Retirement is an impossibility for a lot of people

[DTEJD1997]

Hey all:

I'm going to stir the pot and make some statements. These statement are about society in general and don't necessarily apply to the members of "realcent".

RETIREMENT FOR A VAST MAJORITY OF AMERICAN SOCIETY IS GOING TO BE AN IMPOSSIBILITY!

Why do I say this?

You can NOT save/invest enough money in a ZERO/low interest environment.

Think about it....Most major pensions are targeting a 8% or 9% return on their investments. Most major pensions have to invest a HUGE chunk of their assets in government bonds. What is the rate of return on a 10 year government bond? Last I checked, it was 2%. OK, go out to 30 years....and the yield jumps up to 3.25%.

So lets say 1/2 of a pensions assets return 3% a year...and that is somewhat generous. The equity/alternative investment section will have to return 13% to make the whole of the portfolio return 8%.

How many of the large funds have had double digit equity returns? What are the returns on the S&P since 1999?

There have been 4 years with NEGATIVE returns. 2000,2001,2002 were all down years for the index. 2008 saw a drop of 38%. 2003, 2006, 2009 were all years good enough to make that 8% return possible.

Of course, this is not assuming fees. This is also assuming that large equity do as well as the S&P 500, which is a difficult feat for many managers (hahaha).

It is also difficult to hit that 8% average when you have a down year...

So it all boils down to this...In this "low interest rate" environment, I don't see how pension funds will be able to attain their required rates of return.

Of course, individuals, and perhaps small, well managed pensions MIGHT make it. I just don't see how the "average" person will be able to do it...

[barrytrot]

What is so great about retirement?

I don't plan to ever retire. Working is fun for me.

I don't know the history but my guess is that retirement is a relatively new concept anyway. And, in my opinion, not a necessary one.

[Thogey]

What is so great about retirement?

I don't plan to ever retire. Working is fun for me.

I don't know the history but my guess is that retirement is a relatively new concept anyway. And, in my opinion, not a necessary one.

My lord! Once again I agree with Barry. The world must be upside down. Your responsibility is to take care or yourself, if you are able. You pay for your own vacations. You work untill you die.

If you have saved enough money for time off, than BULLY for you!

[barrytrot]

Like I've said a few times, I bet that Thogey and I line up pretty closely on 90% of things, maybe closer to 95%.

[Engineer]

Like I've said a few times, I bet that Thogey and I line up pretty closely on 90% of things, maybe closer to 95%.

How do you feel about your wife?

[barrytrot]

Like I've said a few times, I bet that Thogey and I line up pretty closely on 90% of things, maybe closer to 95%.

How do you feel about your wife?

She's awesome. And I would be willing to bet Thogey feels the same way. You can't do as much "funny bashing" and not love someone.

[Tourney64]

This is a crisis.

The government must do something to solve it. Idea, why not take from the people who are prepared to help those who have chosen not to prepare.

Watch the markets tank if they try to do anything.

[DTEJD1997]

Tourney64:

Yes, this is a crisis.

I would suggest that the government needs to do several things:

A). Start moving away from "zero interest" rate policy. This is a distortion of the market. Things should be allowed to return to equilibrium. The sacrifice of savers for the benefit of banks needs to end IMMEDIATELY.

B). The government has a SPENDING problem. Federal, State & local budgets need to start getting reigned in.

C). We, as an American society, have TREMENDOUS education problems. Kids are not taught anything about finance, or economics before the graduate from high school. The lack of financial literacy is SHOCKING. This has to end...

D). If a bank is "too big to fail", it is too big to live. The big banks now control more deposits than they did BEFORE the financial crisis. As a bank's assets grow, it's reserves need to grow. Eventually the reserve requirement will become so large, the bank will stop growing OR it will be so well reserved, that there won't be problems...

E). Allow larger contributions to IRA's & other retirement accounts.

F). Change dividend tax policy. I would suggest that we take a page from Communist China in this regards. If insiders want to get paid, they need to have significant stock holdings, and they need get paid through dividends. That way, all shareholders benefit in proportion to their holdings. If USA stocks had higher dividend yields, this would help things out, especially over long periods of time.

I am sure there are DOZENS of other things that need to be done. I would suggest the above are a good start.

[barrytrot]

E). Allow larger contributions to IRA's & other retirement accounts.

F). Change dividend tax policy. I would suggest that we take a page from Communist China in this regards. If insiders want to get paid, they need to have significant stock holdings, and they need get paid through dividends. That way, all shareholders benefit in proportion to their holdings. If USA stocks had higher dividend yields, this would help things out, especially over long periods of time.

I am sure there are DOZENS of other things that need to be done. I would suggest the above are a good start.

While I am as capitalist as the next guy I don't see how "E and F" would help this problem.

People doing "E and F" are the ones closest to being able to retire and/or already able to do so.

E: If I could put 100% of my income into an IRA I would now be tax free until retirement. And I would do it. And I think a lot of people would. I don't see how giving a HUMONGOUS loop hole to absolute tax avoidance or delay would help anything.

F: Any company can pay a dividend, including a 1 person company. So now you change it so that all small businesses (there are a lot of these) pay 100% of their owners via dividends which are now either not taxed or minimally taxed. If the corporation is still taxed then split it 50/50 between dividends and salary and you effectively double the limit before you hit the max tax level. That is a lot of dollars left on the table.


I would prefer both "E and F" be done but it won't help things to do so and it certainly doesn't substantially increase those that can retire.

[DTEJD1997]

Barry:

I've got to disagree with you.

As to E). I am limited to $5k a year in my IRA. That is a good little chunk of change...BUT if we are talking about RETIREMENT, how in the world is someone going to retire putting away $5k a year? Especially in this "low interest rate environment". I'm not advocating that you be allowed to put 100% of your wages in retirement accounts. People need to pay taxes. I would suggest that IRA's be allowed to put in $10k or $15k a year. AND THEN HAVE YEARLY UPWARD ADJUSTMENTS.

F). Yes, any company can pay dividends. I am talking about publicly traded corporations. I am not talking about LLC's, Sub S, or other tax pass throughs...I would argue that if the average dividend yield of US equities approached 4%, you would have a LOT more people investing in them. You would have a lot of people being able to better plan. I also think that if management wants to get rich, they should do it through dividends NOT so much their salary.

What incenses me is large, profitable companies paying NO dividend OR some nominal amount while C level management strip mines the company through salary, perks, and empire building. Shareholders are the ones who own the company, NOT management.

I also can't stand management of public companies getting paid whether they perform or not. A good example of this is management of failed banks getting bonuses. Or management who own no stake (or very little) getting millions....Same thing goes for board of directors of companies.

I have no problem with somebody getting paid well, IF they PERFORM and they have "skin in the game".

I am actively engaged in my stocks & investments. I attend annual meetings when I can. I question & talk with CEO's CFO's and BOD members. I get on conference calls. I vote my proxy.

I will urge all other investors to get actively involved with their investments. If more investors were actively engaged, I think we would see better results...

[barrytrot]

E) Ok, that should be helpful without being overly harmful.

F) Why are you giving special privileges to public companies over others? They already have so many benefits I don't see how giving them more benefits is "good". Private companies have merit also!

It would be an obvious kick to the head of the little man if you gave the free dividend power to the big but not to the little.


Regarding companies that don't pay dividends. The reason not all companies pay dividends is because of 2 reasons:
1) Not all companies are done using their capital for growth
2) Because of the current "double tax" it's not super beneficial anyway. The company can use the profit pretty well and the increase in stock price replaces the dividend impact without a double tax.

[johnbrickner]

Tourney64:

Yes, this is a crisis.

I would suggest that the government needs to do several things:

This to add to your reading: http://www.peakprosperity.com/blog/8119 ... itle_81190

And a thanks for starting this conversation and all those who have contributed.

I would suggest there are a lot the things the government should not do!