How the government is making it harder to retire

[Yo_Mama_Been_Loggin]

Tens of millions of Americans have set little money aside for retirement, battered in recent decades by one financial crisis after another and adrift in an economy that has gradually shifted the burden of saving almost entirely on employees. Now they can point to another impediment: The U.S. government. 

In only the most recent example of actions by Washington that hinder saving, the Treasury Department last week moved to cancel the myRA program, a "starter" retirement account that came into existence barely two years ago. Earlier this year, meanwhile, Congress rolled back a rule that made it easier for states to create their own publicly run retirement accounts. Some experts also worry that a new Labor Department rule that requires financial advisers to act in their customers' best interest is on the chopping block.

"The government's action is indicative of a general antipathy to any government involvement in solving the pension crisis," said Anthony Webb, research director at the New School's Retirement Equity Lab.

About that pension crisis: The total amount Americans have saved to fund their retirement falls short of what they need by a whopping $7 trillion to $14 trillion, depending on how one runs the numbers (By comparison, total U.S. GDP is roughly $18 trillion.) This deficit has grown as traditional pensions, which were relatively generous and professionally managed, made way for 401(k) and other "defined-contribution" plans. 

Participation in these plans is largely voluntary and worker-directed, making it easy for savers to save less than they need, invest poorly and lose money to fees. Among all U.S. households that have access to a 401(k) plan  -- only about half of the workforce -- the typical account has a balance of $40,000. Experts recommend that the average person should have about $700,000 saved for retirement. 

MyRA, a government-sponsored IRA with a low and guaranteed return, was a small step toward addressing America's retirement crisis. In fact, the idea for the program came from the financial industry, according to Mark Iwry, myRA's chief architect and a former senior adviser to former Treasury Secretary Tim Geithner during the Obama administration. MyRA let participants save small amounts that would be too low to be profitable for a traditional money manager. After a myRA account reached $15,000, its owner was required to move the money into a private account. 

http://www.msn.com/en-us/money/savingandinvesting/how-the-government-is-making-it-harder-to-retire/ar-AAphN4L?li=BBnbfcN&ocid=edgsp

[stopbush]

1. $700000? Per person saved for retirement? Are you fucking kidding me?

$1,400,000 per couple? Seriously?

I'd say that number is grossly skewed by including billionaires and millionaires in the equation.

BTW - the average household income in the USA is around $55,000 as of 2015. But it's been much lower over the past decades. Let's round it down to $50k. If you work 40 years @ $50k a year, you grossed $2MM over 40 years. After taxes, you cleared $1,600,000. To have saved $1,400,000 for retirement, you would have had to have lived on $200,000 over the course of 40 years.

[Yo_Mama_Been_Loggin]

2. That's the recommended amount

$40,000 appears to be the median

[SharonClark]

3. I'm retiring in 3 months

I make a decent salary, have no debt, own my home, am fairly healthy, and have never paid full price for anything. Yet, I have only 1/4 of what I 'should' have. I'm grateful for what I have. I'm hopeful I won't be like the 85 year old woman standing on the concrete floor at Menard's. She breaks my heart.

[HeartachesNhangovers]

4. Your median household income is off.

Yes, the US median household income (for all households) is about $56K. However, it is much lower for households of retirement age (less than $30K I believe), and much higher for households of working age (over $70K I believe). So for your example - a working household - you should assume the higher number, not the number that is pulled down by retirees.

Also, you are assuming zero return on savings. Someone who is dutifully saving for retirement can't just watch their money languish in a bank account. Even a very conservative, no-load, bond fund for investment-grade corporate debt is paying about 2.25% right now. Of course, every financial advisor in the world will tell you that you must invest a portion of your money in riskier (and higher-paying over the long-run) investments, like equity markets if you want to retire successfully.

And finally, like in most aspects of life, there are no guarantees about retirement, no matter what you do.

[maxrandb]

6. There used to be "guarantees" about retirement

They were called Pensions

[retread]

8. Yes!! My parents lived comfortably on Dad's pension from retirement to death. n/t

[HeartachesNhangovers]

9. Yes, my wife and I live on a couple of

pensions. One pension is from a regional government agency. I worked there for 27 years and was paid fairly well as an engineer. However, there were many people at this same agency who had been there over 30 years who could not retire because they simply were not paid enough (the pension amount is based on your salary, and we did not pay into Social Security) to be able to pay their bills if they retired. They could possibly do it if they moved (from the CA coast) to a very inexpensive part of the country and pinched pennies, but most wouldn't do that. So even though the value of the pension was guaranteed, there was no guarantee that it would be enough to live on.

By the way, I moved from CA to WA state to be able to retire. I could not have been able to afford to live in the SF Bay Area without working.

[mythology]

10. And many of them were massively underfunded

More or less required an employee to not change companies, we're subject to being lost in bankruptcy and weren't designed to pay for people living as long after retirement as they worked. And if managed poorly it put everyone's pension at risk.

A pension was hardly a guarantee, even accounting for the fact that even at their most prevalent, only a minority had access to a pension.

[mythology]

11. I don't think you understand the math.

The U.S. stock market has averaged a 10% return annually over the last 40 years. With that, it's recommended that you save 15% of your salary per year. Between the growth of the stock market and continuing contributions, it's relatively easy to save a surprising amount.

For example, I started late (grad school and some time screwing around) and based on my current age, income and current balance in my 401k, my estimated amount at retirement of 70, is 1.8 million.

If you want to play around, there are plenty of free 401k calculators. Www.calculator.net/401k-calculator.html is one.

[stopbush]

12. I don't think you understand that your situation is the exception to the rule,

not the norm.

You went to grad school. Only 32% of Americans over 25 have a bachelors degree. Only 11% have a masters or doctorate. You don't get a great-paying job these years without a degree.

60% of Americans don't have the funds to handle a $500 emergency. 50% of Americans have nothing saved for retirement.

Less than half of Americans own stocks or other investments outside of "owning" their home. Most stocks are held by the wealthy and super wealthy.

Most Americans are not earning enough to afford the fixed costs of living: rent, utility rates, groceries, cars etc cost exactly the same amount to purchase whether you're poor or a billionaire. Poor people carry debt and pay high interest rates because they use a credit card to make ends meet. The rich use debt as an investment strategy. Poor and middle-income people are living week to week. Your little formula for retirement success means nothing to them.

BTW - a 2016 Stanford study found that the chances of a millenial doing better financially than their parents is down to 41%. That number was in the 80s 20-30 years ago. The reason? Wealth redistribution to the upper elites of society. Bottom line: you are going to either do only as well or worse than your parents did. The chances of climbing up the economic ladder are severely limited in this country.

[maxrandb]

5. As Ray-Gun and the CONservatives would say

"MISSION ACCOMPLISHED"

I fucking hate CONservatism with a fucking passion

[DBoon]

7. Work until you drop dead

More desperate financially needy workers equals a cheap compliant workforce.