Rich Retirees Are Hoarding Cash Out of Fear
bloomberg.com
bloomberg.com
He built a house and bought a couple of nice cars living on about 100,000 a year. About 12 years ago he had a heart attack and stroke and was bed ridden. 12 years of doctor bills and hospice ate through almost every dollar he saved.
My grandmother sold the house and now lives on her social security. Maybe people 60 should not be so fast to go spend their cash. He was 72 when he got sick and 84 this year when he finally passed away. If something happens to our grandmother there wont be a nice $3 million to cover 12 years of hospitalizations and surgeries.
And frugality (and excessive government austerity) has been a European problem, too.
You don't have to study the situation really closely to get what I'm driving at. The patients will generally stay in separate areas. Just walk around and use your sense of smell.
Person A was rich, her 500k in savings was all spent to provide her care at a rate of 5k per month until it is gone.
Person B had 100k to her name. She paid the nursing home 5k per month until it was gone. Then care is free until the money runs out.
Person C had 0 money. They paid $0 from day 1.
All three got the same medical care. All three got the same food. Maybe person A spring for a private room vs a shared room... But otherwise all would be the same.
Nursing homes in general aren't great. Hopefully you can stay out of them. Eating well and exercising seem to help. If not, money won't do much.
> Person B had 100k to her name. She paid the nursing home 5k per month until it was gone. Then care is free until the money runs out.
> All three got the same medical care. All three got the same food. Maybe person A spring for a private room vs a shared room... But otherwise all would be the same.
Person b experienced a lower standard of care once the money ran out.
(I'm sure this isn't universally true, but in my experience it is. It's a free market...)
That is 37,760 USD / year. Too much?
edit: Whoops, should be 22,622.04 USD / year
Dat arbitrage!
I don't know about the Philippines, but happy to look into it.
A lot of countries hunt for wealthy retirees, like Portugal and Australia. Sure you must have your health insurance.
If you ignore healthcare, nursing homes, etc., perhaps.
Either the host country's end-of-life medical care is not great by American standards (in which case what you write is true, but many Americans wouldn't care to move), or it is, and a retiree would consume considerable public resources. Unfortunately, there's no way to have it both ways.
As a specific anecdote of the problem of government in healthcare: in my city a new children's hospital opened up a few years ago. The other area hospitals petitioned the government to not allow them to build the hospital until certain concessions were met. Among the concessions I'm aware of are not allowing the new hospital to own a medical chopper for 8 years. It was also not allowed to build a Level 1 trauma center. And of course that's after YEARS of not even being able to break ground while all this negotiating and concessions were being figured out. This type of interference raised the cost of healthcare for everyone in my city while likely decreasing the quality of care.
The other reason is that the government has an interest in maximizing economic growth, among other things, which is why it has zoning power. Citizens in the area, including local businesses such as other hospitals, may raise any number of concerns about building projects. Further, any citizen (or corporation) can hold up just about any project for as long as it's willing to keep paying legal fees to fight projects based on trumped up bullshit about esoteric zoning laws that were written a century ago that they probably broke when building their own hospital.
Outpatient treatment is increasingly more popular and more cost effective. Hospitals often raise costs by introducing massive capital costs that need to be amortized as well as other overheads.
With the exception of lower-cost, higher value primary care, there are rarely any meaningful access issues to doctors in metro areas. Those shortages are largely being addressed with PAs and NPs.
I'd be interested in a citation for this because it's counter to basic economic theory of supply and demand. If the supply outpaces demand, then the price should be going down, not up.
Here's an example. A quick good will find you many more. http://www.modernhealthcare.com/article/20150221/magazine/30...
Medical services are a complex market. It's nonsensical to randomly apply basic economic principles without knowing what you are doing. (Good luck telling congress that) The smart thing to do is to make primary care more accessible -- you'd be able to close many hospitals and improve outcomes.
In order to emigrate and retire in New Zealand[1], for example, you need to
a) be healthy b) bring your own insurance c) bring ~$350k in savings and $40k annual income with you
The UK imposes an "independent means[2]" requirement, to prevent retirees from being a drain on the economy, as does Australia, Canada[3], etc.
[1] - http://www.investopedia.com/articles/personal-finance/072115...
[2] - http://www.dailymail.co.uk/news/article-1083052/Foreigners-6...
[3] - http://www.livingabroadincanada.com/getting-started/retireme...
The old die to make way and free up resources for the young. That's the way it's supposed to work.
Enjoy your manadatory execution when you're forty you old bastard.
I wouldn't want to live on life support. I'd rather my wife/kids get a nice (well managed) trust fund for the remaining savings and just go in peace early.
Where along that spectrum will you draw the line? Is that even possible to describe without being needlessly cruel, like someone who lost the use of both hands due to a stroke is killed but someone who lost the use of one hand and one leg gets to live?
These sorts of decisions should be left in the hands of those who are most impacted by it: The person in question. I'm a supporter of more dignified end-of-life options, of people being able to opt-out of life-saving treatment if they think it's not worth the fuss or the outcome is undesirable.
There's still a huge difference between someone electing to die with dignity because their cancer treatment has a 10% chance of delaying the onset by a few years, but a 100% chance of making their life a living hell for the duration, and someone who's told they're too ill to live and has their life abruptly terminated.
I had a coworker who was a hardcore Ayn Rand type who had a real harsh point of view like this, until his infant was born with a congenital heart defect that resulted in hospitalization for 3-4 months.
Frankly, my own experience gave me a similar perspective, although I was more "meh" on the issue. I had a serious back surgery at 25, and spent a lot of time in PT around people whose lives were falling apart due to expenses and lost wages. Meanwhile I had a great employer with generous benefits and leave. The trucker I was around was struggling to live with workers comp and disability coverage. He was selling most of his possessions to keep his house. It was chilling.
I'm actually hoping that our shared generational suffering with respect to our baby boomer parents makes us get our generations' butt in gear and do something about it.
Got to use all that unnecessary suffering for something positive :/
Yes, seriously.
He told us repeatedly while he was alive that he didn't want to be put in a home. He wanted to cut his grass, feed the birds and be left alone - and after the stroke there was no way he could do that. We respected his wishes and opted out of the feeding tube, but he essentially starved to death. No fluids, no food for two weeks. Those two weeks burnt up all of his savings.
Everyone in my family agrees that it'd be better if assisted suicide were legal. No starving, no pain - just a nitrogen mask, and you don't even know you're dying.
Frankly, I find your 'older-and-wiser' posturing disgusting. Obviously it should be their choice, but today it's not their choice - the government says they must suffer and starve to death.
edit for less meanness
The legalization of euthanasia raises some moral questions with respect to coercion and self-serving misrepresentation, but in cases like your grandfather's, where a decision has been made, those concerns no longer apply.
If we have to choose between helping someone who's already lived 70 years live another miserable 10 years in a hospital bed hooked up to a machine vs. helping a 30-40 year old person overcome cancer so they can go back to supporting their family, we should do the latter first. Just thinking off the top of my head maybe we could accomplish this with pricing, by making end of life care more expensive and using the cost to subsidize care for younger people.
Regardless, this is the way we should allow it. Eating up the savings of the dying seems particularly ghoulish when the wishes of the afflicted and their family are not respected.
[1] http://www.npr.org/sections/health-shots/2016/03/10/46997075...
The trick is to move to a country [where taxpayers are going to pay for your medical care]. Nice plan. Several people in this thread already noted that there are ways to make American taxpayer pay, without having to move.
Honestly, the best argument for single payer is all of that bullshit is gone.
It's a crazy system the U.S. has.
But with humans, I find that reminding them to do the right thing is a constant necessity...
All that money doesn't get you superior results. I talk to some of the more coherent patients all the time on the phone. The lonelier ones keep me on the line for longer. I can't help but think there is a better model.
Also have a living will that specifies no heroic measures so you won't languish in a hospital bed for years while squandering all your life savings
What I was going to post based on your original report of retiring in 1988 with $3M (keeping it for illustrative purposes):
He must have sold the stock when he retired to buy that house and those cars. Had he kept it in XOM, his $3 million would have been worth $22 million today, with a dividend that would have covered his expenses and that kept pace with inflation.
Not that keeping your nest egg in a single stock would have been advisable, but the S&P return for that would have been comparable.
His house value probably rose at a higher rate than XOM's did.
Also, what's your point? His shares would be worth $22 million today and he'd still be dead.
But that's moot--the edit I made was because the $22M was based on a chronology problem in the original post. The ten year difference in retirement date from 1988 to 1998 is a much better explanation of the facts, and fits the OP's premise better.
When you get old, if you need skilled nursing care at home or in a nursing home, that's your dime.
Typically, you get admitted to a nursing home, spend all of your money, and when you run out go to Medicaid. Your county DSS will liquidate your home and remaining assets and you'll be paid for by that until you die.
If you have a surviving spouse, they get to keep some allowance.
https://www.medicare.gov/what-medicare-covers/part-a/what-pa...
Nursing home: https://www.elderlawanswers.com/medicares-limited-nursing-ho...
Home care: https://www.medicare.gov/coverage/home-health-services.html
Activities of daily living: "Activities of daily living (ADL) are routine activities that people tend do every day without needing assistance. There are six basic ADLs: eating, bathing, dressing, toileting, transferring (walking) and continence."
* to give you one random example coming to mind - the journalist in Mexico who got killed by murderers from a drug cartel past week knew very well what was at stake and chose to keep doing his job - so I'd argue he managed to come to terms with having to die. it's an extreme example but reaching this mental state is likely easier in less extreme life circumstances - those most of us are impacted by.
Low interest rates are painted as great for the economy, but they amount to a war on savers and fixed incomes.
Who is stealing what?
The idea that there would be safe investments with decent returns is inherently ridiculous. The closest one can come is oligarchs buying tax policy, or baby boomers making sure that housing stock is inadequate so the prioe of the their home goes up artificially at the expense of the young and poor.
Savings account rates have not kept up with inflation in my adult life time and I'm middle aged.
ING Direct (Canada) peaked at 5% on a savings account in mid 2000, and was above 4% from when they opened up in '97 to April '01.
https://www.tangerine.ca/en/rates/historical-rates/index.htm...
3.5% in 2007 matches your bank's 1 year CD pretty well.
It's now under 1% since mid 2015, but my RRSP account is up 40% since September... go figure.
You can look at historical bank interest rates from the onset of FDIC insurance. As recently as 2005 you could obtain meaningful returns on zero risk investments as a retail investor. I had a 10 year, 5% CD mature in 2015, for example.
Interest rates incorporate inflation expectations. What's bizarre now is the way we are playing footsie with deflation.
For the cash portion of my portfolio, that's a good investment. If you're an unsophisticated investor, stuff like this or savings bonds are smarter investments.
The Fed basically makes banks maintain huge capital reserves, and allows them to borrow money for nothing. The banks don't pay for your money because the Fed is printing it for them.
Because they need to maintain these massive capital reserves, we get the benefit of printing money without circulating it.
I saw this living in Norway where people in general tend to save less aggressively because they know if things go bad they are covered. And it worries me in my country of Australia where we are following the US model of ever reducing social services. It makes great short term savings but I feel there are these kind of longer term effects we pay the price for. And these effects are hard for many people to consider when its that far ahead so politically it is unlikely to change.
Solve the inherited inequality problem with inheritance taxes or guarantee medical care. Otherwise of course people will save for medical expenses. And they should, it's prudent.
You mean like Medicare? The US already has that for retires. You mean retires that have no money? The US already has that, it's called Medicaid.
If you need nursing care, you lose everything. Typically that means that when husbands get sick, the wife is left near indigent unless he dies quickly or the couple did estate planning with trusts.
Seems like I either need to never retire, or set up a trust for myself so I have a guaranteed allowance. (Or deal with the implicated fear....)
Part of this was definitely the issue that the items for purchase were either so hugely out of budget, or so very much not worth it, that there wasn't any point to spending the cash.
If so vote for politicians who support better welfare systems and free healthcare (if you don't already), it would help take the edge of this stress.
Unfortunately voting in America doesn't really do squat. We're first past the post and the corruption runs so deep no politician can stand against the health care industry. Elections here are a joke.
* It is gerrymandered districts, setup over decades to guarantee seats go to one or the other party. The number of actually competitive elections is at historic lows every cycle.
* Representation per person is at historic lows. The population rises, but the seats in state and federal houses doesn't change. Even in the best case scenario, Wyoming still has over 250k people per senator. Nobody can actually represent the interests of that many people (albeit, given the original intent of senators they shouldn't, but that is a different can of worms). House seats are no better.
The information era has siloed people into ideological extremes. Coupled with the fptp disaster you pointed out, the corrupt media owned by centralized interests keep the poor at war with themselves.
* The obvious loopholes and exploitation of the constitution is blatant and apparent. Either anti-corruption clarification amendments are required, or a modernized rewrite maintaining the principles of separation of power and explicit rights and liberties but updated to insure things like freedom of privacy are necessary.
It is a chicken and egg problem to fix, of course. Regular people cannot rewrite laws or constitutions without the ample resources to wage a revolutionary war. However, the powers that be won't either, because the current rules set them up for power and give them their legitimacy. They are a product of the system as it exists and will fight to protect it, not change it.
Historically the best answer was to sail or caravan to the unsettled and unclaimed lands and try it over again, but we have run short on those options.
Without fail, every single state and federal representative today is representing on the orders of tens of thousands to millions of people per elected official. It is unreasonable to expect them to act in the will of their constituents when they have no way to know them as people and not figures. It is a fundamental fault I have always seen in democracy the world over, and think it is where the pressure from many people for direct democracy comes from, albeit misguided.
(EHBs are maligned as government interference, but I really have trouble believing that people want to buy health insurance that doesn't cover things like hospitalization and emergency care. You know, the sorts of rare, expensive events that one buys insurance for. There's probably a little bit of room to argue about what the national baseline should be, but standardization is a positive government intervention to make it easier to select a policy and to make sure that the policy will actually cover care)
http://khanism.org/perspective/minimalism/
..and I'm about to take another one:
http://penguindreams.org/videos/taking-a-sabbatical/
I think I'm in better shape this time. I'll take a tech job if I drop below $10k (just savings, not retirement). Last time I was on fumes.
I mean why wait till you retire? You could be hit by a truck or slip in your tub and die (or with my luck die of liver failure). Better to spread a year break ever few years.
1) Go for a period of time (I did a month) living off of rice and beans (as far as I can find, the cheapest way to get close to a complete meal)[1]
2) Pare down everything in your life that isn't absolutely necessary. I put my bed in storage and lived in a hammock for a year. Cut out hot water for a period, stuff like that.
Once you do some of those things and realize that you can do it, living on a small income (or savings) in order to work on something becomes a lot easier.
I'm really lucky in that my runway is infinite, and a big part of it is because of the things that I listed. I know exactly how much the minimum I need to live off of is, I know what its like to live on that amount of money, and I know that it isn't scary.
[0]: A lot of the world lives off of this. I'm not saying that this is a path to complete nutrition. It isn't. Everyone should eat a balanced diet.
I'm always tempted to do something like this anyway; the minimalist approach really appeals to me.
It's almost more about making sure everything's in the rest of my life, rather than where I sleep, if that makes any sense?
Once in a hammock there is no 'swaying', the feeling is more like being in a flotation tank. If you have enough duvet, pillows, blankets and the like you can sleep in other positions and move with relative ease.
I badly pulled a calf muscle once and spent a fortnight getting back to strength, given the option of a normal double bed or a hammock slung above, I found at the hammock provided me with the sleep I could not get in the normal bed below.
Sadly I had to move from that attic room and I lost the anchor points needed for the hammock. I believe a hammock offers better support and comfort for a back.
Can you find a pic demonstrating what you mean?
Anyway, that's interesting. Thanks!
I quit a falling apart job a year ago, and was staying above break even on odd opportunities and contracts. At first i pretty much stopped spending anything extra at all, and it was rather unpleasant. A few months in, it kind of passed - as an engineering person it was quite fun for me to make things on minimal budget and fix broken stuff off cheap garage sales.
So, it takes some time to adapt to the change.
One of the things my parents get exposed to fairly heavily are stories that our entire financial system is teetering on the brink of massive depression. Often times it comes with an offer for a 'sure fire' investment that will ride out this calamity. Well if you're parents are still clued in enough to not buy the snake oil, they might miss that their future outlook is being swayed by these pitches even if they don't buy into them. My great aunt, before she passed, had a suitcase in her closet with lots of cash in it to survive the coming collapse of society.
It can be very sad to watch.
That said, a number of financial planners have moved their estimates of the 'safe withdrawal rate' from 7% down to 4% or sometimes lower. This based on the anemic rate of returns over the last decade. As a result if you reduced your withdrawal rate to 4% and you were still getting returns that could have supported 7% your retirement funds will in fact grow by 3% per year.
And finally there is the whole inheritance thing. When you have kids, anything you leave them when you pass will help, except if you live in the US your "kids" will be retired already when you die. So perhaps you leave your estate to your grandchildren, or your great grandchildren. Then the kids who chose to lower their carbon footprint by not having kids themselves get angry that they don't get any of your inheritance. That causes a family dispute and all your children stop talking to each other. It isn't a laughing matter, although it is predictable. Sometimes I think it is better to leave nothing but memories, at least everyone gets to keep all of those.
That would have to be a couple of very old bonds, now approaching maturity. Don't think this is a big factor (or is going to continue to be big factor, at any rate :-)
This in itself is poor preparation because it assumes the currency will still be worth something should some financial calamity on the purported scale occurs.
> This in itself is poor preparation because it assumes the currency will still be worth something should some financial calamity on the purported scale occurs.
My guess it was preparation for a replay of the Great Depression, where money did keep its value.
The whiskey gives you something to trade. Guns & ammo make sure the trade isn't a robbery.
If my grandfather and father in law are any indication, the extra time around the house also mean that you can do a lot of work on your house yourself that you may have had to pay a plumber, carpenter, or electrician to do before.
Basically, a retired person can generally maintain their lifestyle on less money than a working person...
You're also more likely to need medical care.
WTF, really? Reminds me of Edward Bernays [1], the "father of public relations", who set out to help Americans become materialistic (and succeeded!).
If someone is enjoying their life without blowing all their money, that person is BETTER off. It's just corporations that want to suck the money away from them that need to "train them to spend."
From the article:
> After a lifetime of saving, it requires some psychological gymnastics to start spending your nest egg. Browning’s suggestion is that financial planners urge their thriftiest clients to make big purchases–like a second home or a fancy car–before they retire, out of their pot of savings. The idea, he said, is “training people to spend.”
Edit: this comment is attracting a surprising amount of downvotes. Strangeness
It's not at all clear that the authors of the article are concerned about the well-being of rich old people. There seems to be some other argument that's not being stated explicitly.
Just like arguably a lot of austerity in the Euro zone was self-defeating.
I don't think the article is suggesting that financial planners recommend their clients take one for the team and spend more money.
Unless you get enjoyment on some level from the financial security of having a bunch of money saved (i.e. you sleep better at night because of it). It's like purchasing insurance - if you never end up using the insurance, that doesn't imply you made a poor decision (wasted money) in purchasing it.
Likewise, knowing that an expensive medical emergency could come up means that having considerable savings is an appropriate response.
Or you could take the opposite view and arrive at the same conclusion - if you have a healthy lifestyle and expect to remain healthy, you might predict that you'll have a long lifespan, making it prudent to conserve your retirement savings by spending it at a very slow rate.
And that's where the entire FI concept of "knowing when you have enough" comes in.
When done properly, it can be fairly tax efficient.
Given the reluctance of our culture to show care and concern for people in general, I'm not too psyched about getting to the end and needing a handout.
(Also: Estate tax as a way to fund basic income?)
It may sound interesting and promising but is most likely the most unjust way of taxing as it will force people are retired or about to retire out of their homes (that they are not paid for using funds from the basic income).
(I'm afraid this confusion makes your comments about retirement and forced property sales make very little sense... unless I'm missing something?)
While the consequences of non-payment would also be forced sale, it is possible for residents to petition and sue the to assessor's office in order to reassess the value and obtain deferments, and the owners are still compenseated for the value of any real property located on the site. This is more just than an income tax, as failure to pay could never result in imprisonment.
Additionally, it would lead to far lower cost of housing, mortgages, and rent. This means less savings and income would have to be allocated toward acquiring the house in the first place. It would also be more just to those who are not wealthy enough to buy a house outright, and must instead rent or obtain a mortgage.
When spending on public services increases the land values and attractiveness of the location for which these services apply, and is financed via taxes on labor rather than taxes on land, this subsidizes land holders and banks invested in mortgages by allowing them to charge higher rent for housing.
Not for existing homeowners admittedly, but certainly for those in the future.
EDIT: I will live frugally and drastically below my means forever (and I'm only 34!) while putting aside substantial savings; the fear of running out of funds in the last part of my life is terrifying. Seniors have every right to be fearful and hoard their cash.
Source/experience: Support my disabled mother who has zero assets and substantial medical expenses. If you're not afraid of saving enough for retirement and unexpected medical expenses, you should be.
The UK has an efficient annuities market, it seems to me. My understanding was that in the US, it was to a large extent a tax-avoidance scheme, rather than a risk-mitigation mechanism, but I don't know enough about it.
The variable ones are far more profitable and so get pushed onto people while you need to go seek out someone to sell you an ordinary annuity. They have a deservedly terrible reputation which I fear has tainted the ordinary kind somewhat in the public mind.
The article implies with the talk about "training people to spend" that other people should be concerned about this, but doesn't say why. I'm not really seeing it. It's not like the money supply is fixed. There are other ways to grow it if the Fed were willing to do it.
Look at this paragraph from the article:
One of those irrational reasons may be simple habit. Something strange happens when people retire, Browning says. All of a sudden, they’re not getting a regular paycheck, and that makes them scared to spend. Goals set before retirement are abandoned, along with pre-determined spending plans, because retirees are terrified see the balances on their retirement accounts drop even a tiny bit.
What's wrong with someone, like a financial planner, reassuring a couple that yes they can take those vacations they always dreamed of, yes they can pay for their grandkids' college tuition, yes they can make a substantial donation to that museum they love so much -- here's the math showing that it is likely to be okay?
There is an inherent asymmetry between living somewhat more frugally and dying in poverty.
One drive the offer, the second one drive the demand. The economy is basically the flow from one pot to the other.
With interest rate at historical low, large business with trillion hoarded, money is already plentiful on the investment side. This article is just claiming that there is portion of that investment money could be reallocated on the consumption side which would indeed allow the economy to run.
The article is very optimistic that this money is really what is missing. Personally not quite sure about that as the economy already relies on historically high level of debt on the consumer side (i.e. consumer spend today and tomorrow money), adding fresh money in the system is at best a short term "solution", adding memory to a memory leaking system.
The problem is that there is simply not enough money flowing from the investment pot into the consumer pot. i.e. salaries are too low, tax on profit are too low, ... something isn't balanced and we are all playing economic musical chair, with people hoarding money to avoid being without once the system breaks.
Sigmund Freud's nephew, who used psychoanalysis to sell products. Freud hated Edward and Anna for going that route. They are the reason more women smoke and why Americas eat bacon for breakfast.
If you want to know more, watch The Century of the Self by Adam Curtis.
(Most of) the rest of his films: http://thoughtmaybe.com/by/adam-curtis/
So like everyone else they did both good (bacon!) and evil (smoking).
I'm very sure that unless I get very lucky, I am so very fsck'd for the rest of my life.
"an increase in autonomous saving leads to a decrease in aggregate demand and thus a decrease in gross output which will in turn lower total saving."
This is Keynes' Paradox of thrift.
Seems strange to live on the notions of man who lived before today's environmental concerns became cause for alarm.
However, these individual actions might collectively have unintended consequences, and that's what the paradox of thrift is about. It's a descriptive concept (i.e. about what happens in the real world), not a normative one (i.e. what people ought to do).
But before you decide what one ought to do, it is best to take into account what actually happens in the world.
It might well be better if people spent more (and that need not be on material things, it could be education, concerts, and so forth).
But yeah, it could mean spend more on bridges, universities, or jewel studded iPhone cases.
If the occasional person is thrifty, there's no problem.
If everyone is collectively "too thrifty", then we've got a problem, but this isn't the cause of the problem, it's a symptom. What does it mean when everyone is saving? It means that there is some kind of uncertainty or fear which is making people forego current consumption in favor of future consumption. This isn't a natural state of human affairs, since we tend to value things today more than things tomorrow. The extra "thrift" happens because of political or economic uncertainty.
Political uncertainty is fickle, you can't predict it or plan for it. However, saving is the correct response to economic uncertainty, and it's what's responsible for the eventual recovery after a crash.
In fact, that is precisely the paradox - that the individually responsible and rational thing (more saving in the face of uncertainty) actually accelerates the problem: an economy crashing down.
Among the policy lessons would be to reduce uncertainty, and encourage consumption (in the economic sense), e.g. via government provided stabilisers (food stamps, unemployment benefits, etc.).
> saving is the correct response to economic uncertainty, and it's what's responsible for the eventual recovery after a crash.
That's a very contentious statement, and personally I'd be rather careful in casually contradicting eminent economists on economic matters.
Here's one economics PHd wielding economist refuting the paradox of thrift. http://www.econlib.org/library/Columns/y2009/Murphythrift.ht...
Here's an eminent one refuting it, in case the Nobel prize counts: https://mises.org/library/hayek-paradox-saving
Here's my issue with Keynesians and neo-Keynesians. They have zero concept of capital, it's all about cash flow - spending, saving, debt. They stimulate by printing, temper by taxing, etc.
They ignore the effects of such behavior on capital, and end up amplifying the cycles they try to prevent. This ties into monetary policy and deficit spending as well, but that's way too much of a tirade for Hacker News.
The invocation of Say's law strikes me as insufficient to strike down the paradox of thrift.
Are the piles of money in mattresses really all that much bigger today than they were 30 years ago? Beyond the demographics of the baby boomers, this feels like a non-story to me.
These are also tax-deferred plans... income the IRS is not receiving.
EDIT: Clarity
This is looking at why people are living more frugally? If people want to buy less/travel less, then that is no problem. If they are doing it because they are worried about the future, that is a problem.
Spending has an effect on not just those people, but on all of society when it happens at a large enough level. And it is one of the common way to pass money from old to young.
For instance (all of this assumes you have the money to do so), a bookkeeper for your small business. A CPA for your taxes. A lawn service. A financial planner. A bidet.
It makes me wonder what else like that is out there. Stuff that isn't purely materialistic, but is "worth it" for whatever value if "it" matches your net worth. For perpetual savers, being counseled on how they can spend their money (on worthwhile endeavors) might actually be useful.
[EDIT] my belt says "Trak Line"
1. Their children and their children's children are competing with 100s of millions that they didn't have to. They are worried about them. There is no guarantee that the quality of life of their family will be like their own.
2. They are worried about destabilization that could occur as the west declines.
It might not be fear but simply a practical habit that there is no real reason for them to break.
Keep in mind many people will have purchased items or experiences they desire throughout their life, rather than simply waiting for retirement.
“We have to get people comfortable with enjoying their retirement and spending their money,” Fellowes said.
Also, what's stopping you from setting up your retirement such that you do have passive income?
I see a non-zero chance that it won't be there when I reach retirement age in ~20 years.
These days, the US political climate is looking far friendlier to those who want to destroy wealth transfers that benefit the non-rich.
Also, the US political establishment in general is looking substantially less stable than it did 20 years ago. That's not to say it is going to break down in a year or five. But I do think making bets on it should only be done with money you don't need.
His argument is that the economy is imbalanced by excessive saving, and it needs retirees to spend more. He's trying to come up with a reason for them to do it.
[0]: http://www.cbsnews.com/news/retirement-dreams-disappear-with...
And that right there is where the article tipped over from "dumb" to "evil".
(The generaltional wealth gap is such that corporations have been shifting product strategy away from the youth and towards the elderly)
[0] http://www.cbsnews.com/news/most-americans-cant-handle-a-500...
Maybe we need to check which kind of industries are sponsoring the respective articles.
I don't get the point of the article.
Why are wires several times thicker than they need to carry the power the house needs?
Why are hammers much harder than nails?
It's called redundancy - you can never predict exactly what the needs would be, so you leave a healthy safety margin.
This is not remotely correct.
Once you are 10s of millions-aire you aren't seeking money for survival or even happiness. You are also probably well beyond money for the sake of security - you could probably lose 90% of your fortune at that point and live comfortably. Why do these people keep seeking and amassing more money then, with limited exception?
Its the same reason why anyone who could, would.
"What can get rich elderly Americans spending more? One way is to reassure them they’re not going to run out of cash. Tools such as annuities and bond-ladders can turn a retirement account into a regular stream of income, mimicking a paycheck. Insurance products could also protect retirees against huge, late-in-life expenses from medical care—a dominant fear. Browning likes longevity insurance, an annuity that kicks in only if you live to 80 or 85. Other options are reverse mortgages or long-term care insurance."
With only a brief comment on health care costs (>10% yearly increases), let's discuss the various solutions --
Annuities - take your nest egg that rode decades of market fluctuations, and give it to another company to ride another decade or two of market fluctuations in exchange for a fixed monthly distribution. Never mind that every 401(k) plan I ever had would start paying you out of your acct after you reached 59.5 if you wanted it, and HAS to pay you out of your acct once you reach 70.5.
The various forms of insurance noted have a couple of things in common -- 1) they are overpriced relative to the benefit provided; 2) The benefit will be known and factored into the cost of your healthcare, thanks to the miracle of the SSN.
The best deal mentioned might be the reverse mortgage, but only if your heirs wouldn't need your house - which in my experience, they don't, but in 20 years, with current employment and social trends, who knows?
Their fear, borne from experiencing repeated stock market and real estate bubbles over many decades, is that yet another crash will decimate their savings.
That line of reasoning sounds similar to the establishment of the FDIC bank account guarantee that helped end the Great Depression by alleviating people's fear of failing banks.
On a side note, I read at one point that in France there is a tradition (not sure how widespread) of selling your home with the condition that the buyer must wait for you to move out, whether for health reason or because you die, and that you pay no rent while staying. Of course, the price is adjusted accordingly. Again, both parties are making a bet on the duration of your lifespan.
1) "Nuda proprietà" (literally "Naked Property" but actually "bare ownership")
2) "Usufrutto" (usufruct or "life interest")
Selling the bare ownership is a rather convenient way to monetize your house when you are old and need some money (for medical expenses or whatever), while retaining the usufruct, which resolves usually to the right to live in it (but could be also be pocketing the income from renting the building). The buyer of the bare ownership, on the other hand, pays in advance a (reduced) amount of money for the asset, but essentially "bets" on how soon it will become available.
It is often used also to reduce the amount of taxes payed to the state by the (future) heirs.
It isn't really applicable to the US, mainly for taxation reasons:
http://publications.ruchelaw.com/news/2016-09/Usufruct-Code-...
The above article includes a French table of the percentages attributed to the two parts and here are the same valid in Italy (they are not much different):
http://www.tonalini.it/resources/pdf/Usufrutto-vitalizio-Tab...
hmmm...spending habit established over decades is not an easy thing to change, no matter how much money one has. I am not convinced FEAR is a dominant factor. It could simply be that people think there is no need to spend much in order to have a decent life after retirement.
I think that you are right. A lot of people is arguing about investments, health care, etc. like if human beings where "Homo economicus". We are not. We are not immune to rational arguments, but we take a lot of decisions based in what we learned in our youth. "Homo economicus" was an interesting way of thinking about humans, it is no more.
The other track is people who actually read articles about retirement savings. They are a smaller group, often getting the advice meant for the former. They constantly hear that Americans don't save enough for retirement. The financial industry is constantly saying people aren't saving enough, in media venues that appeal to the affluent who don't really need that advice. But the more those affluent invest the more commissions they collect. So they stoke the anxiety to those who shouldn't feel anxious.
https://assets.bwbx.io/images/users/iqjWHBFdfxIU/ib_EJj3p7cW...
So, in 1974, Americans didn't have retirement savings? Or the total sum was just too small to display on the graph?
Or is this just graphing one particular type of easily measurable asset which was introduced around then and has grown in popularity...
This is a misleading interpretation of data. On average, yes, but at the median, no. The median retiree's net worth is less than $100k at 60 and continues to decline with age.
https://unitedincome.com/documents/papers/LivingTooFrugal.pd...
Labor has no pricing power. People working real jobs won't be spending wild dollars anytime soon. They've been neutered by wide-open valves of cheap imports.
- They think they are gonna live long, and need money.
- They are confident cash is gonna be worth something. (They aren't getting rid of cash and hoarding gold, for instance).
Fear? I'm getting intoxicated with the sheer optimism of this.
That's not how math works...