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[Oblivion]

Last year, a self professed "feminist" co-worker and I were briefly discussing the election, and she said that she was really worried about Romney possibly repealing Roe v. Wade, but was still leaning towards him because him being a businessman meant he knew how to handle the deficit.

We all got our priorities, I guess.

 

[Chichikov]

Impossible, since the US alone can't design a global financial system. The best we can do is make sure as many people as possible are educated on how the system actually works. When JFK decided americans were all getting fat, Gym class became mandatory. You're telling me we can't do anything about the financial system?

Its not that the population failed to comprehend it, it's that the population is never exposed to it. The basics are simple enough for anyone to understand, but almost no one has the opportunity unless they have the initiative to hunt the information down and educate themselves- and that's a rare quality in any area.

Let me put it this way - I don't think you can design a stock market based system that 100% of the population will get right, and the problem is that the implication of getting it wrong (which in many cases means nothing more than trusting the wrong person) can be devastating.
It's bad enough that we moralize unemployment, but we mustn't moralize investing badly (though as a society this is exactly what we do implicitly).

That being said, simplifying the system has nothing but an upside.

p.s.
I honestly think that there are more important things to teach our population than how the stock market work.
There might be less important things, but I'm drawing a blank at the moment.

 

[Manmademan]

Let me put it this way - I don't think you can design a stock market based system that 100% of the population will get right, and the problem is that the implication of getting it wrong (which in many cases means nothing more than trusting the wrong person) can be devastating.
It's bad enough that we moralize unemployment, but we mustn't moralize investing badly (though as a society this is exactly what we do implicitly).

That being said, simplifying the system has nothing but an upside.

p.s.
I honestly think that there are more important things to teach our population than how the stock market work.
There might be less important things, but I'm drawing a blank at the moment.

to the bolded: absolutely not. If you invest your money in a generic index fund and leave it alone 99% of investors will profit. over time, investors should move their money from high risk funds (stocks) into low risk or risk free assets (bonds) as they move to retirement. it takes zero skill to do this. You can sit down with any bank and get a list of funds that qualify (as well as some advice) in a matter of minutes for free.

There's no need to "trust the right person" on what funds to dump your money in, because if you have basic financial literacy you can parse the information yourself. Any fund will give you 1 year, 2 year, 5 year, 10 year performance as well as fees (if applicable) up front. it's not hidden information that only financial wizards have access to.

Chasing the next hot stock or IPO is a scam 99 times out of 100. Investors should NEVER dump all their money into AAPL or Facebook because they "heard" on the news it was the next big thing. This is day trading/gambling, and is for experts with money to burn or fools.

Basic education on how the market functions as well as basic literacy of our financial system benefits EVERYONE. It allows consumers to make educated decisions on college loans (how often have we heard "how will i ever pay back this six figure loan with a bachelors in english!"), home loans (see: the housing collapse that should have been 100% avoidable), small business loans (90% of small businesses fail in the first year...guess why) credit cards, auto loans, etc. Do you know anyone that never deals with these? Because I don't.

This isn't complex information. I can name two dozen working class friends and family that can rattle off complex performance metrics for their favorite baseball, football, NCAA teams etc going back 5 or 10 years at the drop of a hat, but are totally ignorant about the returns on their retirement plans or how their FICO score is calculated. Guess which one is harder to understand?

It's not just about "playing wall street's games" it's about understanding money and how it benefits you. given the amount of effort that goes into teaching complete bullshit (why was I required to take home economics? or band?) There's room to make sure americans can't be sold a bill of goods by someone trying to talk them into buying 15,000 gold coins because of "imminent market collapse!"

 

[PhoenixDark]

Watching Bill Maher. Who the hell is this apologist for the Rich speaking for the "millenials"?

As much as we're seeing progress in social issues in this country we're woefully behind on progress on fiscal issues.

It pains me to see so many of my friends talk about how social security and medicare and welfare won't be there for us. You know why it won't? Because we aren't demanding it will be.

We buy into this "the programs need to be reform" and we demand cuts. Its our own damn fault.

Actually social security and Medicare won't be there for you in the future because of cowards like Obama and many other democrats who don't take the issues seriously. It's clear liberals have lost the deficit game and cuts of some kind are expected. But instead of coming up with a sensible budget or bargain that protects programs, democrats would rather play on the republican side of the field and continuously say changes need to be made on entitlements. The longer the economy is allowed to drown, the longer we'll be focused on the deficit. And since no one seems to care about the economy we could be having this false debate on deficits for a decade.

There are corporatists on both sides who will ensure the government can never negotiate drug prices, patients can't buy drugs from Canada, people cannot purchase Medicare at any age, and a host of other serious changes that actually save money. And because the democrat alternative apparently only revolves around raising taxes and cutting social security, there is no idealogical debate in Washinton on this; the progressive caucus has a mixture of good and ridiculous ideas and are rather irrelevant to the debate.

Seriously, this is like trying to determine how to save money eating and deciding to starve instead of buying some fucking inexpensive groceries. You can get some potatoes, they're cheap. Maybe some mixed veggies, frozen chicken breasts, perhaps some pancake batter/syrup, beans, and bread. That's less than $50. Or you can just not eat because that's what Very Serious people do.

 

[Chichikov]

to the bolded: absolutely not. If you invest your money in a generic index fund and leave it alone 99% of investors will profit. over time, investors should move their money from high risk funds (stocks) into low risk or risk free assets (bonds) as they move to retirement. it takes zero skill to do this. You can sit down with any bank and get a list of funds that qualify (as well as some advice) in a matter of minutes for free.

There's no need to "trust the right person" on what funds to dump your money in, because if you have basic financial literacy you can parse the information yourself. Any fund will give you 1 year, 2 year, 5 year, 10 year performance as well as fees (if applicable) up front. it's not hidden information that only financial wizards have access to.

Of course there is no need for that, but many people lost all that money like that.
You can moralize it all you want, but it's not like people give their money to a shady person in a van, reputable financial advisor organization fleece everyday Americans all the time.
I know people who got screwed big time by AmEx for example.

And do watch TV?
Have you seen those Gerber life insurance or reverse mortgage ads?
There's a whole industry of very smart people geared toward taking money from less educated ones.
Sure, you can build a whole regulatory system that goes after actors like that, but it's difficult, expensive and we really don't have a good track record of regulating financial institutions, I think it's just easier and better to stop sending working people to the lions of Wall Street like that.

Basic education on how the market functions as well as basic literacy of our financial system benefits EVERYONE. It allows consumers to make educated decisions on college loans (how often have we heard "how will i ever pay back this six figure loan with a bachelors in english!"), home loans (see: the housing collapse that should have been 100% avoidable), small business loans (90% of small businesses fail in the first year...guess why) credit cards, auto loans, etc. Do you know anyone that never deals with these? Because I don't.

This isn't complex information. I can name two dozen working class friends and family that can rattle off complex performance metrics for their favorite baseball, football, NCAA teams etc going back 5 or 10 years at the drop of a hat, but are totally ignorant about the returns on their retirement plans. Guess which one is harder to understand?

It's not just about "playing wall street's games" it's about understanding money and how it benefits you. given the amount of effort that goes into teaching complete bullshit (why was I required to take home economics? or band?) There's room to make sure americans can't be sold a bill of goods by someone trying to talk them into buying 15,000 gold coins because of "imminent market collapse!"

It's only beneficial for people who want to play in the stock market, I don't think most working people should do it.
It's only important because we're forced to do it for our retirement, and as I'm sure you know by now, I think that's a terrible idea.

But let's move the discussion forward -
Do you think retirement through the stock market is a good system?
If so, why?

 

[Manmademan]

But let's move the discussion forward -
Do you think retirement through the stock market is a good system?
If so, why?

let me put it this way- one can save for retirement without ever touching the stock market. If you're educated about how the financial system works, you'd know this.

The stock market is ONE WAY of saving for retirement, and if you go back and read what I said, you'll see that I suggested investors move their money OUT of stocks as they approach retirement, because stocks are high risk.

 

[empty vessel]

let me put it this way- one can save for retirement without ever touching the stock market. If you're educated about how the financial system works, you'd know this.

The stock market is ONE WAY of saving for retirement, and if you go back and read what I said, you'll see that I suggested investors move their money OUT of stocks as they approach retirement, because stocks are high risk.

What if you we can make social arrangements that provide for retirement without requiring individuals to save for it? Why wouldn't that be superior?

This is basically what social security is, except it is intended only to provide a base line of retirement support rather than full support. But it could of course very easily be expanded to provide more support. That strikes me as a far superior plan for organizing retirement than individual saving.

 

[Chichikov]

let me put it this way- one can save for retirement without ever touching the stock market. If you're educated about how the financial system works, you'd know this.

The stock market is ONE WAY of saving for retirement, and if you go back and read what I said, you'll see that I suggested investors move their money OUT of stocks as they approach retirement, because stocks are high risk.

Index funds is still investing in the stock market, isn't it?
And I don't think most people can retire by putting their money on nothing but bonds, at least not without taking a whole lot of risk (which defeats the purpose of buying bonds).

What are you talking about specifically here?

Also, you didn't really answer my question, do you think it's a good system?
Because I don't, even if you can sort of work it (which is what I'm doing, at least I hope I do, we'll find out when I'm retired).

 

[Tamanon]

The stock market itself is a perfectly fine system, it's really the umbrella system that's built up around it that hurts. Index funds, as well as other mutual funds, tend to avoid those parts. Basic economic education should be given to everyone through school, as it would also encourage investment and saving, which are important for avoiding tapping into your retirement early.

The #1 cause of retirement erosion is using it early instead of letting it work for you, losing the money through investments is not an issue. That of course is an overall economic problem caused by poor wages and higher expenses. Meaning, the poor setup of the entire economy cuts away at planning for the future. That's why the 401(k) is no longer the most viable option, IMO.

 

[Manmademan]

Index funds is still investing in the stock market, isn't it?
And I don't think most people can retire by putting their money on nothing but bonds, at least not without taking a whole lot of risk (which defeats the purpose of buying bonds).

What are you talking about specifically here?

I wasn't talking about index funds, because that's the stock market.

Most people certainly CAN retire on nothing but Bonds. Right now i could point you to municipal bond funds paying between 6 and 7 percent, entirely tax free with virtually zero risk. well, there's the possibility that your city or state could go completely bankrupt, but this is fairly rare (and bondholders still get paid when this happens).

There's even things like full life life insurance policies, which could be borrowed against or cashed in for retirement purposes, provided you bought one early enough that it makes financial sense. I have one of these i bought in my twenties, costs about $200 a month, and will be worth $1 million by the time i hit retirement.

"playing in the stock market" is a bit of a misnomer, since some stock market investment is little better than gambling, and some is a solid plan to make sure you're taken care of. Knowing which is which requires some basic financial literacy, which of course is not being done, and is what I'm advocating. it should be mandatory. if someone (like you) doesn't trust the market, they should have the means and ability to put their money somewhere else that isn't a mattress.

 

[Chichikov]

Let me start at the end -

"playing in the stock market" is a bit of a misnomer, since some stock market investment is little better than gambling, and some is a solid plan to make sure you're taken care of. Knowing which is which requires some basic financial literacy, which of course is not being done, and is what I'm advocating. it should be mandatory. if someone (like you) doesn't trust the market, they should have the means and ability to put their money somewhere else that isn't a mattress.

The bolded is the important bit and I wholeheartedly agree with you on that point.
I will however nitpick other parts of your post, because hey, it's in my nature, but remember I agree with you on the big issue.

I wasn't talking about index funds, because that's the stock market.

Most people certainly CAN retire on nothing but Bonds. Right now i could point you to municipal bond funds paying between 6 and 7 percent, entirely tax free with virtually zero risk. well, there's the possibility that your city or state could go completely bankrupt, but this is fairly rare (and bondholders still get paid when this happens).

If it was risk free, they wouldn't have to pay 6-7%.
I assume you know what a risk permium is.

And generally speaking, municipal bonds are not as safe as people think.

There's even things like full life life insurance policies, which could be borrowed against or cashed in for retirement purposes, provided you bought one early enough that it makes financial sense. I have one of these i bought in my twenties, costs about $200 a month, and will be worth $1 million by the time i hit retirement.

Can you point me to full life insurance policy that I can retire on?
I'm seriously asking.

 

[Manmademan]

Let me start at the end -

The bolded is the important bit and I wholeheartedly agree with you on that point.
I will however nitpick other parts of your post, because hey, it's in my nature, but remember I agree with you on the big issue.

If it was risk free, they wouldn't have to pay 6-7%.
I assume you know what a risk permium is.

Risk Free is a general term. i say they're "virtually" risk free for a couple of reasons.

1.) State and City municipals bonds are always higher than rate on federal bonds (because states don't print their own money), and automatically raise whenever the federal rate goes up. This is part of the reason why they're paying 6 or 7 percent, rather than 2% like treasury bonds, which are the financial definition of "risk free." So even something that's "zero risk" is still paying interest. There's no such thing as something thats LITERALLY risk free, but treasury bonds are the financial definition, so this is what's used for comparison when talking risk. Municipal bonds aren't zero, but they are as close to "risk free" as you're going to find, since the federal government generally has an interest in preventing states and cities from going bankrupt.

1b.) note I mentioned they are "virtually" risk free AND tax free. you might not have noticed. I'm aware of funds paying between 6 and 7 percent, and the proceeds are not taxed on TOP of that (that means no capital gains tax of 15%, OR state tax) so they outperform any other investment paying 6-7. Since the historical performance of the stock market is 8-9 at MUCH higher risk, this means these can be VERY good investments.

2.) Municipal bonds are honored in every case up to bankruptcy. This is guaranteed income, and not variable like a stock. Total collapse of city or state governments is extremely rare. it's not totally unheard of, but it's so much lower than the rate of private bankruptcy that it's not really worth worrying about. In addition, bondholders are still paid in case of bankruptcy, just not at 100%. (it might be 70% or 80%). Assets will literally be sold off or liquidated to make sure you get your money. Stockholders on the other hand are totally screwed in case of bankruptcy and get paid zero.

Edit: let me demonstrate something for you. Assume I have one municipal bond in the amount of $10,000 to the city of lancaster, paying 6%, over a 10 year period. Lancaster goes totally to shit and goes bankrupt in year 8.

I've made 6% of $10,000 every year through year 7. so that's $4200 in interest. bankruptcy means i get back 70% (hypothetically) of the original $10,000 i loaned them, so that means $7000 is paid back to me. so lancaster going bankrupt 8 years in means i have been paid $11,200 on a $10,000 loan. if i was a stockholder when say, GM went under, $10,000 worth of stock is now worth zero and i make nothing (provided i held it and didn't sell at a loss before being wiped out).

3.) When talking of investing, I'm usually speaking of a bond FUND, not one bond exclusively. This means that you're investing diverse mixture of municipal bonds, so the likelihood of a bankruptcy occurring and wiping you out is even lower than it was before.

Can you point me to full life insurance policy that I can retire on?
I'm seriously asking.

it depends on how old you are, and what your medical history is. My rate is low because I bought it in my early 20s, had no medical issues ever (not even a broken bone), and was in excellent shape and running 10 mile races for fun. I'm in the "super preferred" category. Yours may vary. If this applies to you, call an agent and work something out.

Even so, a million is probably not enough to retire on by itself (it could be, depending on how smart you are with your money), but I have other investments on top of this. Even being extremely conservative, i'm in very good shape for retirement.

 

[KtSlime]

So, I guess basically what I'm reading here is "we don't need a change for the better because I already got mine". Hmmm.

What books should I read if I want to survive in the future manmademan?

 

[Chichikov]

Risk Free is a general term. i say they're "virtually" risk free for a couple of reasons.

1.) State and City municipals bonds are always higher than rate on federal bonds (because states don't print their own money), and automatically raise whenever the federal rate goes up. This is part of the reason why they're paying 6 or 7 percent, rather than 2% like treasury bonds, which are the financial definition of "risk free." So even something that's "zero risk" is still paying interest. There's no such thing as something thats LITERALLY risk free, but treasury bonds are the financial definition, so this is what's used for comparison when talking risk. Municipal bonds aren't zero, but they are as close to "risk free" as you're going to find, since the federal government generally has an interest in preventing states and cities from going bankrupt.

1b.) note I mentioned they are "virtually" risk free AND tax free. you might not have noticed. I'm aware of funds paying between 6 and 7 percent, and the proceeds are not taxed on TOP of that (that means no capital gains tax of 15%, OR state tax) so they outperform any other investment paying 6-7. Since the historical performance of the stock market is 8-9 at MUCH higher risk, this means these can be VERY good investments.

2.) Municipal bonds are honored in every case up to bankruptcy. This is guaranteed income, and not variable like a stock. Total collapse of city or state governments is extremely rare. it's not totally unheard of, but it's so much lower than the rate of private bankruptcy that it's not really worth worrying about. In addition, bondholders are still paid in case of bankruptcy, just not at 100%. (it might be 70% or 80%). Assets will literally be sold off or liquidated to make sure you get your money. Stockholders on the other hand are totally screwed in case of bankruptcy and get paid zero.

3.) When talking of investing, I'm usually speaking of a bond FUND, not one bond exclusively. This means that you're investing diverse mixture of municipal bonds, so the likelihood of a bankruptcy occurring and wiping you out is even lower than it was before.

I totally agree that municipal bonds carry significant less risk than investing in stock market, but it still has risk.
That obviously mean that you need to spread it, I think no one would argue that betting you retirment on an individual municipal bond is a smart idea, and that's when things start to get complicated.
First of all you need to understand why it's important to spread the risk, then you need to able to pick multiple bonds and more importantly, understand the risk interconnection of those vehicles (which is generally not trivial, even for investment literate people, if you don't believe me ask someone in banking how the big boys do that).
Alternatively, you can read the fine obtuse print in a municipal bond fund and hope you're smarter than the lawyer who wrote it (I don't feel you can't really trust rating agencies or the "business" media on that front).

Listen, I make a very good living, I'm very conservative with my money and I research that shit a lot, but I ran models about the last crash, and I can tell you, if something like 2008 happened in the wrong time for me, I would have been fucked.
I don't think 'homeless' fucked, but definitely 'I'll have to work in my 70s' fucked.
And a system who can inflict such pain on people who generally did everything right is a bad system.

it depends on how old you are, and what your medical history is. My rate is low because I bought it in my early 20s, had no medical issues ever (not even a broken bone), and was in excellent shape and running 10 mile races for fun. I'm in the "super preferred" category. Yours may vary. If this applies to you, call an agent and work something out.

Even so, a million is probably not enough to retire on by itself (it could be, depending on how smart you are with your money), but I have other investments on top of this. Even being extremely conservative, i'm in very good shape for retirement.

Do you have any info about the specific program you're on?
I'm not super educated on LIRPs, but I always assumed they're borderline scams.

 

[Manmademan]

First of all you need to understand why it's important to spread the risk, then you need to able to pick multiple bonds and more importantly, understand the risk interconnection of those vehicles (which is generally not trivial, even for investment literate people, if you don't believe me ask someone in banking how the big boys do that).

Not true. Again, any bank, or someone like Vanguard or Fidelity have pre-packaged municipal bond funds that spread the risk and do the work for you. It's actually the opposite- buying one bond on your own is hard, buying through a fund is dead simple.

Do you have any info about the specific program you're on?
I'm not super educated on LIRPs, but I always assumed they're borderline scams.

I don't use a LIRP, just a standard full life insurance policy. LIRPs are different, they're tied into the market and the value of your policy fluctuates with the market. Full life policies are dead simple to understand, and have a guaranteed payout ($1 million in my case) with no fine print, and the full value can be borrowed against or cashed out easily and tax free in most cases. Part of the reason I went with this is because I don't have to worry about what the market does, that $1 million is a baseline. By the time my daughter is old enough for college, there will be more than enough value built up in the policy to pay for her to go anywhere she likes, without loans- assuming I needed it, that is.

Again though, it may not make sense for you depending on your age and health. My fiancee is 29, and her premiums are too high for it to make sense for her- investing the money elsewhere makes more sense. You'll have to talk to an agent, though I'd recommend speaking to more than one.

Listen, I make a very good living, I'm very conservative with my money and I research that shit a lot, but I ran models about the last crash, and I can tell you, if something like 2008 happened in the wrong time for me, I would have been fucked.
I don't think 'homeless' fucked, but definitely 'I'll have to work in my 70s' fucked.
And a system who can inflict such pain on people who generally did everything right is a bad system.

That's the thing-

1.)The market has recovered all of it's gains from the last crash and then some. If you were invested in the market then and DID NOT PANIC AND WITHDRAW YOUR FUNDS you would have made everything back you lost, or possibly even made a profit, depending on what your asset mix is.

2.) anyone who was close to retirement in 2007 or so when the market crashed should have had virtually no money in stocks. they're too volatile- it should have been almost ALL bonds at that point, which were left totally unaffected by the crash, as bonds have a guaranteed payout. (well, not totally- if you were heavy on corporate junk bonds you might have gotten burned, but those fall into the same category as stocks). Basic financial literacy would have ensured most people did not lose their shirts. It's LACK of education that caused that pain. Well, that and corrupt toolbags.

Edit: This conversation is demonstrating why basic financial literacy should be taught to everyone.

 

[Chichikov]

Not true. Again, any bank, or someone like Vanguard or Fidelity have pre-packaged municipal bond funds that spread the risk and do the work for you. It's actually the opposite- buying one bond on your own is hard, buying through a fund is dead simple.

So you're trusting fidelity and vanguard to not fuck you over.
I'm not that trusting with investment houses.
And I'm sure even if you think that fidelity and vanguard are 100% trustworthy you'd agree that there are some shady ass investment firms out there, so once again, we put the burden to figure that shit out on the citizens, who I think have better things to do with their lives.

I don't use a LIRP, just a standard full life insurance policy. LIRPs are different, they're tied into the market and the value of your policy fluctuates with the market. Full life policies are dead simple to understand, and have a guaranteed payout ($1 million in my case) with no fine print, and the full value can be borrowed against or cashed out easily and tax free in most cases.

Again though, it may not make sense for you depending on your age and health. My fiancee is 29, and her premiums are too high for it to make sense for her- investing the money elsewhere makes more sense. You'll have to talk to an agent, though I'd recommend speaking to more than one.

Maybe I'm using the wrong terminology, but when I said LIRP I was just talking about a system that is specifically designed for you to take loans against during retirement (as opposed to making payouts in the case of catastrophic events).
And I never understood how that's a good system, can you maybe give me some info about the specific policy you're on?
I don't want to pry too much about your financial situation, but just in general terms so I can better understand it.

1.)The market has recovered all of it's gains from the last crash and then some. If you were invested in the market then and DID NOT PANIC AND WITHDRAW YOUR FUNDS you would have made everything back you lost, or possibly even made a profit, depending on what your asset mix is.

2.) anyone who was close to retirement in 2007 or so when the market crashed should have had virtually no money in stocks. they're too volatile- it should have been almost ALL bonds at that point, which were left totally unaffected by the crash, as bonds have a guaranteed payout. (well, not totally- if you were heavy on corporate junk bonds you might have gotten burned, but those fall into the same category as stocks). Basic financial literacy would have ensured most people did not lose their shirts. It's LACK of education that caused that pain. Well, that and corrupt toolbags.

Edit: This conversation is demonstrating why basic financial literacy should be taught to everyone.

Stocks as a whole recovered their value, but that is definitely not the same as saying that everyone who just kept their retirement money in Wall Street has recovered their wealth, not even close.
Honest question, have you run the numbers?
It's not too complicated, project where you think your retirement funds will be at 60 then simulate a 2007-2008 style crash and see what it does to you.

It's not about panic, it's about paying your bills.


p.s.
I'm panicky as shit and I took all money out after Bears Stearns, looking at mine and some of my friend's bottom line, that was a very very smart move on my part (plus I get to say that I owned a money market fund that broke the buck, how many people can say that?).

 

[GhaleonEB]

Why do I need to learn about this crap?
We act like it's some sort of great life skill to know what's mid cap value retirement fund (or whatever) is.
And you know what, if people want to play that stupid game they can, but why the fuck am I coerced, and the threat of death by homelessness no less, to participate in it?

It's not a law of nature that we must teach all of our citizens about wall street in order to retire, it's a carefully designed system that works really really well for the banking industry.

p.s.
You can't really pick your target, and that's the fucking problem.

Yeah. Wall Street does not exist to enrich the masses, it's a club. Sure you can join as a jr. member, but that's just to make you feel like you belong in it. (Of course, I say this as a guy working in finance with a pretty good amount invested. I just don't expect everyone to be there.)

Social Security should be raised significantly and the eligibility age lowered quite a bit, so it puts a reasonable floor under people by say, age 55. Tether Medicare to it and you've got a decent system that doesn't require people to land in poverty when they are at retirement age.

(The Dodd-Frank tweak which makes 401(k) an opt-out system rather than opt-in has apparently raised savings greatly since, but it's way too late for the current or near retirees.)

 

[empty vessel]

Edit: This conversation is demonstrating why basic financial literacy should be taught to everyone.

And also why such a system leaves people at the mercy of others. The reality is that it takes substantial time and effort to learn how to plan for retirement. Ultimately, it's a waste of social resources to undertake that effort when better systems can so readily be implemented.

 

[Chichikov]

Yeah. Wall Street does not exist to enrich the masses, it's a club. Sure you can join as a jr. member, but that's just to make you feel like you belong in it. (Of course, I say this as a guy working in finance with a pretty good amount invested. I just don't expect everyone to be there.)

Written in 1940, still true today.

But it's a lie that have been sold so effectively to the American public, that it's going to take some effort to change the public perception.

 

[Y2Kev]

If this is the system we're going to have, then I think the government needs to do a much better job of teaching people how to use the system. Nobody explained to me what a 401k was or what an IRA was or why I would want a Roth IRA vs. a Traditional IRA. And that's just the very basics.

There is no real financial education in public schooling at all. That statistic that shows how little people have saved for retirement is pretty scary and evidence of that.

What is going to happen as all these boomers retire with no money?

 

[Chichikov]

What is going to happen as all these boomers retire with no money?

One way or another, tax payers will pay the bill.
Hopefully directly (by helping them) but probably mostly indirectly (children supporting their parents, safety net expenditures going up etc.).

But as long as Wall Street get to play with other people's money it's all good, right?
The system works, just not for you and me.

 

[Manmademan]

So you're trusting fidelity and vanguard to not fuck you over.
I'm not that trusting with investment houses.
And I'm sure even if you think that fidelity and vanguard are 100% trustworthy you'd agree that there are some shady ass investment firms out there, so once again, we put the burden to figure that shit out on the citizens, who I think have better things to do with their lives.

i don't have any issues with Vanguard, I have a few friends working for them. But really- if you're going to be THIS paranoid, why trust any bank with your money? With your mortgage? With your health insurance? Why work for anyone, ever? Any company anywhere can screw you.

Maybe I'm using the wrong terminology, but when I said LIRP I was just talking about a system that is specifically designed for you to take loans against during retirement (as opposed to making payouts in the case of catastrophic events).
And I never understood how that's a good system, can you maybe give me some info about the specific policy you're on?
I don't want to pry too much about your financial situation, but just in general terms so I can better understand it.

yes, you used the wrong terminology. a LIRP is a very specific thing. I just have a basic Whole life insurance policy through Ohio National.

I pay them a premium per month, my policy accumulates in value, I can cash it out or borrow against that value as needed. The premium never increases, and the benefit is guaranteed. Even if the market collapses tomorrow, Ohio National will still be paying me the agreed amount. Sort of like a bond, i guess. If a catastophic event happens (like, I die tomorrow) Ohio National pays that $1 million immediately, regardless of how much the policy has accumulated. If nothing catastrophic happens, I can withdraw or borrow those funds up to the amount the policy has accumulated. It should be at full value by the time I'm 63 or 64 or so. Note that there are "term life" policies that ONLY pay out in catastrophic situations and cannot be borrowed against. This isn't it.

Not something I would rely on exclusively, but it's awesome in addition to my 401k, profit sharing account, and municipal bonds.

Stocks as a whole recovered their value, but that is definitely not the same as saying that everyone who just kept their retirement money in Wall Street has recovered their wealth, not even close.
Honest question, have you run the numbers?
It's not too complicated, project where you think your retirement funds will be at 60 then simulate a 2007-2008 style crash and see what it does to you.

Uh, i tried to tell you. At age 60 I will have zero dollars in stocks, and a crash would leave me untouched. Stocks are too volatile for anyone nearing retirement to have in their 401K, unless they're REALLY in bad shape and deem it worth the risk. This is why basic financial literacy is important, because most people SHOULD know this, and know that there are other, safer investments than stocks for that point in their lives. If you're 30? go nuts. assume as much risk as you can. 55? 60? 65? you should be looking at the safest investment possible, and that's not the stock market. Moving your assets from stocks to bonds is as simple as clicking a button, or telling your fund manager to reduce your risk. It's brain dead.

p.s.
I'm panicky as shit and I took all money out after Bears Stearns, looking at mine and some of my friend's bottom line, that was a very very smart move on my part (plus I get to say that I owned a money market fund that broke the buck, how many people can say that?).

I can see the panicky part- you may have lucked out, but the average investor who pulled out when the market crashed lost their shirts, and would be better off if they hadn't.

 

[GhaleonEB]

If this is the system we're going to have, then I think the government needs to do a much better job of teaching people how to use the system. Nobody explained to me what a 401k was or what an IRA was or why I would want a Roth IRA vs. a Traditional IRA. And that's just the very basics.

There is no real financial education in public schooling at all. That statistic that shows how little people have saved for retirement is pretty scary and evidence of that.

I wish basic finance was a required class in high school. Especially before you are eligible to sign up for credit cards.

I've been saving for retirement for 14 years now; my wife and I opened a Roth IRA the year we got married and set up automated contributions, even through college. Now a long ways into it, we're doing more serious planning around timing, and it's tricky. We're now working to stage the timing of when we can access different buckets of funds (Roth IRA vs. employer retirement vs. other savings vs. Social Security vs. 401(k) which we'll start in a few years). It's a very complex, cobbled together system. And I work in finance!

 

[pigeon]

This isn't complex information. I can name two dozen working class friends and family that can rattle off complex performance metrics for their favorite baseball, football, NCAA teams etc going back 5 or 10 years at the drop of a hat, but are totally ignorant about the returns on their retirement plans or how their FICO score is calculated. Guess which one is harder to understand?

Again, this is the same thing Tamanon said. "This isn't hard to learn! Everybody I know understand complex stuff but doesn't understand any of this!" There's something wrong with this argument! If lots of people who are otherwise smart have trouble understanding something you think is simple, doesn't this suggest that there's a systemic problem impeding their ability to understand it? Such as an entire industry of services that makes money from convincing people to do the wrong thing? This is the same thing we always talk about when we talk about health care being a lousy market because of information differential.

It's not just about "playing wall street's games" it's about understanding money and how it benefits you. given the amount of effort that goes into teaching complete bullshit (why was I required to take home economics? or band?) There's room to make sure americans can't be sold a bill of goods by someone trying to talk them into buying 15,000 gold coins because of "imminent market collapse!"

I certainly don't think this is a bad idea. But it would be easier to accomplish if we took some of the perverse incentives out of the system first by making sure you can't take somebody's retirement away by convincing them that index funds are a bad idea.

 

[Manmademan]

If this is the system we're going to have, then I think the government needs to do a much better job of teaching people how to use the system. Nobody explained to me what a 401k was or what an IRA was or why I would want a Roth IRA vs. a Traditional IRA. And that's just the very basics.

There is no real financial education in public schooling at all. That statistic that shows how little people have saved for retirement is pretty scary and evidence of that.

What is going to happen as all these boomers retire with no money?

Kev, this was my basic point. Reinventing the system isn't going to happen. Even if the US was totally on board, the system is global and beyond our ability to meaningfully change.

Education as to how it works should be our highest priority, and it's not taught at ANY level. not primary, not secondary, not university. I didn't have the faintest clue about all of this until entering a masters program and taking Finance at a whim. It's the best money I ever spent.

Again, this is the same thing Tamanon said. "This isn't hard to learn! Everybody I know understand complex stuff but doesn't understand any of this!" There's something wrong with this argument! If lots of people who are otherwise smart have trouble understanding something you think is simple, doesn't this suggest that there's a systemic problem impeding their ability to understand it? Such as an entire industry of services that makes money from convincing people to do the wrong thing? This is the same thing we always talk about when we talk about health care being a lousy market because of information differential.

no, because the issue is that these people have never been EXPOSED to it, don't know this stuff exists, or why it should be important. The material itself isn't difficult, it's that there is no focus on why it should be important at any level of education, ever. On the other hand, once a year you get every tv channel, radio station, and newspaper going on about the best strategy to win your NCAA tournament bracket.

I certainly don't think this is a bad idea. But it would be easier to accomplish if we took some of the perverse incentives out of the system first by making sure you can't take somebody's retirement away by convincing them that index funds are a bad idea.

agreed also.

 

[The Librarian]

I talked to my dad earlier about investing some money only to find out he already had some invest in my name.

My dad's awesome. In most regards.

 

[GhaleonEB]

I talked to my dad earlier about investing some money only to find out he already had some invest in my name.

My dad's awesome. In most regards.

Very cool. We're doing the same for our kids. They're in for a shock when they hit 21.

 

[Manmademan]

Very cool. We're doing the same for our kids. They're in for a shock when they hit 21.

Yeah, I'm not going to tell my daughter about my investments. I figure she'll work harder in school if she assumes she needs a scholarship to go anywhere.

 

[Frank the Great]

my parents are awesome too. i'm going to be almost 200k in debt due to law school and they are even more underwater than i am, purely due to their ineptitude at managing their financial affairs.

i'm definitely going to make sure i have money set aside for my kids when i have them. i will never tell the kids that though. in other words, i will do the opposite of my parents, who promised to pay for my law school but used all their money for horrible real estate investments that lost them everything instead.

 

[The Librarian]

Very cool. We're doing the same for our kids. They're in for a shock when they hit 21.

Most excellent! He also, from my birth, put in fifty dollars every week (he may have increased the amount later on) into a savings account to pay for my college. That's quite some planning right there.

Of course, with rising college costs, you'd need to put more in every week nowadays to pay for it all.

 

[GhaleonEB]

Yeah, I'm not going to tell my daughter about my investments. I figure she'll work harder in school if she assumes she needs a scholarship to go anywhere.

That's a good approach; if she doesn't get enough financial aid, would you consider helping her through college? My wife and I are still debating about how to handle their money. It's in our name, just earmarked for them. I'm thinking of giving them some once they start college, so they don't come out on the other in much debt, and then the rest when they graduate. (Not telling them about the second part.) We have nine years or so to decide.

We'll see what they do. The basic idea is to help get them off to a good start, hopefully not in debt from the time they start their careers.

Most excellent! He also, from my birth, put in fifty dollars every week (he may have increased the amount later on) into a savings account to pay for my college. That's quite some planning right there.

Of course, with rising college costs, you'd need to put more in every week nowadays to pay for it all.

Very cool, that's similar to what we've done. When each kid turned 1, we put $1,000 into a fund, and I set up automatic $50 contributions every month since then. Every time we have a bonus or tax return, I put a few hundred extra in. They're going to be okay. Really glad your dad did the same for you.

 

[Manmademan]

Most excellent! He also, from my birth, put in fifty dollars every week (he may have increased the amount later on) into a savings account to pay for my college. That's quite some planning right there.

Of course, with rising college costs, you'd need to put more in every week nowadays to pay for it all.

actually, the returns from savings accounts these days are so low it's not much better than hiding it under the mattress (though that wasn't the case when he started, i'm sure.)

you could probably do really well with 50 bucks a week for 18(?) years, it would have to be something with a higher return though.

That's a good approach; if she doesn't get enough financial aid, would you consider helping her through college? My wife and I are still debating about how to handle their money. It's in our name, just earmarked for them. I'm thinking of giving them some once they start college, so they don't come out on the other in much debt, and then the rest when they graduate. (Not telling them about the second part.) We have nine years or so to decide.

We'll see what they do. The basic idea is to help get them off to a good start, hopefully not in debt from the time they start their careers.

The deal my parents had with me was that they'd pay for half of my education. The first two years i screwed around and didn't take it seriously (transferred twice, and lost credits doing so) so most of my college was on me, and i worked full time to pay for it while taking classes. the work experience was arguably just as valuable as my degree, so I might do a similar arrangement when my kid gets old enough.

 

[KtSlime]

Manmademan, isn't the whole point of living in large communities and being social so that we can have people specialized in specific jobs/topics? Why should people that are very skilled in computer programming, or in painting, or composing music, also need to be very skilled in finance to be able to survive in this world upon retirement?

While I think it is a good idea to teach basic finance, and how the industry works, just in case people might find they are interested in it and move into that sort of job, I don't think those who find the whole thing mind-numbing and infuriating should be forced to become perfectly proficient in it.

I do know there are people that specialize in it, and they are more than willing to play with your money, but that would require placing trust in those people, and they don't have any liability to your well being. At least if there was a system put up by the government we would have a reliable system that has some sort of accountability.

Disclaimer: I know nothing about saving for retirement, I've never been fortunate enough to have a job that offers anything of the sort.

 

[Manmademan]

Manmademan, isn't the whole point of living in large communities and being social so that we can have people specialized in specific jobs/topics? Why should people that are very skilled in computer programming, or in painting, or composing music, also need to be very skilled in finance to be able to survive in this world upon retirement?

you don't have to be "very skilled." I'm not in finance, and my background is the result of taking one class. It's more than enough. If we require basic proficiency and a test to drive, we should also require basic proficiency with finance to qualify for large loans and credit cards. There's easily enough room within the system as it is (I don't see the need for home economics or shop class, and phys ed is on very thin ice) so there's not much excuse NOT to teach the basics at a high school level.

While I think it is a good idea to teach basic finance, and how the industry works, just in case people might find they are interested in it and move into that sort of job, I don't think those who find the whole thing mind-numbing and infuriating should be forced to become perfectly proficient in it.

I do know there are people that specialize in it, and they are more than willing to play with your money, but that would require placing trust in those people, and they don't have any liability to your well being. At least if there was a system put up by the government we would have a reliable system that has some sort of accountability.

You already place trust in these people. Do you own a car? Do you plan on buying a home? Did you take out a loan for college? Do you have health insurance? Right now your livelihood depends or did depend on someone not screwing you financially, and you placed your trust in them to do so. Everyone should be provided the basic tools necessary to recognize what IS and IS NOT a good financial move- there would be less scammers and crooked companies if we did.

That being said, i do believe the government should have some role in providing for Americans post retirement. Social Security is good, but should be better funded and protected from congress raiding it as they did in the 80s. Health Care should be single payer. Beyond that though, if you want to live WELL in retirement and not just "get by", one needs to understand how money works.

Disclaimer: I know nothing about saving for retirement, I've never been fortunate enough to have a job that offers anything of the sort.

Then save on your own. only about 1/3 of my retirement savings are provided through my job.

 

[Chichikov]

i don't have any issues with Vanguard, I have a few friends working for them. But really- if you're going to be THIS paranoid, why trust any bank with your money? With your mortgage? With your health insurance? Why work for anyone, ever? Any company anywhere can screw you.

Wait, do you deny that there are some investment houses and investment vehicles that literally fleece investors?
The average american is really ill equipped to make that decision, and considering that you seem to have made it based on personal friendship, I'm not sure how qualified even you are (not saying you made a bad call here, but surely you agree that not everyone can hope to have friends in investment houses, right?).

And my bank is a non-profit co-op, so it doesn't have any financial incentive to fuck me over, which is exactly why I trust them (but still check everything).

yes, you used the wrong terminology. a LIRP is a very specific thing. I just have a basic Whole life insurance policy through Ohio National.

I pay them a premium per month, my policy accumulates in value, I can cash it out or borrow against that value as needed. The premium never increases, and the benefit is guaranteed. Even if the market collapses tomorrow, Ohio National will still be paying me the agreed amount. Sort of like a bond, i guess. If a catastophic event happens (like, I die tomorrow) Ohio National pays that $1 million immediately, regardless of how much the policy has accumulated. If nothing catastrophic happens, I can withdraw or borrow those funds up to the amount the policy has accumulated. It should be at full value by the time I'm 63 or 64 or so. Note that there are "term life" policies that ONLY pay out in catastrophic situations and cannot be borrowed against. This isn't it.

Not something I would rely on exclusively, but it's awesome in addition to my 401k, profit sharing account, and municipal bonds.

You can't cash it out without paying taxes on all of the money you took out of it, which you're most likely not going to be able to afford in retirement.
And there lies the problem, you're forced to oversave, since you need your cache balance to be higher than your loan, and once again, this is good for your insurance company, and bad for you.
Also, have you carefully looked at the fees?
Life insurance policies tend to have significant higher fees than other retirement vehicles (mainly because they're still at their heart a life insurance plan and they need to factor in mortality charges).

Uh, i tried to tell you. At age 60 I will have zero dollars in stocks, and a crash would leave me untouched. Stocks are too volatile for anyone nearing retirement to have in their 401K, unless they're REALLY in bad shape and deem it worth the risk. This is why basic financial literacy is important, because most people SHOULD know this, and know that there are other, safer investments than stocks for that point in their lives. If you're 30? go nuts. assume as much risk as you can. 55? 60? 65? you should be looking at the safest investment possible, and that's not the stock market. Moving your assets from stocks to bonds is as simple as clicking a button, or telling your fund manager to reduce your risk. It's brain dead.

I'm going to go on a limb here and say that you didn't run the numbers.
Not trying to attack you or anything, but I've spend a whole lot of time on this very issue and I honestly don't think it's possible to protect yourself against something of that magnitude effectively.
You can reduce the risk, you can take educated guesses on exactly how wall street will fuck us the next time, but I honestly don't believe you can make it bulletproof.
Also, I suggest you read the link I posted about the municipal bonds market (I know you're not suggesting that I can retire on t-bill yield right? ).

Edit: I think I'm mostly okay on that front, but I make a very good living and I thrown a lot of money at the problem, and still a storm of a century type event that I hadn't thought of can fuck me over. remember when MBS where "as good as money"?
I honestly have no fucking idea how anyone making the median income can even begin addressing that risk, even if they have the time, money and ability to educate themselves on this issue.

I can see the panicky part- you may have lucked out, but the average investor who pulled out when the market crashed lost their shirts, and would be better off if they hadn't.

Why do you say that?
I think it was the right thing to do at the time, the right thing to do in hindsight and I plan to do something similar if I see another such storm brewing.

I wish basic finance was a required class in high school. Especially before you are eligible to sign up for credit cards.

I've been saving for retirement for 14 years now; my wife and I opened a Roth IRA the year we got married and set up automated contributions, even through college. Now a long ways into it, we're doing more serious planning around timing, and it's tricky. We're now working to stage the timing of when we can access different buckets of funds (Roth IRA vs. employer retirement vs. other savings vs. Social Security vs. 401(k) which we'll start in a few years). It's a very complex, cobbled together system. And I work in finance!

I honestly think we should move to a system that doesn't require us to teach people a skill that has no application outside a very bad way to try and not die super poor (and in some cases earning a living without really working, but honestly, that's more a fantasy than a reality to 99% of the population).

 

[The Librarian]

Very cool, that's similar to what we've done. When each kid turned 1, we put $1,000 into a fund, and I set up automatic $50 contributions every month since then. Every time we have a bonus or tax return, I put a few hundred extra in. They're going to be okay. Really glad your dad did the same for you.

Nice to see other people doing that. Seems like most people who do that kind of planning are those who deal with money for a living (my dad's an accountant).

That kind of planning isn't that common. I've spoken to most of my friends and they wish their parents had done something like that.

 

[GhaleonEB]

I honestly think we should move to a system that doesn't require us to teach people a skill that has no application outside a very bad way to try and not die super poor (and in some cases earning a living without really working, but honestly, that's more a fantasy than a reality to 99% of the population).

I agree, see my earlier post about leveraging our simpler social insurance programs. But to be clear, when I say basic finance classes should be required in high school, I am referring to classes that would cover topics such as: banking, credit cards, mortgages & loans, insurance, etc. Finance is much more than just investments and I think we could benefit much as a society if we were literate on those topics once we reached the age where we had to start dealing with them. I'd put investments and Wall Street pretty far down the list, really.

 

[KtSlime]

you don't have to be "very skilled." I'm not in finance, and my background is the result of taking one class. It's more than enough. If we require basic proficiency and a test to drive, we should also require basic proficiency with finance to qualify for large loans and credit cards. There's easily enough room within the system as it is (I don't see the need for home economics or shop class, and phys ed is on very thin ice) so there's not much excuse NOT to teach the basics at a high school level.



You already place trust in these people. Do you own a car? Do you plan on buying a home? Did you take out a loan for college? Do you have health insurance? Right now your livelihood depends or did depend on someone not screwing you financially, and you placed your trust in them to do so. Everyone should be provided the basic tools necessary to recognize what IS and IS NOT a good financial move- there would be less scammers and crooked companies if we did.



Then save on your own. only about 1/3 of my retirement savings are provided through my job.

Do I own a car: no
Do I plan on buying a home: not in the foreseeable future, I don't make enough money to even try to
Did I take out a loan for college: Yep, and I got fucked hard, real hard
Do I have health insurance: no
Does my livelihood depend on someone else: yeah, I'm reliant on the farm I work on

I rely on the mattress method of saving money, my job gives me a room to stay, basic utilities and a very small variable stipend depending on the time of the year. Fortunately I have access to land to grow some food and in the past have had SNAP (but haven't renewed it because of my limited transportation opportunities and current working schedule don't allow me to spend time running around turning in job applications that I won't hear back from).

 

[Manmademan]

Wait, do you deny that there are some investment houses and investment vehicles that literally fleece investors?
The average american is really ill equipped to make that decision, and considering that you seem to have made it based on personal friendship, I'm not sure how qualified even you are (not saying you made a bad call here, but surely you agree that not everyone can hope to have friends in investment houses, right?).

yeah, you're misinterpreting what I said. I didn't base my investments on personal friendships. i have SOME investments through vanguard, but not all of them. It's easy enough to check the reputation of a company- my personal friendships only serve to make me feel better about keeping some of my cash with them. And yes, It's been my argument this entire time that the average american is ill-equipped, which is why basic education in finance should be mandatory. This is the entire reason I'm even having this discussion.

And my bank is a non-profit co-op, so it doesn't have any financial incentive to fuck me over, which is exactly why I trust them (but still check everything).

you think non profits are always well run? never screw anyone over? I have bad news for you.

You can't cash it out without paying taxes on all of the money you took out of it, which you're most likely not going to be able to afford in retirement.
And there lies the problem, you're forced to oversave, since you need your cache balance to be higher than your loan, and once again, this is good for your insurance company, and bad for you.
Also, have you carefully looked at the fees?
Life insurance policies tend to have significant higher fees than other retirement vehicles (mainly because they're still at their heart a life insurance plan and they need to factor in mortality charges).

LOL. keep in mind you'd never heard of this policy before a few minutes ago. Don't presume to try and educate me, or what I can and can't afford in retirement. Did you miss the part where i said this is PART of my retirement savings? and I wouldn't rely on it alone? i have 401K AND a separate municipal bond fund on top of these- and the muni fund is totally tax exempt.

i also suggest you re-read the link I gave you, since your interpretation of taxation on the policy is incorrect:

The cash value of a life insurance policy accumulates tax deferred. If you surrender the policy, you’ll incur an income tax liability at that time, but only for those funds that exceed the premiums you have paid.

and loans taken from the policy are not taxed. "fees" are built into my premium, which is fixed and does not change. I don't think you really understand this at all.

I'm going to go on a limb here and say that you didn't run the numbers.
Not trying to attack you or anything, but I've spend a whole lot of time on this very issues and I honestly don't think it's possible to protect yourself against something of that magnitude effectively.
You can reduce the risk, you can take educated guesses on exactly how wall street will fuck us the next time, but I honestly don't believe you can make it bulletproof.
Also, I suggest you read the link I posted about the municipal bonds market (I know you're not suggesting that I can retire on t-bill yield right? ).

I already explained to you how municipal bond risk works. Your article doesn't contradict anything I said- at this point I question how good your comprehension is. As for running the numbers, one of us has taken and aced a master's level course in finance, and I'm pretty sure it's not you.

 

[Tamanon]

Thinking financial knowledge is only applicable to retirement is a great exhibit for one of the many things wrong with the current economical model. The concept of saving and investment is one that is incredibly valuable in turning the tide against a debt-based economy. Along with proper compensation and expense control(such as the health sector), there's many things wrong with the current situation.

Debt is an incredibly powerful tool for accelerating your financial growth, or increasing your quality of life, but the vast majority of Americans use it either to just get by, or to finance current purchases with little shelf-life.

 

[Manmademan]

Thinking financial knowledge is only applicable to retirement is a great exhibit for one of the many things wrong with the current economical model. The concept of saving and investment is one that is incredibly valuable in turning the tide against a debt-based economy. Along with proper compensation and expense control(such as the health sector), there's many things wrong with the current situation.

Debt is an incredibly powerful tool for accelerating your financial growth, or increasing your quality of life, but the vast majority of Americans use it either to just get by, or to finance current purchases with little shelf-life.

precisely. I've been saying all along that this isn't about just retirement, it's applicable to housing, student loans, credit cards, and small business loans among others.

Basic financial literacy is extremely valuable and needs to be taught.

 

[empty vessel]

Manmademan, would you object to a system in which the social security program significantly increases benefits to provide a comfortable--rather than minimally secure--retirement to all who have qualified by their work over their lifetimes, while still allowing people to save additional retirement income any way they choose, as by investments?

What can the objection to such a system possibly be?

Thinking financial knowledge is only applicable to retirement is a great exhibit for one of the many things wrong with the current economical model. The concept of saving and investment is one that is incredibly valuable in turning the tide against a debt-based economy. Along with proper compensation and expense control(such as the health sector), there's many things wrong with the current situation.

Debt is an incredibly powerful tool for accelerating your financial growth, or increasing your quality of life, but the vast majority of Americans use it either to just get by, or to finance current purchases with little shelf-life.

But what's that got to do with knowledge? Most debt is imposed on people because of the structure of our economy, not voluntarily undertaken in any meaningful sense. Education of individuals cannot fix a system designed based upon private debt. Consider that the government's almost complete response to the financial crisis (besides the meager stimulus) caused by excessive private debt has been to get banks lending again, i.e., to put the domestic private sector back into debt.

 

[Manmademan]

Manmademan, would you object to a system in which the social security program significantly increases benefits to provide a comfortable--rather than minimally secure--retirement to all who have qualified by their work over their lifetimes, while still allowing people to save additional retirement income any way they choose, as by investments?

What can the objection to such a system possibly be?

depends on the definition of "comfortable", i suppose. It needs to be increased (I have a friend whose father is getting about 1K a month from social security...this REALLY isn't enough) but I don't think he should be making 35,000 a year from SS, either.

Exactly where is that line between "minimal" and "comfortable?" I think that's worth debating.

But what's that got to do with knowledge? Most debt is imposed on people because of the structure of our economy, not voluntarily undertaken in any meaningful sense. Education of individuals cannot fix a system designed based upon private debt.

I think it could help. Back when I was in college, campuses were filthy with companies pushing credit cards to students with the promise of free tshirts, CDs, etc just to get them to sign up. These cards all had horrific APRs, and students would rack up balances not understanding what they would have to pay back, or what a default would do to their credit rating.

Thankfully I'm pretty sure this practice has been banned, but this is the kind of debt that's totally unavoidable with better education- an example of those "in the know" taking advantage of those they knew were undereducated.

 

[Tamanon]

Manmademan, would you object to a system in which the social security program significantly increases benefits to provide a comfortable--rather than minimally secure--retirement to all who have qualified by their work over their lifetimes, while still allowing people to save additional retirement income any way they choose, as by investments?

What can the objection to such a system possibly be?



But what's that got to do with knowledge? Most debt is imposed on people because of the structure of our economy, not voluntarily undertaken in any meaningful sense. Education of individuals cannot fix a system designed based upon private debt.

It's easily one facet of a fix. You need to stop looking at one thing as a silver bullet. Nobody is claiming that.

Also, if you'll notice, I was actually suggesting what you proposed as a replacement for Social Security way back when this conversation started.

 

[empty vessel]

depends on the definition of "comfortable", i suppose. It needs to be increased (I have a friend whose father is getting about 1K a month from social security...this REALLY isn't enough) but I don't think he should be making 35,000 a year from SS, either.

Why not? (I'm not implying something less than 35,000 wouldn't be sufficient for comfortable.)

 

[KtSlime]

A $1000 a month from SS sounds like heaven, that's more than I get from my work stipend.

 

[Manmademan]

Why not? (I'm not implying something less than 35,000 wouldn't be sufficient for comfortable.)

35K is about the salary of the average worker, isn't it? (this might be outdated info.)

By the time you're retirement age, you shouldn't have a lot of the costs (kids, mortgage, school loans) that someone 35 years old would have. I can see medical bills being an issue, but we really should implement single payer or something damn close to it- that's a different issue.

Bottom line, by the time you're 65, you've had plenty of time to plan for your future in retirement. I think it's the government's responsibility to make sure everyone has the opportunity to live comfortably in retirement (via education, fair and stable investment markets, etc) as well as ensuring that basics like housing, food, and healthcare are taken care of- but if you want high speed internet, a nice car, vacations etc that's on you.

A $1000 a month from SS sounds like heaven, that's more than I get from my work stipend.

around here a decent single bedroom apartment will run you 700 a month or so. This might be lower in the midwest, who knows. But after housing, this dude is looking at $300 a month for food, transportation, medical costs, etc. It could use some improvement. edit: hell, 12K a year is the poverty line for an individual, isn't it? we can do better than this.

 

[Jack Remington]

Well, also there's literally no reason for him not to apologize quickly.

Sure there is. It dignifies the inane opinions of everyone who thinks this should even be a story.

 

[Chichikov]

Thinking financial knowledge is only applicable to retirement is a great exhibit for one of the many things wrong with the current economical model. The concept of saving and investment is one that is incredibly valuable in turning the tide against a debt-based economy. Along with proper compensation and expense control(such as the health sector), there's many things wrong with the current situation.

Debt is an incredibly powerful tool for accelerating your financial growth, or increasing your quality of life, but the vast majority of Americans use it either to just get by, or to finance current purchases with little shelf-life.

To me, you're only describing the faults of our current system.
Working should be enough and it used to be enough.

**************************************************************

yeah, you're misinterpreting what I said. I didn't base my investments on personal friendships. i have SOME investments through vanguard, but not all of them. It's easy enough to check the reputation of a company- my personal friendships only serve to make me feel better about keeping some of my cash with them. And yes, It's been my argument this entire time that the average american is ill-equipped, which is why basic education in finance should be mandatory. This is the entire reason I'm even having this discussion.

I can tell you for a fact that AmEx financial routinely fuck clients, I helped enough people here to know it's not a single event too.
I would imagine they sound pretty reputable to most people.

you think non profits are always well run? never screw anyone over? I have bad news for you.

No, but they don't have an incentive to fuck me over, so if they do, it's incompetence rather than organizational malice.
And it's significantly simpler to spot incompetence than malice.

LOL. keep in mind you'd never heard of this policy before a few minutes ago. Don't presume to try and educate me, or what I can and can't afford in retirement. Did you miss the part where i said this is PART of my retirement savings? and I wouldn't rely on it alone? i have 401K AND a separate municipal bond fund on top of these- and the muni fund is totally tax exempt.

I heard about life insurance before though.
And I didn't mean to claim anything about your payback ability in retirement, what I mean to say is that in a life insurance retirement plan, you can end up with pretty dramatic tax events, If you think you can pay that type of cash it's great, but that would also imply that you're probably saving way too much (not to mention that doing this defeated the whole purpose of using a life insurance retirement plan).

Also, it's good that it's not the only retirement vehicle you're using, but that doesn't mean you can't evaluate it.

i also suggest you re-read the link I gave you, since your interpretation of taxation on the policy is incorrect:

I couldn't find the full terms of that policy anywhere, but even from the sales material -

* Under current Federal tax rules, loans taken will generally be free of current income tax as long as the policy remains in effect until the insured's death, does not lapse or matures, and is not a modified endowment contract. This assumes the loan will eventually be satisfied from income tax-free death proceeds. Loans and withdrawals reduce the policy's cash value and death benefit and increase the chance that the policy may lapse. If the policy lapses, matures, is surrendered or becomes a modified endowment, the loan balance at such time would generally be viewed as distributed and taxable under the general rules for distributions of policy cash values.

It's a bit more complicated than you make it and you can get fucked over by not being careful.
Be careful, please.

and loans taken from the policy are not taxed. "fees" are built into my premium, which is fixed and does not change. I don't think you really understand this at all.

The fact that those fees are part of your premium doesn't make them non-fees.
What's important here is that this is money that you won't be able to use in retirement.
I can't stress enough how important it is to figure exactly what fees you're being charged when it comes to retirement, if it didn't matter they wouldn't have tried so hard to hide them.

I already explained to you how municipal bond risk works. Your article doesn't contradict anything I said- at this point I question how good your comprehension is. As for running the numbers, one of us has taken and aced a master's level course in finance, and I'm pretty sure it's not you.

Again, at the risk of sounding like a dick, when you say stuff like "there is a bond with 6% return that is risk free" you kinda admitting that you don't really understand how risk is calculated.

 

[Manmademan]

Again, at the risk of sounding like a dick, when you say stuff like "there is a bond with 6% return that is risk free" you kinda admitting that you don't really understand how risk is calculated.

I'm going to ignore the life insurance part of this, since there is a LOT of information here that you have incorrect (again) and I'm not in the mood to debate over it. Bottom line, I get a lot more out of that policy than I put in, otherwise it wouldn't be an investment, would it?

let's concentrate on municipal bonds for a second.

1.) I never said "there is a bond with a 6% return that is risk free." never happened. scroll up, then come back.

2.) what i DID say is that I was aware of a FUND (that is, a mixture of MANY bonds) that was TAX free (they are), and "virtually" risk free.

3.) I qualified what I meant by risk free earlier, but I'll go into it again. "Risk Free" in the financial sense refers to US savings bonds. There is no such thing as something literally risk free, as we've seen with the debt ceiling even the US government has a risk of default. we're talking the PRACTICAL definition of risk free, not the literal one.

4.) So, when discussing the risk of a municipal bond FUND (not an individual bond) being virtually risk free, we evaluate it in regards to the risk presented by US savings bonds, and other investments. They are not quite as solid as US bonds, as cities have been known to go bankrupt- but your article you linked only came up with two examples in modern financial history. In practical terms, this is close enough that I consider this pretty damn close to risk free.

5.) Going back to the fact that I'm speaking in regards of FUNDS which are heavily diversified, the impact of one particular municipality going bankrupt would be heavily minimized even in the case where it DOES happen. Which again, your article admits is VERY rare.

6.) Even in the case of bankruptcy, Bondholders are still paid (unlike stockholders) and can even profit. I posted an example earlier, but you may have missed it:

Edit: let me demonstrate something for you. Assume I have one municipal bond in the amount of $10,000 to the city of lancaster, paying 6%, over a 10 year period. Lancaster goes totally to shit and goes bankrupt in year 8.

I've made 6% of $10,000 every year through year 7. so that's $4200 in interest. bankruptcy means i get back 70% (hypothetically) of the original $10,000 i loaned them, so that means $7000 is paid back to me. so lancaster going bankrupt 8 years in means i have been paid $11,200 on a $10,000 loan. if i was a stockholder when say, GM went under, $10,000 worth of stock is now worth zero and i make nothing (provided i held it and didn't sell at a loss before being wiped out).

So, by saying that a municipal bond FUND is "virtually risk free" in comparison to US savings bonds and ESPECIALLY stocks, I'm 100% correct here. Is it zero? of course not, nothing is. But that wasn't the argument. If you want to cite specifics as to why M.Bonds are not close to US bonds in terms of risk, and are instead closer to say, stocks or index funds by all means, feel free. But don't quote BS about how I don't understand how "risk is calculated."