Where does that pre-school teacher live, if they're married how much does their spouse make, and most importantly what are their monthly fixed costs? At $33K a year you'd pay basically no taxes, maybe a grand or two max. So $2,750 a month, let's say $1,300 in rent/mortgage, $300 in groceries, $150 in a car payment for a used car, $100 in internet/cable, $75 in fuel, $100 in incidentals, $100 in utilities, $200 in entertainment/travel. If this person has a child I'd hope they'd have a spouse who's also making money.

That leaves $225 to save for retirement/rainy day fund. Those are all entirely realistic numbers, I know because my first job out of college I made $34,500 and those were my exact numbers from an old spreadsheet I kept. I got myself into serious debt out of college, took me 18 months to find a real job and the whole time I had to pay rent living with friends. Once I got finances in order and stopped spending like a fool and investing I realized how easy it was to put money away if I really wanted to. Most of the time I didn't want to, it too me into my 30's to really straight up and I've been catching up the last few years, but I've lived the $33K a year life and it is entirely possible to put $100+ away every month if not more.

Your excluding student loans. Most preschool teachers have a degree in teaching, most centers won't hire em without one.

Now add in the terrible medical insurance they have to pay.

I'm not pro-pension, generally. But pensions are sustainable when properly funded. Many pensions current and past are perfectly healthy. The ones that famously blow do so because of gross mismanagement and political shenanigans.



I believe that to be true. Humans are hardwired to discount the future in favor of something today. That is only overcome through extensive education. And I suspect more than just a few months of financial management class. Both sides of my family seem to over-compensate in the other direction. My poor grandmother died in a decrepit house eating frozen dinners with $8M in a *checking account* (despite efforts over decades to convince her to spend a little).

Yeah I didn't bother with health insurance the first few years out of school, didn't have the money for it and I was healthy in my 20's...now in MA it's mandated so I'm not sure what I'd be doing. I did forget about student loans, I was paying $149 a month at that time. So now we're down to $75 in savings :) Still, I think $33K is on the low end of livable wages and $1,300 in housing costs is probably on the high end of what someone making that kind of money is paying; I lived in Boston so even getting a deal from a friend it was expensive, looking at average rent for a 2-bed is $1,200, three-bed is $1,500, so that pre-school teacher could easily cut housing costs to $500-$600 a month and suddenly be flush with $700-800 more. Invest $700 a month starting at age 25 and compounding at 7% you'll be a millionaire by 57; invest $500 a month starting at 25 compounding at just 6% and you'll still just about have a million by retirement age.

"....cars with the big homes are in debt up to their eyeballs. Read 'The Millionaire Next Door'......"

I have. Its a good read.

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-----------------------------Baron Von Speedypants
-----------------------------RunTraining articles here:
http://forum.slowtwitch.com/...runtraining;#1612485

Embedded in your post is a crucial differentiator. Single income households can't financially compete against two-income households (unless one is making a huge income). This has been a drving factor in mobility since women began entering the workplace in large numbers.

100% true. I've searched in the past for an analysis of the housing market and the relationship of women entering the workforce, I haven't had much luck but I think it's a huge factor. We've just about hit a plateau (and may have already) so I think that impact may be stabilizing, but I have no doubt that it's been a major contributor in the sustained growth of the housing market for fifty years.

But that also means that it's so much more difficult to survive in a single-income household, especially when kids are involved. Increasingly, those raised in poor households are raising kids as single parents, whereas this has almost disappeared from upper-middle class and above. Want to talk about income inequality? How about the impact to household earnings/productivity when the two-parent home percentage has gone from 88 percent in 1960 to 69% in 2016. The 31% of single-parent homes are almost exclusively in low-income neighborhoods. When you couple THAT with the rise of two-income households among those married with kids, you start to see how quickly things diverge and become a problem for those single-parent homes. 31% in 2016...that's a massive, massive issue.

I've known many people that don't put money into a 401(k) even when the company is matching.

The conversation usually goes like this.

Me: "You realize you're leaving X% on the table? Basically taking a X% Pay-Cut right?"
Them: "Dude I can't put X% of my pay away. How could I afford that?"
Me: "In 30 years how can you afford not to?"

They still don't. In none of these cases is it people making $20K a year. It's people making well over $70K.

If the point you are trying to make is that people should save for their retirement, I'd say, yeah, no kidding. And I also agree that most people are not disciplined enough to save. But to think that there aren't some people who don't make enough to save is silly. Just off the top of my head your example doesn't include medical/dental/car insurance. Most preschool teachers don't have any benefits. Also, I gave you the average salary, the article I looked at said that 80% of preschool teachers make between $20K and $55K.

I was one of them and it took me almost a decade in the workforce to mature enough to understand how dumb I was. I remember my first manager at my $34K a year job talking to me about 401K and the value of the match. I laughed it off - I had better things to do with my money! as $34 became $54 then $74 and up to about $90ish I kept spending more - it just meant I could buy a better tri bike, or get that Audi instead of the shitty Escort I was driving. I wised up in my early 30's and thankfully I make enough now that we can basically bank all of my wife's income, but it's so easy to say 'that money's more important NOW when I'm young than when I'm old and broken down'.

All that said, people need to wise up at some point.

That's all well and good, I'm not saying it's easy...you're taking one of the lowest paying careers as your example. Hopefully those preschool teachers marry someone with a more lucrative job to balance things out. Case in point: a buddy of mine married a kindergarten teacher, she made crap but he made $100K+. When they had their first she kept working. When they had their second he was making closer to $200K. She quit her job and is home full-time.

I don't know...obviously not everyone is capable of actually putting money away to retire. But I do think people don't make retirement savings at all a priority, if they did they'd see that for the vast vast majority of them they can put $100-200 a month away minimum.

But how? What's the mechanism? This is not a new phenomena. The Social Security Act wasn't implemented because people used to be great at saving. And it's not like it's "bad people". Perfectly hard-working people have this problem.

There have been a few suggestions, e.g. opt-out contribution strategies. But that's pretty weak.

And I'd argue finding a solution isn't just altruism for people who'll live poorly in retirement. There are probably large social and economic costs to having a huge percentage of the population unhappy and with weak buying power over much of their lives.

But how? What's the mechanism? This is not a new phenomena


Unfortunately, the only answer is "Gulp" more government.


Increase Retirement age to 67, and in a few years 68,.....
Increase SS taxes.
SS means testing. If you can afford a winter home in FL, guess what you don't need SS.


Unfortunately, this punishes the people who are currently working, not the ones who got us into this mess.

Middle class families ARE currently working, that is why they are middle class. There needed to be far greater education about finances. It is pretty much WAY too late for most folks. The amount of wealth held by the bottom 80% has plummeted, and it many that will be non-recoverable.

Agree. The people that are working will have to pay. The current middle class will have to work longer and pay more. The future middle class will have to work even longer and pay even more.

The bad news is Social Security is only the small problem. If you look at public employee pensions, the tax payers are on the hook for them too if the pension fund can't pay them. Sears is a small scale example of the problem. For every 3 people Sears is paying a pension to, they have 1 employee. Then there's the national debt.....

The people that got us into this mess, The Baby Boomers, and Gen X will likely escape unharmed. Wait until Gen Y and the Millennials get this participation award.

It's okay, if things continue in this manner, the top 10% will own virtually everything and will all be millionaires. Then, you just lower the estate exemption to 1M, place the taxable rate at 30%, and get all the wealth back when Boomers die.

Anything can happen when enough people do poorly by the system that is presently in place.

That sounds exactly like me and my wife. Credit card debt, new cars all the time, paycheck to paycheck living with very little savings for far too long. Fortunately, the light came on early enough (although I still shudder to think of the amount of $$$ we squandered) that we now have a decent (but not enough, yet) retirement savings, a nice chunk of emergency cash, along with zero credit card debt and most of my son's college saved for as well. And, for the most part, it's not like we lived like paupers along the way; we just made sure that anything we wanted we paid cash for, and we paid off cars and kept driving them rather than trading in perfectly good vehicles.

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Taco cat spelled backwards is....taco cat.

Yeah, I've said much the same the past decade, it sucks but here we are. That said I do think things like the opt-out default will help put a not-insignificant portion of the populace on a better track for retirement. I honestly think that, in my mid/late-20's when I was perfectly happy to spend whatever came in every paycheck, I'd have left the default x% in my 401K and I'd probably have another $80-100K to my name because of it. I'm fortunate in that I've been able to stumble into a pretty decent paying job and a wife who earns good money so we can easily catch up, but a lot of people who are just starting to save in their late-30's and 40's, they just won't be able to catch up to where they probably need to be in 20-30 years.

I don't believe that percentage. Way too low IMO. It will be more than40%.

I guess. But there other potential mechanisms than SS. I'm thinking of incentivizing saving behavior. E.g., if you can demonstrate on a tax return each year a commitment to a savings or retirement-oriented investment account (e.g. IRA, 401(k)) you get tax breaks. Or a cookie. Or something.

The same problem of people having a tendency to discount future quality of life also plagues things like health insurance. So a tax *penalty* could apply, like with ObamaCare. But that well is probably politically poisoned at this point. So maybe just the incentives with no penalty.


Edit:

Another part of the puzzle are private financial institutions. They're not really helping much either. They tend to heavily market credit card spending. And tend to steer naive investment consumers into what are often poor investment vehicles, like annuities or loaded funds.

The government role could be re-structuring its regulation of financial institutions to better match the best long-term interests of consumers. E.g. give them tax breaks for getting good #'s in getting consumers to adopt low-fee, tax-advantaged retirement investment accounts.

But, sadly, the best institution to investigate that - the CFPB - is in the process of being gutted.

It is a good observation. I remember a president not to long ago when the economy was down telling people to, "Go Shopping"

https://www.youtube.com/watch?v=fxk9PW83VCY

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They constantly try to escape from the darkness outside and within
Dreaming of systems so perfect that no one will need to be good T.S. Eliot

We had an Australian girl live with us for six months. Her parents came to visit us at the end. Australia has a system which seems to work well. Being an accountant you are likely aware but I post the link for others to see.

https://www.thestar.com/...from_down_under.html

I think the Kiwis have the same system.

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They constantly try to escape from the darkness outside and within
Dreaming of systems so perfect that no one will need to be good T.S. Eliot

The taxable rate on estates is/was? 55% yet the Trumps paid 5%. (not that I think it should be 55% but it should be a percent that is black and white). And everyone knows there are many many other Manaforts out there hiding their money from taxes by legal and illegal means. Whatever happened to getting rid of carried interest? At least we could keep the country out of the red.

From the article:
In 2010 these union-originated industry funds included nine out of the 10 best-performing funds. All pension funds, whether industry funds or retail funds, are intensely regulated.

I wonder how these funds perform against low-cost index funds. When I see 'union-originated' and 'heavily regulated' I immediately think 'high-fee', but that's just the cynic in me.


That said, this sounds pretty similar to Republican-sponsored SS reform ideas, unless I'm missing something. Election to manage funds yourself rather than dumping in the SSI pool, isn't that exactly what was proposed by Bush fifteen years ago to much derision from the Democrats? Regardless, I wouldn't be opposed to this sort of system, it ties into the market and really, it's a total buy-in of ever working person to contribute to a healthy economy and market. Good capitalism, with a net social benefit, right?

So I am guaranteed to get 7% return? The market has had a great 10 year run, but the future is unknown. What if the next 16 years is like 1966-1982 and the cumulative return is effectively zero? This is the crux of the problem with moving from defined benefit to defined contribution retirement, it is totally a gamble for the retiree. Granted it was totally a gamble for the employers before, but you would think there would have been a middle ground with some shared risk.

Likewise, there could be significant reductions to SS, I am of the age that the year I am eligible to collect SS is the year it goes into the red.

Also, considering the median income is about $60K, do you think anyone at the median or below could realistically max out their 401K?