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.
Cultural anthropology can help explain why the downturn caught everyone by surprise: Experts around the world tend to focus on the same mathematical models, looking for patterns in the same limited number of places.
Why haven’t more challengers entered the race to defeat the Iraq War hawk, Patriot Act supporter, and close friend of big finance?
As Hillary Clinton loses ground to Bernie Sanders in Iowa, where her lead shrinks by the day, it’s worth noticing that she has never made particular sense as the Democratic Party’s nominee. She may be more electable than her social-democratic rival from Vermont, but plenty of Democrats are better positioned to represent the center-left coalition. Why have they let the former secretary of state keep them out of the race? If Clinton makes it to the general election, I understand why most Democrats will support her. She shares their views on issues as varied as preserving Obamacare, abortion rights, extending legal status to undocumented workers, strengthening labor unions, and imposing a carbon tax to slow climate change.
In the name of emotional well-being, college students are increasingly demanding protection from words and ideas they don’t like. Here’s why that’s disastrous for education—and mental health.
Something strange is happening at America’s colleges and universities. A movement is arising, undirected and driven largely by students, to scrub campuses clean of words, ideas, and subjects that might cause discomfort or give offense. Last December, Jeannie Suk wrote in an online article for The New Yorker about law students asking her fellow professors at Harvard not to teach rape law—or, in one case, even use the word violate (as in “that violates the law”) lest it cause students distress. In February, Laura Kipnis, a professor at Northwestern University, wrote an essay in The Chronicle of Higher Education describing a new campus politics of sexual paranoia—and was then subjected to a long investigation after students who were offended by the article and by a tweet she’d sent filed Title IX complaints against her. In June, a professor protecting himself with a pseudonym wrote an essay for Vox describing how gingerly he now has to teach. “I’m a Liberal Professor, and My Liberal Students Terrify Me,” the headline said. A number of popular comedians, including Chris Rock, have stopped performing on college campuses (see Caitlin Flanagan’s article in this month’s issue). Jerry Seinfeld and Bill Maher have publicly condemned the oversensitivity of college students, saying too many of them can’t take a joke.
If the Fourteenth Amendment means that the children of undocumented immigrants are not citizens, as Donald Trump suggests, then they are also not subject to American laws.
Imagine the moon rising majestically over the Tonto National Forest, highlighting the stark desert scenery along the Superstition Freeway just west of Morristown, Arizona. The sheriff of Maricopa County sips coffee from his thermos and checks that his radar gun is on the ready. A lot of lawmen wouldn’t have bothered to send officers out at night on such a lonely stretch of road, much less taken the night shift themselves. But America’s Toughest Sheriff sets a good example for his deputies. As long as he’s the sheriff, at least, the rule of law—and the original intent of the Constitution—will be enforced by the working end of a nightstick.
Suddenly a car rockets by, going 100 miles an hour by the gun. Siren ululating, the sheriff heads west after the speeder. The blue Corolla smoothly pulls over to the shoulder. The sheriff sees the driver’s side window roll down. Cautiously he approaches.
Many educators are introducing meditation into the classroom as a means of improving kids’ attention and emotional regulation.
A five-minute walk from the rickety, raised track that carries the 5 train through the Bronx, the English teacher Argos Gonzalez balanced a rounded metal bowl on an outstretched palm. His class—a mix of black and Hispanic students in their late teens, most of whom live in one of the poorest districts in New York City—by now were used to the sight of this unusual object: a Tibetan meditation bell.
“Today we’re going to talk about mindfulness of emotion,” Gonzalez said with a hint of a Venezuelan accent. “You guys remember what mindfulness is?” Met with quiet stares, Gonzalez gestured to one of the posters pasted at the back of the classroom, where the students a few weeks earlier had brainstormed terms describing the meaning of “mindfulness.” There were some tentative mumblings: “being focused,” “being aware of our surroundings.”
After calling his intellectual opponents treasonous, and allegedly exaggerating his credentials, a controversial law professor resigns from the United States Military Academy.
On Monday, West Point law professor William C. Bradford resigned after The Guardianreported that he had allegedly inflated his academic credentials. Bradford made headlines last week, when the editors of the National Security Law Journaldenounced a controversial article by him in their own summer issue:
As the incoming Editorial Board, we want to address concerns regarding Mr. Bradford’s contention that some scholars in legal academia could be considered as constituting a fifth column in the war against terror; his interpretation is that those scholars could be targeted as unlawful combatants. The substance of Mr. Bradford’s article cannot fairly be considered apart from the egregious breach of professional decorum that it exhibits. We cannot “unpublish” it, of course, but we can and do acknowledge that the article was not presentable for publication when we published it, and that we therefore repudiate it with sincere apologies to our readers.
Though it wasn’t pretty, Minaj was really teaching a lesson in civility.
Nicki Minaj didn’t, in the end, say much to Miley Cyrus at all. If you only read the comments that lit up the Internet at last night’s MTV Video Music Awards, you might think she was kidding, or got cut off, when she “called out” the former Disney star who was hosting: “And now, back to this bitch that had a lot to say about me the other day in the press. Miley, what’s good?”
To summarize: When Minaj’s “Anaconda” won the award for Best Hip-Hop Video, she took to the stage in a slow shuffle, shook her booty with presenter Rebel Wilson, and then gave an acceptance speech in which she switched vocal personas as amusingly as she does in her best raps—street-preacher-like when telling women “don’t you be out here depending on these little snotty-nosed boys”; sweetness and light when thanking her fans and pastor. Then a wave of nausea seemed to come over her, and she turned her gaze toward Cyrus. To me, the look on her face, not the words that she said, was the news of the night:
How America’s poor sell the contents of their veins to get by
There is no money to be made selling blood anymore. It can, however, pay off to sell plasma, a component in blood that is used in a number of treatments for serious illnesses. It is legal to “donate” plasma up to two times a week, for which a bank will pay around $30 each time. Selling plasma is so common among America’s extremely poor that it can be thought of as their lifeblood.
But no one could reasonably think of a twice-weekly plasma donation as a job. It’s a survival strategy, one of many operating well outside the low-wage job market.
In Johnson City, Tennessee, we met a 21-year-old who donates plasma as often as 10 times a month—as frequently as the law allows. (The terms of our research prevent us from revealing her identity.) She is able to donate only when her husband has time to keep an eye on their two young daughters. When we met him in February, he could do that pretty frequently because he’d been out of work since the beginning of December, when McDonald’s reduced his hours to zero in response to slow foot traffic. Six months ago, walking his wife to the plasma clinic and back, kids in tow, was the most important job he had.
Alaska has more than $50 billion of oil money in the bank. Why can’t it pay its bills?
WASILLA, Alaska—This state has more money in the bank than most small countries. Decades of collecting royalties and revenues from the companies that drilled for oil on its slopes have endowed Alaska with a $50 billion savings account. Residents pay neither income nor sales tax, and every October, they get a check from the government simply for living in Alaska—this year, the checkcould total $2,000.
But the years of plenty may be coming to an end. As the price of oil has fallen from more than $100 a barrel to around $40 and oil production slows, Alaska is seeing the downside of relying on natural resources to pay the bills. For every $5 drop in oil prices, the state loses $120 million, according to Randall Hoffbeck, Commissioner of the Alaska Department of Revenue.
Accusations of terrorism are a window into how the Turkish government tries to intimidate reporters, but also how a media bad boy is maturing.
Under Recep Tayyip Erdogan’s presidency, Turkish journalists have increasingly been badgered, intimidated, threatened, and punished. Now, however, the Turkish government is going after two foreign journalists.
It’s not difficult to see why the Turkish government might not want journalists in the area. Kurdish fighters, some backed by the U.S., have been battling ISIS in Iraq for months. While Turkey opposes ISIS, it’s also terrified of emboldened Kurds pushing for an autonomous state in the region. For decades, Ankara has fought a protracted war against Kurdish guerrilla groups in southeastern Turkey. After long trying to avoid being drawn into the conflict against ISIS, Turkey, a U.S. ally, has begun to take action, but it’s fighting against both ISIS and the Kurds, a strange case where, for the Turkish government, the enemy of my enemy might still be my enemy.
The neurologist leaves behind a body of work that reveals a lifetime of asking difficult questions with empathy.
Oliver Sacks always seemed propelled by joyful curiosity. The neurologist’s writing is infused with this quality—equal parts buoyancy and diligence, the exuberant asking of difficult questions.
More specifically, Sacks had a fascination with ways of seeing and hearing and thinking. Which is another way of exploring experiences of living. He focused on modes of perception that are delightful not only because they are subjective, but precisely because they are very often faulty.
To say Sacks had a gift for this method of exploration is an understatement. He was a master at connecting curiosity to observation, and observation to emotion. Sacks died on Sunday after receiving a terminal cancer diagnosis earlier this year. He was 82.