In between the happiness of Christmas and the promise of the New Year, permit me to introduce a sour note, a hint of a scold. If you're like, well, almost everybody, you're not saving enough. 15% of each paycheck into the 401(k) is the bare minimum you can get away with, not some aspirational level you can maybe hope to hit someday when you don't have all these problems.
I mean, obviously if one out of two workers in your household just lost their job, or has been stricken with some horrid cancer requiring all sorts of ancillary expenses, then it's okay to cut back on the retirement savings for a bit. But let's be honest: that doesn't describe most of us in those years when we don't save enough.
What describes most of those years when we aren't saving is normal life. We moved. We got married or had kids. The kids required entirely expected things like food, clothes, and schooling. Work was hard and we felt we wanted a really nice vacation. Friends and family went through the same normal life stages that we were, requesting that we travel and bring gifts to the happy events.
These things are not an excuse to stop saving, for all that I have used these excuses myself from time (and regretted it later, at length). The recession should have driven home some hard facts, but the nation's 3.5% personal savings rate indicates that these lessons haven't quite sunk in, so let me elaborate some of them.
1. You cannot count on high asset growth rates to bail out a low savings rate. In the 1990s, we believed that we could guarantee something like an 8% (average) annual return by pumping our money into the stock market and leaving it there. The problem is, this may no longer be true. For the last few decades, there have been a number of factors pushing up the price of stocks:
a. Low interest rates on bonds prompted investors to look for higher returns elsewhere
b. People started believing that over the long term, equities offered a low-risk opportunity for higher returns. Unfortunately in finance, many things are only true if no one believes they are true. If everyone thinks that equities are low risk, they will bid away the "equity premium"--which is to say, the discount that buyers expected for assuming greater risk. At which point, stocks no longer offer a low-risk excess return.
c. Baby boomers who had undersaved started pouring money into the stock market in an attempt to make up for their lack of savings.
However, stock prices cannot indefinitely grow faster than corporate profits; eventually, you run out of greater fools. And future corporate profits are going to be constrained by slower growth in the workforce as baby boomers retire, and by the taxes needed to pay for all the bailouts and stimulus we just did. Unless there's a sudden boom in productivity--entirely possible, but entirely impossible to predict, or count on--there's every reason to expect that stock markets performance will continue to grow more slowly, and be more volatile, than we got used to.
We saw a similar cycle in houses. A mortgage used to be a form of forced saving that gave you an (almost) free place to live in retirement and a little bit of value when you sold the house. We didn't realize that a number of developments had been pushing up the price of homes:
a. The development of the 30-year self-amortizing mortgage, which enabled people to pay a much higher price for a given house than they would have in the era of 5-year balloon mortgages.
b. The baby boom, which increased demand for houses as they aged
c. The run-up in inflation in the 1970s, which gave (relatively inflation-proof) real estate a boost--and then the subsequent decline in inflation (and interest rates), which gave people the illusion of being able to afford more house because the up-front payments were lower.
d. More widely available credit, which let more people take on bigger loans
e. The increasing value of (and competition for) a small number of slots at selective colleges, which put a rising premium on houses in good school districts
These trends gave people the illusion that houses were, in some fundamental way, an "excellent investment". But they're risky in all sorts of ways: neighborhoods can get worse rather than better, local economies can stagnate, the style of your home can go out of fashion.
Moreover, like the stock market, houses are still pretty expensive by historical standards, as this chart from Barry Ritholtz shows:
If you can't count on a steep run-up in asset prices to build up your retirement savings, that leaves you with one alternative: save a much bigger chunk of your income.
2. People are still living longer in retirement. The increases in life expectancy post-retirement aren't as dramatic as they were in the antibiotic era, but they're still creeping up. That means that you have to take smaller sums out of the kitty each year, so that what you have left will be enough to live on.
3. Government finances are extremely strained. The Baby Boomers are about to dump an even heavier load on them. That means yes, higher taxes--but it also means that despite their formidable voting power, retirements financed mostly on the public dime are very likely to get leaner. Especially because birthrates are falling everywhere--which means that the supply of young, strong-backed immigrants to man the nursing homes will not be as ample as it is now.
4. Employers are not kind to older workers. I wish this weren't so, but I'm very much afraid it is. People who say "I won't be able to retire" may not be given a choice in the matter. Like most modern economies, we've cut a societal deal where you're underpaid in your twenties, and overpaid in your fifties and sixties . . . and as a result, it's very tempting to fire those overpaid oldsters when times get tough.
And once you're forced out in your fifties, it is very, very hard to find a new job of any sort, much less one that pays what you're used to. Even if you're willing to take a big paycut to work a less prestigious job, employers are reluctant to hire the overqualified--particularly since 99 times out of 100 the overqualified 55-year old simply does not have the stamina or the life flexibility of the single twenty-somethings who are applying for the same job. And physically, you may not be able to do many of the low rent jobs that paid your way through college: by the time you're sixty, you're quite likely to have back, joint, or skeletal problems that make it hard to stand on your feet all day or lift heavy objects.
The upshot is that you can no longer plan on "making up" anemic retirement contributions later. You have to start making them--right now.
5. Emergencies seem to be lasting longer than they used to. Before the 1990s, unemployment used to crater sharply during recessions, then recover quickly along with demand. We had our first "jobless recovery" under Clinton, and now we've got two more under our belt. That means that the old advice of three to six months worth of emergency funds are no longer enough. 8 months to 1 year is more realistic.
When I write these posts, I generally get two types of responses: people who smugly tell me that they are saving 30% or more of their income (way to go!) and people who tell me that it is simply not possible for them to save t15-20% of their income.
You know better than I, of course. But most of the research on consumer finance shows the same thing: people can usually save a lot more if they make saving a priority. Most people don't. Savings is an afterthought--it's the residual of whatever hasn't been spent on clothes, groceries, cars, dinners out, school trips, travel soccer team, college tuition, vacation, etc. Unsurprisingly, there's frequently no residual. However, if people decide how much to save, and then budget their consumption out of what is left, they suddenly realize that they could drive an uglier car, take the kids out of dance class, live with the kitchen the way it is, stay home for a week in August instead of going to Disneyworld, and so forth. And those people are not, as you might think prospectively, made desperately unhappy by these sacrifices. Savers are actually happier than the general population--in part, one assumes, because they're less worried.
Many people tell me they can't save because children are so expensive. Children are indeed very expensive. But they're getting more expensive every year, and that's because we're spending more money on them. We're spending more money on houses to get them into good school districts, on activities so that they have every chance to get into Harvard (or the NHL), on clothes and cell phones and video game consoles and the list is endless, plus then there's that tuition to Harvard or some sort of even-more-expensive smaller private college.
These expenses are optional, not mandatory. And before you tell me about how unhappy your child will be if you do not buy him all of these necessities, think about how unhappy he's going to be if you have to move in with him. Better yet, volunteer for some outreach to the bankrupt seniors whose kids wouldn't let them move in, and see how their lives are going.
This is not to criticize. Saving is hard, which is why, just like you, we're trying to figure out how to hit even more ambitious savings goals in the New Year. And consumption is fun. That's why most people struggle to save very much.
But a lot of people are going along on autopilot; they're saving 5% because it seemed safe when they were 25 and so what if they're now 37? They look at the neighbors spending a fortune on cars and school activities and figure that if it's safe for them, it must be safe for me too. But this is the opposite of the truth. If your neighbors aren't saving much (and trust me, they aren't), that means a less productive economy in the future--and more people trying to claim a very limited supply of public funds. You don't want to be among them.
It helps to remember that the object is not to turn yourself into a miser; it's to make your spending patterns sustainable. Your splurges will actually be a lot more fun if you know that they aren't putting you at risk of bankruptcy, foreclosure or a retirement in poverty.
If you're not saving enough--and you know who you are--don't decide today that you're going to save 15%, and then forget about it tomorrow when you realize how daunting a task that will be. Instead, try this: divert an extra 5% of your income into a 401(k), IRA, or other tax-advantaged savings plan. If your 401(k) is stuffed but you don't have much of an emergency fund--or if, for some reason, you don't qualify for tax-advantaged savings--have 7% of every paycheck diverted to a bank account which isn't linked to your other accounts. It's a slow week at work, the perfect time to fuss with HR paperwork.
The important thing is to pay yourself first. Savings should be the first thing you do, not the last. After you've saved, then you budget your consumption. I won't tell you what to cut, because when you confront your new, slightly leaner budget, you'll be perfectly able to calculate what's no longer worth the money to you. I think you'll be pleasantly surprised to find that after a few weeks or a few months of initial pinch, you won't remember that you miss the money much.
If at the end of the year, you still aren't saving enough, then you can do the same thing again--pull another 5-7% out of every paycheck. Within a few years, you'll be at a healthy level of savings, without excessive fiscal pain.
But the most important thing is this: don't start looking for reasons you can't. If you hunt hard enough, you'll find them. Unfortunately, those reasons aren't going to do a damn thing to pay your house payment if you get laid off, or keep you in prescription drugs when you retire.
A new anatomical understanding of how movement controls the body’s stress response system
Elite tennis players have an uncanny ability to clear their heads after making errors. They constantly move on and start fresh for the next point. They can’t afford to dwell on mistakes.
Peter Strick is not a professional tennis player. He’s a distinguished professor and chair of the department of neurobiology at the University of Pittsburgh Brain Institute. He’s the sort of person to dwell on mistakes, however small.
“My kids would tell me, dad, you ought to take up pilates. Do some yoga,” he said. “But I’d say, as far as I’m concerned, there's no scientific evidence that this is going to help me.”
Still, the meticulous skeptic espoused more of a tennis approach to dealing with stressful situations: Just teach yourself to move on. Of course there is evidence that ties practicing yoga to good health, but not the sort that convinced Strick. Studies show correlations between the two, but he needed a physiological mechanism to explain the relationship. Vague conjecture that yoga “decreases stress” wasn’t sufficient. How? Simply by distracting the mind?
If Hillary Clinton beats Donald Trump, her party will have set a record in American politics.
If Donald Trump can’t erase Hillary Clinton’s lead in the presidential race, the Republican Party will cross an ominous milestone—and confront some agonizing choices. Democrats have won the popular vote in five of the six presidential elections since 1992. (In 2000, Al Gore won the popular vote but lost the Electoral College and the White House to George W. Bush.) If Clinton maintains her consistent advantage in national and swing-state polls through Election Day, that means Democrats will have won the popular vote in six of the past seven presidential campaigns.
Since the 1828 election of Andrew Jackson that historians consider the birth of the modern two-party system, no party has ever won the presidential popular vote six times over seven elections. Even the nation’s most successful political figures have fallen short of that standard.
City dwellers spend nearly every moment of every day awash in wi-fi signals. Homes, streets, businesses, and office buildings are constantly blasting wireless signals every which way for the benefit of nearby phones, tablets, laptops, wearables, and other connected paraphernalia.
When those devices connect to a router, they send requests for information—a weather forecast, the latest sports scores, a news article—and, in turn, receive that data, all over the air. As it communicates with the devices, the router is also gathering information about how its signals are traveling through the air, and whether they’re being disrupted by obstacles or interference. With that data, the router can make small adjustments to communicate more reliably with the devices it’s connected to.
Do mission-driven organizations with tight budgets have any choice but to demand long, unpaid hours of their staffs?
Earlier this year, at the encouragement of President Obama, the Department of Labor finalized the most significant update to the federal rules on overtime in decades. The new rules will more than double the salary threshold for guaranteed overtime pay, from about $23,000 to $47,476. Once the rules go into effect this December, millions of employees who make less than that will be guaranteed overtime pay under the law when they work more than 40 hours a week.
Unsurprisingly, some business lobbies and conservatives disparaged the rule as unduly burdensome. But pushback also came from what might have been an unexpected source: a progressive nonprofit called the U.S. Public Interest Research Group (PIRG). “Doubling the minimum salary to $47,476 is especially unrealistic for non-profit, cause-oriented organizations,” U.S. PIRG said in a statement. “[T]o cover higher staffing costs forced upon us under the rule, we will be forced to hire fewer staff and limit the hours those staff can work—all while the well-funded special interests that we're up against will simply spend more.”
The inequality at the heart of America’s education system
HARTFORD, Conn.—This is one of the wealthiest states in the union. But thousands of children here attend schools that are among the worst in the country. While students in higher-income towns such as Greenwich and Darien have easy access to guidance counselors, school psychologists, personal laptops, and up-to-date textbooks, those in high-poverty areas like Bridgeport and New Britain don’t. Such districts tend to have more students in need of extra help, and yet they have fewer guidance counselors, tutors, and psychologists, lower-paid teachers, more dilapidated facilities and bigger class sizes than wealthier districts, according to an ongoing lawsuit. Greenwich spends $6,000 more per pupil per year than Bridgeport does, according to the State Department of Education.
No one will ever find a closer exoplanet—now the race is on to see if there is life on its surface.
One hundred and one years ago this October, a Scottish astronomer named Robert Innes pointed a camera at a grouping of stars near the Southern Cross, the defining feature of the night skies above his adopted Johannesburg. He was looking for a small companion to Alpha Centauri, our closest neighboring star system.
Hunched over glass photographic plates, Innes teased out a signal. Across five years of images, a small, faint star moved, wiggling on the sky. It shifted just as much as Alpha Centauri, suggesting its fate was intertwined with that binary system. But this small star was closer to the sun than Alpha. Innes suggested calling it Proxima Centauri, using the Latin word for “nearest.”
The dim red star soon entered the collective imagination, inspiring dreams of interstellar travel. Gravity has linked the star to the Alpha Centauri system, but our culture of science and storytelling has linked it to the solar system. Today, that link will grow stronger, when an international team of astronomers announces that this nearest of stars also hosts the closest exoplanet, one that might look a whole lot like Earth.
The global education pioneer eases students into the classroom.
Heading into my first year of teaching in Helsinki I felt pretty nervous. One of my graduate-school professors—a former Massachusetts Teacher of the Year—had warned me that Finnish students were academically advanced, especially in math. Indeed, Finland’s students had excelled on international standardized tests like the PISA for more than a decade. But it wasn’t just those high-performing Finnish students that intimidated me. Their teachers did, too.
If I had chosen to pursue master’s-level training as an elementary-school teacher in Finland (instead of the United States), I would have applied to the small handful of teacher-training universities, where annual acceptance rates hover around 10 percent. These programs are so selective, claimed The Atlantic journalist Amanda Ripley in her book, The Smartest Kids in the World, they’re “on the order of MIT.” Furthermore, Finland’s classroom teacher-training programs require five years of coursework, practicum, and thesis writing. The Finnish version made my two-year master’s degree in elementary education, through a non-selective college in the Boston area, look quite humble.
A recent scholarly paper on “microaggressions” uses them to chart the ascendance of a new moral code in American life.
Last fall at Oberlin College, a talk held as part of Latino Heritage Month was scheduled on the same evening that intramural soccer games were held. As a result, soccer players communicated by email about their respective plans. “Hey, that talk looks pretty great,” a white student wrote to a Hispanic student, “but on the off chance you aren’t going or would rather play futbol instead the club team wants to go!!”
Unbeknownst to the white student, the Hispanic student was offended by the email. And her response signals the rise of a new moral culture America.
When conflicts occur, sociologists Bradley Campbell and Jason Manning observe in an insightful new scholarly paper, aggrieved parties can respond in any number of ways. In honor cultures like the Old West or the street gangs of West Side Story, they might engage in a duel or physical fight. In dignity cultures, like the ones that prevailed in Western countries during the 19th and 20th Centuries, “insults might provoke offense, but they no longer have the same importance as a way of establishing or destroying a reputation for bravery,” they write. “When intolerable conflicts do arise, dignity cultures prescribe direct but non-violent actions.”
She is regarded as the best women’s soccer goalkeeper in the world, but her comments after the U.S. team’s loss to Sweden got her in trouble.
NEWS BRIEF U.S. Soccer suspended goalkeeper Hope Solo on Wednesday for behavior it called “unacceptable” and that does “not meet the standard of conduct we require.” The suspension is for six months, but the organization also ended her contract with the women’s national team, which makes it likely that Solo, who is one of the world’s best goalkeepers, will never play for the U.S. again.
Solo has had several controversial off-field moments—one of which recently led to a 30-day suspension—but Wednesday’s move was punishment for comments she made after Sweden beat the U.S. at the Rio Olympics earlier this month. Sweden eliminated the U.S., and did so by playing a conservative game, which prompted Solo to call them “a bunch of cowards.”
This much is obvious: Young people don’t buy homes like they used to.
In the aftermath of the recession and weak recovery, the share of 18- to- 34 year olds—a.k.a.: Millennials—who own a home has fallen to a 30-year low. For the first time on record going back more than a century, young people are now more likely to live with their parents than with a spouse.
It’s become en vogue to argue that young people’s turn against homeownership might be a good thing. After all, houses are not always dependable investment vehicles, a lesson the country learned all too painfully after the Great Recession. Without being anchored to any one city from their mid-20s and into their 30s, young people who don’t own are free to roam about the country in search of the best jobs. What’s more, given the copious advantages of a college degree in this economy, perhaps many young people could be commended for investing in their intelligence, professional networks, and abilities rather than devote that same income to a roof, floor, and furniture.