After reading this piece by Brad DeLong, I ask you, how are normal people supposed to understand all this and plan for their retirement?
Reader Interactions
93Comments
Comments are closed.
Come for the politics, stay for the snark.
Radicalized white males who support Trump are pitching a tent in the abyss.
My years-long effort to drive family and friends away has really paid off this year.
Trump should be leading, not lying.
“Facilitate” is an active verb, not a weasel word.
You come for women, you’re gonna get your ass kicked.
She burned that motherfucker down, and I am so here for it. Thank you, Caroline Kennedy.
Every decision we make has lots of baggage with it, known or unknown.
Take hopelessness and turn it into resilience.
They fucked up the fucking up of the fuckup!
Mediocre white men think RFK Jr’s pathetic midlife crisis is inspirational. The bar is set so low for them, it’s subterranean.
Republican also-rans: four mules fighting over a turnip.
Sitting here in limbo waiting for the dice to roll
“Just close your eyes and kiss the girl and go where the tilt-a-whirl takes you.” ~OzarkHillbilly
Stop using mental illness to avoid talking about armed white supremacy.
Give the craziest people you know everything they want and hope they don’t ask for more? Great plan.
These days, even the boring Republicans are nuts.
Since we are repeating ourselves, let me just say fuck that.
“But what about the lurkers?”
Their freedom requires your slavery.
Well, whatever it is, it’s better than being a Republican.
The current Supreme Court is a dangerous, rogue court.
And now I have baud making fun of me. this day can’t get worse.
My right to basic bodily autonomy is not on the table. that’s the new deal.
Disappointing to see gov. newsom with his finger to the wind.
You are here: Home / Economics / Free Markets Solve Everything / How Is Anyone Supposed to Understand This
Just Some Fuckhead
What piece?
kerFuFFler
Where’s the link?
rikyrah
There is no link to the piece in question, Cole
smintheus
That’s what I call an easy read.
MattR
@smintheus: But did it answer your questions?
smintheus
@MattR: My question is “What retirement?” There is no answer.
Amir Khalid
Hmm. How long before John Cole notices his little oopsie and fixes it?
MattR
@Amir Khalid: Hopefully about the same time he notices my comment in moderation on the previous thread.
EDIT: And as I go back to check, I see it is out. So its now my turn to look like a jackass. Thank you JC
Mike in NC
Republicans will raise the retirement age to 95, so we won’t have to be bothered with the planning stuff.
Brother Machine Gun of Desirable Mindfulness (fka AWS)
Well I can’t plan for retirement like this!
NotMax
TL:DR :)
“Retirement” is so-o-o last century.
Amir Khalid
Or maybe John Cole is just messing with us.
Suffern ACE
Save money. Invested in a broad portfolio of stocks, bonds, cash equivalents, precious metals, real estate and insurance contracts. Managed using mpt and rebalanced annually?
chopper
it’s a zen koan.
KRK
Never was a title more apt. Well done.
John Cole
I hate you all.
Cassidy
@John Cole: Did you get my email about it?
Lori
Maybe this one: http://delong.typepad.com/sdj/2012/04/retirement-savings-the-need-to-strengthen-social-security.html
JPL
Fox news said the union pensions are bankrupting the country, so I don’t know what you are talking about.
Stella B.
My husband accidently got rich, so I retired. “Marry a rich man” is always a valid retirement plan.
MattR
@Stella B.: Someone in my company won $1 million in a lottery recently. So there’s that too.
daveNYC
@Suffern ACE: Never mind that buy and hold went down the crapper back around 1999.
cathyx
Retirement is a thing of the past. Along with landlines, Oldsmobiles, and check writing. Only people over 60 can do or have those things.
cbear
I read the Delong piece and noted this in the first comment:
My first thought was—so this is the guy predicting the market?
eemom
Hey Cole — OT, but I was reminded again today by his absence on the GG thread: is there any way you could check on General Stuck?
He’s been gone a really long time, and given all I know about him, I don’t think that portends anything good. I mean there probably isn’t anything any of us can do about whatever it is, but it would be nice to at least let him know we care.
Amir Khalid
I’m still thinking hard about that worldwide bestseller I’m going to write (and sell the movie rights to).
Tyro
@cbear: I wish there were a way to mark “favorites” or “like” on comments.
Suzanne
@Stella B.:
But most of them are tools.
Homelessness is preferable to marriage to a tool.
JPL
This is the best comment ever although, there is not a response yet! There are probably lots of chuckles though.
JPL
How many on the blog can count on some type of pension plan?
Josie
@cathyx: Actually, I’m way over sixty and have none of those things. I am retired, but I’ve had to return to work to supplement my meager retirement income. I dropped my landline to save money and I own a small Toyota. My youngest son shamed me into getting a debit card, so that I wouldn’t be writing checks for groceries.
gogol's wife
@cathyx:
What is your problem with check writing?
MattR
@JPL: Doesn’t that word trigger moderation?
No pension for me. Instead I get a minimal (but probably better than most) matching contribution into a 401K.
Ahasuerus
It doesn’t answer your question directly, but Krugman has addressed some aspects of this in his blog entry here.
cathyx
@gogol’s wife: It’s a waste of money and time. Two things I hate to waste.
jebediah
@John Cole:
must be extra frustrating, then, that so many of us love you. Sorru!
Redshift
@Stella B.:
Except I’m already married, I’m not gay, and marriage equality isn’t legal in my state. Guess I’ll have to find another plan.
Phylllis
@JPL: I think I can, as I’m four years away (plan to retire at 25 yrs/age 55 with South Carolina). And the only reason I believe that with only a little trepidation is due to the sweet retirement deal our legislators have awarded themselves, and who know the political price they’d pay if they did away with state employee bennies.
Brother Machine Gun of Desirable Mindfulness (fka AWS)
@JPL: Well, I am one of those shiftless public employees who still has a defined benefit retirement plan, but “count on” is a tricky question, because the state lege keeps trying to fuck with it.
VFX Lurker
@John Cole
Here’s what I told my little brother earlier this year, but it’s not as easy as it looks:
1) Earn money.
2) Live on less than you earn.
3) Invest in low-cost, total-market index funds (preferably Vanguard index funds)
4) Keep your age in bonds. Ex: 40% bonds, 60% stocks if you’re forty years old.
Note that #2-4 are not possible if you don’t have a job (requirement #1).
I don’t know if I’ll have enough saved for my own retirement. I may have to work part-time in retirement in order to supplement my savings and my Social Security.
MattF
Here:
http://www.nytimes.com/2013/03/22/business/behind-the-derivatives-gibberish-risks-run-amok.html?pagewanted=all
Floyd Norris at the NYT points out that in fact, no one understands what the hedgies are talking about. And the reason no one understands it is that they are spouting gibberish.
NotMax
@cathyx
If those are your criteria, then using plastic is also a “waste of time and money” compared to using cash.
jon
@JPL: I’ve got a pension plan. Could retire with a pension in about eleven or twelve more years, but wouldn’t have enough to live on. Would need to wait another twelve years before Medicare and Social Security could even be thought of.
I’m lucky as can be, working at a county job with decent future need and long-term stability. So lucky.
jayjaybear
I’m honestly beginning to agree with the opinion that the period of history when ordinary people HAD an actual retirement was a brief anomaly in the long parade of human misery.
cathyx
@NotMax: How do you figure?
Mandalay
@JPL:
Actually an earlier comment in that thread (response #4) provided an excellent answer to the question “Can I ask what value these hedge fund types add to an economy?”:
The most important part to remember about hedge fund managers in that excellent response is this: “They produce nothing“.
Brother Machine Gun of Desirable Mindfulness (fka AWS)
@VFX Lurker: The real point here is that I would guess most of the populace does not have the extra brain cells available to wade through financial planning bullshit in order to look forward 40-30-20 years, in addition to all the other things we are supposed to be worrying about in a modern society (home mortgages, bills, medical expenses, insurance, taxes, etc.).
If we all made 200K and had maids, financial planners, etc., we’d be sitting pretty wrt all the unexpected things that life brings, but as it is, we’re just hanging on.
For those of us who have some kind of retirement plan through work, we put money in every month, with the expectation that there will be some kind of benefit at the end.
Robert Waldmann
Normal people don’t have to understand that to plan of retirement. All useful investment advice *can* be writteon on a 3 by 5 card (it was written on a 4 by 6 card). See
http://www.samefacts.com/2013/04/uncategorized/advice-to-alex-m/
I’m pretty sure that a lot of this is advice for the reglar guy with high income paying a reasonably high marginal income tax rate.
Normal people probably shouldn’t even consider taking leveraged positions (so much so that if you don’t know what a leveraged position is, it’s probably better to avoid finding out).
schrodinger's cat
I don’t think ERISA allows retirement funds to be invested in hedge funds. Hedge fund investors are people like Romney, the .001%
Brother Machine Gun of Desirable Mindfulness (fka AWS)
@Robert Waldmann: Oh, bullshit. I get so sick of that type of fairy tale advice that does not even begin to calculate for life. “Save 20 percent of what you earn.” Give me a fucking break.
SiubhanDuinne
@JPL:
Well, I’m retiring at the end of June and will get a darned good lump sum severance package and then a decent pension. Not riches by any means but better than many. I’ve put a little bit aside but not much, so I’ll need to manage this well (alas, not one of my strengths).
Mandalay
@Suzanne:
Maybe in the abstract, but only homeless people who were married to tools can really speak with any authority on that. I suspect that most would opt for the tool.
I know you didn’t mean to romanticize it, but being homeless is mostly a dangerous, brutal, awful, horrible life.
cathyx
@Brother Machine Gun of Desirable Mindfulness (fka AWS): He forgot the part of the advice that you continue to live with your mom and dad while you save your money.
Anne Laurie
@Redshift:
Tom Friedman’s cabbie will tell you that marrying a rich man’s daughter is also a good plan. Of course, Tom’s father-in-law is down to his last billion or two right now, but even so, it’s a much better retirement plan than any pension, especially since marrying up allowed Tom to network into a much higher pay bracket for his inspirational-speech work.
NotMax
@cathyx
First, the disclaimer. With extremely rare exception, try not to use plastic myself. Do use checks.
Anyway.
With cash:
1) hand cash to cashier
2) get change, if any
3) done
With plastic:
1) pay for card privileges (user fee or other annual charge)
2) swipe card (let’s presume it works 1st time)
3) choose payment type
4) wait for transaction approval
5) accept/decline and/or sign name
6) done at store
7) pay credit card company
Have timed it, and (personally) can be rung up, write check, and be on my way faster with a check than with plastic.
Checks cost a few cents each, yes, but most all credit cards are not free to have.
My particular purchases are pretty much my own business, and I prefer not to have them entered into and associated with me as an entity in someone else’s data base, to be used or shared who knows how. plus, if such info has value as proprietary data, why hand it over for free?
MattR
@Robert Waldmann: That’s nice and all, but what are you supposed to do to protect your portfolio when the market loses equillibrium due to factors like what DeLong describes (or the housing bubble in the recent past)?
@NotMax: I have a no fee credit card. I swipe the card before I get a total from the cashier, which you can’t do with cash. I don’t need to sign if it is under $50 and my credit card payment is made online without any manual intervention. So plastic is significantly quicker than waiting for a human to create change. (EDIT: And I find that checks are slower because of the extra processing needed by the cashier once the customer finishes filling out the amount – assuming they have the foresight to start filling the rest out beforehand)
EthylEster
@JPL: Obvious answer. SOME people get rich. And isn’t that the point of capitalism?
JPL
@SiubhanDuinne: We need to celebrate, then. I’ll show you my favorite shopping places, think slightly worn clothing and then we’ll stop at trader joe’s but not for that three dollar stuff. I have my limits.
Uncle Cosmo
@Stella B.:
But, y’know, late at night a big old house gets lonely.
I guess every form of refuge has its price…
cathyx
@NotMax: I pay nothing for my cards. I can swipe my card while the checker is still ringing up the order. It takes microseconds to push a button to approve the transaction. No signing for amounts under $25.
As opposed to old lady waiting for the total to be rung up before she gets the checkbook out of her purse. She then has to write out the check, which does cost her money, (I paid about $15 for 2 boxes of checks, about 200 checks, although that was a long time ago since they last me a long time since I rarely use them, so it probably costs a lot more than that). She writes very slowly because she was criticized by her teacher if she didn’t have perfect cursive writing. Then the check has to be looked over and a phone number must be added to it, plus an alternate ID must be checked to verify her identity. Then it’s entered into the register and put under the drawer.
gogol's wife
@NotMax:
Yes, I can be done faster with a check. So I don’t understand all the resentment directed in the thread below at people who use checks. I’ve had to wait many times for people whose cards didn’t work in the swiper.
NotMax
@MattR
There are always exceptions (and vagaries dependent on the software and hardware installed in any location*), but I more often than not find the wait for people ahead of me using plastic noticeably longer than for any other payment type.
As with all of life, YMMV. But if it takes that long for the human to make change, when the amount of change is computed and displayed for him/her, then that’s a training problem.
*Love, love, love the way Costco does checks. Only have to sign the check. Cashier runs it through the register, where all the other fields (date, payee, amount) are auto-printed on the check. Then cashier shows the completed check so I can verify it is correct.
gogol's wife
The only prejudice countenanced in the comments here is ageism.
NotMax
@cathyx
So your real gripe is with the human, not with the process.
NotMax
@gogol’s wife
Solidarity!
Josie
@gogol’s wife: I’ve noticed that. It’s interesting, too, because it seems there are a number of us olds that read the blog.
gogol's wife
@NotMax: @Josie:
It’s really not about the checks, just as it’s not about the land lines. It’s about the simple fact that older people use both.
cathyx
@NotMax: My gripe is that writing checks is a waste of time and money.
MattR
@NotMax: Plastic is probably the slowest overall in practice, but I think that has to do with the way people use it rather than the method of payment itself. The same people who used to start looking in their purse for their checkbook once they get a total from the cashier now start digging for their credit card at that same point (EDIT: Or start digging through for cash).
Personally I don’t think it matters all too much since the time difference is not that much and you are gonna have to wait for them to bag their things and load them back into their cart anyway.
cathyx
@gogol’s wife: The issue is that checks are slow and expensive. I don’t care if you have a landline or buy an Oldsmobile. I’m saying that once old people die off, so will landlines and Oldsmobiles and checks.
gogol's wife
@cathyx:
No, you’ve got a whole hostile story made up about everyone who uses checks, down to how they learned penmanship in elementary school. If it were about gender or race it would be socially unacceptable.
NotMax
@cathyx
Back to that already?
Okay.
It is their time and their money. To see it as somehow targeted at you is somewhat bizarre.
@MattR
Bravo and thank you.
MattR
@cathyx: I don’t know if I have issues with my hearing, but I will choose a landline over a cell phone every time. I just have a much harder time understanding the other person when I am on a cell (doesn’t matter what phone or service I am using). And I am under 40 (for a little while longer).
SiubhanDuinne
@JPL: That sounds like a great plan!!
NotMax
@cathyx
May you have a long, long, long life.
gogol's wife
@NotMax:
Amen.
MattR
@NotMax: OTOH, I think the most frustrated I have ever been in line was when hungover and trying to get breakfast at a Burger King near Lancaster, PA and the person behind the counter was having a long casual conversation with each customer. I don’t mind small time friendliness, but it shouldn’t take 20 minutes to get fast food when there are 4 people in front of you. /thosenumbersnotintendedtobefactual
Chris T.
@VFX Lurker:
This rule is badly over-simplified (although as “rule(s) of thumb” go it’s not awful).
If only expenses were predictable, the “right way” to do this would be to compute social security income vs each year’s expenses and then keep enough in cash (and/or cash equivalents) for the next 6 months, enough in bonds to cover 100% of the next ~5 years and a sliding downward scale over 10, 15, and 20 year horizons, and the remainder in stocks. OK, so, two failings here: expenses aren’t actually predictable, and it’s horribly complicated even if you have a computer work with it (you can do probability weighted scenarios in software to make it tractable), but there’s a key item that should leap out: if you have a ton of money (compared to expenses) then you want less in bonds and more in stocks than the rule of thumb would imply, and if you have very little money (again compared to expenses) then you want more in bonds / less in stocks.
There’s also time horizon issues, for which pension pools work way better than individual 401(k)s, since the big risk with “self retirement” is outliving your money, and in a large pool, the average retiree really actually lives to the average age, so that you don’t have to over-provision so heavily.
Bruce S
Small nitpick w/ deLong – the Federal Reserve doesn’t “print” money. They create money, but they don’t have to print it The little people will never touch the money the Fed creates.
Also, if you’re trying to figure arcane black-box shit like this out in context of your retirement plan, you’re playing with fire.
JoyfulA
@JPL: I have a pension plan. It’s $111/month from a company I worked for in the late 1960s and 1970s. It would be $134, but I opted for a survivor benefit for my husband.
I hope my IRAs bring me more than that when I’m finally so broken down I have to retire.
NotMax
@MattR
Must admit to a pet peeve regarding people at the bank who know they are going to handed cash by the teller, and only afterwards start fumbling for the wallet.
But I don’t get angry at them; more like bemused.
A few seconds here, a few seconds there. Gosh, pretty soon you’re talking a whole minute!
Egypt Steve
Sounds to me like we’re actually not supposed to be worried. So I am going to go crack another beer and watch “Avatar.”
Weaselone
VFX Lurker gives some pretty solid general advice, although I have to quibble with point 4. The stock to bond ratio in your portfolio should probably be based on your individual circumstances and tolerance for risk as opposed to an age-based formula.
An alternative would be to put your money in a low-cost lifestyle mutual fund that closely matches your current risk profile. Vanguard also offers several of these.
The DeLong piece probably has little impact on how the average person should choose to invest. At most it may justify the individual small investor putting less of their funds in long term US treasuries. It’s not a good idea as a small investor to do what the hedge funds are doing. It’s probably not a good idea for the hedge funds to do what they are doing. DeLong mentioned Bernanke and the Fed as the Washington Whale, but the hedge funds are essentially betting on the end of the global slump we’re in. As long as it persists, it’s not just the Fed that’s dumping money into US treasuries.
Tyro
@NotMax:
Checks cost a few cents each, yes, but most all credit cards are not free to have.
What? Most credit cards ARE free to have. Many grocery stores don’t even bother asking you to sign anymore.
Tyro
I have checks. I use them occasionally. But never in a retail context. I used to use them for paying bills, but now I do that electronically. I pay the IRS in a check. My donations to my church are by check, mostly because I don’t want to have them get charged a credit card fee and I highly dislike giving anyone withdrawal access to my checking account. Checks are like the ultimate safety valve/backup plan form of payment. But I think my yearly check writing could be counted on one hand.
Land line? I used to be really insistent on maintaining a landline. Then I moved to another state and simply never bothered to go through the rigormorole involved in hooking one up.
Never had any interest in getting and Oldsmobile, but I did once joke about trading in my sports car for a Buick when I turn 40 (which is approaching soon).
WhyKnot241
John,
A key point early on was that the buying an index is cheaper than buying a basket from the 125. It’s all about minimizing transaction costs (for us little people). All the other crap about expected interest rates might suggest an approximate window when you will want to shift part (part) of your portfolio from equities to bonds. I’m over 50 but still pretty aggressive with a bit over 50% in equity indexes (SnP, TSM, and EAFE)
3 months to reunion by the Tygart!
mclaren
Silly Cole.
You’re still assuming there’s going be a middle class in America from which people can retire.
In reality, by the time most of the commenters on this forum are ready for retirement, the former members of the American middle class will all be living under bridges roasting rats on broken sticks over the oil-drum-can fires.
The elites who run America aren’t stupid. They realize we’re running out of oil, running out of fresh water, 400 ppm of CO2 for the first time in a million year is turning arable land to desert, within 50 years scientists predict all aquatic life will be fished out of the oceans, and long before then robots + algorithms + data-mining will have replaced 90-plus percent of the currently skilled jobs in America.
What’s going on now is a wild scramble for the tiny amount that will be left after the seven different unsustainable trends wrecking America finally hit critical mass and it all falls apart. (ever-rising median unemployment rate, constantly dropping U.S. manufacturing capacity, continually falling U.S. job creation per decade from 1948 – 2010, continually rising oil imports for the top 5 oil-importing nations, college tuition rising at a faster rate than home prices at the peak of the bubble, U.S. health care costs skyrocketing for 6 decades and continuing to climb, ever-increasing proportion of U.S. durable good manufacturing devoted to military weapons over the last 6 decades) The Titanic is sinking, folks, and it’s a duel to the death over the lifeboats.
And guess what? You’re not included in that duel. It’s among the elites only.
Xenos
@MattF:
They spout gibberish because they can not say aloud what there real business model is: market manipulation and insider trading.
The traditional ‘hedge fund’ business model died with LTCM.
Anonne
@Uncle Cosmo:
I thought by now you’d realize
There ain’t no way to hide your lyin’ eyes
VFX Lurker
@Brother Machine Gun of Desirable Mindfulness (fka AWS):
I’m a VFX artist who works from project to project, studio to studio. I’ve never had a job that lasted more than 2.5 years in the past fourteen years. Some gigs only lasted two or three weeks. I’ve never made 200K/year. I’ve never had a maid or financial planner. I’ve also only had access to a 401(k) once, for about six months in 2010. Most VFX shops do not offer 401(k) benefits.
It took me about eight years to get serious about saving for retirement. I learned most of what I know about investing through free resources online (ex: the Bogleheads wiki).
Although I am saving what I can, I do not expect to have enough saved for my retirement to actually retire. As I wrote earlier, I may have to work part-time in my old age.
@MattR:
There is nothing you can do to “protect” the stock portion of a portfolio beyond avoiding individual stocks and using a broad-market index fund/ETF. In any given year, the stock market can lose 50% of its value.
This is why investors should hold as many bonds as they need in order to sleep at night. Chris T, Weaselone and WhyKnot241 gave good advice on this upthread.
If you do not trust stocks for long-term investing, consider Zvi Bodie’s thoughts on retirement. He advises individuals to avoid stocks completely and park their long-term savings in riskless Treasury instruments like I-Bonds and TIPS.
sherparick
@Robert Waldmann: I do think it is a useful reminder what a rigged game Wall Street is, which is also one of the points on the 4 x 6 cardd, that when buying or selling an individual security the guy on the otherside of the table knows more than you did.
Saving 20% of income, I wonder how many can do that when outside the upper 5% of income earners.
Sasha
They’re not, John.
VFX Lurker
@sherparick:
I think “The Simple Dollar” blog offers good advice for folks outside of the upper 5% of income earners.