Is a Stock Market Bubble Forming?
One of my frustrations with IRA's and 401K's is that our investment options are very limited. It isn't like we can go buy a lake home, collector cars, a business, etc.
So what do you think, what is your crystal ball showing?
52 comments:
I am in favor of index stock funds and broadly based mutual funds.
--Hiram
I have to say that I find the idea that one should be able to get a tax benefit for retirement savings one is using to pay expenses today is an interesting one.
--Hiram
I spent decades in diversified funds and they treated me very well. However now the balance is very large and I am trying to do a little more thinking...
Unfortunately that worked out badly for me last year due to Trump and crew salvaging the economy with a HUGE amount of debt and heroic measures by the FED / Treasury. I never thought the GOP would ever spend that CRAZY. Especially after all their WHINING over the Bush and Obama bailouts.
I forgot they are hypocrites, and it cost me a LOT of potential gains. My bad...
I have now bought back in selectively. Mostly value stocks, REITs and other things that did not appreciate like the high growth stocks. And I am trying to figure out how to hedge against inflation?
As for "expenses"... We pay expenses on the 401K and IRA assets every month...
But yes I understand that buying a cabin would be different.
I just remember my father whining about how he did not have these excellent "401Ks and IRAs" when he was younger. So instead he bought land and other properties which to me seems much more fun than looking at a big number on a spreadsheet... :-)
I actually have been robbing my IRA when I can without paying the 10% penalty.
I saved so hard "early on" and with my family situation, paying the taxes today is acceptable to me. Especially when I am still putting money into my 401K to secure the company match.
The way I rationalize it. I put in $6,000 and the company puts in $4,000 the 401K...
Then I pull the $10,000 out of a different IRA and pay 32% and I am still ahead...
I know when the market was crashing last year, I had serious doubts about the short and mid term future, and considered selling. But Trump made it clear, that he would put the interests of business ahead of public safety, and the markets got the message.
The company where I worked had a matching program for 401k contributions, an impossibly good deal. They were literally, and I do mean literally, handing employees free money. It used to astound me that many employees did not take as much advantage of that deal as they could. The fact that they didn't is one of the principal reasons I am so protective of Social Security which, among it's other benefits, is largely idiot proof.
--Hiram
Agreed... Without SS a lot of non-planners would be in BIG Trouble...
A lot of planners would too.
--Hiram
So you are happy with that 1% ROI SS delivers, and are willing to take a 75% cut down the road, when the "Trust Fund" runs out?
Jerry, Your number are so wrong I have no idea where to start. So I won't bother.
OH, please bother. Start by doing the math yourself-- that is the only thing that will prove me wrong. Someplace you must have how much you have contributed, and at least up until they were caught lying, SSA would send you an estimate of benefits. Do the math on return, as I did. Then look at this trustworthy source: 75% cut
Try reading the source yourself...
"Social Security Board of Trustees projects program cost to rise by 2035 so that taxes will be enough to pay for only 75 percent of scheduled benefits. This increase in cost results from population aging, not because we are living longer, but because birth rates dropped from three to two children per woman."
They say a 25% cut and retain 75% of benefits.
You are losing it...
???????? That report says exactly what I said.
And since you won't do the math yourself, somebody has done it for you. I confess they came up with a better overall number than I did for my personal situation. It's still lousy. SS rate of return
Again, I have done the exhaustive math to show a way the Trust Fund never goes broke, with no change in taxes or benefits. You won't care.
OH, I see. I said 75% "cut" not "cut to 75%." So as long as you're happy with a 25% /unnecessary/ cut to your benefits, maybe your IRA can see you through.
Here's another question for you. If SS is such a good deal, why can you not invest MORE of your money into your "personal account" there, like you do with your IRA?
That's an off the wall thing to ask.
To start with, any fundamental change in Social Security would have to be enacted by Congress, and signed by the president. Our system of government is no longer capable dealing with any serious issue. Dysfunction is the price we have chosen to pay to ensure government is gridlocked.
More generally, 401k plans and SS serve different roles. You might as well ask in a world where Cadillacs are available people still have the option of taking the bus. Or perhaps, if there are such things as safety nets, what's the point of having trapezes?
--Hiram
The question is, does everybody need a safety net, of the same size and strength? Is there any reason government should provide it, rather than asking people to provide it for themselves? SS is the great Ponzi scheme, and we are about to discover that the better investment is not to "invest" in it at all. Yes, Congress would need to enact a common sense reform, but Republicans are too frightened to propose it, and Democrats are determined that the problem does not exist. It will have to crash and when it does, Democrats will blame Republicans for their own failure to act rationally. /sigh/.
The fact that not everyone who goes to the circus will end up in a safety net is not generally considered a reason to take it down.
Our system is failing us, of course. Twice in this century, a candidate who lost the popular vote was elected president. Leading political figures tell us their only political priority is to thwart the agenda, whatever it might, of the other party. For four years, we had a criminal as president who to this day remains the most popular figure in one of our two major parties. In this context, it is entirely possible that with respect to Social Security, the Congress is no longer capable of solving the problem, only assigning blame.
--Hiram
And they will NOT "assign blame" correctly, only deflect it from themselves and their predecessors who refuse to solve the problem. That does not mean the problem does not exist. It's still a terrible investment. Imagine this: Everyone is mandated to set aside 6% of their salary in a retirement account. Employers are required to match it. SS goes away, and the problem goes away.
And they will NOT "assign blame" correctly, only deflect it from themselves and their predecessors who refuse to solve the problem.
Ours is a failing system, but the failure hasn't happened overnight, it's been a long time coming.
It's interesting that the solution to Social Security's problem proposed here is to have more of it.
--Hiram
Who is proposing /that/?
Since SS has a fixed maximum benefit, paying more would not make sense.
And it is an insurance policy / pension, not a savings account.
Fine, mandate everyone carry better insurance than SS (not difficult, the death benefit is $250), AND contribute to a retirement account.
You continue to defend a system whose only advantage is that it is mandatory, rather than efficacious. Enjoy the crash, because many will not. "More young people believe in UFOs than that Social Security will "be there" for them.
Here is another little tidbit for your calculations. Suppose you were allowed (you are not) to buy SS Trust Fund bonds directly, rather than through SS. You would earn 2.2% on your investment, rather than the 1% you will get if you live to your life expectancy. die before 67, and you get zip, a 0% return. You're better off in the stock market!
Jerry,
You are against making people carry quality health insurance.
You definitely would not allow forcing people to buy long term care insurance, life insurance, retirement insurance, long term health insurance, etc.
Beside most citizens could not afford it. That is why we have SSD, SS and Medicare...
You are correct. I am against forcing people to buy insurance-- health, retirement, LTC, life. Not against people having it, or even requiring them to acquire it, like we do auto liability insurance or, for some, mortgage insurance. I am against forcing them to buy LOUSY life insurance and VERY POOR "retirement insurance" from the government. SS does not provide LTC or health insurance, so quit pretending it does.
And I've heard this before, too, that most people can't afford it. Really? With 14% of your paycheck? Remember that 1.2% return is on YOUR contributions. Add in what your employer paid, and I expect the total return is actually negative. Bernie Madoff went to jail for this kind of scheme.
I don't believe any numbers you post...
Source please...
You know, I have been watching a game show called "Common Knowledge." It's a lot of fun to see what knowledge is really "common," either among the show's producers who write the questions, or then among the contestants giving the answers. Also, for some time now, I have believed that one of the great contributors to the divisions in this country is confirmation bias, fed by the Internet and the "iron rule of knowledge." That is, because the Internet knows everything, that WE know everything. We get an idea, search the Internet for "sources" and quickly find "what we always knew" is quickly confirmed.
What does NOT happen is to search the Internet for sources which disagree-- quite uncomfortable, at some point-- and which may have an equal if not better claim to being the truth of the matter.
Most of what I quote to you I consider common knowledge, and am a bit surprised at your questioning of it. I'll turn aside the implied insult. But I am done doing your Internet searches for you. If you want to open your eyes to sources that disagree with you and agree with me, you can find them. Or maybe not. Your ball.
Jerry,
Please feel free to keep confirming your biases.
I'll keep my internet searches open ended statements.
Like this...
"rate of return on social security contributions"
Pg6 + shows that the return is pretty good for those who need the money most
We have a difference of opinion among experts. I find this:
"the ROI on FICA taxes generally is negative for higher-income individuals. Nonetheless, those who don’t yet have 35 years of earnings history, as well as those who fall within the bottom and middle Social Security replacement tiers, may find the prospective positive ROI of FICA taxes rather appealing."
"82 percent of individuals who live to age 85 get back more in benefits than then pay in taxes; about 52 percent of those who die between 75 and 84 come out ahead. Meanwhile, just 21 percent of those who die between 62 and 69 get back more than they put in to the system."
"For example, the expected annualized real rate of return for Social Security is 1.2 percent for an average-income, 21-year-old African-American single mother of two who throughout her lifetime makes about 100 percent of the average earnings for African-American female workers ($18,650 in 1996).* Had she been allowed to invest her payroll taxes in highly conservative investments, she could expect to make a 3 percent real rate of return on a portfolio consisting entirely of Treasury bills, or a 4.35 percent real rate on a portfolio of 50 percent Treasury bills and 50 percent equities." *note "...only retirement income taxes and benefits are compared."
Here is an explanation, maybe, for the difference: "One explanation for these results is that the analyses prepared by the Social Security actuaries reflected survivor and disability benefits in addition to retirement benefits; these ancillary benefits are often overlooked in other "money's worth" calculations."
That mixes the return on "retirement investment" with the cost of disability and survivors insurance, which is NOT an investment in the normal sense. Like I said, mandate that people invest for retirement, then mandate they carry some kind of insurance, either of which should offer better benefits at lower cost. You're the one asking for personal responsibility, there it is.
The shares of AMC, a movie theater conpany were way yesterday, the result perhaps of the opeing of "A Quiet Place, Part II" this weekend where the movie theater I saw it in had an audience in the definite two digits. If movie theaters are making a comeback, can a boom in buggy whips be far behind?
I just wonder if those canny investors buying up movie theater companies, video rentalstore companies (blu ray DVD's are really incredible, by the way), and so I am informed, Blackberry shares, where the product itself, like Trump may make a comeback in August, all feel that they are better off investing their money themselves than on Social Security?
--Hiram
Jerry,
Yes we get a lot from our payroll taxes...
Survivor's benefits, Disability Insurance, Healthcare benefits, Pension benefits, etc.
As a welfare program it is hard to beat.
And you foolishly want to compare it to an IRA that will run out of money if you live a long time.
Not if you roll over the IRA to an annuity.
Yes, it is a welfare program. So how much wealth transfer from the young and poor to the old and rich do you want to enable?
And SS will "run out of money" just like an IRA does, at which point government "welfare" kicks in either way. The difference is probably that the IRA will have twice the value at retirement as the lifetime payout of SS. And that if you die earlier than that, your heirs get the IRA, whereas with SS they get bupkis.
Here's a crazy idea. How about making SS optional? Require people to set aside the usual 12.4% of their wages, either in SS or in personal accounts?
You would need a big nest egg to buy the same annuity.
I would prefer to stop giving the old and rich folks checks and medicare... Unfortunately you and those like you like your checks and services...
It won't run out as longs as the USA stays afloat and has workers making money. The payment will just be reduced to match the money coming in. Makes sense to me.
If you want your kids to inherit, open an IRA or buy property.
I am donating my hundreds to charity.
--Hiram
No Kids or Do you just not like them very much. :-)
One of the bad things about SS is that it is a totally regressive tax, even more so when you notice that very high incomes are actually exempt. Besides that, the tax is already high enough that it prevents any additional retirement savings for most people. Instead of an IRA the kids could inherit, you are saddling them with a debt they are unlikely to pay, in exchange for a benefit they will not fully get.
There is an old joke about idealistic liberal kids who get their first paycheck and are outraged, "who is this FICA guy and why is he taking all my money??!"
Great, so everybody else has to take a lot less to make that happen? What is fair? And again those in the lowest incomes, who receive the most benefits, pay the highest FICA tax rates to get it.
Jerry,
The low income folks pay small dollars and get relatively big pay backs...
The wealthy pay bigger dollars and get relatively small pay backs...
That is what welfare programs do...
What matters in terms of budget is the absolute, not the relative. Pay backs to the rich may be relatively small but in absolute terms they are incredibly costly.
--Hiram
You miss the point. This is the infamous "flat tax" where the PERCENTAGE paid is highest at the lowest income. The return may be greater, and the return for upper incomes miserable, but that doesn't make it fair, on either end. It is welfare and is not helpful to the economy as a whole. Not only that, it is a wealth transfer not from old and rich to young and poor, but the other way around.
Of course it is good for the country.
Unless you support a bunch of old destitute people begging for food in the streets?
The flat tax sounds nice in theory, but it's theory is swallowed up by exceptions and just the way a simple rule has to be applied to a complex system.
Looked at in the most basic way, a flat tax applies to income. The problem with is that the wealth of wealthy people doesn't come in the form of income. Bill Gates doesn't have a 160 billion dollars because he saved his take home pay. To meet even the lowest level of fairness the "income" being taxed must be defined much more broadly than any definition we use today. What that can mean is that the rich might end up paying far more in taxes. Rich people don't like tax increases, and they have the power their wealth gives them to fight tax increases effectively and successfully.
In thinking about taxes, the tendency is to let the theoretical drive the practical. We talk about the theory of flat taxes without understanding the only thing that matters, their actual impact on txpayers. As always, what matters about taxes isn't the theory, it's the amount you pay. It's better to pay a higher rate of taxes, always, if that means you pay less in taxes. Tax professionals understand this, and everyone else needs to understand it too.
--Hiram
No, it is good for irresponsible people who will be supported by responsible people, through the force of government taxation, under the guise of an "investment." It is wealth redistribution, not wealth creation. A zero sum game at best.
Yes they are welfare programs to ensure old folks have some income and healthcare... And do not need to go on to traditional welfare.
I assume you are okay being on welfare and cashing those checks...
I am NOT on welfare. I "contributed" over a lifetime to "my Social Security retirement fund" and expect to get that money back after retirement, just like I have always been promised. And what is wrong with old folks who were not responsible enough to set money aside so they could retire, but were FORCED into retirement by the SS rules? Nobody should have been promised a cushy after-65 existence. The best way to create responsibility isn't to give everybody a guaranteed subsidy, it's to NOT have that supposedly "free" safety net/hammock out there for them, at somebody else's expense.
Of course you are on welfare, just as your parents were before you... 75% of your benefits come directly from what I pay in taxes.
Only 25% comes from what you contributed and that is going to run out in ~10 years.
Since I was a child, never have I ever heard that social security was secure or would provide a "cushy" after 65 experience. What or who have you been listening to?
I was taught early that SS & Medicare met basic requirements at best, and that their funding model was always tenuous. I was taught that if I wanted a cushy retirement I would need to save and invest elsewhere.
Therefore I ignored SS and Medicare in my retirement planning... Since I would hate to rely on welfare that may be withdrawn with the stroke of a pen.
UP until a few years ago, the SSA itself told me what "retirement benefits" were "guaranteed" in "my retirement account." Just because YOU were "taught" and "believed" the reality of it and planned accordingly-- good for you-- does not give you the right to tell other people they should not get what they are ENTITLED to get. And you should be allowing others to do the careful planning ans saving you did, rather than having a big chunk of their paycheck going into mandatory payments to somebody else and keeping them from saving for themselves, in an "investment" that "can be withdrawn at the stroke of a pen." You are blaming people who were forced to pay for something, and then blaming them again when they take what they were promised.Is there no end to your defense of a coercive, failing government program?
You are either incredibly naïve or just making up stories.
SS, SSD and Medicare are excellent programs, unfortunately:
- people like yourself did not pay enough taxes to fund them adequately
- given that people are living longer and the boomers are getting old
- old people want new knees, hips, and other expensive procedures... (rather than just buying them a cane)
On the upside, the programs are stable until ~2034... Maybe you will get your full amount from the welfare programs before they need to be fixed / adjusted.
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