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>This do-it-yourself pension system has failed. It has failed because it expects individuals without investment expertise to reap the same results as profession

>This do-it-yourself pension system has failed. It has failed because it expects individuals without investment expertise to reap the same results as professional investors and money managers. It has failed because it relies on people to make rational choices and to save money. To be fair, those were considered reasonable expectations until the last few decades. You don't need 'investment expertise'. You put your money in a Vanguard index fund, and you don't pull it out until you're done working. With a savings rate of even 10%, you're golden by traditional retirement age. The main problem I have with .. pretty much every article on retirement ever is this line: >To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. Really? Your living standard is entirely dictated by how much money you spend? I had a conversation with my mother recently about their retirement plans - she's "done the math", and they won't be able to retire until a few years after they planned to. I was somewhat surprised, and asked for details - she apparently can't picture living comfortably on less than $130,000 per year. My wife and I have a comparable lifestyle, and are living on $31,000 without even working hard at it. My advice to everyone: spend less. You're chucking great gobs of money at things that don't make you happy; just STOP DOING THAT and you will have enough to retire on by the time you're 50.

uncr3ative 14y ago
I think at an older age, when you are more likely to have health problems, 31k is probably not enough.
- JoshTriplett 14y ago
  Sum up the premiums on your insurance, as well as the maximum out-of-pocket expenses on that insurance, and you have a good estimate for your maximum medical expenses in a year; you should get a number that comfortably fits in a 31k budget. Insurance exists to make medical costs predictable and budgetable.
  - corbet 14y ago
    ...but anybody who thinks that health insurance provides any such guarantee (in the US) has never dealt with serious medical problems.
    - JoshTriplett 14y ago
      Hence why I said "good estimate" rather than "absolute maximum". However, the kinds of problems that health insurance won't buffer for you will generally screw you whether you have 31k/year or 131k/year.
  - aaronblohowiak 14y ago
    >Sum up the premiums on your insurance Nah, sum up the premiums on what your insurance would cost at retirement age.
wdewind 14y ago
> You don't need 'investment expertise'. You put your money in a Vanguard index fund, and you don't pull it out until you're done working. With a savings rate of even 10%, you're golden by traditional retirement age. It actually does take much more investment expertise than the average American has to know what a Vanguard Fund is, to know that it's a safe bet etc.
- polyfractal 14y ago
  I would argue that is a basic failure of parenting and education, not a financial failure. Why aren't basic finance classes taught in grade schools anymore? How hard is it for parents to teach their kids to save 10% of their income, and to put it into an IRA? Edit: Before anyone points it out, I know the IRA is a relatively young investment vehicle (the 70's). Swap IRA for any sane long-term savings and retirement plan.
- rubashov 14y ago
  The idea that people should have to speculate in stocks to tread water, index fund or not, is absurd and historically abnormal. I also happen think that dumping money into a stock index fund will be a good way to lose over the next 10 years. It's been a really bad idea for many long historical periods. It should be possible to buy CDs at a few points above inflation. This was the historical norm. People shouldn't have to "invest" at all to preserve and modestly grow the value of their earnings. The vast majority of people have no business owning stocks or bonds. The only reason you can't get a decent interest rate is the crazy monetary policy of the last 40 years.
  - msellout 14y ago
    Crazy? Seems like a smart move for shareholders to ask for a government policy that increases stock prices at the expense of other investment vehicles. It's funny how most (all?) government policies result in a wealth transfer. If it's not directly buying goods and services from a corporation on behalf of the people, it's a policy to encourage the people to spend on one thing instead of another. There's nothing inherently wrong with that, but it's good to notice who stands to gain.
ClHans 14y ago
We used to have real pensions from companies, too. It used to be that, by working for a company, part of your benefit was that they'd pay four your retirement. Of course, this is bad for the bottom line, so they cut that.
- anovikov 14y ago
  This was definitely a bad thing for the economy. A lot of people will stay on the job they hate, having a lot of idea what else to do, just not to lose the pension.
TimGebhardt 14y ago
Here's a great rule-of-thumb that I've gotten by with: Never ever compare the cost of your standard of living to someone else's. You just don't have enough information to do an accurate comparison. My in-laws buy a lot of stupid stuff (IMHO) that saps their spending money. Do you think they're going to stop buying stupid little knick-knacks when they're retired? Probably not. Should they? Probably. But humans have a hard time changing their behavior. So what this woman is proposing is to work with and solve the problems we have, not try to magically wish them away or pretend that we can easily change the behavior of the 400mil Americans overnight, and I tend to agree with her that it's a good idea.
ommunist 14y ago
Fantasizing, man? Now listen the real story. I survived 2 currency crashes, when savings of the whole 2 generations of the family were effectively nullified overnight. The euro is now damn close to such crash, and the US dollar as well. From my exp and from the good advice of my granny, I can only tell you to invest into good tools, safety matches, soap and food stash. Everything else is just fiction.
- anovikov 14y ago
  Well, the retirement savings are somehow (directly or indirectly) invested into a stock market, so they are safe from inflation, or even complete currency crash. When inflation is high, you even benefit, because people's consuming activity increases as there is little they could do to save money which is being burnt with inflation, so they spend, improving the bottom line of the companies they buy stuff from - and stocks of which you have. Or they buy stock directly, increasing real price of stock directly by increasing demand. That is valid even in the case of extreme inflation - like 1923 Germany. People suffered, but stocks didn't. Only exception from that rule was the 70s oil shock, but that wasn't a real crisis (economy itself was doing just fine, only the oil became expensive for purely external political reasons).
  - ommunist 14y ago
    Go tell this deep observation to the people whose pensions were invested into Freddy and Mac ponzi thing.
    - anovikov 14y ago
      Any pension was lost? Yes stock market collapsed and so the savings on some funds which invested into stocks. But now they have nearly completely recovered, and 3 years which have passed is too low for a planning horizon for pensions. Last 10 years have been turbulent for stocks, with market (and overall economy) performing well below long-term average, and yet, dividends included, index funds post a modest profit over 10-year period, inflation-adjusted (in part that was because the inflation was low).
- 14y ago
neutronicus 14y ago
> To be fair, those were considered reasonable expectations until the last few decades. Meh, until the last few decades, people just invested in a bunch of kids they hoped would take care of them in their old age.
jw_ 14y ago
> To be fair, those were considered reasonable expectations until the last few decades Ahistorical nonsense. "People USED to save! That's why people used to generally end up desperately poor when they were elderly, and also is why the US implemented Social Security." >My advice to everyone: spend less. You're chucking great gobs of money at things that don't make you happy; just STOP DOING THAT and you will have enough to retire on by the time you're 50. I'm glad to see a comment on Hacker News in which the author describes how amazingly thrifty he is and how irresponsible and shortsighted and stupid everyone else in the world is. It's been ages since anyone has posted anything along those lines and really helps our discussion of large-scale social issues.
- nevinera 14y ago
  You have to buy cheap houses and used cars; we're not talking about dumpster diving and knitting your own socks here. I'm hardly a model of thrift.

uncr3ative 14y ago

I think at an older age, when you are more likely to have health problems, 31k is probably not enough.

JoshTriplett 14y ago
Sum up the premiums on your insurance, as well as the maximum out-of-pocket expenses on that insurance, and you have a good estimate for your maximum medical expenses in a year; you should get a number that comfortably fits in a 31k budget. Insurance exists to make medical costs predictable and budgetable.
- corbet 14y ago
  ...but anybody who thinks that health insurance provides any such guarantee (in the US) has never dealt with serious medical problems.
  - JoshTriplett 14y ago
    Hence why I said "good estimate" rather than "absolute maximum". However, the kinds of problems that health insurance won't buffer for you will generally screw you whether you have 31k/year or 131k/year.
- aaronblohowiak 14y ago
  >Sum up the premiums on your insurance Nah, sum up the premiums on what your insurance would cost at retirement age.

wdewind 14y ago

> You don't need 'investment expertise'. You put your money in a Vanguard index fund, and you don't pull it out until you're done working. With a savings rate of even 10%, you're golden by traditional retirement age. It actually does take much more investment expertise than the average American has to know what a Vanguard Fund is, to know that it's a safe bet etc.

polyfractal 14y ago
I would argue that is a basic failure of parenting and education, not a financial failure. Why aren't basic finance classes taught in grade schools anymore? How hard is it for parents to teach their kids to save 10% of their income, and to put it into an IRA? Edit: Before anyone points it out, I know the IRA is a relatively young investment vehicle (the 70's). Swap IRA for any sane long-term savings and retirement plan.
rubashov 14y ago
The idea that people should have to speculate in stocks to tread water, index fund or not, is absurd and historically abnormal. I also happen think that dumping money into a stock index fund will be a good way to lose over the next 10 years. It's been a really bad idea for many long historical periods. It should be possible to buy CDs at a few points above inflation. This was the historical norm. People shouldn't have to "invest" at all to preserve and modestly grow the value of their earnings. The vast majority of people have no business owning stocks or bonds. The only reason you can't get a decent interest rate is the crazy monetary policy of the last 40 years.
- msellout 14y ago
  Crazy? Seems like a smart move for shareholders to ask for a government policy that increases stock prices at the expense of other investment vehicles. It's funny how most (all?) government policies result in a wealth transfer. If it's not directly buying goods and services from a corporation on behalf of the people, it's a policy to encourage the people to spend on one thing instead of another. There's nothing inherently wrong with that, but it's good to notice who stands to gain.

ClHans 14y ago

We used to have real pensions from companies, too. It used to be that, by working for a company, part of your benefit was that they'd pay four your retirement. Of course, this is bad for the bottom line, so they cut that.

anovikov 14y ago
This was definitely a bad thing for the economy. A lot of people will stay on the job they hate, having a lot of idea what else to do, just not to lose the pension.

TimGebhardt 14y ago

Here's a great rule-of-thumb that I've gotten by with: Never ever compare the cost of your standard of living to someone else's. You just don't have enough information to do an accurate comparison. My in-laws buy a lot of stupid stuff (IMHO) that saps their spending money. Do you think they're going to stop buying stupid little knick-knacks when they're retired? Probably not. Should they? Probably. But humans have a hard time changing their behavior. So what this woman is proposing is to work with and solve the problems we have, not try to magically wish them away or pretend that we can easily change the behavior of the 400mil Americans overnight, and I tend to agree with her that it's a good idea.

ommunist 14y ago

Fantasizing, man? Now listen the real story. I survived 2 currency crashes, when savings of the whole 2 generations of the family were effectively nullified overnight. The euro is now damn close to such crash, and the US dollar as well. From my exp and from the good advice of my granny, I can only tell you to invest into good tools, safety matches, soap and food stash. Everything else is just fiction.

anovikov 14y ago
Well, the retirement savings are somehow (directly or indirectly) invested into a stock market, so they are safe from inflation, or even complete currency crash. When inflation is high, you even benefit, because people's consuming activity increases as there is little they could do to save money which is being burnt with inflation, so they spend, improving the bottom line of the companies they buy stuff from - and stocks of which you have. Or they buy stock directly, increasing real price of stock directly by increasing demand. That is valid even in the case of extreme inflation - like 1923 Germany. People suffered, but stocks didn't. Only exception from that rule was the 70s oil shock, but that wasn't a real crisis (economy itself was doing just fine, only the oil became expensive for purely external political reasons).
- ommunist 14y ago
  Go tell this deep observation to the people whose pensions were invested into Freddy and Mac ponzi thing.
  - anovikov 14y ago
    Any pension was lost? Yes stock market collapsed and so the savings on some funds which invested into stocks. But now they have nearly completely recovered, and 3 years which have passed is too low for a planning horizon for pensions. Last 10 years have been turbulent for stocks, with market (and overall economy) performing well below long-term average, and yet, dividends included, index funds post a modest profit over 10-year period, inflation-adjusted (in part that was because the inflation was low).
14y ago

neutronicus 14y ago

> To be fair, those were considered reasonable expectations until the last few decades. Meh, until the last few decades, people just invested in a bunch of kids they hoped would take care of them in their old age.

jw_ 14y ago

> To be fair, those were considered reasonable expectations until the last few decades Ahistorical nonsense. "People USED to save! That's why people used to generally end up desperately poor when they were elderly, and also is why the US implemented Social Security." >My advice to everyone: spend less. You're chucking great gobs of money at things that don't make you happy; just STOP DOING THAT and you will have enough to retire on by the time you're 50. I'm glad to see a comment on Hacker News in which the author describes how amazingly thrifty he is and how irresponsible and shortsighted and stupid everyone else in the world is. It's been ages since anyone has posted anything along those lines and really helps our discussion of large-scale social issues.

nevinera 14y ago
You have to buy cheap houses and used cars; we're not talking about dumpster diving and knitting your own socks here. I'm hardly a model of thrift.