US Retirement Crisis

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mattbbpl

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#1  Edited By mattbbpl
Member since 2006 • 23009 Posts

There's been a lot of talk of a US retirement crisis lately, and I'm interested in your thoughts on it.

There are three pillars of retirement income: Retirement Accounts like 401Ks and IRAs, traditional pensions, and social security/medicare. Pensions are largely extinct in the private sector as only ~16 percent of employers still offer them. Retirement accounts have pitiful median balances (Note: I'm using net worth here rather than just retirement account balances because I think it's a more accurate measurement of retirement preparedness):

Median and average net worth by age

  • Under 35: Median net worth: $11,100 (average net worth: $76,200).
  • 35-44: $59,800 ($288,700).
  • 45-54: $124,200 ($727,500).
  • 55-64: $187,300 ($1,167,400).
  • 65-74: $224,100 ($1,066,000).
  • 75+: $264,800 ($1,067,000).

Social security will either need increased funds or a ~25% reduction in payout in about 15 years, and medicare will face a similar situation in about 7 years.

Meanwhile, some of the most significant costs facing retirees such as those associated with medical care continue to outpace inflation. An average couple retiring at 65 is expected to face $285,000 (after tax) in out of pocket medical expenses which alone is more than the median net worth of a retirement age couple.

We're going to be forced to make decisions on some of these in a mere half-decade, and the most dominant (to date) voting block is going to be affected - it will force our hand in terms of both timeline and political expediency.

Is this concerning, or do you think it's overblown? What, if anything, should be done about it in terms of policy? Are you making steps to prepare for your own retirement, and do you feel comfortable with how well you've prepared to date?

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#2  Edited By Serraph105
Member since 2007 • 36038 Posts

I am making steps towards my own retirement, but I definitely do not feel comfortable about the whole thing. It's something that I have been stressing about a lot lately as a matter of fact and I will probably be leaving my current job in the next year or so so that I can get a proper raise (because job loyalty just isn't rewarding enough) and put more money towards a retirement fund.

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#3 mattbbpl
Member since 2006 • 23009 Posts

@Serraph105 said:

I am making steps towards my own retirement, but I definitely do not feel comfortable about the whole thing. It's something that I have been stressing about a lot lately as a matter of fact and I will probably be leaving my current job in the next year or so so that I can get a proper raise (because job loyalty just isn't rewarding enough) and put more money towards a retirement fund.

Good for you! If they let you choose your funds, try to find broad funds with low fees - I try to stay in the sub-0.1% range as the ones in the 1% can be a big drain on your end total.

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#4 HoolaHoopMan
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The only reasonable approach is the raise the cap on SS taxes above the current (and low) top tier limit. If this isn't done then we have to cut benefits, which would impact the economy, then lower GDP, forcing deeper cuts due to lower revenue, etc. etc. , rinse and repeat. If you want to see a bad negative feedback loop for the economy, try lowering SS benefits by 25% immediately. It's akin to forced austerity measures.

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#5 mattbbpl
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@HoolaHoopMan said:

The only reasonable approach is the raise the cap on SS taxes above the current (and low) top tier limit. If this isn't done then we have to cut benefits, which would impact the economy, then lower GDP, forcing deeper cuts due to lower revenue, etc. etc. , rinse and repeat. If you want to see a bad negative feedback loop for the economy, try lowering SS benefits by 25% immediately. It's akin to forced austerity measures.

What should the cap be?

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#6 HoolaHoopMan
Member since 2009 • 14724 Posts

@mattbbpl said:
@HoolaHoopMan said:

The only reasonable approach is the raise the cap on SS taxes above the current (and low) top tier limit. If this isn't done then we have to cut benefits, which would impact the economy, then lower GDP, forcing deeper cuts due to lower revenue, etc. etc. , rinse and repeat. If you want to see a bad negative feedback loop for the economy, try lowering SS benefits by 25% immediately. It's akin to forced austerity measures.

What should the cap be?

2019 has it at $132,900. Raise the bad boy up to a million, anything higher really. There's no reason to have the upper limit be so low when normal tax brackets are much higher. I'm even open to lowering it once its solvent for a couple decades past 2035.

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#7 deactivated-5f9e3c6a83e51
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@Serraph105 said:

I am making steps towards my own retirement, but I definitely do not feel comfortable about the whole thing. It's something that I have been stressing about a lot lately as a matter of fact and I will probably be leaving my current job in the next year or so so that I can get a proper raise (because job loyalty just isn't rewarding enough) and put more money towards a retirement fund.

Put as much money as you can into whatever 401k or IRA you can. Time is your friend. I just buy index funds for the most part. Unless you are feeling like Warren Buffet, you cant consistently beat the market. But early investing pays huge dividends - at least per past performance.

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#8 plageus900
Member since 2013 • 3065 Posts

It is concerning for sure, however I'm not sure what measures need to be taken to fix the system as a whole. As for my wife and I, we are very focused on our retirement. I look at our accounts every day and panic, but I have to take a step back and realize that we are both very young in our careers. She contributes 35% of her paycheck to a 401k, stocks and our savings account while I only contribute about 20%. We just recently paid off both cars and her student loans, so our only bills are the mortgage and utilities. Our next step includes buying another house and using this one as a rental. We live two blocks from a private university, so I feel like we can't miss. We'll see......

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#9 mattbbpl
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@plageus900: I try to be conservative in these investments but the recommended amount keeps growing. There's now pressure to make the recommendation 20 percent given growth projections of the coming decades.

These numbers, though.... We're talking about returning to the 50+ percent senior poverty rate of the pre-SS era if the most cynical "social security and Medicare won't be around in the future" claims come to fruition.

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#10 rmpumper
Member since 2016 • 2122 Posts

You just have to accept the fact than one of the two is inevitable: basic universal income or a Mad Max/Elysium world. It is obvious that the current first world systems are not viable, when you look at the rising wealth/income gap, aging population, robotisation and climate change.

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#11 horgen  Moderator
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@mattbbpl said:

@plageus900: I try to be conservative in these investments but the recommended amount keeps growing. There's now pressure to make the recommendation 20 percent given growth projections of the coming decades.

These numbers, though.... We're talking about returning to the 50+ percent senior poverty rate of the pre-SS era if the most cynical "social security and Medicare won't be around in the future" claims come to fruition.

20% from when you start working full time? That's tough for young people.

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#12 mattbbpl
Member since 2006 • 23009 Posts

@horgen: Yeah, and it's clear that most people aren't even making the original 10 percent recommendation.

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#13  Edited By Jacanuk
Member since 2011 • 20281 Posts

@mattbbpl: I think it´s overblown but I think there needs to be done something about especially young peoples knowledge about money and security.

As to the retirement crises if you are 20 today you have almost 50-60years of work left so if you at the end of it don´t have enough to make your golden years decent, then that is your own fault because you have earned enough to invest and also make sure you won´t just end with government handouts and the normal 401k plans..

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#14 mattbbpl
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@Jacanuk said:

@mattbbpl: also make sure you won´t go for the government handouts and the normal 401k plans..

What do you mean by "don't go for the normal 401k plans"? What are "normal" 401k plans? Are you referring to traditional vs Roth plans?

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#15 Jacanuk
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@mattbbpl said:
@Jacanuk said:

@mattbbpl: also make sure you won´t go for the government handouts and the normal 401k plans..

What do you mean by "don't go for the normal 401k plans"? What are "normal" 401k plans? Are you referring to traditional vs Roth plans?

Yes, I am referring to the normal traditional plans.

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#16 mattbbpl
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@Jacanuk said:
@mattbbpl said:
@Jacanuk said:

@mattbbpl: also make sure you won´t go for the government handouts and the normal 401k plans..

What do you mean by "don't go for the normal 401k plans"? What are "normal" 401k plans? Are you referring to traditional vs Roth plans?

Yes, I am referring to the normal traditional plans.

Why avoid traditional plans by default?

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#17 Jacanuk
Member since 2011 • 20281 Posts
@mattbbpl said:
@Jacanuk said:
@mattbbpl said:
@Jacanuk said:

@mattbbpl: also make sure you won´t go for the government handouts and the normal 401k plans..

What do you mean by "don't go for the normal 401k plans"? What are "normal" 401k plans? Are you referring to traditional vs Roth plans?

Yes, I am referring to the normal traditional plans.

Why avoid traditional plans by default?

Edited the post, can see it was not clear I did not mean avoid.

I meant that you in your lifetime especially young people today have the chance to improve their golden years' situation by simply remembering that there might be rain tomorrow and not every day is going to be sunny.

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#18 mrbojangles25
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@mattbbpl said:
@Serraph105 said:

I am making steps towards my own retirement, but I definitely do not feel comfortable about the whole thing. It's something that I have been stressing about a lot lately as a matter of fact and I will probably be leaving my current job in the next year or so so that I can get a proper raise (because job loyalty just isn't rewarding enough) and put more money towards a retirement fund.

Good for you! If they let you choose your funds, try to find broad funds with low fees - I try to stay in the sub-0.1% range as the ones in the 1% can be a big drain on your end total.

Good advice. I chose a lot of Vanguard options due to their low fees and, as Wu Tang Financial suggests, diversified my portfolio.

I am putting about 14% of my paycheck away, my employer matches up to 4% which is decent these days. Fully vested right away, too. According to the service we use I am at 140% of my goal, so I feel good about that. Still, with the way California is going I imagine I'll have to retire out of state.

Went with a Roth IRA as well so they tax the money when I put it in, but no taxes when I take it out; I definitely plan on making more money later in my life, so I want to save while I am in a lower tax bracket.

The problem I am having now is you can only put 6k (I think?) away each year, anything over that get's taxed. So now I am just doing some investing on my own.

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#19 mattbbpl
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@mrbojangles25: "The problem I am having now is you can only put 6k (I think?) away each year, anything over that get's taxed."

That's the IRA limit. Each person can contribute up to 6k in an ira and up to 19k in a 401k for a total of 25k (unless you're a business owner, in which case you can use a SEP ira which allows contributions of just under 60k).

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#20 comp_atkins
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contributed to 401k since basically day 1 of starting work out of college in 2001. gradually upped contribution % over the years as income has grown. maxing out 401k contributions each year now + additional savings / investments on side. am I 100% comfortable about my retirement situation? no, but at given my age and looking at statistics for others in my age group or older and see how dreadful they are, i do think

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#21 Serraph105
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@comp_atkins said:

contributed to 401k since basically day 1 of starting work out of college in 2001. gradually upped contribution % over the years as income has grown. maxing out 401k contributions each year now + additional savings / investments on side. am I 100% comfortable about my retirement situation? no, but at given my age and looking at statistics for others in my age group or older and see how dreadful they are, i do think

It's clear you have been doing everything right for a long long time. Don't you think that you should be able to say yes to this question? Isn't if fucking wrong that you can do pretty much everything right and still feel like you are potentially not doing enough? Doesn't that point to huge problems in our current system of society?

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#22 comp_atkins
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@Serraph105 said:
@comp_atkins said:

contributed to 401k since basically day 1 of starting work out of college in 2001. gradually upped contribution % over the years as income has grown. maxing out 401k contributions each year now + additional savings / investments on side. am I 100% comfortable about my retirement situation? no, but at given my age and looking at statistics for others in my age group or older and see how dreadful they are, i do think

It's clear you have been doing everything right for a long long time. Don't you think that you should be able to say yes to this question? Isn't if fucking wrong that you can do pretty much everything right and still feel like you are potentially not doing enough? Doesn't that point to huge problems in our current system of society?

don't get me wrong, my wife and I are in good shape relative to the averages. the future if not 100% certain though, so it would be difficult to say i'm 100% confident about it. i'll put it at 90%. it's not keeping me up at nights, but there's always that little feeling of "maybe i could do more..." i'd prefer to err on the side of caution rather than just assume everything is peaches.

when i first started working, i had a good manager who basically told me to start immediately because the long time frames in which to save and have money will work wonders. best advice i was given in that regard.

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#23 mattbbpl
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@Serraph105 said:

It's clear you have been doing everything right for a long long time. Don't you think that you should be able to say yes to this question? Isn't if fucking wrong that you can do pretty much everything right and still feel like you are potentially not doing enough? Doesn't that point to huge problems in our current system of society?

For what it's worth, the architects of 401K plans agree with you.

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#24 HoolaHoopMan
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@mattbbpl said:
@Serraph105 said:

It's clear you have been doing everything right for a long long time. Don't you think that you should be able to say yes to this question? Isn't if fucking wrong that you can do pretty much everything right and still feel like you are potentially not doing enough? Doesn't that point to huge problems in our current system of society?

For what it's worth, the architects of 401K plans agree with you.

This is what happens when a supplement turns into a replacement but fails to materialize the same net positive funding.

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#25 HoolaHoopMan
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@mattbbpl said:

@mrbojangles25: "The problem I am having now is you can only put 6k (I think?) away each year, anything over that get's taxed."

That's the IRA limit. Each person can contribute up to 6k in an ira and up to 19k in a 401k for a total of 25k (unless you're a business owner, in which case you can use a SEP ira which allows contributions of just under 60k).

If you're hitting limits of 6k on IRAs/ROTHs and you're still worried about tax-ability upon receiving income, dump that excess cash into an indexed universal life policy. It's insane what you can dump into those things and still get back as non-taxable income down the line. Cash values paid in aren't subject to capital gains taxes on their earnings (assuming it passes the 7-pay test).

However, if you're maxing IRA/ROTH/401k contributions I'd argue that you probably don't need help with retirement, just saying.

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#26 THUMPTABLE
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@comp_atkins said:

contributed to 401k since basically day 1 of starting work out of college in 2001. gradually upped contribution % over the years as income has grown. maxing out 401k contributions each year now + additional savings / investments on side. am I 100% comfortable about my retirement situation? no, but at given my age and looking at statistics for others in my age group or older and see how dreadful they are, i do think

How does 401K work in the US?

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#27 mattbbpl
Member since 2006 • 23009 Posts

@comp_atkins: you are in a very similar situation to me, I think. Although I graduated in 2005, and I have some oddities due to owning a home during the crash.

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#28 comp_atkins
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@THUMPTABLE said:
@comp_atkins said:

contributed to 401k since basically day 1 of starting work out of college in 2001. gradually upped contribution % over the years as income has grown. maxing out 401k contributions each year now + additional savings / investments on side. am I 100% comfortable about my retirement situation? no, but at given my age and looking at statistics for others in my age group or older and see how dreadful they are, i do think

How does 401K work in the US?

The law permits putting away up to $19K ( higher annual limits for older works to try to catch up ) a year of pre-tax money into a retirement savings account. The accounts are typically managed by an outside financial services company and often offer customers a variety of fund to invest in based on the saver's age, risk aversion, goals, etc... Some employers encourage their employees to contribute to their 401K's by offering % matches. For example, if you contribute 5% of your salary to your 401K, they will match that 5%. It can be thought of as additional compensation on top of just salary. 401K contributions also lowers your taxable liability for the year as well, which is a bonus.

When retirees reach a certain age ( not sure the age ) by law they're required to start withdrawing from the accounts, at which point the withdraws are taxed.

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#29 comp_atkins
Member since 2005 • 38662 Posts
@HoolaHoopMan said:
@mattbbpl said:
@Serraph105 said:

It's clear you have been doing everything right for a long long time. Don't you think that you should be able to say yes to this question? Isn't if fucking wrong that you can do pretty much everything right and still feel like you are potentially not doing enough? Doesn't that point to huge problems in our current system of society?

For what it's worth, the architects of 401K plans agree with you.

This is what happens when a supplement turns into a replacement but fails to materialize the same net positive funding.

lol "supplement to pension". employers saw this and looked and what they were paying out in pensions and said "yup, **** this, i'm out"

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#30  Edited By Serraph105
Member since 2007 • 36038 Posts
@comp_atkins said:
@HoolaHoopMan said:
@mattbbpl said:
@Serraph105 said:

It's clear you have been doing everything right for a long long time. Don't you think that you should be able to say yes to this question? Isn't if fucking wrong that you can do pretty much everything right and still feel like you are potentially not doing enough? Doesn't that point to huge problems in our current system of society?

For what it's worth, the architects of 401K plans agree with you.

This is what happens when a supplement turns into a replacement but fails to materialize the same net positive funding.

lol "supplement to pension". employers saw this and looked and what they were paying out in pensions and said "yup, **** this, i'm out"

And employees were like, "You mean you won't give us the supplement?"

Employer: "LOL no, you no longer get the pension. You can have the inadequate awesome supplement."