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In the RMD JonathanRoth mentioned in his excellent contribution to the thread:

We use a five year cash cushion. When the market is near a high we replenish the cushion from the RMD plus funds from non-tax advantaged accounts.

I would appreciate opinions on how to calculate the value of SS and Pensions as part of one’s “cash cushion”. I have read that by multiplying the annual amount by 18 (or, less conservativly, by as much as 25) you can compute the value as though it were cash. For example a combined pension and SS of $100,000 per year would equate to $1,800,000 ($100,000 X 18). A 4% annual withdrawal from this amount would equal $72,000/yr. This could be seen as $72,000 of your cash cushion.

I’m retiring soon and have a 3 year cash cushion (not including SS or Pension). I would like to hear how other Fools calculate the value of their Social Security and Pensions for this purpose.

Thanks,

Bill
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You appear to be confusing a short to mid term cushion of cash, designed to get you through certain financial difficulties or emergencies, with a longer term asset allocation strategy.

There is some good argument to thinking of Social Security and/or pensions as a substitute for bonds and other fixed income investments in your asset allocation strategy.

But they do not substitute for actual cash on hand. If you need $20k to replace the roof on your house this month, $2000 a month of Social Security benefits doesn't substitute for cash sitting in the bank.

--Peter
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You appear to be confusing a short to mid term cushion of cash, designed to get you through certain financial difficulties or emergencies, with a longer term asset allocation strategy.

Hi Peter and thanks for the feedback.

To clarify, I would like to have a 4-5 year "cash" cushion to cover my yearly expenses/cost of living. I currently have 3 years in a MM. I want to make sure I'm not over valuing my fixed income through SS and pension. And, yes, I do see them as a substitute for bonds.

Bill
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To clarify, I would like to have a 4-5 year "cash" cushion to cover my yearly expenses/cost of living. I currently have 3 years in a MM.

Let's start with a question.

Do you believe your monthly Social Security and pension benefits are secure? (And it's possible to think that one is and one isn't, or that both are not.)

Do those benefits cover all of your regular cost of living needs, or do you need some of your accumulated retirement savings to meet those monthly/yearly needs?

Here's my thinking. You need that cash cushion (in actual cash dollars, not in the value of your Soc Sec or pension benefits), to take care of unexpected expenses AND to allow you the flexibility to choose when to sell your retirement investments at a time that is good for you - or at least at a time when they're not grossly undervalued in the market.

So you have two needs. How much cash do you need for emergencies? Separately, how much cash do you need to cover 4 to 5 years of your planned withdrawals from your retirement savings, taking into account your assessment of the security of your Social Security and pension benefits? Add those two up, and that's your cash target. In actual cash dollars that can be accessed on short notice (say just a couple of days).

Let's say you need $4000 a month for ordinary living expenses. You get $1000 a month from a pension and $1100 a month from Social Security. And you believe those benefits are reasonably secure. That means you need $1900 a month from your accumulated retirement savings. If you want to have a cushion for retirement withdrawals of 4 years, you'd target 1900 * 48 months or about $91k in a cash cushion for retirement withdrawals. This part of your cushion can remain in IRA or 401k accounts. It's there to withdraw as needed. But you might also keep some or all of that cushion in a regular savings account or even your checking account.

But let's say your company pension plan is in trouble and you don't think that $1000 a month will continue indefinitely. That would increase your cash cushion. Long term, you'll need to withdraw $2900 a month to meet your living expenses. So your cash cushion target for 4 years of withdrawals would be $2900 * 48, or almost $140k.

But nowhere in this process do I think about the value of Social Security or pension benefits as an equivalent to a bond investment.

--Peter
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Hi Peter,

Do you believe your monthly Social Security and pension benefits are secure? (And it's possible to think that one is and one isn't, or that both are not.)

I do, I’m just turning 67 and am not worried about SS in my lifetime. My company is very strong and conservative thus the pension is of no concern either.

Do those benefits cover all of your regular cost of living needs, or do you need some of your accumulated retirement savings to meet those monthly/yearly needs?

No, I’ll need to take around 4% out of my IRA and Taxable account each year.

So you have two needs. How much cash do you need for emergencies? Separately, how much cash do you need to cover 4 to 5 years of your planned withdrawals from your retirement savings, taking into account your assessment of the security of your Social Security and pension benefits? Add those two up, and that's your cash target. In actual cash dollars that can be accessed on short notice (say just a couple of days).

In addition to my MM account, I have around 4 years of living expenses available from my Life Insurance policies. I look at that as my rainy day/emergency fund. A catchall for the unexpected that I cannot fund otherwise.

Let's say you need $4000 a month for ordinary living expenses. You get $1000 a month from a pension and $1100 a month from Social Security. And you believe those benefits are reasonably secure. That means you need $1900 a month from your accumulated retirement savings. If you want to have a cushion for retirement withdrawals of 4 years, you'd target 1900 * 48 months or about $91k in a cash cushion for retirement withdrawals. This part of your cushion can remain in IRA or 401k accounts. It's there to withdraw as needed. But you might also keep some or all of that cushion in a regular savings account or even your checking account.

I hadn’t considered keeping part of my MM account (cash cushion) in my IRA or Taxable account. I’d love to do that (say, after the next correction), but from what I’ve read here and in Rule Your Retirement a cash cushion should be outside of securities/bonds so that you do not risk having to access it in a down market. Particularly a protracted bear market. I realize that you mention this as just an option based upon my risk tolerance. I’d love to hear what others are thinking about this aspect of their retirement nest eggs.

But nowhere in this process do I think about the value of Social Security or pension benefits as an equivalent to a bond investment.

I misspoke, Peter. I have little exposure to bonds with the majority of my IRA/Taxable accounts in individual securities. I know the usual rule of thumb is that the bond % portion of your portfolio should be around 100 minus your age. The bonds offering perhaps a hedge when stocks go down. I see my cash/cash equivalent providing some of that safety.

Many thanks for helping me to think through this process! Your anecdotal examples are very helpful.

Bill
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I hadn’t considered keeping part of my MM account (cash cushion) in my IRA or Taxable account. I’d love to do that (say, after the next correction), but from what I’ve read here and in Rule Your Retirement a cash cushion should be outside of securities/bonds so that you do not risk having to access it in a down market.

You can always open up an IRA at your bank and just keep savings accounts or CDs in that part of your IRA.

If your IRA is with a broker, you can just leave some funds un-invested. That will sit in the broker's cash account and pay just as much interest as the MM account at your bank (which is approximately zero). The benefit is that the money is still in your IRA and you haven't had to record it as income. So you are continuing to defer the taxes on that money.

--Peter
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I hadn’t considered keeping part of my MM account (cash cushion) in my IRA or Taxable account. I’d love to do that (say, after the next correction), but from what I’ve read here and in Rule Your Retirement a cash cushion should be outside of securities/bonds so that you do not risk having to access it in a down market. Particularly a protracted bear market.

I don't think the point is to invest the cash cushion in securities that can fluctuate, just to consider what account it lives in. In past years (been quite a while) I used to be able to get a better return on cash in the brokerage sweep account than in a bank or credit union savings account. If that environment returns, and I need a substantial cash cushion, it would be nice to have part of my cash cushion sitting inside my Roth IRA where the earnings would never be taxed. Or at least parked in the brokerage account earning a percentage point or two more than I could get at the bank or credit union. Sadly, the environment that would make this possible does not exist right now.

The concept doesn't make as much sense for my current environment, where my brokerage sweep accounts pay next to nothing but I can get 0.90% (still low, but better than the brokerage) from a savings account at Alliant Credit Union. What I have for a cash cushion right now lives in various savings accounts, certificates of deposit, and series I savings bonds. There are interest penalties to get to some of it on short notice, but they are small compared to market risk of investing less conservatively.

The other thing that currently argues against keeping part of my cash cushion in a brokerage or retirement account is that I'm not yet retired. All the cash in the various investment accounts, earning that next-to-zero return, is available to purchase securities when I see something attractive enough to buy. If I keep some part of the cash cushion in the investment accounts, I will need to track how much of the cash I do not want to invest in response to market opportunities. This could be done; but it's simpler to just not worry about it. I'd need a better return on cash in the investment accounts to make me consider keeping some of my cash there as a cushion for living expenses.

Patzer
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We use a five year cash cushion. When the market is near a high we replenish the cushion ...

Unfortunately, a cash-bucket ("multi-year cash cushion") is a mirage. The benefit is psychogical, not financial.

The problem is, there is no successful set of rules for refilling the cash bucket. I've tried a lot of different strategies for when and how to refill, and so far have not been able to come up with one that works.

All you are doing is a very complicated way of changing your asset allocation from stocks/bonds to stocks/bonds/cash. If you explicitly want to have ~15% of your portfolio allocated to cash, fine. But if you want to do that, just do it -- no need to obscure the fact that you're doing that by using the complexity of a cash bucket.

Here is the spreadsheet which you can use to see how a the cash bucket works in operation, and to backtest your refill strategies. https://www.dropbox.com/s/xf4ma5blug27aws/SPY_Withdraw_by_Ca...

Enter a starting date, a SWR, # of years of cash, stock/bond allocation ratio, refill rule.


I would like to hear how other Fools calculate the value of their Social Security and Pensions for this purpose.
You don't.
As others have said, a stream of payments is not the same thing as a large chunk of cash.

Some people say that you could compute the NPV of your SS/pension and use that value as part of your bond (fixed income) asset class, for purposes of setting up your asset allocation. But other people who I respect say that this is a mistake.

They say that the most appropriate thing to do is as ptheland said -- that income offsets part of your living expenses, and reduces the amount you need to withdraw from your investments.

When I first retired, I started figuring the PV of $1000/mo in COLA'ed SS by the simple method of "Lump sum = (annual pension amount) * (remaining life expectancy)"
Or $1000 * 12 * 22 = $264,000. After thinking about it a lot, I realized that that's all well and good -- except $1000/mo is NOT the same as having $264,000 cash in hand.

Here is a thread on this topic at another site: http://www.early-retirement.org/forums/f28/net-present-value...

Combining all these ideas together: The risk you face is that you come to believe that some good-feeling thing is true when it is not, and so you'll act according to that belief. And when/if things go pear-shaped, you discover that the thing that gave you that warm fuzzy feeling has failed you and you are now in a hard, hard place.
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Rayvt writes:
Some people say that you could compute the NPV of your SS/pension and use that value as part of your bond (fixed income) asset class, for purposes of setting up your asset allocation. But other people who I respect say that this is a mistake.

When somebody tells me that I should have x% of my retirement savings in fixed income assets, my preferred response is that if I consider my future SS yearly income as a 4% withdrawal from a hypothetical lump sum, then that sum is already more than x% of my total retirement savings. Do you think this is a wrong or misleading way to describe things?

Incidentally, I consider my "retirement savings" the amount I need to comfortably retire on; i.e. 4% of it is a happy yearly income in today's dollars. Anything more than that is play money -- for giving away to charity, leaving to my kids, buying chocolate above and beyond my normal needs, etc.

-IGU-
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In the RMD JonathanRoth mentioned in his excellent contribution to the thread:

We use a five year cash cushion. When the market is near a high we replenish the cushion from the RMD plus funds from non-tax advantaged accounts.

I would appreciate opinions on how to calculate the value of SS and Pensions as part of one’s “cash cushion”. I have read that by multiplying the annual amount by 18 (or, less conservativly, by as much as 25) you can compute the value as though it were cash. For example a combined pension and SS of $100,000 per year would equate to $1,800,000 ($100,000 X 18). A 4% annual withdrawal from this amount would equal $72,000/yr. This could be seen as $72,000 of your cash cushion.


First thank you.

Here's what we did for my mother 10 years ago. Her living expenses are about $100k. Profit from the apartments she's owned for 40 years is about $60k and increasing. $15k social security, no pensions, this leaves a $25k shortfall ($100-50-15). The shortfall is covered by a $25k x 5 years = $125k cash cushion.

The cash cushion is kept as that, cash, rarely very short term bonds, as the rate difference (0.01% v.s. 0.15%) isn't worth the work or risk to create a bond ladder.

Any emergencies are handled through the cash cushion, a little more or less each year isn't significant as it tends to balance out over the years. By keeping the bulk of her funds in securities the return more than make up covers any spending variances.
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Combining all these ideas together: The risk you face is that you come to believe that some good-feeling thing is true when it is not, and so you'll act according to that belief. And when/if things go pear-shaped, you discover that the thing that gave you that warm fuzzy feeling has failed you and you are now in a hard, hard place.


One key point to remember is the process does not have to work forever, a few decades of retirement into our 80's or 90's is about about all most of us get. So roughly right is just fine. If your budget is so tight that a few percent one way or another spells disaster, than perhaps spending slightly less is a good idea.

Roughly right is better than precisely wrong.
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One key point to remember is the process does not have to work forever, a few decades of retirement into our 80's or 90's is about about all most of us get. So roughly right is just fine. If your budget is so tight that a few percent one way or another spells disaster, than perhaps spending slightly less is a good idea.

I fully agree.

All these fancy schemes -- cash cushions, etc. -- strike me as debates about how best to live on the ragged edge. It seems to me that you'd be better off not skating at the edge, by starting with plenty enough money so you are nowhere near the cliff.

If you start out with $500,000 in a 60/40 portfolio in 1972, 4% SWR, 5 years cash bucket, your portfolio value peaked in 2000 and has been in a steady decline since. After 30 years the cash-bucket portfolio is worth $1M and the non-bucket is $2M.

The initial withdrawal was $20,000 (4% of $500K). In 30 years the COLA'd draw had grown to $86,500. That's 6.8% of the bucket portfolio and 4.1% of the non-bucket portfolio. 6.8% is far above the survivable level, so you'd better hope your portfolio doesn't have to last you much longer.

But, y'know what?

If you start with $1 million and take the same $20,000 (2%) it makes no difference if you have a cash bucket or not. After 30 years the cash- bucket portfolio is $12M and the non-bucket portfolio is $13M.

If you start with $2M, and the same #20,000 (1%) the 30 year values are $34M and $35M.

The final draw of $86,500 is only 0.3% of the portfolio.

------------
To show how sensitive it is to the starting amount, here are the w/d percentages of the 30'th year w/d based on an initial w/d of $20,000.
Starting  1st yr  30'th yr      30'th yr
Amnt w/d w/d (bucket) no bucket
$500,000 4.0% 6.8% 4.1%
$550,000 3.6% 3.7% 2.7%
$600,000 3.3% 2.5% 2.0%
$750,000 2.7% 1.3% 1.1%
$450,000 4.4% 23.1% 8.7%


If you need $20,000 a year (COLA'd) you can get that with $500,000 and 4% SWR. But by the 30'th year the portfolio with the cash bucket is headed for disaster.

If you start with just a little bit more, the cash bucket portfolio has gone only slightly off course.

If you start with just a little bit more than that, both the portfolios are headed for the moon, so the cash bucket has not done anything for you, so why bother.
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When somebody tells me that I should have x% of my retirement savings in fixed income assets, my preferred response is that if I consider my future SS yearly income as a 4% withdrawal from a hypothetical lump sum, then that sum is already more than x% of my total retirement savings. Do you think this is a wrong or misleading way to describe things?

Yes.
It is not simply misleading; it is wrong.

Did you do this with your paycheck, while you were working? What if somebody tried to tell you that your weekly $1500 paycheck was the equivalent of a $1,950,000 lump sum. (I got that by multiplying $1500/wk * 52 wks/yr * 25 years)

Would you accept what they said?

No, you'd laugh them out of the room and tell them that you weren't buying whatever they were trying you sell you.

SS & pension is an income stream. The way to use it in figuring your retirement finances is to use it to offset your expenses. The remainder is what you need to withdraw from your portfolio.

Making your decision for asset allocation is completely independent from your SS or pension or rental or part-time work income.

===========
Just for the record, if somebody tells me that I should have x% of my retirement savings in fixed income assets, my response would, "Yeah? Why? You got anything concrete to back up that assertion, or is it just something that you once read somewhere?"

If you can't tell, my idea of the X% is closer to 1% than 40%. ;-)
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Rayvt wrote:
What if somebody tried to tell you that your weekly $1500 paycheck was the equivalent of a $1,950,000 lump sum.

I'd think that's a reasonable equivalence -- I'd hear "This is how much money somebody not working for a living would have to have saved up to get the same income stream." You said that's misleading and wrong but it seems to me you're saying it's right. In fact, now that I'm retired, that equivalence is pretty much all I'm interested in.

SS & pension is an income stream. The way to use it in figuring your retirement finances is to use it to offset your expenses.

Could be for some people, but I don't think about it that way. When I see a dollar figure for any income stream, what I want to know is how much in retirement savings that's equivalent to. I never think in terms of expenses.

If you can't tell, my idea of the X% is closer to 1% than 40%.

You've made that entirely clear over the past year on this board. I tend to agree with you. However, I run into cases of people telling me that their financial advisor has told them that they need to have $x in fixed income investments. To keep things simple I would like to say "You already have that if you have $y in SS income." I think what I'm saying is correct, so it concerns me that you say it is wrong and misleading. Do you have a reason for saying so, other than that you don't like thinking about it that way?

-IGU-
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However, I run into cases of people telling me that their financial advisor has told them that they need to have $x in fixed income investments. To keep things simple I would like to say "You already have that if you have $y in SS income." I think what I'm saying is correct, so it concerns me that you say it is wrong and misleading. Do you have a reason for saying so, other than that you don't like thinking about it that way?

Hmmm, now I've got an ethics problem. If somebody wants to do X and also believes Y to be false , and you know (or strongly think) that X is the wrong thing to do, and also that Y is correct, what do you do?

The morally right thing to do is tell them that X is a bad thing to do, and oh by the way Y is true. But if you convince them that Y is true, they'll even more strongly want to do X.

IMHO, they should have low allocation to bonds and treat income stream as an income stream and not a lump sum. They think they should have large allocation to bonds, and don't think about their income stream at all.

But, if you get them to believe (incorrectly) that the income stream can be considered to be a lump sum, then they'll be agreeable to having a lower bond allocation.

Do you tell the the truth, and have them do the wrong thing? Or tell them a falsehood and have them to the right thing? Ugh!



I think what I'm saying is correct, so it concerns me that you say it is wrong and misleading. Do you have a reason for saying so, other than that you don't like thinking about it that way?
I guess that maybe this is one of those never-ending discussion like claiming SS at 62 or 70, and whether or not to pay off the mortgage before you retire.

If you need to "fool yourself" by treating your SS payments as a lump sum fixed income in order to convince yourself to have a low bonds allocation ... well, whatever it takes to get you through the night.
The right thing to do is have a low bond allocation, so why not just flat out do it, instead of playing mind games to get yourself to do it?

other than that you don't like thinking about it that way?
It's not so much that I don't like to think about it that way -- it's that it ISN'T that way. An income stream from SS is not a lump sum, nor can it be converted into a lump sum. If you are getting periodic payments and want to instead have a lump sum, you have to call somebody like J.G. Wentworth.

Why pretend that SS and a lump sum are convertible into one another? They aren't. Especially, why pretend that it's equivalent to a lump sum when the only reason for pretending is to get yourself to do what you should do anyway (have a low bond allocation)? If that's the right thing to do, just DO IT -- no need to pretend to fool yourself.

--------
If one thing can be converted to another thing easily, then yes you can treat them as equivalent. For example, I consider cash and stocks to be equivalent (ignoring capital gain/loss potential), because you can convert cash to stocks or stocks to cash with a few mouse clicks. If you have substantial stocks holdings, you don't need to have a large cash "emergency fund", because you can convert the stocks to cash and have the cash in your hand the next day.
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Rayvt writes,

Did you do this with your paycheck, while you were working? What if somebody tried to tell you that your weekly $1500 paycheck was the equivalent of a $1,950,000 lump sum. (I got that by multiplying $1500/wk * 52 wks/yr * 25 years)

Would you accept what they said?

No, you'd laugh them out of the room and tell them that you weren't buying whatever they were trying you sell you.

SS & pension is an income stream.

</snip>


You really can't compare SS or a lifetime pension to a salary in this manner.

I've got to expend some human capital to keep a salary coming. A SS check or pension benefit arrives as long as I can still fog a mirror.

Personally, I consider my Social Security and pension benefits a fixed income equivalent, so I'm comfortable in maintaining a 95% stock allocation in my retirement portfolio as a result.

intercst
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Rayvt, you've made a rather complicated response to something that ought to be fairly simple, and is in my eyes. You're throwing in motivation and possible use of the argument (I guess that's my fault for mentioning why I want to use the argument), when all I'm asking about is correctness. You keep asserting it is incorrect but you don't say why.

If I have a sum from which I pull 4% a year or I have SS coming in in the same dollar amount, and I put the source in a black box, there's no way for me to tell the difference. So they're equivalent so far as I'm concerned. They don't need to be convertible, one to the other, in order to be so. I still don't understand why you are saying that's incorrect and misleading.

Are you really saying that getting money from SS is different from a fixed income investment in some important ways? If so, then specifically in what ways? To me, they look pretty much the same.

-IGU-
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I’m retiring soon and have a 3 year cash cushion (not including SS or Pension).

I'm relatively further away from SS so that is coloring my opinion. I am NOT counting on SS being around when it comes time. Mostly likely through severe means testing, IMHO.

Pension, since I'm self employed, I have none other than what I'm able to save.

JLC
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I personally think this whole argument is beside the point. The reason to have a large (enough) allocation to fixed income investments in retirement is so you don't have to sell stocks at precisely the wrong time (i.e.- in a bear market) just to fund everyday expenses. A good asset allocation should allow you to sell stocks in up markets and hunker down with your bonds or treasuries or cash in down markets and still have value in your portfolio 30 years down the line.

If your Social Security is sufficient to carry you through several years of a bear market, then you shouldn't need bonds at all (except maybe to buy more stocks while prices are low!). If not, you should allocate enough of your portfolio for safety to ensure that you do.

If I could recommend one book for you both it would be "The Four Pillars of Investing".
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All these fancy schemes -- cash cushions, etc. -- strike me as debates about how best to live on the ragged edge. It seems to me that you'd be better off not skating at the edge, by starting with plenty enough money so you are nowhere near the cliff.


A cash cushion isn't about stretching your funds. it is about about sleeping easy and risk management. Historically most stock market drops last less than 5 years so a 5 year cushion allows someone to stay more invested in the stock market because they won't have to sell in a down market.

Jack
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Are you really saying that getting money from SS is different from a fixed income investment in some important ways? If so, then specifically in what ways? To me, they look pretty much the same.




Not Rayvt but....

My pension & SS will provide for the same quality of life that I enjoy now, while I'm working. No problem, right?

Yes, the amount of money would be the same, but I can't view this income stream as coming from a $800,000 bond equivalent.
For should I need $10,000/month assisted living care for a year or two, I'm out of luck. All I have is this (now inadequate) income stream.


Jim
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Are you really saying that getting money from SS is different from a fixed income investment in some important ways? If so, then specifically in what ways? To me, they look pretty much the same.

Well, actually the discussion is about if SS can be considered to be a lump-sum bond-equivalent.

One can reasonably say that a fixed income stream is analogous to a lump sum, as long as you realize that "analogous to" is not the same thing as "is".
Sometimes it is, sometimes it isn't.


Let's say you are retiring with a $1,000,000 portfolio, and
you'll get $1,292/mo from Social Security, no pension, and
your living expenses are $4000/mo.

You use the conventional wisdom of a 60/40 AA. 60% stocks, 40% bonds.
Since you've read all the studies, you'll use 4% SWR. $40,000/yr, $3333/mo.

Alternative ways of thinking about it:
A) Count SS as equivalent to lump-sum of bonds.
$1292 * 12 * 22 = $340,000 equivalent.

60/40 of $1M = $600K stocks, $400K fixed-income. The SS counts as $340K of FI, so you need only $60K of bonds. The rest goes to stocks.
$1M - $60K = $940K stocks.
Your monthly broker statement shows your portfolio is 94% stocks and 6% bonds.
94/6 -- is that comfortable? Recall that you originally wanted to do 60/40.

B) Count SS as equivalent to a lump sum in addition to your current portfolio, which you'll use to buy an annuity at the instant you retire.
$1M + $340K = $1340K
60% stock AA: $804K
40% to FI AA: $536K

How to you allocate the remaining $1M?
Stocks: $804K Bonds: $536K - $340K = $196K

Your monthly broker statement shows your portfolio is 80.4% stocks and 19.6% bonds.
80/20 -- is that comfortable? Recall that you originally wanted to do 60/40.

C) Count the $1292 toward your $4000 requirement, not as a lump sum.
Your monthly broker statement shows your portfolio is 60% stocks and 40% bonds. Just what you wanted.

You need to draw from your portfolio $4000 - $1292 = $2708 per month.

--------------------
A) Has you with an AA of 94/6.
B) Has you with an AA of 80/20.
C) Has you with an AA of 60/40 *and* a withdrawal ratio of only 2.7%.

The standard "safe" AA ratio is 60/40, so presumably you don't want to tilt more heavily to stocks. By treating the SS income stream as equivalent to a lump sum, you are thereby changing your AA to a higher stock allocation. Is that what you want?

The true facts are you have $1M and a $1292 income stream. You don't have $1M portfolio and a $340K lump sum, no matter how much you want to believe it.
The true facts are that you have an income shortfall of $2708/mo which has to come from your $1M investment portfolio. (And you've determined you can safely draw $3333/mo.)

All that treating the SS income stream as a lump sum does is get you to shift your AA toward a higher stock allocation. But if you want to have a higher stock allocation, just do it. No need to play mind games to get yourself to do it. Just do it.

------------------
The whole reason for a 60/40 AA is that when stocks crash you rebalance by moving money from bonds to stocks. If you truly have $400K of bonds, that's how much you can potentially move. If, for exmaple, stocks lose 50%, you're down to $300K and $400K, so you need to get to $420K stocks and $280K bonds. You need to sell $120K of bonds and buy $120K of stocks.

In alternatives A & B, do you even _have_ $120K of bonds that you can sell?

Funny thing -- in some discussions of treating SS as if it were a bond equivalent, a number of people explictly state that they do it this way so that they can shift their portfolio AA toward higher stock allocations. I have no problem with that approach. They are simply explicitly choosing a heavier weighting in stocks BECAUSE they don't need as much in bonds because of the safe income stream.
But in this case they aren't pretending SS is a lump-sum bond; they are choosing a more risky AA in their portfolio because that higher risk is offset by the low-risk SS income and hence their total overall risk is low.
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A cash cushion isn't about stretching your funds. it is about about sleeping easy and risk management.

Historically most stock market drops last less than 5 years so a 5 year cushion allows someone to stay more invested in the stock market because they won't have to sell in a down market.
And yet the historical backtests don't bear this out. Take a look at the spreadsheet I linked to.

FWIW, the original version had only stocks, no T-bills allocation at all. Most people aren't comfortable with that, so I enhanced it to let you try different asset allocations.

But, really, the downfall of the cash bucket is the thing that people never think about or just handwave away. How and when do you refill the cash bucket after you've drawn from it for a few years in a row?

Look at a 1/1/1973 start, right at the start of a multi-year bear market. The S&P500 didn't get back to even until 6/1/1976 (incl dividends) or 7/1/1980 (excluding dividends).
The bottom was 10/1/1974 for a 46% loss.

When do you start refilling the bucket?

As soon as there is a market gain? Fine, in Jan 1976 you sell $18K of stocks and put that into the cash bucket. Meanwhile you've watched your cash bucket dwindle year by year -- $20K to $13K to $9K to $5K. How does _that_ have you sleeping easy? The stocks are still underwater, so here you are selling at a loss, which is what you were trying to avoid in the first place.

Only when the market is recovered to a 3 year high? Fine, in Jan 1977 you sell $16K of stocks and put that into the cash bucket. But now your cash bucket gets tapped one more year, and it is down to $300. How you sleeping now?

Wait until stocks get back to break-even? Can't. Your cash bucket has only $300 in it. You *have* to sell stocks now.

Cash bucket is a strategy that works fine when you don't need it to work, and fails at the very time you really really need for it to work.
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It seems like the only solution is to start off with about 125% of what you need to retire on. The 100% is what you draw retirement funds from, the 25% funds the extra "cash cushion". During lean years you live mostly on the cushion, during fat years the extra replentishes the cushion. Over the past 50 or so years a 3 year cusion will get you through most recessions. At worst if the cushion dries up you can still live by the 4% rule since you have 125% of what you need anyway. Worst I've seen is the recent 25% drop in 2008. Just turn off cable until the market comes around. 8)

This requires you to work just a few more years than you might otherwise have, or save harder, or live a little leaner, but it'll also help in inflationary times.

It's what I'm shooting for anyway - 125% of need, 3 year cushion. It's also what social security is for, so you won't starve. I also will retire debt-free so that's not an issue. For just heat and food in a paid-for house SS will cover it all (married, two ss checks). If not I'll sponge off my kids...
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It seems like the only solution is to start off with about 125% of what you need to retire on. The 100% is what you draw retirement funds from, the 25% funds the extra "cash cushion". During lean years you live mostly on the cushion, during fat years the extra replentishes the cushion. Over the past 50 or so years a 3 year cusion will get you through most recessions. At worst if the cushion dries up you can still live by the 4% rule since you have 125% of what you need anyway. Worst I've seen is the recent 25% drop in 2008. Just turn off cable until the market comes around. 8)

This requires you to work just a few more years than you might otherwise have, or save harder, or live a little leaner, but it'll also help in inflationary times.


Why not just use the 4% rule?
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If not I'll sponge off my kids...

---

Unfortunately, I think that is the earnest plan for a lot of people.
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I am NOT counting on SS being around when it comes time.

Suit yourself, but you are almost surely making an error.

From a financial perspective, studies demonstrate unambiguously that a few, fairly innocuous alterations to increase revenues and/or trim payouts over the near term would keep SS financially stable for many decades (and certainly until my baby-boom generation passed from the scene, which would solve virtually all of the problem all by itself). Even in a worst-case scenario, as long as Social Security collects taxes it will be able to make payouts of at least 75% of current obligations.

The arm-waving about "Social Security is Bankrupt!!!" is propaganda, pure and simple. Don't be fooled by it. Big Finance salivates at the prospect of a "privatized" Social Security, and their beholden political flunkys are only too happy to try to frighten and dupe the uninformed masses. Follow the money.

I suppose there's a nonzero probability that political opportunists might one day garner enough electoral support to kill this highly effective social insurance program. But so far, many have tried and none have succeeded.

So I would say that among the many retirement concerns with which one may contend, a concern about Social Security not being there when one retires should be about 39th on this list.
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How and when do you refill the cash bucket after you've drawn from it for a few years in a row?

Depending upon market conditions refilling takes place every 2-3 years. If the market is doing poorly, I'll wait another year or two.


Look at a 1/1/1973 start, right at the start of a multi-year bear market. The S&P500 didn't get back to even until 6/1/1976 (incl dividends) or 7/1/1980 (excluding dividends). The bottom was 10/1/1974 for a 46% loss.


A 5 year cash bucket is designed specifically to cover a 5 year down market, if longer coverage is needed, use a larger cash bucket. If a down turn lasts for longer than the cash bucket is designed for, then you'll have to sell in a down market. So in the example above the 1974 bottom is avoided and a refill can take place after the market partially or fully recovers.

Cash bucket's aren't perfect, but they're simple to understand and easy to implement which is important when dealing with seniors who may have declining cognitive abilities, a reasonable, or unreasonable, fear of change. And have likely learned from hard experience, to not trust people. There may be better strategies, but if people can't or won't follow them, then they're useless. Perfection is the enemy of good.

To respond to a comment from an earlier post, the first assumption of a cash bucket strategy is there is sufficient funds to create and maintain one. If there isn't sufficient funds then it's not going to work.

Cash bucket is a strategy that works fine when you don't need it to work, and fails at the very time you really really need for it to work.

Broad statement. So here's an equally broad statement, it's been working fine for the last decade which includes the 2008 crash.
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a refill can take place after the market partially or fully recovers.
That's where I ran into difficulty. Realise that I began with the premise that a cash bucket strategy was a Good Thing, and I wanted to write down the concrete rules & steps for implementing it. Saying "after the market partially or fully recovers" isn't a concrete rule, it's just kinda "eh, WHENever".

The rule for when to draw from cash bucket was easy. The rule for hwo to refill the cash bucket was the difficulty.
I tried a lot of different rules for the refill, and could not find one that worked.
Eventually I had to come to the conclusion that cash bucket was something that sounds good but cannot work in practice. If anybody can tell me a refill strategy that does work, I'm all ears.


"Cash bucket is a strategy that works fine when you don't need it to work, and fails at the very time you really really need for it to work."

Broad statement. So here's an equally broad statement, it's been working fine for the last decade which includes the 2008 crash.


Ahhh, I guess I neglected to be clear about what I meant by "does not work". Also ... working for ten years is nothing. A retiree needs a portfolio strategy that works for 30+ years.

To my mind, "works" means that the cash-bucket strategy portfolio still has money when the identical portfolio without the cash bucket has run out of money. And "fails" means the cashbucket portfolio has run out of money when the non-bucket portfolio still has money.
According to the backtesting spreadsheet I posted, the former has never happened but the latter has.
"Works" also means that the cash bucket portfolio value is generally equal to or greater than the non-cash bucket portfolio.

simple to understand and easy to implement which is important when dealing with seniors who may have declining cognitive abilities
Simple to understand, yes. Until you get down to the details and get past the handwaving.

Easy to implement? No. The hard part is deciding when to refill the cash bucket. That's where cash bucket strategy breaks. If you can find a refill rule that works, I'm all ears -- because I haven't been able to, and I've tried a lot.

if longer coverage is needed, use a larger cash bucket.
How large? That's the problem -- if you need a larger cash bucket, you wind up with a portfolio that's heavily overweighted in cash, and that kills your returns.


Actually, the whole cash-bucket thing is useless if you have a stock/bond allocation and rebalance once a year. You make your annual withdrawal and rebalance at the same time, and what you were trying to accomplish with the cash bucket is done automatically. When stocks go down, you rebalance by selling bonds. So you are never selling stocks when they are down. The only time you sell stocks is when stocks are high, when you rebalance by selling stocks.

All of which is EXACTLY what you are trying to accomplish with the cash bucket.
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The arm-waving about "Social Security is Bankrupt!!!" is propaganda,...

It is not a concern about SS being solvent. More concern about the "wealthy not paying their fair share", thus taxing/means testing a benefit I've paid into, that, given the trend of society's ideology, a majority would deem I "don't deserve". Even though I've paid into it.

Besides, in my planning, I generally count on those things that are under my control, i.e., my IRA, my 401k, my brokerage accounts. Not some government "lockbox".

JLC
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I am NOT counting on SS being around when it comes time.

Suit yourself, but you are almost surely making an error.


No doubt. I remember when I started working, I said there is absolutely noway Social Security will be around when I retire. Well it is now 34 years later and while I still have a 7 to 10 year weight there is no doubt it will be around and its going nowhere. This is true more then ever.

With companies doing away with pensions, we are a generation away from another very serious seniors problem like the 50s and 60s. Again like with health care, food stamps etc it will be up the government to bail out the lack of corporate responsibility at least until the day comes where voters and workers demand corporate responsibility.

Moe
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With companies doing away with pensions, we are a generation away from another very serious seniors problem like the 50s and 60s. Again like with health care, food stamps etc it will be up the government to bail out the lack of corporate responsibility at least until the day comes where voters and workers demand corporate responsibility.

Whatever happened to individual responsibility?

PSU
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PSUEngineer asks,

Whatever happened to individual responsibility?

It's easy to fund retirement and healthcare on a six-figure engineering salary. It's just about impossible with a $10/hr job.

There are a lot more people in the latter category.

intercst
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It's easy to fund retirement and healthcare on a six-figure engineering salary.

You assume too much.

It's just about impossible with a $10/hr job.

There are not a lot of people that stay in lifetime $10/hr jobs. Pensions are like handcuffs. They keep (strongly encourage) employees from leaving for other opportunities.

PSU
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I wanted to write down the concrete rules & steps for implementing it. ... Easy to implement? No. The hard part is deciding when to refill the cash bucket. That's where cash bucket strategy breaks. If you can find a refill rule that works, I'm all ears -- because I haven't been able to, and I've tried a lot.

This may be the first difference in viewpoints, not everything can or need be reduced to a defined set of rules suitable to implementation in a model.

A retiree needs a portfolio strategy that works for 30+ years.

The retiree I'm working with has a statistical 0% chance of living 21 years, so 30+ years is not a goal. The cash bucket approach may not be suitable for the first part of a 30 year retirement, but may be for the latter part.

"Works" also means that the cash bucket portfolio value is generally equal to or greater than the non-cash bucket portfolio.

The ratio between the two buckets is not an interest, being forced to sell during a down market is the goal. With a large enough portfolio the investment bucket may be multiples of the cash bucket.

if longer coverage is needed, use a larger cash bucket.
How large? That's the problem -- if you need a larger cash bucket, you wind up with a portfolio that's heavily overweighted in cash, and that kills your returns.


Bucket size = $needed annually * # of years
Maximizing returns isn't always an investor's primary goal.

Actually, the whole cash-bucket thing is useless if you have a stock/bond allocation and rebalance once a year. You make your annual withdrawal and rebalance at the same time, and what you were trying to accomplish with the cash bucket is done automatically. When stocks go down, you rebalance by selling bonds. So you are never selling stocks when they are down. The only time you sell stocks is when stocks are high, when you rebalance by selling stocks.

All of which is EXACTLY what you are trying to accomplish with the cash bucket.


Actually no, a RMD is one factor, the RMD may be more or less than the annual draw. The plan may be for the RMD to fully or partially be transferred into a taxable brokerage account. The purpose of the cash bucket is to isolate daily finances from the investment decisions by providing a multi-year buffer.

Referring to the comment above "When stocks go down, you rebalance by selling bonds. So you are never selling stocks when they are down. The only time you sell stocks is when stocks are high, when you rebalance by selling stocks." in this scenario your stocks are essentially acting as your cash bucket. It depends upon how much risk you're willing to take in the cash bucket, some use bonds, none, stay in cash.
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Even for six figure earners, SS is a big part of retirement.

One of the best moments in my wife was when I leaned over the desk and told a teabagger, "SS is your biggest asset". I had just told him his wife's benefit was 50% of his so he had to take it.
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In my life not wife...but my wife appreciates putting down teabaggers, too.
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I've paid into, that, given the trend of society's ideology, a majority would deem I "don't deserve".

You cannot receive from it if you have not paid in to it. 40 quarters: 10 years contributions mandatory to receive any benefit (assuming you were born after 1929, which I'm going to assume here for the sake of sanity.)

Besides, in my planning, I generally count on those things that are under my control, i.e., my IRA, my 401k, my brokerage accounts. Not some government "lockbox".

The odds are in favor of the government lockbox over any stock or brokerage account you have. You need only look at the most recent financial debacle, the worst in almost a century, when stock holdings were reduced by 50%, while Social Security benefits were reduced by, well, nothing. So while GE divided holders were watching their income slashed, while people living from their portfolios were suddenly shocked at how little they had, those Social Security checks kept coming - at 100% par.

I understand that your politics puts you in the "if government does it it must be bad" camp, but the reality is that you are far more at risk from almost everything except Social Security. Your bank and CD monies are safe only because of a government program (FDIC), your annuities are backed by state guarantees, and regulations keep your stock broker from playing with your funds unless you say he can. Nearly everything that is really safe, including Social Security, is because of the government, not in spite of it.
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"Besides, in my planning, I generally count on those things that are under my control, i.e., my IRA, my 401k, my brokerage accounts

Were your IRA and 401(k) invested invested in Wall Street in March of 2009? What would they have been worth without the banking bailouts? Look at your real life account balances and tell yourself what you see.

Do you really trust Wall Street more than you trust Social Security?
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Goofyhoofy:

<<<I've paid into, that, given the trend of society's ideology, a majority would deem I "don't deserve".>>>

"You cannot receive from it if you have not paid in to it. 40 quarters: 10 years contributions mandatory to receive any benefit (assuming you were born after 1929, which I'm going to assume here for the sake of sanity.)"<?I>

Not literally true. Spouses can collect spousal/surviving spouse benefits without ever having paid into the system.

Regards, JAFO
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And don't forget dependent children who've never paid into Social Security. They can receive benefits too.

That's why the program is called Social Security Insurance. It's an annuity it you live long enough and insurance if you don't.

The problem is the premium isn't high enough. If the cap was removed, the problem would disappear.

PF
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The problem is the premium isn't high enough. If the cap was removed, the problem would disappear.

Yup. Actually, if the cap were simply moved up to where it used to be (at the 90th percentile of income, in contrast to the current 86th percentile) then about 2/3 of the problem would disappear. A modest adjustment in the way COLA is calculated and/or a fraction of a percent increase in OASDI tax would more than solve the remainder of the problem.
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Not literally true. Spouses can collect spousal/surviving spouse benefits without ever having paid into the system.

I thought about that just as I hit the "post" button. And yes, that's technically correct.

But somebody has paid into the system on their behalf (just as the life insurance premiums a father pays come out of the family household monies.) I'm quite sure the poster expressing the sentiment "a majority I would deem I 'don't deserve'" is more worried about them damn feriners, illegals, mooches, lazy-abouts, and welfare cheats.

Those people do not get benefits unless they have paid into the system. A wife, a son, or a daughter of someone who has paid? Yes, they can get benefits.
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“ understand that your politics puts you in the "if government does it it must be bad" camp, but the reality is that you are far more at risk from almost everything except Social Security. Your bank and CD monies are safe only because of a government program (FDIC), your annuities are backed by state guarantees, and regulations keep your stock broker from playing with your funds unless you say he can. Nearly everything that is really safe, including Social Security, is because of the government, not in spite of it.”

This philosophy is of course completely wrong. Taking on educated risk is a key to all financial success. Trying to avoid all risk is a huge mistake for individuals or society. The long term investment returns from the stock market far exceed the poor returns from social security or other guaranteed annuities (another very poor investment). I would have been much better off investing all that money I piled into SS payments over many years and instead investing it myself in good stocks. The performance of my 401K proves that.

Of course many individuals would not save or invest wisely. One major reason for that is the very poor understanding of basic financial concepts among the American people. And a large reason for that is the very poor job our education system does in teaching in this area. Most Americans have no understanding of basic financial concepts like compound interest or personal budgeting. Correcting this should be one of the highest priorities of our society.

This poor financial understanding and behavior is also one of the biggest reasons for the so called wealth gap. If an individual spends more money than that individual takes in, than the net worth of that individual will never be positive. All the increases in the minimum wage, all the socialist redistribution policies will not change that basic mathematical fact. For now we are stuck with poor programs like SS (a program that breeds dependence), but in the long term our society would be much better to improve the financial behavior and independence of the population.

The whole purpose of the Motley Fool is to help individuals improve their financial understanding and investment practices. The purpose of the Motley Fool is not to provide a place for polemic that preaches against the importance of taking on educated risk through investments.

sw
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It's easy to fund retirement and healthcare on a six-figure engineering salary. It's just about impossible with a $10/hr job.

Ok, just for kicks, lets do some back of envelope calculations.

$10/hr is about $1700/month.

If this person were given back their FICA taxes (both sides), it would amount to $210/month.

Disability insurance* around $20/month.
HSA high deductible insurance* around $500/month.

Federal taxes around $210/month

Studio flat near Dallas** $400/month.
Utilities $225/month (electricity, gas, water, cellphone)
Food $100 (rice and beans in bulk, 100 servings)
Bus pass $65/month
Clothing $100/month

Add it all up, this person has $290 left over each month. I'm sure I've left things out but play along. This is for academic discussion.

So $290/month over 50 years would yield $174,000. If over that time frame their money doubled, roughly $350,000 which with a 4% yield would generate about $1160/month for "retirement".

For them to replace their income, they'd need a portfolio of about $573,000. Or have their investments increase by about 3.2 times. Sounds within the realm of possibility.

So would it be possible to save for "retirement"***? Yes, but everything has to fall just right. Is it a Spartan existence that I would want to endure? No, but I have met people that have done so. And many of the assumptions come down to where you are trying to live. Doing this in rural Georgia is easier then NYC.

Now, increase the income to the US median of $28,000 and it becomes a little easier. Still not a great life but do able.

JLC

* extrapolating from my personal rates. No way am I going to fill out a bunch of info and get hounded by email/callers for an academic exercise.

** nearest large metro area to me where I can find data.

*** retirement is not some universal God given right. Not everyone will be able to quit working, just the facts. Retirement age is a relatively new social construct brought about by the very agency we are arguing about.
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JLC posts,

<<<It's easy to fund retirement and healthcare on a six-figure engineering salary. It's just about impossible with a $10/hr job.>>>

Ok, just for kicks, lets do some back of envelope calculations......

</snip>


McDonalds beat you to it. They suggested that their minimum wage employees take a second 40-hour per week minimum wage job to make ends meet.

http://www.theatlantic.com/business/archive/2013/07/mcdonald...

intercst
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McDonalds beat you to it. They suggested that their minimum wage employees take a second 40-hour per week minimum wage job to make ends meet.

Nothing wrong with that. The guy that mows my lawn is a full time orderly at the hospital. Have a fire fighter friend that has a landscape business on the side. One nurse I work with does sewing and alterations on weekends.

JLC
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One major reason for that is the very poor understanding of basic financial concepts among the American people. And a large reason for that is the very poor job our education system does in teaching in this area.

Difficult to teach financial concepts when kids can't do arithmetical basics--the four operations on fractions, decimals, and percents. I'm not talking about plugging a formula into a (required) graphing calculator, but actually understanding how numbers work, how words translate into mathematical sentences, and how to WORK through a problem.

After teaching an SAT/ACT test prep class this year and trying to figure out where we are going wrong in math education (multiple places), I think a significant part of the problem is that everyone (parents, non-math teachers, community leaders, students, etc.) thinks that "I'm just not all that good with numbers" is a valid reason for not doing math. People are not the least bit reluctant to let you know that they aren't good at math. By contrast, when was the last time you heard anyone announce unabashedly that he/she doesn't bother to read anything because he/she just isn't that good at it???

Kathleen
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Kathleen,

When it comes to *writing,* not just reading, many people seem to consider their inattention to spelling and grammar a sign that their glorious minds are fixed on loftier matters. Most of the people I know who have poor math skills wish that it were otherwise. Most of the dreadful writers seem proud of their shortcomings. And they are all products of the US school system. I grew up in Europe where the idea of a university-educated individual who wasn't fluent in even one language -- his or her own -- would have been incomprehensible.

Ms C
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The long term investment returns from the stock market far exceed the poor returns from social security or other guaranteed annuities (another very poor investment). I would have been much better off investing all that money I piled into SS payments over many years and instead investing it myself in good stocks. The performance of my 401K proves that.

Well, bully for you. I think it's wonderful that you can stand on the mountaintop and crow "See how smart I am?", but sadly some people underachieve in that performance. Some people never get to the starting line at all.

Of course you would say "Tough luck", but then I am more concerned about the stability of society, and being a student of history I notice that things tend to go badly, even for the upper crust, when "people" aren't doing well. Yeah, it's their fault, but when it spills over to me then it's a real drag. And I, for once, would rather not sit in a locked encampment, clinging desperately to my guns, hoping that nobody comes to rob me in the night. Your mileage obviously varies.

This poor financial understanding and behavior is also one of the biggest reasons for the so called wealth gap.

Yes. Not everyone is going to be so financial literate. As only one of myriad possible FACTS, consider this: at the time of the great depression, 50% of elder Americans lived in poverty. Today, with the benefit of Social Security, that number is about 9% - and that 9% is almost entirely made up of people ineligible for Social Security for various reasons.

Curiously, if you took that Social Security check away, about 50% of elder Americans would immediately be plunged back into poverty, so I conclude that the program has not changed human behavior, but it has changed outcome. Again, I understand that "results" are not important to you. People who say this are more like a two-year old throwing tantrums because they cannot have all their lollipop RIGHT NOW instead of delaying the gratification, while helping out all your fellow citizens along the way and providing for (dare I say it?) "the General welfare. Really.

So all the fulminating about "highest priorities" and that other claptrap is nonsense. You are NEVER going to achieve that, and if you try you will only destroy lives and possibly crash the society which has done so much to allow you to prosper.

SS (a program that breeds dependence)

No. No it doesn't. I have demonstrated that it doesn't. You have never demonstrated that it does, except for your airy philosophy which relies on nothing more than "your feeling." Demonstrate it with facts and perhaps you will convince someone. Keep chanting idiotic slogans from radio talk shows and you will convince no one who is not already of your persuasion. You see how this works?

The whole purpose of the Motley Fool is to help individuals improve their financial understanding and investment practices.

That's true. So you think this is a viable solution for society? Good luck with that. Silliest thing ever. Truly.

Show me the first world society without such safety nets and perhaps you'll have something meaningful to say. Until then, why would anyone pay attention to you?
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Amen to that. I like the KISS principal. No reason to complicate things.
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The difference is that the fixed income investment can be converted to cash. The SS cannot. If you need more than 4% from the fixed income investment you can withdraw more. You cannot do this with SS.
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JLC Big: "It's easy to fund retirement and healthcare on a six-figure engineering salary. It's just about impossible with a $10/hr job.

Ok, just for kicks, lets do some back of envelope calculations.

$10/hr is about $1700/month.

If this person were given back their FICA taxes (both sides), it would amount to $210/month."


I see no reason to assume that employer paid portion of FICA would be paid to the employee (except for the self-employed, who pay both sides).

Regards, JAFO
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vfunkhou wrote:
The difference is that the fixed income investment can be converted to cash. The SS cannot.

Okay. So that's one way that they're different. I think we can call that an advantage for the "equivalent" fixed income investment.

To counterbalance that, SS won't get hurt in an economic downturn. A fixed income investment might.

So is one way better? I see that there are advantages to each way of doing things, but they still look pretty much equivalent to me.

-IGU-
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I would have been much better off investing all that money I piled into SS payments over many years and instead investing it myself in good stocks. The performance of my 401K proves that.

Did you account for the fact that SS includes things like disability benefits, insurance coverage for which is very expensive to get, and may not be available if you have "pre-existing conditions" (i.e. if you're likely to need it)?
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I would have been much better off investing all that money I piled into SS payments over many years and instead investing it myself in good stocks. The performance of my 401K proves that.

Did you account for the fact that SS includes things like disability benefits, insurance coverage for which is very expensive to get, and may not be available if you have "pre-existing conditions" (i.e. if you're likely to need it)?

I second that original posters comment. I too would have been way better off. Even taking into account disability insurance, I have better coverage and lower cost compared to what SSI would provide.

Plus, here is the biggest and best argument for making SS and individual PRIVATE account. I work my entire life, put money away, and I unfortunately die one day before I start with drawing benefits. If it is a PRIVATE account, I can will the money to my kids, grandkids, total stranger, or charity of choice. With Uncle Sam in control, its so sorry, thank you very much for the "donation".

JLC
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I see no reason to assume that employer paid portion of FICA would be paid to the employee (except for the self-employed, who pay both sides).

You can make the argument in either direction. Even if one were employed and DIDN'T get the employer 1/2, you could still potentially live a Spartan existence. So you go from $290 extra per month to $185. Do the math and you are still within the realm of possibility.

JLC
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JLC analyzes,

Plus, here is the biggest and best argument for making SS and individual PRIVATE account. I work my entire life, put money away, and I unfortunately die one day before I start with drawing benefits. If it is a PRIVATE account, I can will the money to my kids, grandkids, total stranger, or charity of choice. With Uncle Sam in control, its so sorry, thank you very much for the "donation".

</snip>


What are talking about? Social Security is more like a defined benefit pension than a savings account or investment fund.

How many people pay into a pension with a private, for-profit employer, die before retirement age, and get nothing?

Also, while I agree that SS isn't a good "investment" for high income earners, it's actually superior to a private, for-profit pension plan (e.g., life annuity purchased from an insurance company) for more than half the country. Here's the analysis.

Social Security a better deal than I thought?
http://retireearlyhomepage.com/betterdeal.html

</snip>


intercst
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For now we are stuck with poor programs like SS (a program that breeds dependence)...

Has it bred dependence in you? If not, then why do you assume that it must breed dependence in others ... unless, of course, you're a special case. I didn't breed dependence in me. Perhaps I'm special, too?

The merits of a universal social insurance program are beyond dispute. Social Security is a highly effective and efficient program (less than 2% overhead) that could never be matched by for-profit insurers. If someone dislikes life under Social Security, their best option is probably to move to a country that doesn't have such a program ... say, Tajikistan.

http://knoema.com/WBWDIGDF2015Feb/world-development-indicato...
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... unless, of course, you're a special case.

That's snarky, and I apologize.

I work with deeply impoverished people almost every day. If I could pick a policy to change in order to promote more opportunity and entrepreneurship in America, Social Security would not even be in the top 100 on my list.

The original topic of this thread is now thoroughly obscured ... as usual.
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HSA high deductible insurance* around $500/month.

Well, your HSA high-deductible insurance won't be of much use without a funded HSA behind it.

I won't even comment on the diet consisting entirely of rice and beans that you've budgeted for.

What I will say is that I am very grateful for the good work you do in Nicaragua. And I'll leave it at that.
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I won't even comment on the diet consisting entirely of rice and beans that you've budgeted for.

Not a comment, just a link
https://medium.com/matter/is-scurvy-the-new-diabetes-27e99d6...

PF
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An important fact people should know about social security.

http://www.socialsecurity.gov/retire2/estimator.htm

Your estimated benefits are based on current law. The law governing benefit amounts may change because, by 2033, the payroll taxes collected will be enough to pay only about 77 cents for each dollar of scheduled benefits.
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Plus, here is the biggest and best argument for making SS and individual PRIVATE account. I work my entire life, put money away, and I unfortunately die one day before I start with drawing benefits.

That argument cuts both ways. With an individual private account, you have the risk of outliving your assets.
You can't just say: "I expect to live to 90. Under SS I will have 2000 dollars per month. With private investments, I would have had 3000 per month".
You don't know if you will live to 90. Maybe you'll live to 105, and then what? If you have to structure your withdrawal rate to ensure that your assets last you for 10 or 15 years after your statistic life expectancy, your monthly allowance will be considerably lower than if you base your calculation on your statistic life expectancy.

There's another factor that's never talked about. You're able to handle your finances now, no problem. But declining mental faculties in old age are a very common occurrence, and there are countless con-men who prey specifically on the elderly.
A few years ago, someone posted the story of his father, who retired rich but declined into dementia and was stripped of all his assets along the way by unscrupulous criminals.

You really can't be sure that you won't at some point send all your money to Nigeria.
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Love your posts... I had to lookup "fulminating" & "claptrap". Thanks for making me smarter! I really should go back to college.
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Well, your HSA high-deductible insurance won't be of much use without a funded HSA behind it.

The monthly cost INCLUDED funding the deductible part, EVERY YEAR. And that would be a worst case scenario. Best case, person never gets sick, so all they pay is the premium and they have extra $ leftover to invest either through a brokerage account or their HSA account.

I won't even comment on the diet consisting entirely of rice and beans that you've budgeted for.

Places I go, people survive on beans and rice, for ONE MEAL a day. Note that I budgeted for three. They would be overjoyed with such an abundance. Like I said, a Spartan existence, but an existence.

What I will say is that I am very grateful for the good work you do in Nicaragua.

In reality, it is a pleasure.

JLC
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Studio flat near Dallas** $400/month.
Utilities $225/month (electricity, gas, water, cellphone)
Food $100 (rice and beans in bulk, 100 servings)
Bus pass $65/month
Clothing $100/month

Add it all up, this person has $290 left over each month. I'm sure I've left things out but play along. This is for academic discussion.


Well, it's easy to have an "academic discussion" and make up your own facts. I'm always amazed when people talk about "the poor" when they probably don't actually know too many people who are really poor in America. A lot of assumptions get made.

Yes, in a perfect world your figures aren't necessarily wrong. But it leaves out a lot of things. I think your rent estimate is low. I have a friend who lives in the cheapest apartment he could find in Fort Worth and his cost is $650/month. Trust me, it's NOT a nice place.

DART trains and buses don't run 24/7 and they don't in most towns. Lots of people who make low wages don't work regular hours. My brother, for example, who makes $10 an hour here in Memphis, works a shift where he goes in at 5 and works until the work is done, often ending at 1 or 2 in the morning. Even if there was good public transportation for him to take (there is not here) the buses don't run where he could take the bus to and from work.

He also works that shift because that frees up his time to take my mom, who can no longer drive, to doctor appointments, etc. and run needed errands for her. I appreciate all he does there.

Your scenario also leaves out things like paying deposits, etc. on apartments, utilities, etc. That can result in a significant up-front cost for people, and often because they have bad credit or poor credit, the costs are higher for them than they would be for you or me.

And I think it's great that you've factored in health insurance, and I don't think you're too far off on your cost for the insurance and the HSA contribution, judging from my brother's figures. However, your scenario doesn't take into account someone who gets sick and who doesn't have sick time at their work. My brother has been very fortunate in his current job in that they will hold his job for a few days if he can't come to work, but in other jobs, he hasn't been so lucky. And of course he doesn't get paid if he doesn't work even if he doesn't lose his job. So a week unpaid is $400, and even in your scenario, a week lost from work puts your guy late on his rent and utilities and/or no money for food. If he loses his job, he's really screwed.

I think you're pretty low on your food cost estimate. The CNPP's "thrifty food plan" figures $39/week for an adult male, or $170/month. Yes, I believe someone COULD do $100 week--I don't think it's impossible. But when you factor in other issues that people may face, like whether there's a grocery on the bus line, how much they can schlep on the bus or walking (makes it hard to buy in bulk and take advantage of discounts for larger packages, etc.), or whether their only option is the neighborhood bodega with a poor selection and jacked up food prices. It also ignores the fact that in some areas of the country, food is taxed (TN for example) but is not in TX.

Your example leaves out things like shampoo and soap and razor blades, etc. It also leaves out laundry cost, which is probably a coin operated machine, if our poor person is lucky enough to have on in his building. Yeah, it's easy to say that cost for these is negligible, but when you've got a budget that tight, you have to be concerned about every dime.

retirement is not some universal God given right. Not everyone will be able to quit working, just the facts. Retirement age is a relatively new social construct brought about by the very agency we are arguing about.

I don't disagree with you here. Except that even though it's not a god-given right, for a lot of people it's a need, or an inevitable outcome. People get sick. They become unable to work, or it becomes simply impossible for them to be hired. If a person has no skills other than their ability to lift heavy things, the chances of getting a job doing that at age 70 is pretty slim.

Me, I'm glad for social security. I gladly pay into it, and I don't begrudge those who will benefit more from it than I will. I am grateful for the opportunities I've had, and I have plenty in my life. I do realize that not everyone is so fortunate, and yes, for some it's the result of some bad decisions, for others it's not.

I don't want to live in a society where I'm stepping over an old, sick person on my way to the store, you know?
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It's easy to fund retirement and healthcare on a six-figure engineering salary.

Six figures is not a lot of money.
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whafa writes,

<<It's easy to fund retirement and healthcare on a six-figure engineering salary.>>

Six figures is not a lot of money.

</snip>


It's a fortune to a family earning the US median income of $52,000/yr.

intercst
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It's a fortune to a family earning the US median income of $52,000/yr.

intercst



Sorry, I thought everybody knew the joke by now. PSUEngineer, do you have a link to the original?
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The 79% of US households earning less than $100,000 might disagree.
http://www.nytimes.com/interactive/2012/01/15/business/one-p...

PF
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The 79% of US households earning less than $100,000 might disagree.

It's a joke, see. It's funny because someone mentioned some figure like $200K on some TMF board years ago and someone made the idiotic reply, "$200K is not a lot of money." Ever since then, it is now officially funny to reply with that any time a large sum comes up. I don't make these rules up. Hopefully someone has a link to the original, but any time you see someone say, "$x00K is not a lot of money," at least on TMF, you can be pretty sure that they are either an idiot or making a joke.

whafa, or in my case maybe both
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PSUEngineer, do you have a link to the original?

No, I don't have a link to the original. IIRC, I actually stole that phrase from Raggmopp. My frequent use of the phrase is probably why it's associated with me.

PSU
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Okay, I'm pretty sure I found the original comment. I made the comment as a joke on April Fool's Day.

http://boards.fool.com/hell-with-a-131000-salary-accumulatio...

PSU aka IndecisiveFool
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I have another 'six figures isn't a lot of money' example. I use both Mint and Personal Capital. Mint does a better job with day-to-day money stuff and Personal Capital does a better job with investments.

Anyway, they have a blog that I get emails about every once in a while. Their blog posts definitely seemed to be aimed at a higher income bracket. Sometimes I wonder how out of touch with reality some of them are. I guess for those writing the posts, they are in touch with their own reality.

This reminded me of this post from last summer.

https://blog.personalcapital.com/investing/six-figure-salary...

I do get their point. Making $100k today will not get you what it did when I was a kid.
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Rayvt sez:


If you need $20,000 a year (COLA'd) you can get that with $500,000 and 4% SWR. But by the 30'th year the portfolio with the cash bucket is headed for disaster.

If you start with just a little bit more, the cash bucket portfolio has gone only slightly off course.

If you start with just a little bit more than that, both the portfolios are headed for the moon, so the cash bucket has not done anything for you, so why bother.



"Sorry, you can only recommend a post to the Best of once. "

This was pretty interesting. I've never actually seen anyone argue AGAINST the cash-bucket retirement scenario or asked myself how the bucket gets refilled. Hadn't run the numbers. I'm shooting for option #3 anyway...starting off at around 125% of what I really need to retire and just handing the down years by having more than I need to begin with...staying away from the bleedin' edge.


SG
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If it weren't so supremely annoying and uncomfortable to work a typical job, these calculations wouldn't be necessary at all. It speaks to just how inhumane working has become.
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Sorry, I thought everybody knew the joke by now. PSUEngineer, do you have a link to the original?

------------------------

I thought he gave posting it up for lent and you were filling in.
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that hypothetical worker won't be spending $100/month on clothing unless he's wearing Jordans. He may also be getting:


Section 8 benefits for housing

Qualify for State medical in many states (e.g. MediCal here in CA)
Tax Credit (EITC)
Child tax credit
EITC (earned income tax credit)
Special utility allowance (SUA)
Telephone utility allowance (TUA)

EBT (aka Food stamps)

People In Household Maximum Monthly Allotment
1 $ 194
2 $ 357
3 $ 511
4 $ 649


If there are school age children then they will be getting fed a couple times a day at school.
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that hypothetical worker won't be spending $100/month on clothing unless he's wearing Jordans. He may also be getting:


Section 8 benefits for housing

Qualify for State medical in many states (e.g. MediCal here in CA)
Tax Credit (EITC)
Child tax credit
EITC (earned income tax credit)
Special utility allowance (SUA)
Telephone utility allowance (TUA)

EBT (aka Food stamps)

People In Household Maximum Monthly Allotment
1 $ 194
2 $ 357
3 $ 511
4 $ 649



No, our hypothetical worker is probably making too much money for SNAP (it's not EBT (electronic benefit transfer), which encompasses other benefits). I ran him through this calculator--I picked CA for the state--and with his job and his rent at a mere $400 a month, and no children, he is not eligible.
http://www.snap-step1.usda.gov/fns/

This the chart for eligibility in TN. I'm not sure if the numbers are the same for all states.
http://tn.gov/humanserv/adfam/fs-test.pdf

I think our hypothetical guy is single with no kids, so no child tax credit.

Many cities have a waiting list for housing vouchers. In Boston, they recently had 10,000 people apply... for 73 slots.
http://www.bostonglobe.com/business/2014/11/28/demand-for-af...

In 2013, there was a waiting list of several thousand people here in Memphis; I couldn't find any stats quickly as to where it is now.

Also, Section 8 limits a person's rent to 1/3 of their gross income. So our hypothetical guy is already doing better since he's only paying $400 a month, or less than 1/4 of his gross income.

The hypothetical guy would not qualify for Medicaid (TennCare) in Tennessee and several other states.
http://kff.org/health-reform/state-indicator/medicaid-income...

My point: it's very easy to say "Oh, there's all this help out there." There is help--in theory--but often it's not readily available, or there are different requirements that make someone ineligible.
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SG: "I've never actually seen anyone argue AGAINST the cash-bucket retirement scenario or asked myself how the bucket gets refilled.

Yep. This is one of the few areas in which a poster has changed my mind slowly and methodically over a period of time. I still have more than the recommended amount of cash because I thought the markets were getting seriously overvalued by 2013. But now the market would have to lose about 30% of its value just to put me back into a position in which my cash would be worth as much as my invested money.

It would take a serious crash to put my cash ahead of my invested money at this point and even then I would have to figure out when and where to deploy it prudently.

I really enjoy mungofitch's market valuation assessments that lead me to think a larger than usual cash bucket might make sense right now versus rayvt's arguments that it makes more sense to commit more to long term growth without concern for short term variability because both help me clarify my own internal debate better.
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Well, it's easy to have an "academic discussion" and make up your own facts.

Try Google, thats where I found all my info.

DART trains and buses don't run 24/7 and they don't in most towns. Lots of people who make low wages don't work regular hours.

Missed the story of the man walking 21 miles each day to get to work?

http://www.freep.com/story/news/local/michigan/oakland/2015/...

Your example leaves out things like shampoo and soap and razor blades, etc

Take it out of clothing. Refigure the numbers. I wouldn't think someone in this situation is buying anything other than "Sam's Choice X" at Walmart.

If a person has no skills other than their ability to lift heavy things, the chances of getting a job doing that at age 70 is pretty slim.

Hmmm, better not tell any of my non-high school graduated grandparents that actively worked their farms into their 80s. Yes, some of it is genetics but much of it was desire to work.

I don't want to live in a society where I'm stepping over an old, sick person on my way to the store, you know?

Where did I say that I wanted to either?

Go back and re-read my original post and calculations. It was in response to someone saying $10/hr couldn't save for retirement, etc. I proved that with a very Spartan lifestyle, it was possible. Desireable? No. Would I wish it on anyone? No. Also note that I said everything has to fall just right for this to even be a possibility.

But the world is not like Lake Wobegon where all children are above average.

JLC
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Oh he's single? Is it also assumed he is healthy and can speak a a bare minumum of English? Single guys will be fine. They raft up in a shared apt, work multiple min wage jobs and (if at least half a wit and willing to roll out a 0600 to get to Home Depot) be making $100/day cash on side jobs doing construction demo/labor, then learning a trade and wearing a toolbelt/filling a toolbox before the year is out.

If the starting assumptions are wrong then we it's a different conversation. Otherwise, rarely does min wage income stay min wage income. Pay increases or additional hours/jobs are worked.

In that case, one job isn't enough. That isn't a hypothetical for me. I was that guy. I am currently surrounded by many same such guys in my small (200+) church and related circle of friends. We are smack at refugee resettlement ground zero in our East San Diego neighborhood. Majority of our church are refugees in the past ~7 years from various African countries, Nepal, Bhutan, Myanmar, Iraq and Iran.

Two very real guys I'm close to as a friend/mentor are Ben and Gerry. They are two 20-something Ugandan cousins who have had very different results as a result of clear choices. Ben is very bright at math and had college tuition free available to him her. He hasn't stayed with it inspite of having extra cash support from church family and multiple college grad engineers on tap and meeting with him to mentor him. He is perpetually broke and stuck in poverty. He fails to show up for work when I or other friends hire him for construction labor. He fails to call when he will be late and has taken off weeks at a time to travel to family in Iowa without notice losing jobs where he had turned down promotions offered (i.e. restaurant jobs e.g. from dishwasher to prep cook).

His cousin Gerry worked 3 min wage cashier jobs for 5 years averaging 70hrs a week (held up multiple times), sent $50K home to Uganda and had a house built for his mother who runs it as a hospitality center and inn of sorts. He's hired family there to buy and run a scooter taxi shuttle business in his hometown. He's making $35K/year now as a case worker in a relief agency mentoring other refugees. Recently went back to work 20+ hrs a week as a 7/11 cashier so he can save more to invest and give (he's very charitable but in a tough love sort of way).

One other group of young men in our church in their teens/early 20's (Ugandan, Burundi, Congo, Rwanda) did what many other refugees have done and started a "bank." The five of them had almost $50K in it after 2-3 years working min wage jobs and were loaning to one another from it to finance all manner of things.


Yeah, it all sounds very harsh. Life is tough. Sooner that's learned, the sooner it stops being quite as tough (generally).
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Take it out of clothing. Refigure the numbers. I wouldn't think someone in this situation is buying anything other than "Sam's Choice X" at Walmart.

If they've half a wit they aren't buying much of anything to wear new but socks and skivvies. Thrift shops, church clothing banks, swap meets...
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This reminded me of this post from last summer.

https://blog.personalcapital.com/investing/six-figure-salary...

I do get their point. Making $100k today will not get you what it did when I was a kid.




Reminds me of when I was a young adult reading Money Magazine. They would have a section where a couple of 'experts' would give advice tailored to a reader's particular financial situation. They seemed to have no connection to my reality as those folks were earning $50K-60K and I was earning less than a fifth of that.

I used to dream about making $50K!

Fast forward 30 years and I'm finally making $50K and guess what? $50,000 really isn't a lot of money.


Can't understand what I was so excited about... :)


Jim
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Missed the story of the man walking 21 miles each day to get to work?

That's the great thing about Conservatives. They can always find one outlier story, somewhere, and they conflate that to mean "everybody should do that."

By the way, the average walking speed for a human is 3-3.5mph. A fast walk is 5mph. So this guy is spending 4-7 hours a day walking. Color me skeptical, but even if true, what a horrible waste of human capital.
 


Here's mine, BTW: JK Rowling lived on welfare for several years while writing Harry Potter. Hey! Everyone should do that, eventually they'll be a billionaire! Totally typical, right?
 
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That's the great thing about Conservatives. They can always find one outlier story...

Great thing about liberals, they always cry "its not fair" when something is too hard and think nobody should have to do it.

For the record, Libertarian.

JLC
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Goofyhoofy posts,

By the way, the average walking speed for a human is 3-3.5mph. A fast walk is 5mph. So this guy is spending 4-7 hours a day walking. Color me skeptical, but even if true, what a horrible waste of human capital.

</snip>


If that guy was walking 4-7 hours a day, he'd have "calves the size of cantaloupes."

intercst
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I may have missed this, but did you assume that the cash bucket earned zero percent?
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I may have missed this, but did you assume that the cash bucket earned zero percent?

In my spreadsheet, cash earns the "GS1" 1-yr Tbill rate, using actual historical data.

https://www.dropbox.com/s/xf4ma5blug27aws/SPY_Withdraw_by_Ca...

As I indicated, I *really* wanted to see how well a cash-bucket strategy would work, so I wanted to do a realistic backtest. And obviously you would cash sitting in something like short-term Treasuries. I already had downloaded the 10-yr Tbill yields, so it was easy to just go ahead and grab the 1-yr, too. And the 3 yr, while I was at it.
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Great thing about liberals, they always cry "its not fair" when something is too hard and think nobody should have to do it.

I don't know that anyone is saying "it's not fair," and "it's too hard" and "no one should have to do it." I don't even disagree with your central premise. I think it is possible that SOME people can save for retirement on low wages.

However, I think that, for the most part, most people who make $10/hour won't be able to save enough to cover the cost of their own retirement, which is defined not as golfing at Pebble Beach but as a subsistence level of existence in our modern society. (Sure--invent a time machine and send everyone back to a time of extended families who all live near each other, uncomplicated and minimal medical care, a more rural existence--not to mention shorter life spans--and we're probably good....).

But that's not the world we live in. People have disabilities. I've written several times on these boards about my brother, who suffered a serious closed head injury when he was 5 years old. He works, he does OK now, but given health issues, mental issues, etc. he's simply not going to be able to work as long as you'd probably like him to, nor put away the kind of money that you'd like him to. But bless his heart, he IS putting money into his 401K.

Some people aren't as enabled as other people. Some people have mental issues, some people have physical issues. Some people got crappy educations and some people are just... dumb. Some people get sick through no fault of their own, and some people live in communities that don't have the kinds of supports that are available in other communities. I've found this out first hand as I've tried to get some help for my mother who has Parkinson's. Several months ago I put her on the waiting list for some possible light housekeeping help and occasional home health care. She qualifies for this at reduced cost through the county. In theory. When I first put her on the list, I was told the waiting list was a year long. When I called recently to see where we were on the list, I was told it would be "at least a year and a half." When I asked why she hadn't moved up on the waiting list, I Was told "it doesn't work like that." I'll spare you the rest of the tale, but my own minimal experience in dealing with bureaucracy to get some modest benefit tells me that people with other more basic needs like housing and medicine, etc. don't have it nearly as easy as some people would have you believe and most would probably prefer any other way to cover those needs than by trying to grind through a bureaucracy that is going to peer through every detail of your life.

I don't believe in giving away the farm to losers who don't feel like working, and I'm a pretty card-carrying liberal. But I'm also one who goes to work every day and pays a boatload of taxes. I want my money to be spent well. And I want my money to be spent in ways that reflect the values of our society and culture--that we don't leave the old and infirm people to fend for themselves, that we have a cushion to help people who've worked hard all their lives, but who can't work any more.

And I don't understand why anyone would have a problem with that.
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I don't believe in giving away the farm to losers who don't feel like working, and I'm a pretty card-carrying liberal. But I'm also one who goes to work every day and pays a boatload of taxes. I want my money to be spent well. And I want my money to be spent in ways that reflect the values of our society and culture--that we don't leave the old and infirm people to fend for themselves, that we have a cushion to help people who've worked hard all their lives, but who can't work any more.

And I don't understand why anyone would have a problem with that.

====================================

And if that means we give a cushion to people who abuse the system to me it's worth it.
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I don't believe in giving away the farm to losers who don't feel like working, and I'm a pretty card-carrying liberal. But I'm also one who goes to work every day and pays a boatload of taxes. I want my money to be spent well. And I want my money to be spent in ways that reflect the values of our society and culture--that we don't leave the old and infirm people to fend for themselves, that we have a cushion to help people who've worked hard all their lives, but who can't work any more.

I'm in total agreement with you there. You talk about tax money being spent well, follow me around for a day at work and you would definitely see that it is not. It would make you sick.

It is a main reason why I want and believe in a small government. Social issues like poverty are best solved by charity, not bureaucracy.

JLC
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It certainly isn't in Northern Virginia, NYC, Boston, San Fran etc....
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How does one edit or delete their own posts?? Can't believe and I can't figure out how do it without asking...
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just click on the report this post and ask that it be deleted.

You can't edit them at all.
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I'm in total agreement with you there. You talk about tax money being spent well, follow me around for a day at work and you would definitely see that it is not. It would make you sick.

I've read your posts over the years and think I understand what you mean. I know you see abuse and misuse of the programs we have in place now.


It is a main reason why I want and believe in a small government. Social issues like poverty are best solved by charity, not bureaucracy.

I would love to agree, but can't. People just aren't that charitable.

We all have our prejudices. You want to go back to poor farms and work houses? You want to go back to shacks with no plumbing and building codes? You want to go back to having no prenatal care at all? Where vaccinations are not government subsidized? I could make a list.

I really think you need to see some of the folks that were born in poverty and no longer are there. People that needed a hand at one or two times in their lives, but the rest of the time are productive wonderful folks.

I wish you could see some of the folks that I know that the kids work hard to avoid the poverty and abuse of their parents. Without government programs to assist them with education and health care would never end the cycle.

I see it here in our little town. I see them being treated as "less than" because of who or what their parents are. Some never make it, but many of them do.

What I think we really need to do is encourage folks to only apply for what they need, not what they qualify for. But that is never going to happen.

One of my favorite examples is a family with 5 kids. The husband was a teacher, the wife a SAHM. The other teachers at the school were telling them they should apply for free lunch. They new his income and knew he qualified. He refused. He had the kids, he could support them. They really didn't live in poverty.

Somewhere along the line some folks lost what this guy has. I don't even know what to call it...a sense of individual responsibility. Maybe it's a lack of "I want to get some of mine (taxes) back".

Income doesn't matter. It happens at all levels of income.
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It is a main reason why I want and believe in a small government. Social issues like poverty are best solved by charity, not bureaucracy.

JLC

-----------------------------------------------------------------------

Charity would totally overwhelmed by poverty demands.

If private charities and churches are standing ready and willing to replace welfare, why haven't they done it yet? It's not taxes holding them. It's not because the government is standing in their way. There are no laws against them doing it.
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I would love to agree, but can't. People just aren't that charitable.

IMHO, I think one reason people aren't as charitable is that they feel taxed to death. That all that tax money going to welfare, etc., is their charitable donation.

I really think you need to see some of the folks that were born in poverty and no longer are there. People that needed a hand at one or two times in their lives, but the rest of the time are productive wonderful folks.


Funny thing (funny sad not funny haha) I see way more of these folks on my mission trips to other countries than I do here. Prime example, I am helping send one young woman to nursing school that grew up in a school for abused girls.

JLC
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Charity would totally overwhelmed by poverty demands.

If private charities and churches are standing ready and willing to replace welfare, why haven't they done it yet? It's not taxes holding them. It's not because the government is standing in their way. There are no laws against them doing it.


Actually, there are some laws against them doing it:

http://www.lovewinsministries.org/2013/08/feeding-homeless-a...

On the morning of Saturday, August, 24, Love Wins showed up at Moore Square at 9:00 a.m., just like we have done virtually every Saturday and Sunday for the last six years. We provide, without cost or obligation, hot coffee and a breakfast sandwich to anyone who wants one. We keep this promise to our community in cooperation with five different, large suburban churches that help us with manpower and funding.

On that morning three officers from Raleigh Police Department prevented us from doing our work, for the first time ever. An officer said, quite bluntly, that if we attempted to distribute food, we would be arrested.
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Charity would totally overwhelmed by poverty demands.

If private charities and churches are standing ready and willing to replace welfare, why haven't they done it yet? It's not taxes holding them. It's not because the government is standing in their way. There are no laws against them doing it.


Seriously, you need to get out more.

http://www.theprovidencehouse.com/

http://oklahomabaptistfreeclinics.blogspot.com/

http://www.studentrunfreeclinics.org/index.php?option=com_co...

I could go on. The list is enormous. These are just a few that I have helped with in some fashion.

JLC
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"You want to go back to poor farms? "

That has nothing to do with the size of government.

----------

"You want to go back to shacks with no plumbing and building codes?"

Oh, lib whine. There have been building codes for 400 years or more...except for rural areas......

and most of them are LOCAL building codes.

-----------


"You want to go back to having no prenatal care at all? Where vaccinations are not government subsidized? I could make a list."

You could. And each time, you reach into my pocket. When I was a kid, NONE of the vaccinations were 'subsidized'. My parents had health insurance...and it paid for most, but not all, of the doc visits. Think there were co-pays back then.

-------------

"I really think you need to see some of the folks that were born in poverty and no longer are there."

According to the government, 10% of the 'lower income folks' will wind up in the top 20% in their lives. More than 1/3rd will leave the lower 20%.

That is 'upward mobility' you won't see in any other country in the world.

----------
"People that needed a hand at one or two times in their lives, but the rest of the time are productive wonderful folks."

Now 4 generations of welfare weenies and queenies. 7 out of 8 kids born to folks in the lower half of income now have no 'married parent' homes and most to 'single moms' since that maximizes benefits.

And no, with 25-50% unemployment among black youth.....they aren't productive wonderful people. They didn't get an education, have no responsibility, and just suck up government benefits - likely for the rest of their lives. 4 generations of poverty - getting worse - due to liberal policies of the 'war on poverty' welfare programs.

--------

"What I think we really need to do is encourage folks to only apply for what they need, not what they qualify for. But that is never going to happen."

Until you make it so that only the truly needy get them. And yes, we put a big red flag on 'food stamp use'.....so everyone knows......

----------



"Income doesn't matter. It happens at all levels of income. "


Yes it does....because half don't pay income taxes.....and figure they'll rip off the rich (those of us who do) to their advantage.

Sorry...bigger isn't better.

There are over 90 anti-poverty programs.......wasting billions......


t.
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IMHO, I think one reason people aren't as charitable is that they feel taxed to death.

Too bad there's no actual data showing any correlation between reduced charitable contributions and changing tax rates over time.

Seriously, you need to get out more.

http://www.theprovidencehouse.com/

http://oklahomabaptistfreeclinics.blogspot.com/

http://www.studentrunfreeclinics.org/index.php?option=com_co......

I could go on. The list is enormous. These are just a few that I have helped with in some fashion.


It is wonderful that you help out and that these organizations provide much needed assistance. I truly mean that.

That said, the fact that such charitable organizations exist does not mean they are sufficient to address needs. We've gone the "private charity alone" route in the past, and it hasn't been effective. That's the entire reason "government" has stepped in, because although there are many charitable people and groups out there, "people" as a whole are not, in fact, "charitable enough". And that has almost zilch to do with "taxes".

-synchronicity
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Funny thing (funny sad not funny haha) I see way more of these folks on my mission trips to other countries than I do here. Prime example, I am helping send one young woman to nursing school that grew up in a school for abused girls.
======================================

Yes, that is funny sad.

That in all the people in our county you can not see the folks working to get out of poverty.

You want to pick who is worthy and who isn't.

It's a "grass is greener thingy". That is exactly why the government with all it's rules is needed.

It's like the people who talk about the fact that they saw Sally driving a new car so she certainly doesn't need assistance. They don't know that the car was the neighbors who was sick and Sally was going to the store to pick some things up for the neighbor.

Jean
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Seriously, you need to get out more.

http://www.theprovidencehouse.com/

http://www.charitynavigator.org/index.cfm?bay=search.summary...

Contributions
Contributions, Gifts & Grants $1,856,032
Government Grants $1,057,852
Total Contributions $2,913,884


I wonder where Providence House Louisiana would be without those government grants?
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IMHO, I think one reason people aren't as charitable is that they feel taxed to death. That all that tax money going to welfare, etc., is their charitable donation.



I can't relate to that idea. I look at my take home pay and I plan my life from there. I *don't* sit around thinking,

"Geez, I'd love to donate to charity. If only they didn't withhold so darn much in taxes!"


No, the only time I think about taxes is when I file at the beginning of the year.


Jim
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I want my money to be spent in ways that reflect the values of our society and culture--that we don't leave the old and infirm people to fend for themselves, that we have a cushion to help people who've worked hard all their lives, but who can't work any more.

And I don't understand why anyone would have a problem with that.


The problem is you keep saying "some people" this and "some people" that... so we're talking some subset of the population who has mental disabilities, etc. Not the majority. Why, then, does EVERYONE have to be in this program that, no matter how you slice it, takes more from them than it provides back to them? Especially since it creates the (very) false impression that, hey, SS is my retirement! True, even the SSA flat out says that, no, it is NOT what ANYONE should be retiring on but how many millions of people don't know that?

I detest SS, entirely. You'll find nobody on these boards who dislikes it more than I do, I guarantee that. So, sure, I'm biased... but my bias is that the vast majority of people DO NOT NEED IT. At all. And that far more people undersave because SS exists than those who are "saved" by it. It's a cycle of dependence and lowered expectations that does the exact opposite of what proponents of SS claim as the great virtue of the program IMHO.

Your ideals, your "compassion", is gravely misplaced IMHO. Intentions mean jack squat. It's results that matter. Cold hard numbers. And the cold hard numbers say SS sucks on toast. Period. We're ALL worse off for it, the young the person the more they are screwed over by it. That's not truly compassionate... not by a long shot. Basically saying "we have to screw over younger workers to make up for the older generation screwing us over" is, well, insanity! How is that at all compatible with the American ideal? It's a total refutation of the ideals we were founded upon and is fiscal insanity to boot! So, no, I don't buy the "we're nice enough to do this for old people." That's crap. It's ignoring the 3 ton elephant in the room... THE MATH DOESN'T ADD UP! You can't get blood from a stone, there's no such thing as a free lunch, etc.! It just doesn't bode well for the continued existence of our society.

One can certainly take the "Meh, it'll collapse long after I'm gone, what do I care?" view (not that you are explicitly, but implicitly that's pretty much what the pro-SS view boils down to), but I wouldn't call that compassion either. Greed, sure, but not compassion.
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Why, then, does EVERYONE have to be in this program that, no matter how you slice it, takes more from them than it provides back to them?

Great! With a few more posts we'll have every moron who doesn't understand how insurance works posting on this thread. Can we please stop discussing the morality and implementation of charity and how it relates to social security?

-IGU-
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Can we please stop discussing the morality and implementation of charity and how it relates to social security?

Nice try, but this thread won't be over until Godwin's Law has been observed.
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Nice try, but this thread won't be over until Godwin's Law has been observed.

Who died and made you Thread Nazi?

-synchronicity, no posts for YOU!
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That was too easy.
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My work here is done.
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We all have our prejudices. You want to go back to poor farms and work houses? You want to go back to shacks with no plumbing and building codes? You want to go back to having no prenatal care at all? Where vaccinations are not government subsidized? I could make a list.

Was this question rhetorical?

That's exactly what the right wants.
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but my bias is that the vast majority of people DO NOT NEED IT

Almost half the elder population would immediately be plunged into poverty if it did not exist.

Without Social Security benefits, 44.4 percent of elderly Americans would have incomes below the official poverty line,
http://www.cbpp.org/cms/?fa=view&id=4037

Just for the record that does not include the millions below the retirement age who subsist thanks to widows' benefits, or dependents' benefits when the primary breadwinner is killed or disabled.

And that far more people undersave because SS exists than those who are "saved" by it. It's a cycle of dependence and lowered expectations that does the exact opposite of what proponents of SS claim as the great virtue of the program IMHO.

You would have to demonstrate why that is true other than "I just think so." And the reason is simple: that "poverty" number is virtually unchanged from the years prior to the implementation of Social Security. No difference. Therefore one can reasonably conclude there is no change in behavior. I await your actual evidence that this is wrong.

It's ignoring the 3 ton elephant in the room... THE MATH DOESN'T ADD UP! You can't get blood from a stone, there's no such thing as a free lunch, etc.! It just doesn't bode well for the continued existence of our society.

Sure it does. There have been "poor programs" since the beginning of time, and more specifically since the beginning of the Republic. They were community based in colonial times, but still supported by taxation and government. Much devolved from the English Poor Laws, but were updated and changed as colonial society evolved. I'm afraid you can't pretend this sort of thing never existed before.

So, sure, I'm biased...

Thanks for the admission. Here's a tip: let facts guide you next time. It'll do wonders for your blood pressure.
 
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Social issues like poverty are best solved by charity...

No, they're not. As much as you (or I) might wish it were so, they're not. Even the charities will tell you that -- and have, many times.

All the charities together don't have even a fraction of the resources that the federal government and the states have, collectively. And the well-known collective action dilemma (see, e.g. http://plato.stanford.edu/entries/free-rider/) is why we don't fund, say, national defense by way of voluntary donations. The same thing applies to essential social services.
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I wonder where Providence House Louisiana would be without those government grants?

How well would the government welfare system work if they followed the same tenets as Providence House? Required to pass a drug test and go to school/trade school.

Last time I saw stats, >90% success rate at getting people permanently off welfare. I wonder what the government's stats are?

With accountability and success such as this, I don't mind my tax dollars going there.

JLC
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The post above by goofyhoofy is abusive and condescending. I particularly find this offensive:

"Thanks for the admission. Here's a tip: let facts guide you next time. It'll do wonders for your blood pressure."


As such it is a clear violation of the rules for board posting. I have sent a post to MF mgt indicating this. The post should be removed. Let;s bring back civility to The Fool.

It is part of a long repeated history of posts that violate board posting rules from this poster.

sw
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Of course a large part of the reason we have so many people in need of "social spending" is the misguided policies of the government that increase dependency, teach nothing about saving or investment (poor education system) etc.

What does the government tell us about saving and investment? It runs massive ad campaigns telling people to play the state sponsored lotteries.

sw
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There's a general feeling that the fewer morons posting on this board the better. You'll notice that the post you're whining about got lots of recs.

-IGU-
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How well would the government welfare system work if they followed the same tenets as Providence House? Required to pass a drug test and go to school/trade school.

Last time I saw stats, >90% success rate at getting people permanently off welfare. I wonder what the government's stats are?

With accountability and success such as this, I don't mind my tax dollars going there.
===========================================

Hmmm, from the website.

http://www.theprovidencehouse.com/what_we_do.php

Each year, the Providence House Program returns 20-25 formerly homeless families to the Shreveport/Bossier community who are empowered to avoid welfare and dependency on public agencies.

http://www.charitynavigator.org/index.cfm?bay=search.summary...

Total Contributions $2,913,884

Let's see. Back of the napkin computation
2,000,000/25 households
Hmmm. that looks like $80,000 per household for 25 households.

http://www.theprovidencehouse.com/how_we_help.php

•“Working to Learn” Adult GED program
•“Pathways to Success”, a series of courses covering critical life skills
•Counseling and Support Groups
•Budgeting and Financial Savings
•Parenting Education
•Child Development Center
•Career Counseling and Job Training
•Transportation
•Clothing and Furniture Donations
•“Project Next Step”, a scattered site apartment program
•Referrals to other community services

Sounds really nice. However, I do wonder if they do this all themselves or do they work with the local CC.

Does Providence house pay for the tuition or do the ones being helped apply for gov. grants or loans to pay for the schooling?

I've seen too many of these "charities" that are really funnels for government programs...taking their cut out of the middle.

I'm not saying they don't do good work...I don't really know.

I do know that there are always going to be failures. Being able to pick and choose who you help sure can improve your success rate.

I don't think you can compare the success rate at Providence House with the government who doesn't pick and choose to give assistance only those it thinks will succeed.


Jean
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The post above by goofyhoofy is abusive and condescending. I particularly find this offensive..

Are you stalking him or something? You've been all over the place lately on this odd crusade. I'm guessing that it has not had much impact, since goofy's posts are still there, as best as I can tell. In any event, some folks are starting to wonder whether maybe should be paying more time managing your accounts and less time nipping at goofy's heels.
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>> The post above by goofyhoofy is abusive and condescending.
>> I particularly find this offensive:

>> "Thanks for the admission. Here's a tip: let facts guide you next time.
>> It'll do wonders for your blood pressure."

stillwater9999,

What part do you find offensive?

Someone suggesting you consult facts? or someone suggesting you be concerned with your health?

Please explain.
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At least one of his posts has been removed. I have sent a half dozen others yesterday to mgt. attention for removal. I will press the case on all these post and others. It is very easy to find abusive posts by the author in question. About one out every five contains some form of condescension, insult, bullying etc. One other abusive post by another poster has been removed.

It is not an "odd crusade", it is a call for civility in posting on Motley Fool, something that the Board Rules clearly demand. I work 16 hours a day on investing, so that area should not concern you.
-----------------------------
The Rules:

Conduct
The Motley Fool champions active and open debate among our members. All we ask is that it's done in a lawful and civil manner.

You may not use or allow others to use your Fool membership to:

Post or transmit any content that is disruptive, uncivil, abusive, vulgar, profane, obscene, hateful, fraudulent, threatening, harassing, defamatory, or which discloses private or personal matters concerning any person.
------------------------------------------
Far too many clear violations in my view. Mgt. needs to enforce the Rules.


sw
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The last lines are clearly an attempt to ridicule the prior poster. Anyone can see that. Ridicule and condescension are very common elements in posts by gh.

It is offensive, violates the rules and is unacceptable.

sw
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stillwater9999, I don't have a horse in this race, but are you feeling OK? I'm not trying to be glib or insult you. It's been impossible to miss your ranting about goofy's posts for the last week or two. Setting aside the annoyance of that, has anything changed in your personal life to set this off? As someone who follows your *investing* posts on various boards here at TMF, I am a little worried, as much as an imaginary online person can be worried about another, that this mission of yours is a manifestation of some other bad stuff going on with you. I genuinely hope all is well.
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All is fine with me and my family.

As for investing I was in there yesterday being the de facto market maker on IKNX...

I just needed to fight the good fight at least for awhile.

sw
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GH quote:
>> "Thanks for the admission. Here's a tip: let facts guide you next time.
>> It'll do wonders for your blood pressure."

SW defense:
>> The last lines are clearly an attempt to ridicule the prior poster.
>> Anyone can see that. Ridicule and condescension are very common
>> elements in posts by gh.

The prior poster was making statements based on their feeling. They admitted it. Suggesting someone consult facts to defend their position seems like a reasable position. You seemed to read a negative tone in the post. It seems like you are a one man PC police insuring that nothing is ever said that could ever be taken as offensive.

I suspect you have a bias in your reading, that you overlay a negative tone onto GH's posts.

How long should we ponder each post, prior to pressing submit to insure that no one could take offense?
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Actually poverty is best solved be capitalism. Charity and communism both failed to improve the lives of the Chinese people for many years. Then major improvement occurred (one of the largest in human history) when some degree of capitalism was introduced. Charity has also failed in India and has bureaucratic large government. India is moving forward as capitalism has increased. All human history over the last 500 years supports this point of view. Entrepreneurs like Narayan Murthay, Bharat Desai et. al. have done far more good for lifting the Indian economy and people than charity or large government programs ever did or could have done.

sw
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Actually poverty is best solved be capitalism.......


You can't build a space ship with just a drill.

You need the proper, balanced application of all the tools at your disposal.


Jim
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Actually, there are some laws against them doing it:

I can understand about food safety concerns, but the cynic in me thinks the politicians want to keep people dependent on government (thus re-election) for their handouts.

JLC
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With the death of pensions in most companies, SS has become even more important.
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You can't build a space ship with just a drill.

You need the proper, balanced application of all the tools at your disposal.


I wish I could rec this post about 25 times. For the past several years, my wife has been creating programs to transition people from "welfare" (however to care to define it) to paid employment, and more recently programs to transition people from low paying jobs to better paying jobs.

A few times in this thread I've seen a statement like "If we only did X, then people would be off welfare." The reality is there are million different reasons why people are on "welfare" (however you choose to define that) and hence a million solutions. Accordingly, she has a million (or at least lots) of anecdotes of what an individual's solution was.

Here's just one, but it is a good illustration. A woman was unemployed, eventually lost her apartment, and living in her car. Credit of course is also destroyed, which compounds all the other problems. She had some job skills, but not a lot and couldn't find a job. First thing, she needed a place to live, which the state helped out with that. Community partners helped out with basic dishes and furnishings. Next thing is she got resume' help. Like many people, she didn't know how to write a resume' and once that was fixed she got a low paying job almost immediately, enough to keep the lights on. Next thing that happened is she was able to navigate college system and finished a certificate program. In about two years, she went from unemployed and homeless to self-sufficient with a decent job. My wife has a thousand stories (literally) with similar outcomes, but all with slightly different circumstances.

The common thread is that many people have a series of barriers between them and self-sufficiency (or just a better job), and each barrier requires a separate solution, and a different organization has the solution. Very often it is the community partner, not the state, who can provide those solutions. And often the community partner is supported by state dollars, but that's a good thing because it leverages both your tax dollars and charitable donations to help remove barriers to employment. But the bottom line is there is no magic bullet or big red button to push that will fix these problems. The problems are complex and solutions require both hard work and smart work.

If I can tout my wife a bit, back when she worked for the state, Obama's cabinet secretary was kind enough to meet with her personally and discuss some of the things she was doing. Now she works in private industry, Obama mentioned her program by name in a speech, and her program has since expanded to other countries. There are solutions, but they are not simple or easy.
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I work 16 hours a day on investing, so that area should not concern you.

In all seriousness, I would worry a lot about that. Not conducive to a well-rounded life or good health.
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gh
But somebody has paid into the system on their behalf (just as the life insurance premiums a father pays come out of the family household monies.) I'm quite sure the poster expressing the sentiment "a majority I would deem I 'don't deserve'" is more worried about them damn feriners, illegals, mooches, lazy-abouts, and welfare cheats.

GH<
I think the biggest fear of people that have worked their entire lifetime to accumulate SS benefits is the concern they will be "mean's tested" out of it despite putting in the maximum amount year in and year out.

It's not the feriners and welfare cheats I would be p!ssed about. I would surmise you would be just as ticked off as me if a guy who made the same income every year as yourself, spent it on SUV's and McMansions and then get's to draw SS while you and I get "mean's tested" out of it.



Metal
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intercst
McDonalds beat you to it. They suggested that their minimum wage employees take a second 40-hour per week minimum wage job to make ends meet.

JLC
Nothing wrong with that. The guy that mows my lawn is a full time orderly at the hospital. Have a fire fighter friend that has a landscape business on the side. One nurse I work with does sewing and alterations on weekends.

JLC


Agreed! I took a full load of college hours and worked 30 hours per week to pay my own way through school. Later on, the 1st few years of our marriage, I wrote computer code by day and cooked steaks & seafood by night until my programming job paid enough to support my family alone.

At various times during my life, I moonlighted as a contract programmer and as a pizza delivery guy (during the tech wreck of 2000). One time I tried a second full time job in a telecom factory during the 2nd shift but that was beyond my limit, existing on only 4 hours of sleep per day. I lasted a month.

Life can be hard but sometimes you have to work your a$$ to get through it.

And what I've done pales in comparison to hard workers in construction or farming....those trying to get ahead.

Metal
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MissEdithKeeler
Well, it's easy to have an "academic discussion" and make up your own facts. I'm always amazed when people talk about "the poor" when they probably don't actually know too many people who are really poor in America. A lot of assumptions get made.

Funny you would say this about a guy who pays his own way for medical mission trips overseas to help truly indigent people. Not the fake indigent we have in America.

Metal
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Great thing about liberals, they always cry "its not fair" when something is too hard and think nobody should have to do it.

For the record, Libertarian.

JLC


Well, you tried JLC to make a logic financial point and keep politics out of it as long as you could. That was one thing I liked about this board. We could talk finances and investments without having our politics on our shoulders.

Metal
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MissEdith

And I don't understand why anyone would have a problem with that.

I don't. I can respect that. Keep in mind the general flow of this thread and how one liberal after another started jumping on JLC like he's some kind of aristocrat.

I hate bullies and that is what you all are acting like.

Metal
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It's not the feriners and welfare cheats I would be p!ssed about. I would surmise you would be just as ticked off as me if a guy who made the same income every year as yourself, spent it on SUV's and McMansions and then get's to draw SS while you and I get "mean's tested" out of it.

I'm not gh, but you and I (who usually disagree on most things) are fully in agreement here. In fact, I've argued aboutt he "means testing" bit with friends of mine.

I've also had to point out that OASDI (the "retirement" part of SS) is already set up to provide greater benefits at lower incomes. This is usually with regards to the "Bill Gates will get Social Security and he doesn't need it" type of statements. Yes, but his benefit is limited to a low amount of income, and his benefit as a percentage of that amount is far less than someone at lower income levels due to the 'bend points' for calculating benefits (this is off the top of my head, but the benefit calc is essentially 80% of the first 12K or so of annual income, then 32% of the amount from about 12K to about 60K, then 15% above that to the cap. I have the specifics on a spreadsheet somewhere and can go into this in excruciating detail if anyone cares).

I'm actually perfectly fine with this. Heck, being the lefty librul soshulist that I am, I wouldn't have a problem with a gradual REDUCTION in SS benefits if someone has consistently earned even higher amounts of income (if the 35 year average is somewhere north of 250K or 500K or whatever. I have no idea on a specific amount, just saying that I can live with that).

But as noted, the benefit is based on INCOME, and as it's set up, two people with identical income histories would have the same benefit. "Means-testing" is saying that someone who is responsible and saves a chunk of their income gets penalized regardless of income level, while a high earner who blows their money on SUVs and McMansions and big screen TVs to the point that they're in debt would get a benefit. When I phrase it THAT way, my friends start seeing the light.

That said, I don't see "means testing" for Social Security happening any time in the foreseeable future. I could see some movement on the "cap", and yes, I could live with that as well.

-synchronicity
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But as noted, the benefit is based on INCOME, and as it's set up, two people with identical income histories would have the same benefit. "Means-testing" is saying that someone who is responsible and saves a chunk of their income gets penalized regardless of income level, while a high earner who blows their money on SUVs and McMansions and big screen TVs to the point that they're in debt would get a benefit. When I phrase it THAT way, my friends start seeing the light.

That said, I don't see "means testing" for Social Security happening any time in the foreseeable future. I could see some movement on the "cap", and yes, I could live with that as well.


Even if I thought means testing was a certainty by the time I am ready to collect SS, I'd rather save and be means tested out than spend all my money and be dependent on SS.

PSU
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Even if I thought means testing was a certainty by the time I am ready to collect SS, I'd rather save and be means tested out than spend all my money and be dependent on SS.

Hence the old saying:
Investments, IRAs, and 401(k) to live on;
Company pension for trips to Europe or Bahamas;
Social Security for lap dances.
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Or is Social Security an estate protection program?
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I think the biggest fear of people that have worked their entire lifetime to accumulate SS benefits is the concern they will be "mean's tested" out of it despite putting in the maximum amount year in and year out.
It's not the feriners and welfare cheats I would be p!ssed about. I would surmise you would be just as ticked off as me if a guy who made the same income every year as yourself, spent it on SUV's and McMansions and then get's to draw SS while you and I get "mean's tested" out of it.


Social Security is already "means tested" albeit in a backhanded way. While similar incomes produce the same SS benefit (not a perfectly proportional scale otherwise, and certainly capped at the uber-income levels), SS benefits become taxable depending on your gross income in retirement.

So to use your illustration, if your neighbor blew all his paycheck on SUVs and McMansions, he probably didn't save anything and will have nothing but a SS check to live on. He will get (let's say) $2,000 a month, all of which will be tax free.

You, the good ant, saved and have a nice portfolio which is producing (let's say) $2500/mo in dividends or capital gains or whatever, and so coupled with your Social Security check you are going to be "over the free limit" and your benefits are going to be (partially) taxed. So instead of the $2,000/mo, you may end up with only $1,500, after the fact. But then you also have $2500/mo from the portfolio, so you are living on $4,000/mo, net net.

Yes, you are "penalized" for your good virtue, but then your neighbor hasn't exactly covered himself with glory, and those days of SUVs and McMansions will grind to a quick halt once property taxes, maintenance costs, and new model SUVs come out and he finds that for the next 25 years he can't afford any of them.

It's a b!tch, I know, but at the end of the day, it's maybe not so bad, either.
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You, the good ant, saved and have a nice portfolio which is producing (let's say) $2500/mo in dividends or capital gains or whatever, and so coupled with your Social Security check you are going to be "over the free limit" and your benefits are going to be (partially) taxed. So instead of the $2,000/mo, you may end up with only $1,500, after the fact. But then you also have $2500/mo from the portfolio, so you are living on $4,000/mo, net net.You, the good ant, saved and have a nice portfolio which is producing (let's say) $2500/mo in dividends or capital gains or whatever, and so coupled with your Social Security check you are going to be "over the free limit" and your benefits are going to be (partially) taxed. So instead of the $2,000/mo, you may end up with only $1,500, after the fact. But then you also have $2500/mo from the portfolio, so you are living on $4,000/mo, net net.

I should point out that my post was done on the fly. Having considered it for a moment over on the couch, I would just like to point out that the "penalty" I suggested would be far less.

At an income of $4,500/mo, only 50% of the SS check would be taxable. And assuming a 15% tax rate, the annual bite would be $1800, or roughly $150 a month. So instead of the $2,000/ income, the actual tax (net net) would reduce it to $1850, and your total income would be $4350 vs the $2,000 for the lazy, undeserving, spendy grasshopper, with his superduper SUVs and McMansions.

I apologize for the earlier superficial analysis, and I will only mention in passing that I apologize for the error, although it made my argument look worse than it actually was, rather than in my favor. By way of partial explanation: I am on a variety of narcotics (they have cut me off the morphine, tho, darn it), nerve, and other medicines owing to spinal fusion surgery last Thursday. I have not been posting with my usual frequency or depth because of that, not because I am trying to placate some obsessed and possibly unhinged fan. So far I have binge watched "House", "Bones", "Rizzoli & Isles", a variety of documentaries from History and Science channels, the histories of World War II (both theaters), World War I, a few PBS specials, and a couple other things which randomly fall on the screen. Thanks to TiVo I have seen Bin Laden killed three more times, and it is still not enough.

I have difficulty typing, as my right hand is largely paralyzed (it's coming back, I think) and I occasionally fall into periods of cloudiness, and I sleep a lot. OTOH, my wife is waiting on me hand and foot, including helping me shower, brush teeth, etc. although I ask her to leave the room when I attend to the catheter and other inhumanities which accompany deep surgery. But overall I am good, and (as the song says) "feeling stronger every day." It's been a week. I expect too much, but then that has always been true. This is my only mention of the malady, before or since, and will likely be the only one again, unless I post some other modestly misleading information, a trait which I truly abhor, although I find some other posters who seem to make a career of it. Yes, I'm talking about you, if you think I am. Black helicopters overhead! Woo! Lookout!
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gh
At an income of $4,500/mo, only 50% of the SS check would be taxable. And assuming a 15% tax rate, the annual bite would be $1800, or roughly $150 a month. So instead of the $2,000/ income, the actual tax (net net) would reduce it to $1850, and your total income would be $4350 vs the $2,000 for the lazy, undeserving, spendy grasshopper, with his superduper SUVs and McMansions.

Thank you for the reply and the additional analysis. I hope you get to feeling better.

Metal
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a variety of documentaries from History and Science channels, the histories of World War II (both theaters),

What, exactly, did you watch? I started Ken Burns' The War a few weeks ago, but it's not exactly what I expected / wanted. I'm looking for a strategic / tactical accounting of it from a political and military perspective.
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Goofy, best wishes to you for a speedy recovery.

Isewquilts
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