Tuesday, May 5, 2015

Great Expectations -- reality vs perception, part 1

America is going through great changes. We always have done so -- it is the nature of our nation, and the nature of the times. But this is a recent phenomenon. In ancient eras, it could be millennia between great social transformations -- the discovery of fire, the invention of hunting or agriculture, the creation of the nation-state. Today, changes of comparable scale happen at least every generation, perhaps every decade.

How do Americans feel about where we are, where we've been, and where we are going? How accurate are their perceptions? America was built on the concept of giving one's descendents a better world than one inherited. Is that idea still possible?

Let's start with an overview of where we are, and how we feel about it. Gallup polling furnishes a wealth of data we can draw upon to form some idea of how Americans feel about our present, our recent past, and our future. In another article, I'll present some long-term objective data about where we have been and where we are likely to end up. For now, let's take a snapshot of how Americans are feeling.

According to recent Gallup polling, Americans are pretty pleased with the Obama economy. A record 81% of Americans say they are "satisfied" with their current standard of living, and with the things they can buy and can do. Of course, that question addresses only how Americans feel about their current situation, not whether they think they would continue to be satisfied if nothing were to change. Still, it's a good place to start. To an overwhelming extent, Americans say they are "satisfied".


If past is prologue, Americans expect things to change. A full 61% of Americans say their standard of living is getting better, nearly twice as many (33%) who felt that way in October of 2008, just before Barack Obama was elected President. Note that this is not merely a question about whether Americans' lives have gotten better. It is about expectations, which implies that if their expectations were to be dashed, they would not be so satisfied.


There is good reason both for Americans' feeling that things have improved, and for their expectations for the future. Since President Obama's election, Gallup's "Standard of Living Index" has improved from a low of 14 in October and November of 2008, to today's stunningly-improved high of 50. Of course, Gallup being a pollster, this "Standard of Living Index" is not based on any objective criteria or econometric data, but only on how people say they feel about how well they're doing. This index is a combination of the previous two questions, a combination of: "Are you satisfied with how things are?" and: "Are things getting better?" It says nothing whatever about a question like, "Are you over or under the federal poverty level?"


Americans do seem to love the direction of the Obama economy. Whether they are "objectively" doing better or not, they say they are "satisfied."

But let's look a little deeper. What is it, exactly, that Americans are happy with? Are they getting ahead in the world, in their own estimation? Are they moving up? Is that why they're so happy?

According to Gallup, no. Between 2001 and 2009, between 55% and 63% of Americans considered themselves "middle class". Since 2009, that number has fallen to 51%, with a low of 50% in 2012. Between 2001 and 2009, between 33% and 42% of Americans considered themselves "working or lower class". Since 2009, that number has risen to 48%. Those considering themselves "upper class" fell from 3% in 2001 to 1% today.

Paradoxically, though Americans say they are satisfied with their economic lot -- and even feel it is "getting better" -- increasing numbers of them feel they are losing ground, class-wise. Perhaps being "satisfied" is not synonymous with "doing well" -- or even with "doing well enough."


What does this mean, that Americans both say they are happy with where they are -- even that they are doing better, and expect to continue doing better -- and yet that they feel they are falling in American's class structure? Perhaps it means they are convinced the whole economy is improving so much that their improvement isn't quite keeping up. To put it in technical terms, perhaps they are aware the GDP is improving faster than the rate of increase of their incomes.

Something like that explanation seems likely. According to Gallup, a significant majority feel the distribution of wealth in America is "unfair". The number of people who feel this way has fluctuated between 59% and 68% from 1985 to the present, with a peak in 2008. The idea of "unfairness" actually hit a low point shortly after the inauguration of G. W. Bush, but then rose throughout his presidency, indicating that his policies struck Americans as increasing unfairness. The current number, at 63%, is almost precisely halfway between the two extremes. The economic collapse of late 2008 caused a significant drop in this number -- Americans apparently felt the crisis improved economic equality.

A small minority of Americans -- around one third, between 27% and 37% -- feel the distribution of wealth is "fair".


In what way do Americans think the distribution of wealth is "unfair"? Do those lazy poor people have things too easy, what with all those giveaway programs? Are rich people being strangled by outrageously high taxes?

The following graph is particularly stunning. The change in American attitudes that it displays is nothing short of amazing. When asked, "Do you think our government should or should not redistribute wealth by heavy taxes on the rich?" increasing numbers of people think the government should do that, and the numbers have dramatically altered since the 1940s.

In the late 1930's, at the end of the Great Depression, 54% of Americans were opposed to this idea of redistribution, and only 35% agreed with it. By the late 1990's, the gap had narrowed to 51% opposed and 45% supportive. That has now completely reversed -- 52% of Americans agree that the government should redistribute wealth through higher taxes on the rich, and only 45% disapprove of this idea.


It is unfortunate that the question was apparently not asked between the late 1930's and the late 1990s, so we have little idea when the majority of the change happened.With more regular polling since about 2006, we can see that the numbers are fairly volatile. Even so, the magnitude of the change is striking, and the overall trend is undeniable. The idea of redistribution through aggressively progressive taxation is quite popular, and will figure in the next article.

To what can we attribute this amazing turnaround in attitudes? Perhaps it is the realization that programs once criticized as being "redistributive" actually work to improve Americans' lives. Not only do they work; they are necessary to the well-being of America.

As one example, consider Social Security. Though there is a segment of political rhetoric dedicated to convincing us that the program is near-bankrupt, and that it will not be there for the next generation of retirees, according to Gallup, Americans are increasingly relying on Social Security. Just since 2001-2002, the percentage of Americans asked if they think Social Security to be a major source of their retirement income has risen from 27-28% to 36%.


According to the linked article, this increase exists in all age groups; the campaign to convince younger Americans that the program won't be there for them, or to pit younger against older Americans, seems to be failing. In the period 2005 to 2014, among Americans 18 to 34, the percentage expecting to rely on Social Security as a major source of retirement income increased thirteen points from 13% to 26%. Though the number of adults aged 55+ who expected to rely on Social Security increased in that period only 6 points, it was already very high -- it went from 42% to 48%.

In contrast, though powerful forces have been urging Americans to rely on private investment programs such as IRAs and 401(k)s, the number who expect these programs to furnish a major source of their retirement income has dramatically decreased, from 58% in 2001 to only 49% today, with a low of 42% just following the worldwide economic collapse of 2008.


This question of retirement matters, for it relates to how Americans view themselves, both now and in the future, and how they view the assets they own (as I will deal with in the next article). According to Gallup, the percentage of Americans who are retired, and who are comfortable in their retirement, is falling, from 52% in 2002 to 40% today (with lows of 34% and 31% in 2009 and 2012). The number who are not yet retired, and who say they are comfortable now, but who do not think they will be comfortable in retirement, has remained relatively stable in the range 20% to 29%. The number of non-retirees who say they are not comfortable now, and do not expect to be comfortable in retirement either, has increased from around 20% in 2002-2004 to 30% today, with a peak of 36% in 2012.

Talking to people who are not retired, and separating the questions of whether one is comfortable now, and whether one expects to be comfortable in retirement, yields other revealing results. The number who say they are comfortable now has fallen, from 74% in 2002 to 63% today, with a 2012 low of 57%. The pattern of those who expect to be comfortable in retirement matches this trend, but shows a profound pessimism. The line very nearly parallels the "current comfort" line, but is lower -- falling as it falls, from 59% in 2002 to 48% today, with again a lowpoint in 2012, of 38%.


This is important. Significantly more people view themselves as being comfortable today, than who feel they will get along well in retirement, with a gap of around 15%. And note that less than two-thirds say they are "comfortable" today, even though the very first graph presented in this article said that 81% of Americans are "satisfied" with their current lot.

Clearly, "satisfied" is a very different thing from "comfortable." Almost 20% more people are "satisfied" than are "comfortable" -- and 15% less than that think they will be "comfortable" in retirement.

This does not seem to imply that all Americans are happy with their current lot. Being "satisfied" may be something like "resigned to". It certainly does not necessarily mean people think they will be able to accumulate sufficient wealth to have a "comfortable" retirement.

There may be good reason for this possible sense of unease. Americans expect that they will be required to work longer before they are able to retire. The number who expect to retire before age 65 has fallen quite a lot since the mid 90s, from 49% to only 32% today, with a low point of 27% in 2012-2013. In contrast, the number who expect to have to work beyond age 65 has more than doubled, from a mere 14% in 1995 to more than a third -- between 36% and 39% -- in recent years.


These expectations may be a bit too pessimistic, however. Predicting the future is dangerous, but we can compare what actually happened in the past to what people expected to happen. When retired people were asked at what age they retired, the number of younger retirees can be seen to have fallen over the years (i.e., people worked longer before they retired), but not quite as dramatically as was feared. In 1991-1996, between 70% and 76% of respondents said they retired before age 65, as contrasted with around 49% of people in that era who said they expected to be able to retire that early. The number of under-65 retirees has fallen some, but not much, to around 65% today (give or take a few percentage points).

This may, however, be due to forced retirements, as employers push out older (and therefore more expensive) workers, in favor of younger, cheaper labor. If someone is forced to retire before he or she is ready to do so, that could well contribute to the expectation of being unable to retire in comfort. Note, though, that the number who retired past age 65 has more than doubled, from 7-8% in the early 90s to around 20% in 2014-2015.


All this, however -- everything above -- is a matter of surveys. The questions about when people actually retired are the only ones that deal with real data, as contrasted with perceptions. Perception is not necessarily the same as reality.

But does that matter? If people say they are happy with the way things are, does it matter whether they are objectively richer or poorer, healthier or longer-lived, better-off or barely getting by?

To some extent, that question deals with Orwellian brainwashing, and the ability of elites to convince serfs to be happy with serfdom. Or does it? It is meaningful to ask whether people are "justified" in being "satisfied"?

Let's look next time at a long view of how our economy has evolved, on the scale of centuries. There are aspects that are very special about where we are now. There is nothing -- there is no "law of economics" -- that requires we stay here. We can choose to return to a prior state, or to stay where we are, or to progress so some desired condition. Let's look at the possibilities.


32 comments:

  1. DC,
    When talking about polling regarding the future retirement for Americans, you’ve failed to point out an important factor. Americans spend A LOT of money. Consumer spending has SKYROCTED over the past couple decades.
    Compared to the 1970’s, we spend less on food, clothing and medical care, and spend more on housing and entertainment. Spending on housing has increased a staggering 400%, adjusted for inflation, since 1970. We live in bigger, more expensive houses. I grew up in the 70’s in a new, middle class neighborhood in a 3 bedroom, $25,000 house with my parents and 3 siblings. That’s unheard of today in a new neighborhood.
    In 1998 Personal Consumption Expenditures were $8316 billion, in 2015 dollars. Today it’s $12,107 billion. We’ve increased our spending 47% in less than 2 decades.
    And we wonder why we can’t retire when we want to? Maybe rich liberals need to have an honest discussion with Americans about how we spend our money.

    http://www.investopedia.com/financial-edge/1009/50-years-of-consumer-spending.aspx
    https://research.stlouisfed.org/fred2/series/PCE

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  2. We spend more on housing because real estate prices have exploded. There was a housing bubble.

    I confess I'm not sure what your point is. I really don't know what you're saying.

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  3. We spend more than we used relative to income and inflation. That makes it more difficult to save for retirement.

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  4. ++We spend more on housing because real estate prices have exploded.++

    And at the same time, we still choose to live in huge, much more extravagant houses than what we used to. Common sense would say, when real estate prices explode, we would buy smaller houses, ones we can afford. We've done just the opposite. Prices exploded and we decided to buy even bigger houses.

    Then we say it's going to be more difficult to retire? No, duh.

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  5. Also, real estate prices exploded because demand exploded.

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  6. +++ Prices exploded and we decided to buy even bigger houses.+++

    Nonsense. The house my parents bought in 1968 for $32,000 sold in the 1990s for almost $200,000. It didn't get any bigger during that time. Prices exploded because prices exploded. The cost of real estate went up due to a variety of market pressures, and not just because Americans wanted bigger houses.

    You're blaming retirement difficulties on Americans buying bigger houses? Really? That's crazy. By the time people retire, their houses are usually paid off. Since housing prices have exploded, it means the houses are their main assets. For most of the 20th century, one's home was viewed as an investment -- it wasn't wasteful spending on unnecessarily large houses. It was the only investment middle-class Americans could make, and for most of them, it still is.

    In fact, the ability to buy real estate is one of the biggest things that helped to create the middle class. Without real estate, middle-class Americans own virtually no capital at all.

    What you are recommending is that we return to the pre-20th century game of Landlords and Serfs, in which no one but the wealthiest 10% owned any substantial capital at all. That won't help with Americans' retirement. It will just make Americans poorer.

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  7. +++ Also, real estate prices exploded because demand exploded. +++

    Precisely. This is why buying a big house is a good financial investment.

    A retiree who bought a big house to raise children in can sell that house at a higher price (because real estate prices went up) and buy a house more suitable for retiring into.

    Buying a big house in one's productive years has been a great way to have a MORE secure retirement. It is nearly the only way that a middle-class American can obtain any capital to speak of.

    The ability to buy homes, augmented by high taxes on the wealthiest citizens -- those two factors created the middle class by allowing capital to be owned by more people. Investments in education (so that middle class home owners could earn more money) is the biggest factor that allowed the middle class to continue. We are now reversing these trends -- discouraging home ownership, lowering top marginal tax rates, and disinvesting in education -- which is what is squeezing the middle class.

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  8. ++The house my parents bought in 1968 for $32,000 sold in the 1990s for almost $200,000.++

    That tracked the rate of inflation very closely. Today we spend 400% more on housing, adjusted for inflation, today than in 1970.

    ++You're blaming retirement difficulties on Americans buying bigger houses? Really? That's crazy. By the time people retire, their houses are usually paid off.++

    No, duh. But when such a huge portion of our income goes for housing, it's much more difficult to save for retirement, right? Less money to put into a 401K and other retirement investments. And it's not just housing. Consumer spending as a whole is up 47% since 1998.

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  9. +++ That tracked the rate of inflation very closely. Today we spend 400% more on housing, adjusted for inflation, today than in 1970.+++

    Exactly. The house didn't get bigger. Housing prices went up, and they went up much faster than inflation.

    +++ . But when such a huge portion of our income goes for housing, it's much more difficult to save for retirement, right?+++

    Funny thing about that. Before Americans bought houses, there were MORE elderly people living in poverty. The ability to buy houses (coupled with government programs like Social Security) is the reason why we have FEWER elderly people living in poverty today.

    You logic is backwards. The traditional mortgage payment was static. Someone in their 20s could buy a house they could barely afford -- by they time they were in their 30s or 40s, their house payments had been static, but their income had increased with inflation, which meant they had MORE money they could send to retirement accounts if they wanted to, than they would have if they'd been renting and their rent payments had gone up. Plus, the value of their house had increased immensely, far faster than inflation, which meant the assets they owned were worth more.

    Houses were a much better investment that 401(k)s. Much more stable, much more dependable, and the individual had control over them.

    Social Security is also much more stable and dependable than any 401(k) or IRA.

    The average American cannot possibly accumulate enough assets in a 401(k) or IRA in his or her lifetime to have a comfortable retirement. Again, witness that before Social Security, and before the changes in the 20th century that allowed more people to buy houses, there were MORE elderly people living in poverty.

    So you have it all backwards. Exactly backwards.

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  10. ++Housing prices went up, and they went up much faster than inflation.++

    No, in your example, the house increased very closely with inflation.

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  11. ++So you have it all backwards. Exactly backwards.++

    The more money people spend, the less they have to put away for retirement. It's a very simple concept.

    I'm sorry you're having trouble understanding.

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  12. The prices of existing houses have gone up far faster than inflation over the last century. You are welcome to provide a link that says differently.

    +++ The more money people spend, the less they have to put away for retirement. It's a very simple concept. +++

    Then explain why the number of retirees living in poverty went from 50% in 1935 (when virtually none of them owned houses, and there was no Social Security) to 10% in 2008 (when nearly all of them owned houses, and Social Security had been around for 70 years).
    http://www.strengthensocialsecurity.org/media/blog/2011/social-securitys-76th-birthday-and-we-get-the-gifts

    The fact is, American retirement is paid for by two major factors:
    1) Social Security
    2) Home ownership.

    I'm sorry you have trouble understanding this.

    Your idea -- that people being paid starvation wages can save enough money to pay for their retirement -- is absurd. It didn't happen before the 20th century, and it wouldn't happen in the 21st.

    Home ownership is the only way most Americans can acquire any substantial capital at all. If they weren't paying for a house, they'd be paying rent, and getting no capital for it at all. The bigger the house, the more it is worth in the long run.

    It's not that complicated. What part of it don't you understand?

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  13. See, here's your problem.

    +++ But when such a huge portion of our income goes for housing, +++

    When you're paying for a house, that portion of your income is being invested in real estate. It's a safer investment than, say, the stock market.

    Again: For everyone except the top 10% or so of Americans, the ONLY substantial amount of capital they can acquire though a lifetime is a house. That's it.

    Even most of the top 10% has most of their capital in housing. The only Americans who have most of their capital in financial investments are the top 1%.

    This isn't because the cost of housing is too high. Back in the pre-20th century, the cost of housing was really cheap. 90% of Americans STILL couldn't accumulate enough wealth to live a comfortable retirement. The only Americans who could were in the top 10%.

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  14. ++When you're paying for a house, that portion of your income is being invested in real estate. It's a safer investment than, say, the stock market.++

    How do suggest we turn our equity into retirement income?

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  15. Grog, here's how your idea of "Saving for retirement" really works. A simple example. I'll get more complex after the simple version.

    Let's say someone works 40 years, and puts away 5% of his income every year. Let's assume he has the same rate of pay for all 40 years (otherwise the early years he'll be putting away nearly nothing), and we'll assume no inflation (otherwise the first half of the savings will be worthless by the time he hits retirement age), that means after 40 years he'll have put away 2 years of income. If he is willing to live on half his salary after retirement. that means he can live for 4 years before he runs out of money. That's not enough to have a retirement.

    I also assumed the money was saved at 0% interest (which is about right for today's savings accounts).

    Let's get a little more realistic. A 2.5% rate of inflation and average annual raises of 2.5% (we'll assume his income merely keeps up with inflation -- that's about right for today's workers, if you're lucky -- yes, he should have higher raises in the early years, but after getting established, raises fall significantly and most workers are lucky to keep up with inflation). We will again assume he puts away 5% of his income every year.

    You can do the math yourself if you want, in order to check me. Assuming his initial annual salary was $100, after 40 years, he's earning $262, and has saved a total of $337. That's barely 1.3 years of salary. (The $100 initial salary was obviously too low; the point is, after 40 years his salary is 2.62 times what it was originally, and he has only 1.3 times his final salary in the bank.)

    Let's be more generous, and say he's found an investment that gives him 2.5% interest every year. Again, you do the math to check me. After 40 years, he has $524 in the bank. That's a bit better, but it's still barely over 2 years of his final salary.

    We can do better by increasing his savings to more than 5% per year -- but if you honestly think the average American is every going to save more than 5% every year for their entire lifetime, you're living on some other planet. At 10% per year, every year for 40 years, he will have saved $1048, which is better, but it's still only 4 years' worth of his final income.

    And remember, at least half of Americans have zero (or even negative) net worth, and are unable to save anything at all. Without a house, ALL of their housing expenses are going to rent, for which they save nothing.

    It is not realistic to imagine that any significant percentage of Americans can amass enough capital in a lifetime to support more than a handful of years of retirement -- and that assume they never have to pay for their college, or their childrens' college, or any medical emergency that would eat into their savings.

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  16. +++ How do suggest we turn our equity into retirement income? +++

    There are at least two ways to do that.

    1) Sell the 5-bedroom house you bought to raise your kids in, and buy a little 1-bedroom bungalow to retire into. The excess funds are your retirement savings.

    2) Get a reverse mortgage (I don't actually recommend this one, but many people do it; if done right, the house will be reduced to zero equity on the day you finally die, which is what a retirement account is supposed to do anyway.)

    The better option is to have Social Security (and pensions -- we need to return to that custom) to support you, and then leave the house to your kids. That gives your kids some assets. They then would own some capital. Over two or three generations, that capital can accumulate. That is what created the middle class, in America as well as in Europe.

    Before the twentieth century, no one but the top 10% owned any capital at all. With the advent of widespread home ownership of ever-more-valuable homes, the middle class was able to accumulate at least some capital over the course of the 20th century.

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  17. I'll ask again.
    How do suggest we turn our equity into retirement income?

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  18. ++1) Sell the 5-bedroom house you bought to raise your kids in, and buy a little 1-bedroom bungalow to retire into. The excess funds are your retirement savings.++

    Sell your $250,000 and buy a $150,000. That $100 grand might last you 2 years if you're lucky.

    ++2) Get a reverse mortgage (I don't actually recommend this one, but many people do it; if done right, the house will be reduced to zero equity on the day you finally die, which is what a retirement account is supposed to do anyway.)++

    I don't recommend it either.

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  19. +++ Sell your $250,000 and buy a $150,000. That $100 grand might last you 2 years if you're lucky. +++

    I intend to buy a $40,000 cabin in the North Woods. But you're right, even that isn't enough to retire on. Which is why we have to expand Social Security, since the pensions are drying up.

    The better option, as I said, is a multi-generational one, and it's the only one that worked. If a significant amount of one generation's assets still exist to be inherited by the kids, that's really the only way the kids can do better than the parents did. If they can pass something on to their own kids, then the American Dream -- where each generation does better than the last -- is possible.

    That only happened, as I said, because of policies like progressive taxation, Social Security, and widespread home ownership -- three things conservatives want to do away with.

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  20. We're deep in the forest though, and missing the overall picture.

    The point here isn't really about home ownership at all (which I think was brought up as a distraction). The point is that Americans are aware their standard of living isn't what it should be. They're aware their future isn't as bright as it once was. They're aware they may not do as well as their parents did, and their kids will probably do worse yet.

    Americans are not happy with the distribution of wealth in America. Telling them to buy cheaper houses isn't going to make them happier, and it certainly isn't going to address the problems brought about by increasing wealth disparity.

    The purpose of this post was to dismiss the idea that Americans are perfectly pleased with their current economic well-being. As I said, I'm working up a second post to document how we got to where we are. That will also tell us a lot about where are are likely to be going.

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  21. ++The point here isn't really about home ownership at all (which I think was brought up as a distraction). The point is that Americans are aware their standard of living isn't what it should be. They're aware their future isn't as bright as it once was. They're aware they may not do as well as their parents did, and their kids will probably do worse yet.++

    We're not as deep in the woods as you think. The point you keep missing is a simple one. Americans spend extraordinary amounts of money, particularly on our homes. We're making a conscious choice. We'd rather live in big, expensive home than save for retirement. It's that simple.

    This is the way to save for retirement. Buy a house which gives you a payment $350 less than you can afford. Start putting $350 per month into a Roth IRA or similar investment. Keep packing money into your 401K. By retirement time you'll have well over a million dollars. SS is your chump change you can use to go on cruises during your golden years.

    But Americans haven't been doing that for decades. We buy more house than we can afford and then wonder why we can't retire when we want to.

    This is not difficult subject matter.

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  22. +++ We'd rather live in big, expensive home than save for retirement. It's that simple.+++

    No it isn't, because A) there isn't any way a working class (or even a middle class) American can save enough to retire on (I note you didn't comment on the numbers I provided), and B) Americans really are aware that wealth disparity is enormous in America, and is growing, and THAT is the major source of the declining middle class.

    +++ Buy a house which gives you a payment $350 less than you can afford. Start putting $350 per month into a Roth IRA or similar investment. Keep packing money into your 401K. By retirement time you'll have well over a million dollars. +++

    By the time the average American can afford to buy any house at all -- let alone one big enough that they could get some other house for $350/month LESS -- it's too late to begin saving for retirement. When rents are over $1000/month in most major cities, and with the average wage being around $4000/month for a family of four, you are crazy if you think most Americans could afford to put $350/month into any sort of retirement vehicle.

    Even so, $350/month times 12 months is only $2880 per year, You're crazy if you think anyone could live long enough to turn that into "well over a million dollars" (that's almost 350 years). And that's assuming we don't have a crash that turns your money into dust. And that you didn't give it to AIG.

    The only person who could possibly come up with a prescription like this is someone who really doesn't have to work for a living at all, and has never run the numbers.

    By the way, putting $350/month into a house gives you a better and safer rate of return than any IRA or 401(k), so your prescription is doubly wrong.

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  23. I made an error (entered 240 instead of 350 into my calculator). It would take a shade under 240 years -- not 350 -- to get to a million dollars. That's MUCH better.

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  24. See, in order to get to $1.000,000, you have to put away $33,333 for 30 years. Or $25,000 for 40 years. If your annual income is around $50,000, that's going to be difficult.

    And do not tell me that a Roth IRA will earn you enough dividends to get there. If you are contributing $350/month -- or even $1000/month -- you' have to earn some unprecedented returns on investment for an incredible and unbroken number of years. It just ain't happening. Not in the real world.

    And as I previously said, this assumes you don't ever have a catastrophic illness or want to pay off anyone's college loan. Or ever take a vacation or see a movie. Although Obamacare will help, since there are no longer lifetime limits on benefits, so if Republicans don't screw us, maybe we can cross illness of the list of things that will prevent retirement.

    The Reagan-era IRA and 401(k) is cruel jokes. Maybe a tiny percentage of Americans will be able to use them for retirement. And they can serve as supplements to Social Security. But the idea that any significant number of Americans can stash enough cash on their own to retire is ludicrous at best. You need to have at least a half mil as an inheritance to even hope to rely on an IRA.

    And none of that takes inflation into account. If there is any measurable inflation during your working lifetime, any contributions you make are worthless after ten or fifteen years. You just can't earn enough interest on them to beat inflation, unless you start with a sizable amount you got from Daddy that you can put into some real earners -- the kind that make money even when another 2008 happens (since Republicans are dedicated to deregulating to make sure another 2008 happens).

    Prove me wrong. Show me how someone making $50,000/year at age 35 with a wife and two kids can put away enough to retire.

    And then show me how a minimum-wage-earning single mother of three can do it.

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  25. Quoted from News of the Weird.--
    http://www.newsoftheweird.com/archive/

    "-- Is This a Great Country or What? Counting only the pool of bonus money (not regular salaries), employees of New York securities industries in 2014 earned roughly twice as much as the total income paid to all employees in the United States who worked full time at the federal minimum wage ($7.25 an hour). (The statistic, from a report by the Institute for Policy Studies and reinforced by a University of Michigan professor using figures from the New York State Comptroller and the Bureau of Labor Statistics, was featured in a March New York Times analysis.) [New York Times, 3-13-2015] "

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  26. ++And do not tell me that a Roth IRA will earn you enough dividends to get there. If you are contributing $350/month -- or even $1000/month -- you' have to earn some unprecedented returns on investment for an incredible and unbroken number of years. It just ain't happening. Not in the real world.++

    Nonsense. If you invest $350 a month at 5% or 6% return for 40 years and contribute to a 401K, you will EASILY have a millions dollars for retirement.

    You continue to ignore the point. Your article acknowledges that people are not living in misery in Merica. They are overwhelmingly satisfied with their lot in life. Your only rebuttal is that people don't feel they can retire as early as they used to, therefore they're more miserable with their lives than they think.

    But you won't acknowledge that people spend a TON more money than they used to. We're spending at a far greater rate than inflation. It's not even close. We spend 47% more than we did less than 2 decades ago. It's no wonder people can't retire as early. It's not hard to figure out.

    Why can't you acknowledge that when people spend more, they can't save as much?

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  27. You are missing the point. Retirement is only one of several factors. But I'll have my second article ready tomorrow or Wednesday.

    +++ If you invest $350 a month at 5% or 6% return for 40 years and contribute to a 401K, you will EASILY have a millions dollars for retirement. +++

    $350 per month is $4200 per year. Contributing $4200 per year at 5% interest would give you almost $533,000 after 40 years. This is about half of your suggested $1,000,000. So we have to double that -- you need $700 per month, every month (or over $8000 per year), for 40 years.

    1) You are assuming investments will earn 5% per year every year for 40 years with no recessions, and no crashes like we just had. Such investments don't exist.
    2) You are assuming zero inflation. For 40 years. (If there was any inflation, the $1,000,000 you are recommending would be insufficient.) Zero inflation is not a rational possibility.
    3) You are assuming that, beginning at age 25, the average American worker can put aside $700 per month (over $8000 per year), every month, for 40 years, with no illness or college loans or unemployment problems or other matters that might interrupt the process. These are unlikely circumstances.

    None of this is realistic. There are much more rational and reliable ways to do this.

    +++ They are overwhelmingly satisfied with their lot in life. +++

    No, they're not. You didn't actually read the article, did you? Americans are aware that the distribution of wealth in American is absurd, and getting worse. They're aware that they are losing ground -- fewer Americans every year identify themselves as "middle class". They're aware that Social Security is a far more reliable and useful investment than IRAs. They're aware that the fruits of their labor, which are expanding the economy, are mostly going into the pockets of the wealthiest Americans.

    They are not happy with these things.

    +++ Why can't you acknowledge that when people spend more, they can't save as much? +++

    Because even if they save more, there isn't any way they can save enough for retirement. I've proven that by running the ridiculous numbers you've suggested.

    But even that's not the point. The point is, Americans are overwhelmingly aware that wealth is increasingly distributed in a destructive manner that is crippling the economy and dismantling the middle class. The slow death of the ability of Americans to retire is only one example of that.

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  28. $350 per month at 6% for 40 years is $700,000. There's no reason a prudent person can't then make $300,000 in a 401K. People aren't as dumb and helpless as you think.

    ++You didn't actually read the article, did you?++

    Go to hell.



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  29. ++You didn't actually read the article, did you?++

    I asked because you ignored most of it, and just repeated the same silliness you said before I wrote it, as if nothing in the article responded to your original claim. You still haven't acknowledged that I addressed the odd idea that people are perfectly happy with the way things are, when it is obvious to anyone who isn't an idiot that people are NOT happy. In fact, you keep repeating that silly claim.

    Tell me why, then, Americans say the distribution of wealth is unfair, and why increasing numbers of Americans say they are no longer part of the middle class. Why won't you even acknowledge anything that calls into question your view that people think everything is peachy-keen?

    +++ $350 per month at 6% for 40 years is $700,000. +++

    And again, you refuse to acknowledge the difficulties I raised about the idea of of putting aside this much money -- and maintaining even a 5% rate of return, let alone a higher rate. You keep acting as if you are doing a monologue in the absence of responses that prove what you're saying isn't rational.

    You pretend the whole problem with any unhappiness that people have is simply that they're stupid and won't save enough money. Stop insulting Americans.

    Tell us how someone making $50,000 and supporting a family of four can hope to put aside this much money. Tell us how they can hope to get this kind of assured rate of return for 40 years. And as I asked you before, tell us how a single mother of three working full time for minimum wage can hope to retire. I dare you. Stop simply repeating claims I've already shown to be silly.

    Your idea that people are overjoyed to have the 10% on top getting immensely richer, while they stagnate or fall behind -- and while the rich demand more tax cuts and refuse to raise the minimum wage and then take away more worker benefits -- and all workers have to do is to happy with LESS and then all their problems will be solved -- that is offensive and stupid. You are blaming hard-working Americans for the predatory tax policies of Citizens United.

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  30. There are problems with the idea of telling everyone to open an IRA. And there is a better solution.

    The prescription given is to put aside at least $350 per month, every month for 40 years, pray for a 6% rate of return, and then find a way to get an additional $300,000 so you can have $1M. It is assumed that you can then live on that $1M in retirement -- if you continue to get, say, 5% return on the million, that's $50,000 per year, which is not an unreasonable retirement income.

    The problems:

    1) You cannot rely on a return on investment of 5% or 6% or more. You could get far less. I suppose you could get more, but over a period of 40 years or so it is extremely unlikely.

    2) Even if you do get this kind of return, this prescription assumes there is virtually no inflation for this extended 40-year period. The effects of inflation are many and insidious:

    2a) In order for this prescription to work, the rate of return you get on the investment has to be 6% =above the rate of inflation=, because inflation would cut into the returns. For instance, if you get 2% interest on your savings, and the rate of inflation is also 2%, your money is just barely retaining the same value. So if you need 6% =above inflation=, and the inflation rate is 2%, that means you actually need an 8% rate of return. If maintaining a 6% rate of return over 40 years in unlikely (and it is,), then maintaining 6% =above inflation= is just barely this side of absurd.

    2b) Similarly, the rate of return you need after you retire must also take inflation into account. It isn't enough to count on a $50,000 income each year in retirement. You need to have that income increase every year, at the rate of inflation, in order to keep up. This means your rate of return actually has to be enough to have your desired income, plus enough left over to leave in the account so next year's income can rise at the rate of inflation.

    2c) Although $50,000 might sound like enough of a retirement income today. after 40 years of inflation, $50,000 might seem ludicrously low. This means the target of having saved $1,000,000 after 40 years might not be nearly sufficient.

    3) Quite apart from the ravages of inflation, and the problems of whether your return on investment will be sufficiently high, there is the problem of whether your account will actually =lose= value. If you invest in an IRA or 401(k), it is, by definition, a risky investment. The stock market can go up -- =or down=. You might find that, after 40 years, all that money you put away is worth =nothing at all=, or at least be far less than you'd need to, say, buy a nice car. The principle you put into the account can actually be degraded, and wind up being virtually worthless. (We have all heard of investments crashing, and we all still remember 2008, and we've all heard about 1929.)

    4) Even if all the above works out well, this all assumes you have the personal fortitude to keep making these contributions, every month, every year, =for 40 years=. If you have a catastrophic illness -- or if you have to pay off a student loan -- or if you help your kids pay off a student loan -- or if you use some of your savings as a down payment on a house -- or if your house burns down and you need to buy new stuff - or if your kids have a student loan, or an illness, or get married -- or if you have a period of unemployment -- forget it. Any of these can wipe you out.

    5) You have to start when you are 25. If you are already over 25, it's too late -- you need to recalculate, and your numbers get even more absurd. In point of fact, by the time an American worker feels able to put aside $350 per month (actually, it must be somewhat more, as I indicated), he or she is usually far older than 25. Too late for you.

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  31. There is a way around all of these problems. What we need is a system that addresses all of these issues:

    1) We need a guaranteed rate of return -- or at least, a guaranteed payout. The stock market won't promise a 5% or 6% (or even 2%) rate of return. We need a system that pays regardless of what the stock market does.

    2) Something that takes inflation into account:
    2a) ... where the guaranteed rate of return takes inflation into account -- or is irrelevant, because there is a guaranteed payout
    2b) ... where the payouts after retirement automatically have a Cost of Living increase
    2c) ... where the amount of the guaranteed payout at retirement increases over the next 40 years to take inflation into account -- whatever the system promises today, it will increase every year between now and when you retire, so that it remains always in real dollars rather than what is called "nominal" dollars.

    3) The system must not care about whether the money you put there will gain or lose value. Your investment must not be vulnerable to having the principle degraded. The money you put there has to be safe from the ravages of the economy.

    4) The best system would be one that you don't really have a choice about. One that takes money directly from your paycheck whether you like it or not. That guarantees you will make the contributions you need to make. (And if everyone is subject to this mandatory investment, then you get to benefit from the contributions other people make when they don't live long enough to retire. If everyone has his or her own account, that shared benefit isn't there.)

    5) If there is a government program that takes money directly from your paycheck, then it starts with your first job. You don't have to wait until you feel you are "ready".

    Of course, I'm talking about Social Security. It has all these positive features, and beats the IRA or 401(k) on every point. In addition to that:

    6) 6.5% of your paycheck is withheld for FICA taxes, and your employer contributes an additional 6.5%. That is a total of 13%. If you want a contribution of $350 per month, you only need to have an income of a little over $32,000/year. And if you get raises, your contribution automatically goes up. (FICA taxes don't just pay for retirement, but we can discuss that another time.)

    There are additional problems with individual retirement accounts -- they are primarily designed to provide funding for investment brokers, which means they help trust fund babies and increase the income of the top 1% of wealthy people far more reliably than they help middle class people retire -- which is the reason Republicans like these accounts, because they are good for the filthy rich while screwing everyone else.

    Social Security is not perfect, but it's a damn sight better than individual retirement accounts.

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  32. Grog --

    I know you won't give a coherent response to any of this. You probably won't respond at all. It is usual for rightists to make pronouncements, and then to not respond when those pronouncements are shown to be baseless.

    RG, for instance, continues repeating THE SAME idiocies about climate science, even though I have shown, time and again, that the particular idiocies he repeats are entirely stupid.

    So here. I don't expect you to acknowledge the problems with retirement accounts, or the ways Social Security beats those accounts to hell. I expect you to repeat (if you respond at all) that people are overjoyed with the Obama economy, don't want anything to change, and merely have to save more money.

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