Retiring Poor Is NOT as Bad as You Think! (graduating, older, college)
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The OP makes an excellent point, that even a parlous lack of planning/saving over a lifetime, need not result in dire misery in old age. Nevertheless, as others have pointed out, it's also true that the character "Dave" benefits from having a reasonable head on his shoulders. He makes sensible decisions in retirement (if not prior) and is fully aware of his options. Many of his peers lack his acumen and good sense. And those who do have such good sense, would perhaps have made different choices while still healthy and working.
There's also a good secondary point: while the champion-savers will indeed do OK in retirement, those who are only moderately successful won't necessarily do much better than those whose life-story follows Dave's. Thus for a broad swath of society there's a disincentive in punctilious saving, especially if these people aren't adroit investors. Corollary #2: if and when we do amass a certain amount of money, how we invest is at least as important as additional savings and good fiscal discipline.
We can debate interminably whether government benefits for the poor/elderly/infirm/unfortunate are excessively generous, or unconscionably stingy, or just right. This is as much of a political as an economic issue. But to me it seems that regardless of our position on the above, there's an obvious problem with "the system" – a problem on which most of us can agree: persons who receive benefits on account of not working, would lose most or all of those benefits if they attempted to work. If earning $1 necessarily phases out $1 in benefits (or sometimes $2 in benefits), why work?
We need to recast the benefits-system, so that those who do work can nevertheless continue to receive a modicum of assistance, and that only those outright unable to work receive a full package of aid.
The first paragraph is very salient - those with good sense probably took better care of the situation to begin with. Those who didn't take care of their retirement often end up scrambling at the last second.
I wouldn't even go so far as to claim only the adroit investors will do well. If you've had a 35 year career and started investing in 1980 and did nothing but track the Dow 30 (~825 close) and quit today (~18k this morning), a dollar invested at the start would be worth nearly $22 today. That's not a real return, but the scale is something to keep in mind.
Piece of cake, just make your home and car the same thing. I lived in a camper I built on the back of a Toyota truck for 13 years. I bought food, gas, auto insurance, the occasional truck part, and not much else. I had a solar panel and extra batteries, and upgraded my laptop to a new 5 year old model every year or so. Spent most of my time camping on BLM or NF land in beautiful spots, moving with the seasons.
Even counting depreciation on the truck I'm sure I spent <$5k/yr (mostly in the 90s). I had enough saved prior that I was earning $7-8k/yr on interest from CDs. It's easy to do if you like nature and solitude, and don't feel the need to live next to a hospital.
In many cases today, that's not possible. I can't simply live in an RV next to my office park. If I live out in the sticks somewhere, where will I find work? This solution is simply not reasonable, as most people would never want to live that way.
The first paragraph is very salient - those with good sense probably took better care of the situation to begin with. Those who didn't take care of their retirement often end up scrambling at the last second.
I wouldn't even go so far as to claim only the adroit investors will do well. If you've had a 35 year career and started investing in 1980 and did nothing but track the Dow 30 (~825 close) and quit today (~18k this morning), a dollar invested at the start would be worth nearly $22 today. That's not a real return, but the scale is something to keep in mind.
The problem is that most people, even if they are savers, seldom "invest" their retirement savings in anything but CDs because they choose "safety" over "risk" without realizing that 30-40 years down the road that's going to bite them in the arse because they won't have enough. Because of their conservatism, I think they might get $7-$10 back for every 1980 $1, but then remember that wages were a lot lower in 1980, so they would have had fewer dollars to invest back when interest rates were highest. Over the last few years, if you're keeping your retirement savings in CDs, you're probably losing money versus inflation, even though inflation is much lower than it was 30 years ago.
The OP makes an excellent point, that even a parlous lack of planning/saving over a lifetime, need not result in dire misery in old age. Nevertheless, as others have pointed out, it's also true that the character "Dave" benefits from having a reasonable head on his shoulders. He makes sensible decisions in retirement (if not prior) and is fully aware of his options. Many of his peers lack his acumen and good sense. And those who do have such good sense, would perhaps have made different choices while still healthy and working.
There's also a good secondary point: while the champion-savers will indeed do OK in retirement, those who are only moderately successful won't necessarily do much better than those whose life-story follows Dave's. Thus for a broad swath of society there's a disincentive in punctilious saving, especially if these people aren't adroit investors. Corollary #2: if and when we do amass a certain amount of money, how we invest is at least as important as additional savings and good fiscal discipline.
We can debate interminably whether government benefits for the poor/elderly/infirm/unfortunate are excessively generous, or unconscionably stingy, or just right. This is as much of a political as an economic issue. But to me it seems that regardless of our position on the above, there's an obvious problem with "the system" – a problem on which most of us can agree: persons who receive benefits on account of not working, would lose most or all of those benefits if they attempted to work. If earning $1 necessarily phases out $1 in benefits (or sometimes $2 in benefits), why work?
We need to recast the benefits-system, so that those who do work can nevertheless continue to receive a modicum of assistance, and that only those outright unable to work receive a full package of aid.
From what I've seen, most of the aid is for single-parents. It's not for singles (male or female) without children.
It's the parable of the prodigal son. The son who remains at home resents losing a portion of his inheritance - the portion that's used to replenish the returning prodigal son's inheritance.
Reminds me of the pursuit of "freedom" in Sartre's "The Age of Reason".
The bolded part is the problem as far as I'm concerned. They are NOT ALLOWED TO WORK. They really don't get that much money so what do they do? Sell drugs maybe? Why couldn't they be allowed to work a little bit, get some work experience and references, feel better about themselves. Let there be a limit up to which they can keep the money they earn. Maybe that would also keep them off drugs and eventually off the dole. Older people too--allow them to earn a little bit of money and actually get to KEEP it.
The bolded part is the problem as far as I'm concerned. They are NOT ALLOWED TO WORK. They really don't get that much money so what do they do? Sell drugs maybe? Why couldn't they be allowed to work a little bit, get some work experience and references, feel better about themselves. Let there be a limit up to which they can keep the money they earn. Maybe that would also keep them off drugs and eventually off the dole. Older people too--allow them to earn a little bit of money and actually get to KEEP it.
I have to admit that after I left my husband (taking the two kids with me) I was pretty much forced to accept welfare and food stamps. It was a pretty horrible existence; I realized I had to do something!
It was hard for me to even scrape up enough to put a dime in the phone booth to call about a job. Yeah, a dime, LOL, this was back in the early-mid 70s.
Well, I finally got a job; just a minimum wage job, but from there I was able to move to a better position. I gave my employer a fake social security number because I knew if welfare found out I was working, I'd lose it, and my minimum wage job was just not enough to take care of me and two children.
I guess it was easier back then; nothing was digitized, computerized, or categorized, as far as SS numbers.
Anyway, after about a year (and moving to several different employers), I finally was making enough to support myself and the kids, so I called welfare and told them I had found a job and didn't need assistance anymore.
If I had not cheated with welfare, I never really would have made it. I felt really bad about doing it, but I had no choice. It was stay on welfare and have a bare-bones existence, or try to make something better out of my life. Trust me, being on welfare does NOTHING for one's self esteem!
In many cases today, that's not possible. I can't simply live in an RV next to my office park. If I live out in the sticks somewhere, where will I find work? This solution is simply not reasonable, as most people would never want to live that way.
The problem is that most people, even if they are savers, seldom "invest" their retirement savings in anything but CDs because they choose "safety" over "risk" without realizing that 30-40 years down the road that's going to bite them in the arse because they won't have enough. Because of their conservatism, I think they might get $7-$10 back for every 1980 $1, but then remember that wages were a lot lower in 1980, so they would have had fewer dollars to invest back when interest rates were highest. Over the last few years, if you're keeping your retirement savings in CDs, you're probably losing money versus inflation, even though inflation is much lower than it was 30 years ago.
I can't see how anyone would simply keep something in a CD or other FI instrument over many years.
The problem is that most people, even if they are savers, seldom "invest" their retirement savings in anything but CDs because they choose "safety" over "risk" without realizing that 30-40 years down the road that's going to bite them in the arse because they won't have enough. Because of their conservatism, I think they might get $7-$10 back for every 1980 $1, but then remember that wages were a lot lower in 1980, so they would have had fewer dollars to invest back when interest rates were highest. Over the last few years, if you're keeping your retirement savings in CDs, you're probably losing money versus inflation, even though inflation is much lower than it was 30 years ago.
It's a bit extreme to say that most people have CD's only and the evidence from surveys suggests otherwise. See page 16 here:
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ersonally.
