How much of it is encapsulated in the index card?
I don't understand rebalancing. It seems like doubling down on your shittiest investments at the expense of your best. Maybe I don't understand it right.
How many people here come close to saving 15% of their income (pre-tax, I assume) (ore more than 15%, if you failed to heed this guy's advice in your 20s) exclusively for retirement? I assume close to 90% of people who respond to this comment, but less than 2% of the people reading it.
From the Times write-up, it seems like any valuable advice in it is about how to buck yourself up for the discipline required.
4: my previous employer automatically paid 10% into a retirement fund, so it was easy there. Not so much now, though.
4: I do now, but certainly haven't done so consistently throughout my worklife.
The problem with "saving" for retirement is that "saving" means a bank account at 0.000000000001% interest. What you want to do is "invest" for retirement. But that means you have to have enough already in a bank account that you can "invest" without worrying that you'll need to withdraw it all.
I've been trying to max out my Roth. I want to put more money into a 457. The state takes out about 10% for my defined benefit pension, but I only get that if I last 10 years, and I'm not getting social security credits. (I think I can roll it over if I leave earlier.)
I think I can roll it over if I leave earlier.
You can.
8: It also helps if you "earn" enough that you can "save".
If you can save, you can invest, If You Can.
3- Buy low, sell high- your best investments are only the best if you cash them out when they're high, this is an automated way of doing that. It doesn't work for individual stocks, of course, where you could be throwing money at a dead investment, but for index funds it avoids you holding the bag when a particular market tanks.
Higher returns is not actually the argument for rebalancing, it's that rebalancing leads to less variance. Returns of 50% and 0% will not be as great as 25% compounded, and by generating more consistent returns and avoiding wide swings, rebalancing attempts to maximize the geometric return. But arguments based on "better returns" have to rely on historical returns.
4: Our employer pays 10% of base salary into each of our retirement accounts. Currently I'm saving for a house so am not putting in more than that into retirement, but I have successfully been putting away 15% into building up some cash. Once we buy a house I'll probably shift some into retirement savings to get up to 15-20% of salary. It somewhat depends on whether I can ever get a grant though, as otherwise I'll run out of money for summer salary soon, in which case things will get tighter.
We both have employer pensions, which we pay into. Other than that, not saving, not able to save. Ironically, we'd need to save, say, 15% of our combined post-tax income for ... about 6 or 7 years to afford a minimaldeposit on a flat. Which is never going to fucking happen.
I didn't save at my last job because I figured I'd be out too quickly for it to be worth it and I was right. Also, I was hedging because had I'd stayed/tried to stay I'd have been eligible for a pension option that required you to stay five years which would have counted the years since I started.
Stuff like this irks the hell out of me, and I save a very high % of my income. Let's ignore that the malevolent powers that be have ransacked our economy on behalf of the .01%, the proles need more PERSONAL RESPONSIBILITY. Should we maybe worry that we've destroyed skilled blue collar work and are doing our best to hack away at white collar professions? No? Stop drinking so many lattes, fool.
I have a possibly unrelated question, which as a lay observer has puzzled me. We seem to have two major problems, as laid out by those at neoliberal think tanks: 1) technological advances have destroyed the need for manual and unskilled/semiskilled labor, thus creating a permanent class of un- and underemployed for which there is no solution. So...Rust belt? Too bad, so sad, but it's just the way of the future. 2) elderization, as they say in Chinese. Feminism/socialism/godlessness = women (of the 'right' sort) aren't having babyeez like they used to, so birth rates are cratering, and who is going to care for all the old people??
It seems like problems 1 & 2 are obvious solutions for each other. Shrinking workforce + increased productivity should balance each other out, right? If they're not, then the issue is political, not due to Ye Olde Natural Lawes of Economics, right? I know there are serious people who make these arguments in good faith, and I'm recognize I might be missing something major, but as they're now argued, they read to me like arguments designed to justify the status quo and beat the working classes and feminists over the head with two separate, mutually incoherent sticks.
I've heard arguments like technology = need for skilled labor, not unskilled labor, so skills mismatch is the cause for a permanent underemployed class, but that just seems like something easily fixible with education and job training. Likewise, cratering population issues, to the extent they actually are real, could be solved by immigration. Plus, as I've brought up here in the past, if birthrates are stabilizing at about a TFR of 2 globally, we really only have 1-2 generations of a top heavy old people demographic structure, so the problem works itself out in a few decades max. Trying to boost the birthrate staves off the problem but doesn't solve it, plus it exacerbates environmental problems.
Shrinking workforce + increased productivity should balance each other out, right? If they're not, then the issue is political, not due to Ye Olde Natural Lawes of Economics, right?
Yes and yes. Yglesias, among others, has been arguing along these lines for a while now.
We've never paid much for care for the old, AFAIK, so that might be a new economic arrangement. A perfectly reasonable one as we head for replacement birthrates and benevolent robots, y'ask me, but it means a claim on resources by the poors/old not-riches.
Bum-wiping that preserves everyone's back and dignity is also hard job, IME, but surely some considerable fraction of the unemployed are capable.
The elderly have bums, but not in a way we can understand.
From some pro bono work I have done, I got the impression that in California at least a significant barrier to people (overwhelmingly women) getting elder care jobs is ancient arrests or other law enforcement run ins for really minor stuff. Given the extraordinary low pay to hard work ratio if these jobs plus the apparent demand for workers willing to take them, it seems crazy we let a 20 year old arrest for pot possession stand between the two. Luckily there us often a way to clean up someone's record sufficient to work out the problem.
I'm in CA and have a friend working as elder care for her grandmother. The paperwork is bad, the stability isn't--there's always a panic about reapplying, form X has expired so we'll hold your pay until it's complete, etc.--and when they do pay it isn't much. Of course, it's cheaper than a minimum wage job minus paying for skilled nursing (similar to sometimes a stay at home mom is cheaper than earning a bad job's income minus daycare).
Unless we decide to pay people (nurses, home health care workers, etc., not doctors) more, we're going to have an issue. If the only available jobs are elder care (difficult and pay poorly), that's a pretty disastrous future.
I read the pamphlet and was disappointed. I think it's basically conventional wisdom (at least, it's the exact same shit that my parents started telling me when I was about 12). Save money, starting early, put it in low-fee mutual funds: duh. The hard part is being able to do that, as CN and JMcQ point out. The author acknowledges it too, in the title even!, but as far as advice on how to save, or "how to buck yourself up for the discipline required," this is basically it:
People spend too much money. They decide that they need the newest iPhone, the most fashionable clothes, the fanciest car, or a Cancun vacation. Say you're earning $50,000 per year, 15 percent of which is $7,500, or $625 per month. In this day and age, that's a painfully thin margin of saving, and it can be wiped out simply by stringing together several seemingly innocent expenditures, each of which might nick your savings by $100 or so per month: a latte per day, a too-rich cable package, an apartment that's a little too tony, a dress or pair of brand-name sneakers you really don't need, a few unnecessary restaurant meals and, yes, an excessive smart phone plan you could, if you had to, not only live without, but also function better without. Life without these may seem spartan, but it doesn't compare to being old and poor, which is where you're headed if you can't save.
Another thing that really bothers me about Bernstein's advice is that he says you should be saving 15% of your income for retirement in addition to saving for a down payment on a house, your kids' college, and whatever else, like those are totally independent. They're not, are they? Saving for retirement seems intimately connected to one's housing situation especially, and I don't see how good financial advice for young people can totally neglect homeownership.
That type of advice for saving money seems to neglect the Vimes theory of boots in general. As a young person with a certain amount of cash, I'm buying a lot of non-consumables, and saving as much as I possibly can doesn't seem optimal. How should I balance price and quality/durability? This is especially a concern with high-ticket items like furniture and car.
My advice is don't put much money into quality furniture. Starting out usually means moving and being able to just donate/trash much of your furniture makes it easier.
My job puts at 14% for retirement, and when shiv was working, we saved a ridiculous amount, because we decided to live as if we were living just on my salary, and use his for savings/extras. So we have a smaller house, and one car, but now I can put him through college without too much belt-tightening.
And then it turns out the baby eats all your money anyway.
A friend offered us this advice when we moved in: don't buy anything nice, because your kids will destroy everything. That has turned out to be *great* advice.
Sorry the pamphlet was lame.
The furniture is easy. The drywall damage is another thing.
I didn't think that pamphlet was that lame, but maybe I'm lame.
"Sorry the pamphlet was lame" stands as a poignant one line poem evoking the parade of small defeats in life which diminish all of us daily, and ultimately destroy us completely.
Right about kids destroying things.
The Vimes theory of boots is a real thing, but it only works in very restricted domains, and if you apply it unthoughtfully you end up spending more. Cars, I think are a yes for spending more means saving more, so long as 'spending more' to you means a used car that's recent enough to still be very reliable. Furniture? A shabby couch is still a functional couch -- you're never going to be in a position where you're out of money but you need a new couch, like you are with a car or boots. And so on. Cheap clothes are really cheap these days -- I don't think there is a crossover where spending more means saving more, except maybe if you wear suits, and even then I'm not sure.
Also, pets. Pets also destroy things and are small money sinks, but at least nobody's pretending they're going to take care of you when you're old.
I was mostly mad that the pamphlet didn't address buying a house. It seems like saving for a down payment should interact in a meaningful way with saving for retirement. If I can blow off my retirement account for a few years and own a home sooner, is that worth it? Also, Bernstein says that the first step toward retirement is to get out of debt. He specifically mentions paying off credit card debt, car loans, and unsubsidized student loans. Well, what about mortgage debt? Does he think I should pay cash for a house?
I didn't read the pamphlet, so I don't know what he thinks about buying a house. I myself think it depends on the local market (cost of renting vs. buying) and how geographically mobile you think you are going to have to be.
The Vimes theory of boots is a real thing,
One tenet of my personal philosophy of spending is it is always good to "over" spend on items which serve as an interface between you and the "ground." Shoes, boots, tires, carpet, rugs and flooring. Knee pads if necessary. Mattress by extension (and I guess couches and chairs could follow).
35 is stuff that I wonder about, too. A lot of what I'm saving now isn't going into a retirement account because I figure I might want day want it for a down payment.
A friend offered us this advice when we moved in: don't buy anything nice, because your kids will destroy everything.
Our problem is that we've inherited a bunch of stuff in the past two years or so. Our shit was all shitty, but now we've got a giant teak dining room table with all these chairs, and this fancy table plus lamp from my grandmother, and my mother is constantly wanting to purge their life possessions onto us as well.
One tenet of my personal philosophy of spending is it is always good to "over" spend on items which serve as an interface between you and the "ground."
My somewhat more general theory is that you rarely get in much trouble overspending on something that you use regularly. The thing that I regret is spending on things that I don't actually use.
I wouldn't extend your theory too far. Plenty of people have gotten into trouble on houses and cars that they use regularly.
39. Tell me about it. We have my parents' wedding china and my grandparents' because my sister is unrelentingly modernist and won't have either. It's OK, but it takes up a ton of space and we use each one maybe four or five times a year.
I would sell the set you like less. Not so much for the money, as to clear up storage space and transfer it someone who would be happy to have it.
(Would you like unsolicited advice about how you should be organizing your closets?)
39, 42: I ended up with my grandparents' china, and it sat mostly unused in a cabinet for many years until I recently looked at my crappy everyday dishes, looked at the nice china, and had a little epiphany. Now I use the nice china; I just have to avoid getting annoyed when it gets broken.
44: Are your cabinets full of unused crappy everyday dishes or did you get rid of them?
We didn't actually do this (thanks, small inheritance from childless greatuncle!), but I thought you could take money out of retirement accounts for a down payment without penalty somehow. Maybe as a loan that you would pay back?
46: I saved a few for outdoor use, but otherwise, buh-bye and good riddance.
You can certainly borrow against 401k plans. There are risks. Consult a financial planner or a longer pamphlet.
45: No.
47: I could be wrong, but I thought the largest you could take out without penalty was $10k, which might suffice as a down payment in the city I grew up in but not anywhere I expect to be living anytime soon.
With IRAs, anyway, you can withdraw up to $10k without penalty for first-time home buying.
With a 401k, it's $50,000 you can take. I've never done it myself.
Huh. Yeah, what essear said. The $10k would have to be just a supplement for a down payment, at least these days when down payment pretty much has to be 20%.
52: I did not know that. Looking around, apparently there *is* such a thing as a self-employed 401(k).
Query: Is there any benefit to having more than one retirement plan? I can imagine someone might want to do that if s/he wants to put in more than the allowable annual maximum, but I doubt I'm in danger of that. Also might want to do it if one plan has more flexibility re: withdrawals than the other. Any other reason(s) you might want to open more than one type of account?
50.1: yeah (looks) I guess not. If you were a little older I think you would have had one.
Actually I should really have already known that.
54: If you have a complex employment situation, it might make sense. Buck rarely has only one employer, and changes jobs pretty frequently (by my standards)(while always doing exactly the same thing, in the same office), so he's often been in the position of having retirement things of some sort related to each of his employers.
54: For somebody self-employed, I don't think there's much difference except for the Roth vs. not-Roth versions.
57: I dithered for quite a while about the Roth/not-Roth issue and eventually went with not-Roth, i.e. traditional, IRA. Hrm, would it be wise to also have a Roth? I have no idea! I wouldn't exactly have a lot of money in either, so is it better to have the smallish amount in a single account, or split between two? I don't know, but I'm thinking a single account. No? Yes? (Math is hard. How does the compounding interest compare for the two scenarios?)
There's also such a thing as a SEP (Simplified Employee Pension, for self-employed persons) IRA. Explanation of self-employment options.
An acquaintance has until recently had simultaneous Roth IRA and a SEP, but ditched one of them, I think the SEP. I'll have to ask him why.
Roth vs. non-Roth comes down to expectations of your tax rate now versus your tax rate in retirement, with a small side of diversifying against regulatory risk (that is, the fear that Congress will change the rules to raid everyone's retirement accounts, perhaps by making some formerly tax-free Roth withdrawal taxed).
Lastly in my string of questions: I inherited a mutual fund from my mom which turns out to be in high-yield bonds, which it turns out are colloquially termed junk bonds. It's doing quite nicely and has grown.
Should I take money from that to put in the IRA? This would be termed rebalancing, I believe. The thing is, the mutual fund is totally flexible, I can take money from it at any time without penalty, and the IRA is not. It sort of freaks me out to pin money down by transferring from the former to the latter.
So you have a totally non-retirement-linked mutual fund, which is to say, just some investment money. Moving it to the IRA probably has some tax advantages, but this is a pretty generally complicated question and is going to depend on a lot of personal details.
(You might consider, if you have a regular amount you put in the IRA, moving that amount from the mutual fund instead of from cash, so that you're shifting the investment into a tax-advantaged account without actually tying up more money (since you'll have more free cash)).
61.1: Yeah. And okay, I'll crunch some numbers. We're not talking a lot of money here, but every bit is a help.
61.2: Excellent idea. Thanks so much. I had initially been thinking I should pull a chunk out of the mutual fund and dump it in the IRA, but this makes far more sense. Thank you, Nathan.
