One reason lower paid workers don’t save in 401(k)'s is because they’re so stretched day-to-day. If you’re homeless today how do you put aside anything for a hypothetical retirement decades away? Below a certain income level saving for long-term goals is pretty much impossible.
Someone scraping by for basic needs certainly isn’t going to be able to. But I do wish more people were aware of the Saver’s Credit. A single head of household with an AGI less than $32,625 gets a 50% tax credit on retirement savings up to $1000. It’s not much, but it’s a start.
I don’t know how their compensation is related to their advice, but i know an awful lot of people who’ve been told by a financial planner that they’ve saved enough to retire
At that point, their role switches to helping the client manage their account and not run out of money.
Exactly (as I had also noted). Homeless or not, when you have to worry about paying routine bills, a nebulous retirement seems not worth worrying about.
I’ve vented before about my daughter. She actually has some spare cash flow - she is living in a cheap town, and we are helping with the rent… but she Will Not Take The Step of asking at work about a 401(k), nor of adding money to an IRA.
I may or may not have heard of that before - but my daughter would absolutely fall into that bucket. Is it a “refundable” credit? Her income is low enough that she doesn’t pay Federal taxes anyway, so if it’s not refundable, she won’t benefit (except, of course, by having money saved).
eta: nope, looks like it’s non-refundable. Which, to me, means it’s nearly useless; how many people earning that little are paying much in taxes anyway?
Someone making the Federal minimum wage - still $7.25/hour - is only making $15,080 a year. They aren’t making enough to owe taxes so a tax credit doesn’t do jack for them - except if they have a legit job taxes will be withheld, leaving them with even less in their pocket until they file a tax return. And that’s assuming they get a full 40 hours of work a week 52 weeks a year. A tax credit is an effing joke under those circumstances. Even more so if that “head of household” has actual other people dependent on them.
It’s not totally useless - I take advantage of it myself - but it’s only useful on the upper end of the qualifying income range.
In 2021, only 5.7% of taxpayers claimed the credit, with an average credit amount of $191.
Apparently there’s some Saver’s Match in the works that I’d competent missed:
People have very different spending levels so the savings they need before they’re financially independent vary. If your monthly spend is $1k than a million is excessive, you could get by very safely with less than half that.
You can get your monthly spend very low if you relocate outside the US, where a dollar gets you much more than it does in north america.
Switching gears just a little bit.
I have decided that I AM going to retire in about 18 months (I’ll be 65). And I have come into some more money from the sale of my mother’s house. It’s not a fabulous sum, but it’s not gonna hurt. We’ll be fine money wise.
My wife might continue working for another year past my retirement. My deal is that my job changes so fast and furiously, that I’m finding it hard to keep up. And even at this point, I’m refusing to get involved in any big projects. They last for years, and even decades.
So my question is - How do I find a good CFA (Certified Financial Advisor)? I’m thinking I’ll ask the tax person that handled my mothers estate. That’s ongoing, but she knows her stuff.
Is that where I start?
I’ve been getting links in my various social media feeds to articles saying the 401k may becoming “obsolete”. I don’t know if it’s just click-baity noise or something actual financial thought leaders are considering (FWIW, I work in a management consulting firm for banks, wealth management firms, and other financial services companies and it’s not something that I’ve seen on our radar as a real trend).
In any event, it just seems like one more example for how our society hasn’t quite figured out the problem of most people eventually outliving their ability to make meaningful contributions to the economy:
- Companies don’t want to take on the burden of pensions (and I don’t think many people want their economic futures tied to the same company their entire life)
- People don’t have a lot of faith in the Government’s ability to maintain Social Security as a going concern.
- A lot of people either lack the discipline or the ability to manage their own future retirement.
- Global warming is reducing the number of ice flows we can put send old people out to sea on.
What’s to be done?
And for the retiree, pensions come with their own minefields IMHO. Sure, it’s great, but if you haven’t saved as well… Pensions stay the same. The cost of living goes up.
There are very few general statements you can make about pensions - both my pension and the pension system I previously belonged to provide a cost of living adjustment. Anyone who does have a pension should check ( if it matters to them).
Same with mine. COLA won’t be enough to account for inflation, but hopefully with everything else it’ll be enough.
The real problem is that we stopped creating enough new people to take care of the expanding army of old people. We’ll have it even worse if we stop compensating for the low birth rate with younger immigrants.
Good for the planet in the long run, really tough in the short run.
Need to think long term. Low birth rates are awesome long term for resources management and climate change. Will also start to decrease the increases in housing costs which will help retirement. Full circle and all.
However globally the places where the birth rate is increasing is on Africa. Decreasing elsewhere.
That’s a great place to start. Decide what you want from the relationship, and form some questions from there that you’ll use to interview anyone you come across. Going the route of a CFA/CFP is excellent, because tax professionals are already working from a few-based structure, so you’re less likely to run into conflicts of interest.
For the most part, COLAs are not available from private sector pensions. I won’t say NONE do, but I’ve personally never heard of them. Certainly my “brand name pet food” defined benefit pension does not have one; my benefit from that will be exactly what they calculated when they discontinued it, 25ish years ago.
In hindsight, if it had been an option, it would have been better to take it as a one-time distribution and roll it into an IRA. Though, I still work for a successor employer (the one that bought the consulting division), which apparently messes up the calculations - and it may not have been an option. I do know that I could have started taking that pension right then (50ish bucks a month, woohoo). I know that when I do retire, I could take it as a one-time distribution, and I suppose I could dump it into an IRA right then (to avoid paying taxes on the whole amount).
I looked at my company’s most recent “pension” scheme (a defined contribution plan) and if I retire a year from now, it’ll yield a glorious 76 dollars a month!! That, I think, I will DEFINITELY dump into an IRA if I can.
We had a call with our financial planner today. They swear we’re fine - obviously barring anything really catastrophic happening to the world economy. I don’t care what “they” say. I’m going into retirement screaming in pure terror.
It’s a bit of a tough sell to tell actual poor people now they have to stay poor so we can help some theoretical poor people in the not too distant future.
Don’t think that has anything to do with my post. Less kids usually means less poor. Raising kids is expensive.