Wisconsin governor goes bonkers

Politics and religion
2221

They also contain more accumulated heavy metals!

At the low end I think the reason the young save little is their incredible exposure to economic shocks. It’s something like The Sam Vimes Theory of Economic Injustice.

At the time of Men at Arms, Samuel Vimes earned thirty-eight dollars a month as a Captain of the Watch, plus allowances. A really good pair of leather boots, the sort that would last years and years, cost fifty dollars. This was beyond his pocket and the most he could hope for was an affordable pair of boots costing ten dollars, which might with luck last a year or so before he would need to resort to makeshift cardboard insoles so as to prolong the moment of shelling out another ten dollars.

Therefore over a period of ten years, he might have paid out a hundred dollars on boots, twice as much as the man who could afford fifty dollars up front ten years before. And he would still have wet feet.

Without any special rancour, Vimes stretched this theory to explain why Sybil Ramkin lived twice as comfortably as he did by spending about half as much every month.

The only car you can afford breaks down, so you spend a bunch repairing it. You can’t buy a new one because you’re in debt from repairing it. You can’t live close enough to your job to not have a car. You don’t eat well because you’re mad about your car so you buy bad food. You get fat so you get diabetes. Ad infinitium, you’re a hobo.

Exceptional people can drag themselves out of this mess, but they’re just that - exceptional.

2222

That 9.8% annualized rate is, if I’m not mistaken, the historical average for return in the NYSE S&P 500 over the course of most of the 20th Century, right? If a particular worker happens to be unlucky enough to have started his retirement savings at the beginning of a particular 30 year period marked by a decade long doldrum period (the 2000’s ring a bell?) I’m sure the return could be substantially less, especially if sticking to an index fund. Luckily, in my case, the go-go 1990’s helped my retirement savings out quite a bit (though I didn’t start till I was 33-1/2 in late 1994, when I finally started earning halfway decent money), although the 2000’s were, well, the less said the better.

2223

Even in the worst “savings period” of the 20th century the returns were still like 6% or something. I’m just more concerned about how representative it is.

2224

Agreed.

You wouldn’t want to make a plan based on the historical average because you might get started at some sort of peak.

Something like 6% is a lot more conservative. And with that, you clear the $300k mark by retirement age.

2225

IMO, the best measure of HISTORIC (as opposed to future) equity returns is one that is both long term and broad (not just the US, which has had it pretty good overall over the last century plus). While there are some measurements that go back with varying degrees of reliability into the 1800s or perhaps before, I like the work of Elroy, Dimson and Staunton, who measure equity returns from 1900 onward for most/all major world markets.

Their figure for real (i.e. inflation adjusted) world-wide equity returns from 1900-2011 is 5.4% geometric. See Table 3, page 14, here.

Keep in mind that those are basic returns, before accounting for trading frictions, commissions, and any applicable taxes.

Also keep in mind that those are HISTORIC returns, which is NOT necessarily what an investor would receive going forward from today. Estimating forward returns from today is a different task.

[EDIT - I cut this post way down. I had been getting more at some projected stuff (mainly interest rates, but hinting at other stuff) from this point forward, but I think I’d rather not get into that at this point.]

2226

Pretend I’m the laziest man alive; show me this data.

It’s not just a matter of “land,” it’s “livable land.” There’s plenty of land in Eastern California…

2227

[QUOTE=Jason McCullough;3145704

This is a completely inaccurate bit of conventional wisdom.[/QUOTE]

And your point being? Oh and by the way the latest data 2007 has life expectancy at age 65 of 18.6 years up almost 5 years from 1940.

2228

Nice, thanks for that link Phil.

“Life expectancy at the start of SS was 65, the same as retirement age, but now it’s 15 years longer than retirement age” is incredibly misleading. The correct comparision for retirement financing viability is “increased from 12.7 years to 18.6 years.” If you really want to be accurate, it’s “12.7 to 15.6” - the age 68 retirement takes effect shortly.

2229

Nonsense. In 1940 workers were much less likely to reach retirement age at all. Obviously that has a huge impact on the viability of retirement financing. People who die before they retire get no payout at all.

2230

Did you miss the part where life expectancy figures for the 1940s were much lower due to infant mortality, and once that is removed the life expectancy goes way up? People who die before they enter the work force never contribute to social security or pensions either.

2231

The Poverty Premium. Poorer people hit disproportionately by unplanned expenditure for emergencies, bank penalty charges,etc. and are more likely to have things like expensive meters for utilities…
It’s something which the Governments in some countries have worked hard on, but neither the US or UK have done much about. Of course, one of the biggest elements is of course health which the NHS covers in the UK, but…the economic collapse here is pushing it up nastily still.

And Brad, manual workers at 65? Usually their health means they’re more than ready to retire. You can’t directly compare it to office workers.

2232

Aw well we do agree on somethings. The SS is moving to 67 (not 68) soon. However for many other purposes retirement age is consider 65, most corporations, and it is actually earlier for many systems. For example in WI pension system full retirement age is 62 and a teacher who starts right out of college can retire at 57 with close to the max of 70% of his final salary.
So since life expectancy (both sexes) at age 65 has increased from 13.9 in 1950 to 18.6 in 2007, this means people spend 34% more time in retirement collecting benefit than than did back in the 1950s. Many retirement systems like Social Security and many public pension plans are at a first approximation pay as you go system where current workers pay for current retires. This mean all things being equal you need a 1/3 more workers to pay for retirees. Demographically this is pretty much impossible today, so either current workers/employers need to pay more or benefits need to be cut and/or retirement ages raised.

2233

Did you miss the part where you are totally wrong? Differences in infant mortality make up only a small part of the difference between survival to 65 then and now. Check the data (straight from the SSA) yourself. Whatever sources you are relying on for that statement, they are bullshit.

% surviving to 18 in 1950: 95.692
% surviving to 18 in 2000: 98.826

% surviving to 65 in 1950: 67.893
% surviving to 65 in 2000: 82.379

2234

The more people who die on the route to 65 there’s both less paying in and less collecting, so I’m not sure what the overall impact of that is.

2235

Please. Many more people who survived to adulthood in the early days of SS died before they got to 65 than do nowadays. Most of the difference is at ages 40-65. Those people used to pay into the system and never get anything back. That is much less likely to occur now. The impact of that quite obvious, a retirement system that is harder to sustain without changing things like the retirement age to account for longer lifespans.

2236

Maybe you could find some numbers estimating the “obvious” impact?

2237

Umm 15% more people are living to the age where they collect SS then in 1950. How much more obvious does that need to be? People living longer means they collect more from the system then they did in the past.

2238

It’s not obvious at all. The number of years paid in matters just as much as the number of years paid out for the financial status of the system. To sustain any given payout ratio, ignoring populatoin growth for the moment:

Taxes = (Benefit Years/Person) / (Taxation Years/Person).

After thinking about a bit you can do a rough calculation on this fairly easily. Assume 25 years of paying in to SS from 21 to 65, stick to males. In 1940, 54% of men survived from 21 to 65, and they collected an average ~13 years of benefits once retired.

Because I don’t know where to get the number, pessimisticly assume for the moment assume people die evenly across the 21 to 65 range. In actuality the deaths are heavily weighted towards the 65 end.

In 1940, the average dying in person pays in for 46% * (1/2) * 25 years. The average not-dying person pays in for 54% * 25 years. The average overall person pays in ~19.25 years.

In 1940, 54% survive to 65 and collect for 12.7 years, so the average overall person pays out ~6.8 years.

Dividing the payout y the payin, you get a ~0.35% ratio. The higher that number is, the higher taxes need to be, all other things being equal.

Ratios for the years:
1940 36%
1950 38%
1960 40%
1970 43%
1980 47%
1990 51%

In actuality, the early numbers are somewhat too low; most deaths occur at the end of the age range. Consider this a maximum pessimism estimate. Over the 1940-1990 period, all other things being equal, the static-population tax/benefit ratio increased from 36% to 51%. The years paid in increased ~12%, the years paid out 63%.

Summary

As you can see, it’s obvious that it had a huge impact. Oh wait, not it didn’t. I’m not sure why I bother, you guys will go right back to data-free herping and derping.

The current estimate of how much money it would take to actuarially fully fund social security for all eternity is 1% of GDP in tax increases or benefit cuts.

2239

What’s this? Backing up an argument with facts? Is it me, or did I just step into the internet?

Sorry, all cynical silliness aside, just looking up the data (and not really having a dog in the hunt), here is a chart of life expectancy by age per year.

What we want to discard are the first two columns. Infant mortality doesn’t subtract from nor add to the average life expectancy.

The main takeaway from this seems to be that, the longer you live, the greater the odds are that you’ll beat the average life expectancy. (Note: Graph is limited to white males because I’m a lazy nerd, not a sociologist, professional or otherwise.)

…uhm, sorry, I said I’d put aside the cynical silliness.

The “life expectancy at age 20” is a good starting point for actual informative discussion; that’s the age when people are old enough to contribute. And you see that starting from 1930, the data available when plans for SS were originally made, most people didn’t make it to age 65.

That changes a lot with each passing decade. As you can see from the above silly graph, starting around 1970, no one who makes it to age 65 is beating the averages, and the average is living longer and longer.

2240

I find it very hard to read that graph. I can see that at birth in '29-30, life expectancy was under 60, but at age 20 for the people born in 1909-11 it’s hard to make out where that hash mark corresponding to age 20 falls on that vertical scale.

BTW, aren’t these figures quoted above:

% surviving to 65 in 1950: 67.893
% surviving to 65 in 2000: 82.379
referring to people who actually turned 65 in 1950 and in 2000? If that is the case, the % surviving to 65 in 1950 had been born in 1885 or before, no? And do those figured include only those who survived to adulthood first? Because if they don’t they’re including a bunch of babies/small children who died of this or that before growing up. Advances in medical tech (not the least of which was the acceptance of germ theory and antiseptic practices by the early decades of the 20th Century) made childhood a bit safer starting in the mid-30’s (provided you got enough to eat of course).