How Much Do You think You Need to Retire/What Age Will You/Spouse Retire: General Retirement Issues (Part 2)

Parents Forum Parent Cafe
1990

I think there’s a whole lot of policy that needs to happen here, and also to take into account what “farming” means in different parts of the country. A Vermont dairy farm, a Pennsylvania orchard, a soy/corn farm in IL, are all very different things, and that’s still a small slice of farming. And unfortunately the acreage value is also affected differently by population density and nearby development across the country.

A small family farmer I’m friends with here tells me her biggest problems are health insurance and student loans. She’s got no shortage of people who want to work on her farm, and her kid’s into it, too. And she does a banging business. Everybody knows her produce, she’s got restaurant trade, grocery, CSA, everything. I’m eating her veg right now, in fact. But the only people who can afford to work on her farm, including her, are people who have no school debt and who are insured by someone else, because she can’t pay people enough to get them over the marketplace line and our Medicaid is not something you want to be on. And she pays them more than her family takes home. Same story for a young Black chickens-and-hogs farmer she’s promoting – he’s got a waiting list a mile long for his meat and eggs, but it’s very touch-and-go. So the question of who even wants to take on living a life that precarious and exhausting is a very real one. My boss – like many around here – also grew up on the family farm, and out of all her siblings, none is waiting to take over. Everyone’s off the farm.

So it’s more than just “can you afford to pass the farm on” through exemptions that don’t just get clawed to bits by agribiz; it’s the whole pipeline and the question of what kind of knowledge we want to sustain. Frankly, to me the question of whether or not a farm stays in the family is much less important than the question of whether a culture of farming persists. It’s really hard to grow things well and reliably, let alone sustainably, even if you’ve got good conditions. So if it’s about people coming in as kids and laborers and managers, learning, apprenticing, staying on, slowly taking over, that to me also gets us there.

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1991

I think that’s an accurate take on what I’ve been saying, but what’s your thinking on why it’s going to be harder to do that for those at the very top – nature of assets, energetic cleverness going into asset-hiding?

I think it’s really the slice between what’s currently top 20% and maybe top 5% that’s going to feel the changes most, because there you’re talking about a lot of wealth next to what most people know, but not a lot of creativity in organizing it, or enough wealth to get very fancy about it. Off-the-shelf wealth management strategies. I mean in some senses all they’ll have to do is look around at older legislative colleagues to see if they’re hitting the right points – a lot of crestfallen faces, getting hot, no real worry, getting colder. I think median net worth is somewhere in the low millions for them these days.

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1992

I think since we are in a two-party system and the parties in power may impact our options (healthcare, tax issues, etc.) at retirement that’s a salient topic here, at times. I have confidence we are all able to put transitory comments about political parties in context without sliding into repetative debate!

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1993

There’s no reason why you have to step up the basis on death. Back in 2010 the estate tax was eliminated for 1 year and during that year there was no step up to the basis at all. The tax was just deferred until the asset was ultimately sold. Actually caused a bunch of irritation and extra taxes for not very wealthy people who suddenly faced a tax bill from selling inherited assets. But it does seem like a plausible way to protect farms, houses, family businesses, etc.

1994

I would imagine almost everyone here would prefer to maximize the amount of their own money that they get to keep and to pass on to their heirs if they so choose. Wealth is relative. I don’t see anyone here looking to give up more of their wealth. I see a lot of people looking for ways to minimize what they have to pay for things. Many people here are much more wealthy than the average person.

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1995

Re: family businesses. Discounting can be used as a tool to lessen the estate tax impact but it might go away:

1996

@bennty, the reason I think it will be harder to measure assets for the top 1% has to do with the nature of assets (vacation houses, venture capital investments that may be hard to value) and hiding of assets (per the WSJ article I linked summarizing an IRS study.). Congress would have to put a lot more money into the IRS to reduce the asset hiding.

I also think the top 20% to 5% (or 1%) are vulnerable because a) there are a lot of them; and b) they don’t have the political leverage of the plutocratic class. One article I read described this as a conflict between the billionaires and the professional class. Most folks in that group can’t afford the high class help that creates the clever strategies to characterize investments so that they have lower value or can’t be found.

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1997

Maybe a separate thread can be formed by those that want to have forward policy discussions and how these various things may affect this tax break or this sector of people.

@shawbridge – I don’t mind a little that directly relates to what is actually happening which affects the main theme – how much do you think you need to retire and what age. But hypothetical discussions on what may happen due to this indicator or this market sector, or if this political party has their way – just dilutes the information people like me are looking for on this thread – and what we want to contribute. I would hope people want to post to provide helpful information that is welcome.

True things going on are not allowed to be discussed because some people get offended – so people do need to draw their own conclusions at times w/o some being able to blatantly blame one party or another.

I am not ‘up’ on all the intricacies of CC to know if someone blocks me if that means they don’t see my posts on this thread - oh well. I try to have an open mind but also specifically want to read content on this thread that is relevant to the topic.

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1998

“I would imagine almost everyone here would prefer to maximize the amount of their own money that they get to keep and to pass on to their heirs if they so choose” - Depends the size and makeup of the estate. If my own kids were in a situation to have millions coming to them after me and husband gone, it would seem OK to me if they had to pay taxes on some of it. (My divorced mother benefited many years from section 8 housing subsidies - perhaps that influences my thinking here.) However I do see wisdom in having special rules for family farm inheritance.

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1999

That’s why I said almost everyone here. I know I would like to see my kids fully benefit from any hard work and good decisions I have made. I don’t have millions though so there is that.

I grew up in a household that was below the poverty level. I ate government cheese. We didn’t have any luxuries. I wouldn’t change my childhood though. I think I value things more because of it. I also don’t decry others for having wealth and having more.

I’m not sure why a family amassing wealth over time is seen as a bad thing. Yes, people should pay their fair share towards societies needs but currently the loopholes are cavernous, maybe that should be our focus?. In the end when does our wealth actually become ours without more of it being taxed again and again at different times in life?

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2000

Governments enact policies that favor the people who voted them in and not the people who opposed them? I’m shocked. Shocked! When did this come about?

As far as wealth taxation, if the government confiscated all - every single penny - of the wealth of every billionaire, how long could the government run off that? About seven months. This isn’t a political statement: it’s just math. Funding the government through wealth taxation requires that they reach way down from billionaires. And who owns the wealth? A plot of wealth distribution by age shows that - unsurprisingly, it peaks at people just around retirement age. (Which is relevant to this thread)

If you take the canonical “social security replaces 40% of your prior earnings”, “you need 80% of your prior earnings to retire” and “you can withdraw 4% of your money per year” that works out to needing to save 10 years’ salary. For a median household income of $65,000 that’s $650,000.

CC members tend to be in a particular demographic - “Oh noes! My darling child didn’t get into Princeton! (S)he will have to go to Cornell! The horror! The horror!” That means the 40% from social security goes down, but probably so does the 80%. I’d guess the 10-years is somewhat low.

I was able to retire when I was about 55. I still work, but because I want to, not because I have to. My secret? I lived below my means. I have a upper-middle class income and a middle-class lifestyle. I win twice - by spending less than I make, I have been able to save a lot, and my needed post-requirement income also comes down.

It also helps to have financial goals. My goal was not “maximize savings at retirement” but “minimize the chances I will outlive my money”. My money hasn’t grown quite as fast as it might have, but it’s grown fast enough, with less risk.

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2001

That’s a very valid point. There’s only so much money out there. Like you say even taking everything from the wealthy doesn’t fix things for long. I think we have a spending problem that is really going to affect many really soon. As you also point out, many of those affected by wealth taxation would be retirees or those close to retirement.

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2002

@MarylandJOE, I’m definitely into amassing wealth – I have co-founded several small companies and run one – and have created plans to pass on what I don’t need to my family via an intentionally defective grantor trust. So, generally with you there.

I think the bigger problem, which is likely to manifest itself in a return swing of the pendulum, is the increasing inequality of income and especially wealth in the US. The biggest cause of widening inequality is technology. As a simple example, an apps that make businesses more efficient by reducing the number of people needed to do the work can be worth millions. The net effect – millions in the hands of some bright kids who create the app and a bunch of mid-level managers or admins who lose jobs and are put into a more competitive market (more people for fewer jobs, which will over time reduce the salary levels for those jobs). A secondary cause of widening inequality is globalization (a huge trend that is reversing somewhat as China decouples). Globalization creates economic benefits but, in principle, society should take some of the gains created to compensate those who lose out (workers in developed countries, grapefruit farmers in Japan, etc.) so that they are no worse off as a result of the deal. This compensate of the losers would make the globalization Pareto-efficient as some people are better off and no one is worse off. Instead, what both political parties have done is let the gains accrue to a concentrated group of people and not compensate the losers.

My son is a brilliant young man/big picture guy and a serious Silicon Valley entrepreneur whose net worth on paper is already pretty high. When he was getting an MS in Computational and Mathematical Engineering and an MBA, he looked at the trends that I described and the likely future effects of ML/AI on automation of white collar work and observed that these implied that the income distribution would become ever more bifurcated and the wealth distribution ever more concentrated. That path, he observed, would lead to civil discontent – which we are seeing on both the far right and the far left and political turbulence, at the moment more on the far right than on the left but that could change. He said that, in a sane world, we would proactively change the tax regime to redistribute income (and wealth?) so that people felt some of the benefit of the rapidly evolving technological changes. However, he said, “In the US, this won’t happen until we hit crisis. So, the only place to be if you are not already mega-rich is to ‘own the machines’” by which he meant create the productivity-improving (or other efficiency-creating or problem-solving technologies) with VC backing, build companies and then sell them (to reap gain for yourself but necessary for the VCs). He argued that it would be very important for kids in his generation to figure out how to be part of the top 1%. I do recall a hilarious interview of Bernie Sanders by a Sacha Baron Cohen character who kept asking Bernie why the solution to our problems wasn’t just putting more people into the top 1%.

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2003

My impression is the complete opposite. Most parents are very cost conscious and will take the school with the highest financial aid and lowest cost with minimal sacrifice in quality.

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2004

No, not me. It’s bad for a democracy, also not great for the kids. Some? A little something nice, a cushion, the ability to get out of Dodge if things get real bad, help with basic needs? Sure. But more than that is going to take you away from the daily concerns of most people and leave you outside your own society, unaware of what matters there.

As for minimizing costs – really, it depends. Take the farming example above. Sure, I can buy cheaper veg. When I do that, though, who am I cheating? And what doesn’t happen in the society? I don’t look for the lowest price on amazon; I’ll pay a few dollars more and buy from a business that bothers to treat its people well. And when it comes to taxes, the game is not “evade all taxes possible to evade.” Taxes pay for all kinds of stuff people use in a functioning society.

Similarly, I don’t look to maximize income, because who pays? Where I work, who pays is largely students and student families, and they already pay more than many of them can afford. If I look around and see that I live well, that my kid can go to college and I can retire and live nicely, then there’s a word with meaning, and it’s “enough”.

For me, retirement planning is about not outliving the money. Somewhat to my surprise, if things don’t change radically, I may wind up with quite a bundle at the end simply because I’ve saved a fair bit and then not used most of it, and it’s grown over my retirement. Plus whatever I wind up with as inheritance and its growth. In that case, if taxes don’t simply take most of it, some bit will go to D unless she’s already got a boodle, there’ll be some other gifts, and then the rest will go to wherever some big need is at the time, set up in the most flexible way possible, so as not to be a nuisance to whoever’s got the job of handing it out.

It’s covered pretty exhaustively in democracy studies. The branch of social sciences to do with governance, democracy, and the stability of governmental structures. Essentially, as families amass wealth, they begin behaving like oligarchs anywhere, and that erodes democracy pretty quickly. See under South and Central America. Why is oligarchy bad? Rule by the whim of a few rather than anything approximating rule of law, corruption on a scale that makes us look like Girl Scouts, and radical instability in the lives of people who aren’t oligarchs. There’s much less point in going to college to build a career if when a society’s rules mean nothing and anything can be turned upside down on someone’s say-so tomorrow.

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2005

Um…come now.

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2006

You just haven’t been here long enough to read past threads. The student forum and the parents forum are very different.

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2007

Our country has been interesting in that sometimes some of the Barons of Industry who have been quite cut throat in amassing their fortune have then turned around and ‘given back’. It sure didn’t help the people during that time frame, but has benefited future generations.

I am more worried about some of the crazy thinking going on now which will tear down things that are built up and working well.

Felt some reassurance with some financial commentary recently and reflection on what is going on with the markets, interest rates, inflation.

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2008

If it doesn’t take us too far flung, I’m curious what the crazy thinking is and what’s working well for whom?

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2009

There are both types. One of the recurring parent threads comes from folks who want to believe that prestige does not matter and that their kid should go to the local state flagship. Not everyone agrees (and there are questions of whether the kid can get financial aid at a prestigious school) and in what fields prestige might matter. But there are a lot of parents who want to hear that prestige doesn’t matter and they can feel comfortable sending their kid to a school with low cost. There are others here for whom prestige is a live-or-die issue.

I have felt it more elsewhere. When I was living in Soho (when it was still edgy) and working on Wall Street, my wife became pregnant with our son. People suggested to my wife that she apply, while pregnant, to the right pre-schools. We moved to Cambridge when my son was 2.5 and as a result, there was no space in the “right” preschool. A couple of years later, when my son was 4, our friends were applying to private schools for their kids with a fervor that reflected an apparent belief that if you didn’t get into the right private school at age 4, your kid’s life was ruined. We did a few of those interviews and they were comic. Honestly, how do you interview a four year old? At one school, a former student of mine who was on the board told me, “You are judged for admission by your contribution to the school. Your contribution will either be to multicultural diversity or financial.” My wife and I decided these folks were crazy and looked for a town with a good public school system. It turns out most of the very strong public school systems in the state will tell you their elementary and high schools are excellent but the middle schools are a problem. So we sent both kids to private middle school. Indeed my daughter got into (and did well at) the school whose trustee told me that we needed to make a contribution to diversity or the endowment to get in. We did neither. She was just pretty smart. Amazingly enough, both kids are doing very well without getting into either the right pre-school or the right elementary school.

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