction on freedom.
There definitely should be a required plan that everyone has to contribute to and you just carry it from employer to employer. It can still be tied to the market, but it should much harder not to contribute and it should be part of every job. Even jobs low end jobs such McDonalds or jobs that rarely have 401ks such as waiters/waitresess.
Sounds a lot like social security to me.
Sounds a lot like social security to me.
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secretwealth
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" I tend to agree that an automatic opt-in system where you can't--or have to jump through hoops to get out--may be the best answer. But that's a slippery slope. Can we then make fat people only eat veggies? It's better for their health and my pocketbook (which is how I make all my decisions) so why not? And we should ban alcohol next...
Even though it's a slippery slope I don't have a better idea."
I'm in broad agreement with JasonR, but I would nitpick on this. This sounds too much like a slippery slope fallacy, akin to "if we make it illegal to beat your wife, can we make it illegal to slap your wife during sex? What about touching her on the arm?"
The fact is, in law as in public policy, we need to make arbitrary limits to what you can and cannot do, and those limits are always up for debate or disagreement. But that doesn't mean we should or can banish those limits entirely. I think a mandatory nationwide pension plan akin to Social Security is a great idea, but doesn't necessarily imply further impingements on liberty. Force everyone to pay into an insurance system that insures food, housing, and healthcare, and you've got a much happier and more productive society. No need to fret that this will turn into a nannying dictatorship (although the UK sure is trying to go in that direction, it seems).
Even though it's a slippery slope I don't have a better idea."
I'm in broad agreement with JasonR, but I would nitpick on this. This sounds too much like a slippery slope fallacy, akin to "if we make it illegal to beat your wife, can we make it illegal to slap your wife during sex? What about touching her on the arm?"
The fact is, in law as in public policy, we need to make arbitrary limits to what you can and cannot do, and those limits are always up for debate or disagreement. But that doesn't mean we should or can banish those limits entirely. I think a mandatory nationwide pension plan akin to Social Security is a great idea, but doesn't necessarily imply further impingements on liberty. Force everyone to pay into an insurance system that insures food, housing, and healthcare, and you've got a much happier and more productive society. No need to fret that this will turn into a nannying dictatorship (although the UK sure is trying to go in that direction, it seems).
Are most Americans incapable of saving for retirement or do they simply make a million small thoughtless choices that cumulatively ensure failure? Do the temptations to spend make it challenging to save for retirement or are they so strong that it is impossible for some people to save? Are these people hard-wired to fail or simply more prone to it? If they are hard-wired, should we make rules to save them from themselves? Should we simply make rules that save *us* from their weaknesses?
We evolved in a world of scarce resources. Abundance is a new phenomenon. Suddenly in the last few generations we have access to more than we need. More food. More credit. More stuff. More space. More choices. Perhaps our genetic makeup has not caught up with this fundamental change.
In another thread I commented that one of the characteristics this new environment will select for is skepticism. Another, I believe, will be self-control. Is self-control an exclusively learnable skill or is it an inherited trait as well? I don't know.
One thing I do know is that the opposite of self-control is learnable. The slippery slope of creating systems that save everyone from their bad decisions and lack of self-control is that they make it easier for people to make bad decisions and encourage a lack of self-control.
There is no easy answer and no obvious place to draw the line.
We evolved in a world of scarce resources. Abundance is a new phenomenon. Suddenly in the last few generations we have access to more than we need. More food. More credit. More stuff. More space. More choices. Perhaps our genetic makeup has not caught up with this fundamental change.
In another thread I commented that one of the characteristics this new environment will select for is skepticism. Another, I believe, will be self-control. Is self-control an exclusively learnable skill or is it an inherited trait as well? I don't know.
One thing I do know is that the opposite of self-control is learnable. The slippery slope of creating systems that save everyone from their bad decisions and lack of self-control is that they make it easier for people to make bad decisions and encourage a lack of self-control.
There is no easy answer and no obvious place to draw the line.
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jacob
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Hey wait, are you guys saying that people are dumb? Unbelievable! 
The problem is in consolidating the cultural belief that people are born with equal rights, which requires that people also have equal responsibilities, with the fact that people vary widely in their ability to meet their responsibilities.
I'd venture a guess that there's a much larger fraction of libertarians on ERE than in the general population and I'd also venture that's because you guys are generally competent to handle a situation with fewer regulations.
However, others require more regulations.
Because there's a distribution of abilities and because there's a one-size-must-fit-all when it comes to legislation and cultural beliefs, the line must be drawn somewhere ... preferably to cause the minimum amount of hurt.
Now, knowing that people and especially ignorant(whether that be irrational or lacking knowledge or lacking discipline) people can be fooled, we come to tricks like "opt-out" instead of opt-in. Tax withholding (yay, I get money back) instead of an annual tax bill (omgwtfbbq, government is charging me what for their services!).
Of course all these tricks result in a constant pain in the form of cynicism in those who see all the subtle manipulation that's already going on ... but maybe it's for the better and the way it has to be (given the cultural constraints).
PS: One can even say that the tax system is good the way it is because it's sufficiently complicated that smart people can figure out how to pay no taxes. This way there's the belief (well, I guess that belief is pretty much destroyed now, so maybe the tax code is a bad example) that the system is fair while in reality it is highly rigged. A better example would by the election system of two candidates both supported by the same corporations or the enormous amount of consumer choices pretty much offered by the same ditto.
The problem is in consolidating the cultural belief that people are born with equal rights, which requires that people also have equal responsibilities, with the fact that people vary widely in their ability to meet their responsibilities.
I'd venture a guess that there's a much larger fraction of libertarians on ERE than in the general population and I'd also venture that's because you guys are generally competent to handle a situation with fewer regulations.
However, others require more regulations.
Because there's a distribution of abilities and because there's a one-size-must-fit-all when it comes to legislation and cultural beliefs, the line must be drawn somewhere ... preferably to cause the minimum amount of hurt.
Now, knowing that people and especially ignorant(whether that be irrational or lacking knowledge or lacking discipline) people can be fooled, we come to tricks like "opt-out" instead of opt-in. Tax withholding (yay, I get money back) instead of an annual tax bill (omgwtfbbq, government is charging me what for their services!).
Of course all these tricks result in a constant pain in the form of cynicism in those who see all the subtle manipulation that's already going on ... but maybe it's for the better and the way it has to be (given the cultural constraints).
PS: One can even say that the tax system is good the way it is because it's sufficiently complicated that smart people can figure out how to pay no taxes. This way there's the belief (well, I guess that belief is pretty much destroyed now, so maybe the tax code is a bad example) that the system is fair while in reality it is highly rigged. A better example would by the election system of two candidates both supported by the same corporations or the enormous amount of consumer choices pretty much offered by the same ditto.
We're all born ignorant. Only some of us are born stupid.
People who can think but have no reason to think are induced into continued ignorance. They are not forced to function to their full potential. When they are sheltered like the boy in the plastic bubble and never have to venture beyond a small, very well defined world with high barriers at the edges, they are essentially made to be ignorant.
Are more barriers the answer? Increased specialization means we are all ignorant of most of what goes on around us. Does that mean that we will end up in a world full of Temple Grandin's sweeping barrier corrals? Comforting. Designed so as not to induce stress. Ending at the slaughterhouse....
People who can think but have no reason to think are induced into continued ignorance. They are not forced to function to their full potential. When they are sheltered like the boy in the plastic bubble and never have to venture beyond a small, very well defined world with high barriers at the edges, they are essentially made to be ignorant.
Are more barriers the answer? Increased specialization means we are all ignorant of most of what goes on around us. Does that mean that we will end up in a world full of Temple Grandin's sweeping barrier corrals? Comforting. Designed so as not to induce stress. Ending at the slaughterhouse....
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secretwealth
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"The problem is in consolidating the cultural belief that people are born with equal rights, which requires that people also have equal responsibilities, with the fact that people vary widely in their ability to meet their responsibilities."
Sometimes you really hit the nail on the head, Jacob.
We have yet to find a system that reconciles the varying abilities and competencies of individuals with the western ideal of universal suffrage and a preference for personal freedom over social control. Still, democratic capitalism seems to be the best of all systems we've tried so far.
I think the gentle nudges in the right direction that we see in America and northern Europe are in general a good thing, and they have been pretty effective so far. If only nations don't overextend themselves by saving in boom times to cover bust times, the system would be infinitely sustainable. We didn't get into a huge debt crisis because we're giving people too much money and there isn't enough to go around--we got into it because no one bothered to balance the books last decade as optimism in infinite growth blinded us to the shitstorm to come.
Sometimes you really hit the nail on the head, Jacob.
We have yet to find a system that reconciles the varying abilities and competencies of individuals with the western ideal of universal suffrage and a preference for personal freedom over social control. Still, democratic capitalism seems to be the best of all systems we've tried so far.
I think the gentle nudges in the right direction that we see in America and northern Europe are in general a good thing, and they have been pretty effective so far. If only nations don't overextend themselves by saving in boom times to cover bust times, the system would be infinitely sustainable. We didn't get into a huge debt crisis because we're giving people too much money and there isn't enough to go around--we got into it because no one bothered to balance the books last decade as optimism in infinite growth blinded us to the shitstorm to come.
"Does that mean that we will end up in a world full of Temple Grandin's sweeping barrier corrals? Comforting. Designed so as not to induce stress. Ending at the slaughterhouse.... "
Yes, but the smart people will get out. Jacob's tax example is a good demonstration.
"One can even say that the tax system is good the way it is because it's sufficiently complicated that smart people can figure out how to pay no taxes. This way there's the belief (well, I guess that belief is pretty much destroyed now, so maybe the tax code is a bad example) that the system is fair while in reality it is highly rigged."
Yes, but the smart people will get out. Jacob's tax example is a good demonstration.
"One can even say that the tax system is good the way it is because it's sufficiently complicated that smart people can figure out how to pay no taxes. This way there's the belief (well, I guess that belief is pretty much destroyed now, so maybe the tax code is a bad example) that the system is fair while in reality it is highly rigged."
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secretwealth
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"We really should give certain people more votes...such as INTJ's and all the other Rationals."
Plato's philosopher kings? That didn't work in Europe in the 30's, and it won't work now.
I've known too many "intellectuals" whom I definitely don't want ruling my apartment building, let alone my country.
Plato's philosopher kings? That didn't work in Europe in the 30's, and it won't work now.
I've known too many "intellectuals" whom I definitely don't want ruling my apartment building, let alone my country.