Antiwork 2: No One Is Getting A Pay Raise

[Russell Jaslow]

Yes, it is driven by the sheer privilege of our position -- I was answering the question, not making a recommendation. As an example our CFA also told us "FFS, spend money! That's what it's for!"

A year ago, when I was planning to retire at 65, we sat down with our advisors. We did the usual, setup a budget, threw in an extra "fun" amount to the budget, consdered high medical costs (in case something bad happens), increased that budget by 4% for each year (the 100-year average inflation rate is below that, like 3.2% or 3.6%, I can't remember, so we played it safe), entered a conservative investment return over our lifetime, etc. I know you know the drill.

When all was said and done, and the advisors ran the model for us, this was their response:

"You need to spend even more money. Because at the age of 90, you will have more money than you do now, with your planned spending rate."

 

[Russell Jaslow]

Dr. Mrs. grew up poor and I was raised by Depression parents, so we are both extremely frugal. I have had many people walk into our house or look at our car and say, "man, you guys live way below your means." I've personally never found anything worth spending money on that outweighs its value to me as security against cataclysm other than travel.

My wife thinks like that, for other reasons I won't get into, but let's just chalk it down to anxiety issues.

Me? I'm just a cheap bastard.

So, we've lived like you. (Like Mich, same house for ~40 years. I do spend a little more on cars than some, but definitely not silly amounts. I'll buy a MINI or a GTI, but not a Mercedes or BMW. And I do spend throwaway money on a collector car, but really not much considering.) Even when I raced cars, I did it "cheap" (relatively speaking, of course). Open trailer. Simple towing vehicle. Ran a spec class, so rebuild costs were down because engines/gearboxes lasted a long time. Heck, I probably spent less racing per year than a lot of people spend on a big family vacation.

However, my CFA's comment still does stand: more people retire too late than too early. The penalty for the latter is obvious but the penalty for the former we severely devalue in our country because we are supposed to be good little productivity units for our betters. Well fuck that.

My wife is stuck in this mode. Part of it is I truly believe she doesn't know what she will do when she retires and her mother died of dementia, so she's deathly afraid of ending up like that if she doesn't keep her mind active. The other part is she does believe in that "productivity" myth. Heck, it took a while for her to accept me retiring.

 

[FadeToBlack&Gold]

I'll be 39 next month. Despite graduating into the 2009 economy, I have banked the maximum 401k every year since getting my first corporate job and rolled it over into an IRA whenever I've changed jobs.

I keep hearing that the average Millennial has saved about $60k and I just don't see how most of my generation is ever going to retire. Comparatively, I'm doing quite well within my age bracket, and I still worry about saving enough when I think about inflation and long-term healthcare/eldercare costs.

 

[Scarlet]

So glad this discussion started. I have a few points/questions that I would love comments on.

1. My CFA told me to start taking Social Security at 62 (which happened last month). Stupid question - am I still allowed to work if I decide to start taking it?
2. Stating January 1, my company is changing the retirement plan. I currently have a pension (and I've been fully vested for a long time) that the company has been paying into since I started. However, they will now increase what they put in my 401K instead of paying into the pension. The pension will not go away and will continue to grow, albeit at a much smaller pace. Just with interest, no more company contributions.
3. I increased my personal contribution to my 401k in July and two paychecks ago, I noticed my take home pay was a lot less. Apparently I have reached my max for the year, and that is with the catch up allotment if you are over 50 (or is it 55?). So, the money going into my 401k is now coming out AFTER tax so my federal and state taxes have increased. So that's annoying. I may decrease my contribution as of January 1 given the company is putting in more. What are your thoughts?

I know retirement age is now 67 but - provided that my job won't be eliminated - I'm thinking of retiring at 65. Unless I hit Powerball or something.

 

[MichVandal]

I'll be 39 next month. Despite graduating into the 2009 economy, I have banked the maximum 401k every year since getting my first corporate job and rolled it over into an IRA whenever I've changed jobs.

I keep hearing that the average Millennial has saved about $60k and I just don't see how most of my generation is ever going to retire. Comparatively, I'm doing quite well within my age bracket, and I still worry about saving enough when I think about inflation and long-term healthcare/eldercare costs.

Honestly, we heard the exact same data of our contemporaries - while Kep is older, I'm betting he heard the same thing. It's an interesting thing to keep hearing- but the most important thing to do is start when you start any job coming out of school. And as long as you budget your life to be able to max out, or at a *bare minimum* put in enough to get any company matching- it should be a good start.

I know some rules have changed, though- because pensions are no longer a thing. And that's where I don't really know if pure 401ks will be enough, or will you need the "enhanced" one given my most companies instead of pensions. My pension actually ended up giving me a massive raise over the time of my career- just that it pays out when I'm done.

But I would suggest to look into talking to an advisor or whatever to run some solid plans. They are hardly free, but they will give you a solid measure if you are doing ok, or need to add in an IRA or not.

 

[MichVandal]

So glad this discussion started. I have a few points/questions that I would love comments on.

1. My CFA told me to start taking Social Security at 62 (which happened last month). Stupid question - am I still allowed to work if I decide to start taking it?
2. Stating January 1, my company is changing the retirement plan. I currently have a pension (and I've been fully vested for a long time) that the company has been paying into since I started. However, they will now increase what they put in my 401K instead of paying into the pension. The pension will not go away and will continue to grow, albeit at a much smaller pace. Just with interest, no more company contributions.
3. I increased my personal contribution to my 401k in July and two paychecks ago, I noticed my take home pay was a lot less. Apparently I have reached my max for the year, and that is with the catch up allotment if you are over 50 (or is it 55?). So, the money going into my 401k is now coming out AFTER tax so my federal and state taxes have increased. So that's annoying. I may decrease my contribution as of January 1 given the company is putting in more. What are your thoughts?

I know retirement age is now 67 but - provided that my job won't be eliminated - I'm thinking of retiring at 65. Unless I hit Powerball or something.

I think this will be more questions than suggestions....
1) not sure.
2) IMHO, if my company froze my pension, I would very much consider moving on. I know a lot of people at F that retired as soon as they clipped the pensions to 35 years. But at least they are adding to your 401k. But the other question- when you get your pension, can you just cash out the whole thing? I very much worried about my actual pension being around for my life- seeing companies dip into their massive pension debts over the years. So I was able to cash it out, and invest into an IRA that is reasonably conservative. Running the math, I am able to be better off over the long term.
3) catch up age was 50. And Fade- you need to know that this "catch up" applies to everyone, not just people who have not contributed. So when you reach 50, if you can, up the contributions to the catch up max. Scarlet- all I can suggest is to do the math- which will be complicated....

But, IMHO, 67 is too late if you can afford it.

 

[FadeToBlack&Gold]

Honestly, we heard the exact same data of our contemporaries - while Kep is older, I'm betting he heard the same thing. It's an interesting thing to keep hearing- but the most important thing to do is start when you start any job coming out of school. And as long as you budget your life to be able to max out, or at a *bare minimum* put in enough to get any company matching- it should be a good start.

I know some rules have changed, though- because pensions are no longer a thing. And that's where I don't really know if pure 401ks will be enough, or will you need the "enhanced" one given my most companies instead of pensions. My pension actually ended up giving me a massive raise over the time of my career- just that it pays out when I'm done.

But I would suggest to look into talking to an advisor or whatever to run some solid plans. They are hardly free, but they will give you a solid measure if you are doing ok, or need to add in an IRA or not.

I haven't hired a financial advisor/planner yet because I manage investments pretty well on my own, but I have long felt that turning 40 is a good point to seek some professional advice, so I will likely do so in the near future.

 

[Scarlet]

I think this will be more questions than suggestions....
1) not sure.
2) IMHO, if my company froze my pension, I would very much consider moving on. I know a lot of people at F that retired as soon as they clipped the pensions to 35 years. But at least they are adding to your 401k. But the other question- when you get your pension, can you just cash out the whole thing? I very much worried about my actual pension being around for my life- seeing companies dip into their massive pension debts over the years. So I was able to cash it out, and invest into an IRA that is reasonably conservative. Running the math, I am able to be better off over the long term.
3) catch up age was 50. And Fade- you need to know that this "catch up" applies to everyone, not just people who have not contributed. So when you reach 50, if you can, up the contributions to the catch up max. Scarlet- all I can suggest is to do the math- which will be complicated....

But, IMHO, 67 is too late if you can afford it.

They didn't freeze it. They money they would be putting into the pension is now being directed to my 401k instead. It will continue to grow on its own. It's like the company wants to get that money off the books or something. They would prefer we take it as a lump sum. In fact, they changed it to that in 2013 so any employee that started post 2013, when they retire they get one lump sum. That being said, when I shared this info with my CFA, he asked if I could take it all now and give to him to invest. Not sure I want to do that.

 

[MichVandal]

A year ago, when I was planning to retire at 65, we sat down with our advisors. We did the usual, setup a budget, threw in an extra "fun" amount to the budget, consdered high medical costs (in case something bad happens), increased that budget by 4% for each year (the 100-year average inflation rate is below that, like 3.2% or 3.6%, I can't remember, so we played it safe), entered a conservative investment return over our lifetime, etc. I know you know the drill.

When all was said and done, and the advisors ran the model for us, this was their response:

"You need to spend even more money. Because at the age of 90, you will have more money than you do now, with your planned spending rate."

So I will suggest that you both plan a trip to visit where your families came from. We recently did a month in Finland. Very worth the spend to do that.

 

[MichVandal]

They didn't freeze it. They money they would be putting into the pension is now being directed to my 401k instead. It will continue to grow on its own. It's like the company wants to get that money off the books or something. They would prefer we take it as a lump sum. In fact, they changed it to that in 2013 so any employee that started post 2013, when they retire they get one lump sum. That being said, when I shared this info with my CFA, he asked if I could take it all now and give to him to invest. Not sure I want to do that.

I took the lump sum and am pretty happy with it. But even if you just take the pension, the lump sum partially represents a pay raise distributed over your career- so that pension you get is a real raise. It has helped a lot understanding the decision to stay instead of jumping jobs like you see so many people do now.

While my pension was "guaranteed", I didn't trust it, and that's the biggest reason I took the lump sum.

 

[Russell Jaslow]

So I will suggest that you both plan a trip to visit where your families came from. We recently did a month in Finland. Very worth the spend to do that.

Well, Russia and Ukraine are out of the question...

(For me. For my wife, it would be Japan.)

 

[Russell Jaslow]

So glad this discussion started. I have a few points/questions that I would love comments on.

1. My CFA told me to start taking Social Security at 62 (which happened last month). Stupid question - am I still allowed to work if I decide to start taking it?
2. Stating January 1, my company is changing the retirement plan. I currently have a pension (and I've been fully vested for a long time) that the company has been paying into since I started. However, they will now increase what they put in my 401K instead of paying into the pension. The pension will not go away and will continue to grow, albeit at a much smaller pace. Just with interest, no more company contributions.
3. I increased my personal contribution to my 401k in July and two paychecks ago, I noticed my take home pay was a lot less. Apparently I have reached my max for the year, and that is with the catch up allotment if you are over 50 (or is it 55?). So, the money going into my 401k is now coming out AFTER tax so my federal and state taxes have increased. So that's annoying. I may decrease my contribution as of January 1 given the company is putting in more. What are your thoughts?

I know retirement age is now 67 but - provided that my job won't be eliminated - I'm thinking of retiring at 65. Unless I hit Powerball or something.

1. Yes. But you could end up making all your SS taxable based on how much your total income is.

2. Many companies are doing this. Moving elsewhere as someone suggests is hard because very few companies even offer pensions anymore. The biggest benefit to companies abandoning pensions is that most pensions also help pay for medical, while contributions to a 401K are just that, cash contributions only. No other obligation. (I would also seriously consider taking the pension in a lump sum payment when you leave.)

3. One thing to be careful of -- if you max out early and stop your contributions, so will the company's matching contributions. They match based on each specific paycheck. So, if you are not contributing for a paycheck, they don't match. For instance, my company matched the first 6% I put in (and 50% of that) per paycheck. If I put 5% in for a paycheck, they match half of that 5%. If I put 7% in for a paycheck, they match half of 6%. If I put nothing in that paycheck, I get nothing from the company.

My company had separate items on the contribution form I had to fill out -- pre tax contribution and post tax contribution. I set the post tax contribution at 6% and left it for the entire year (so, I wouldn't forget to change it when the pre tax money capped out and thus wouldn't miss a company contribution). Then, I set the pre tax contribution including catch up as high as I could afford to max it out as quickly as possible (after all, you want the money in your investments doing their thing as soon as possible). Then, when the pre tax maxed out, I still had the minimum contribution for the company match in the post tax.

See if your company has separate items in your form like this. This would alleviate the situation you got into.

Oh, as to your general question, put in as much as you can afford, pre or post. You'll thank yourself when you turn 80, 85, 90...

 

[WisconsinWildcard]

I haven't hired a financial advisor/planner yet because I manage investments pretty well on my own, but I have long felt that turning 40 is a good point to seek some professional advice, so I will likely do so in the near future.

Often, if you know enough to know if your financial advisor is worth their salt or not, you will do an equivalent or better job managing money yourself

 

[WisconsinWildcard]

I would also add that SS (pending governmental collapse) is one of the few, or only, true inflation-adjusted annuities. So even if your "numbers" may favor taking it early, those with longevity often are better holding off from a risk based standpoint (expected max worth vs net worth in the case of far lower than expected returns).

 

[Russell Jaslow]

I would also add that SS (pending governmental collapse) is one of the few, or only, true inflation-adjusted annuities. So even if your "numbers" may favor taking it early, those with longevity often are better holding off from a risk based standpoint (expected max worth vs net worth in the case of far lower than expected returns).

Excellent point. Our general strategy is we planned on not needing SS (always believing it would never survive by the time we got to retirement). So, if we can live without it, we will. Then, even if in the long run we don't maximize our income because we waited, we at least, as you say, will use the extra money starting at age 70 to buffer any runaway living costs and/or problems with our investments down the line.

 

[Scarlet]

1. Yes. But you could end up making all your SS taxable based on how much your total income is.

2. Many companies are doing this. Moving elsewhere as someone suggests is hard because very few companies even offer pensions anymore. The biggest benefit to companies abandoning pensions is that most pensions also help pay for medical, while contributions to a 401K are just that, cash contributions only. No other obligation. (I would also seriously consider taking the pension in a lump sum payment when you leave.)

3. One thing to be careful of -- if you max out early and stop your contributions, so will the company's matching contributions. They match based on each specific paycheck. So, if you are not contributing for a paycheck, they don't match. For instance, my company matched the first 6% I put in (and 50% of that) per paycheck. If I put 5% in for a paycheck, they match half of that 5%. If I put 7% in for a paycheck, they match half of 6%. If I put nothing in that paycheck, I get nothing from the company.

My company had separate items on the contribution form I had to fill out -- pre tax contribution and post tax contribution. I set the post tax contribution at 6% and left it for the entire year (so, I wouldn't forget to change it when the pre tax money capped out and thus wouldn't miss a company contribution). Then, I set the pre tax contribution including catch up as high as I could afford to max it out as quickly as possible (after all, you want the money in your investments doing their thing as soon as possible). Then, when the pre tax maxed out, I still had the minimum contribution for the company match in the post tax.

See if your company has separate items in your form like this. This would alleviate the situation you got into.

Oh, as to your general question, put in as much as you can afford, pre or post. You'll thank yourself when you turn 80, 85, 90...

I don't understand your comment on #1.

For comment #3, yes, I understand I won't get a company match if I stop my contributions the rest of the year. My question to the plan holder was would they start back up again next year automatically and they will not. So I can live with the higher amount of taxes taken out for the rest of the year. But this discussion has led to another question that I will need to be answered. Mostly - does my company's contribution contribute to my yearly cap? If it does, then the additional money they will contribute instead of putting in my pension will cause me to hit that max much sooner, right? Or is it just what I contribute? Need to get that answered ASAP.

 

[Kepler]

So I will suggest that you both plan a trip to visit where your families came from. We recently did a month in Finland. Very worth the spend to do that.

We are cruising the Lower Danube next year and starting out in one home of My People! I am so looking forward to it.

When we went to Italy 20 years ago I was blown away: every third older dude looked exactly like my dad. (The bust of Julius Caesar in the British Library is identical to him.)

Fig. 1 Kepler's Dad. He destroyed the Roman Republic. Nice.

 

[Slap Shot]

We are cruising the Lower Danube next year and starting out in one home of My People! I am so looking forward to it.

When we went to Italy 20 years ago I was blown away: every third older dude looked exactly like my dad. (The bust of Julius Caesar in the British Library is identical to him.)

Fig. 1 Kepler's Dad. He destroyed the Roman Republic. Nice.

Looks like Thom Yorke.

 

[MichVandal]

I don't understand your comment on #1.

For comment #3, yes, I understand I won't get a company match if I stop my contributions the rest of the year. My question to the plan holder was would they start back up again next year automatically and they will not. So I can live with the higher amount of taxes taken out for the rest of the year. But this discussion has led to another question that I will need to be answered. Mostly - does my company's contribution contribute to my yearly cap? If it does, then the additional money they will contribute instead of putting in my pension will cause me to hit that max much sooner, right? Or is it just what I contribute? Need to get that answered ASAP.

I think you need to call HR to ask some of those questions. They should know.

 

[Russell Jaslow]

I don't understand your comment on #1.

Social Security can be tax free IF you fall under an overall income level. If you are working and collecting SS, you could fall into a tax bracket where it is all taxable.

I went through this with my parents when they stopped filing income taxes. I was worried. But after researching it, I discovered they were okay. They didn't even have to file income taxes. I also discovered the other end of what could happen if they made too much.