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.
The First Lady took to the stage at the Democratic National Convention, and united a divided hall.
Most convention speeches are forgotten almost before they’re finished. But tonight in Philadelphia, Michelle Obama delivered a speech that will be replayed, quoted, and anthologized for years. It was as pure a piece of political oratory as this campaign has offered, and instantly entered the pantheon of great convention speeches.
Obama stepped out onto a stage in front of a divided party, including delegates who had booed almost every mention of the presumptive nominee. And she delivered a speech that united the hall, bringing it to its feet.
She did it, moreover, her own way—forming a striking contrast with the night’s other speakers. She did it without shouting at the crowd. Without overtly slamming Republicans. Without turning explicitly negative. Her speech was laden with sharp barbs, but she delivered them calmly, sometimes wryly, biting her lower lip, hitting her cadence. It was a masterful performance.
A 30-step review of the mayhem in Philadelphia, and what Clinton’s convention says about the future of the American political system.
Hillary Clinton, her advisers, and their allies at the Democratic National Committee watched Donald Trump’s nominating convention in Cleveland with smug satisfaction.
Team Trump had insulted Ohio’s governor, approved a Melania Trump speech that plagiarized Michelle Obama, lied about the plagiarism, and allowed Ted Cruz to expose party divisions in a prime-time speech.
“Hey @Reince,” Democratic National Committee chairwoman Debbie Wasserman Schultz tweeted GOP chairman Reince Priebus. “I’m in Cleveland if you need another chair to keep your convention in order.”
Schultz reflected the Democratic establishment’s false sense of security. Headed to their convention in Philadelphia, Democrats felt more united than Republicans, better organized, and less vulnerable to the long-term disruption of a populist insurgency.
All hell broke loose.
WikiLeaks released 20,000 emails stolen from DNC computers, proof of the worst-kept secret in Democratic politics: The party worked against socialist-populist Bernie Sanders to ease Hillary Clinton’s path to the nomination. The FBI said it would investigate whether Russia hacked the DNC to influence the U.S. election.
All hell broke loose.
“Lock her up!” chanted Democratic activists in the streets of Philadelphia. These Sanders supporters carried signs and wore T-shirts that called for Clinton’s indictment, channeling those GOP delegates in Cleveland who drew rebukes for defying old rules of political decorum.
Schultz cut a deal with the Clinton team to resign, effective upon the conclusion of the convention. She planned to open and close the gathering with remarks lauding her leadership.
All hell broke loose.
Addressing delegates from her home state of Florida, Shultz chastised an unruly crowd carrying signs reading “Division!” and “EMAILS.” She said, “We know that the voices in this room that are standing up and being disruptive, we know that is not the Florida we know.”
“Shame! Shame! Shame!” crowd members chanted. Schultz scurried out of the room.
Sanders himself tried to prevent a show of disunity on the convention floor, pleading with his supporters to back Clinton. Having promised his followers “a revolution,” he now fed them bitter pragmatism. “Brothers and sisters,” Sanders said, “this is the real world that we live in.”
All hell broke loose.
While the streets filled with a sweaty mass of angry Sanders supporters—mostly young and white and disconnected from the political system—the Clinton team told Shultz she couldn’t address the convention.
Sanders sent his supporters a text message, urging them not to protest on the convention floor.
All hell broke loose.
As the convention came to order, hundreds of Democrats protested outside. “No, no, DNC—we won’t vote for Hillary!”
Inside, Cynthia Hale mentioned Clinton’s name during the opening prayer. Some delegates booed, others chanted for Sanders.
There would be more protests.
Eventually, Clinton likely will regain control of her convention. Like in Cleveland, the desire to defeat a hated enemy will overcome internal differences. The blues will line up against the reds, Wall Street will support both teams, Clinton will win in November, and the status quo will declare victory over change. Populist unrest will broaden and intensify.
Or Trump will win. He won’t keep his promises, because he never does. He won’t make America any greater than it already is. He might make it worse. The status quo will declare victory over change. Populist unrest will broaden and intensify.
Whether it’s Clinton or Trump, historians will note how a billionaire celebrity took over the GOP with an anti-trade, anti-immigration nativism, setting fire to the political playbook that guided campaigns for the last half of the 20th century and the first decade of the 21st.
Today will be long remembered, too. Sanders couldn’t calm the churning of his supporters and, as in a mutiny aboard a pirate ship, the deckhands have seized control from the captain.
This could be the start of something big inside the Democratic Party. What if, for instance, Sanders’s coalition banded together with Black Lives Matters to create Tea Party-like takeover of the Democratic Party?
People have witnessed disruption in the retail, entertainment, and financial industries—in virtually every institution except for government and politics. In an era of choice and technological efficiency, the American voter is given a binary choice and gridlocked government.
Most Americans want something better than what the Democratic-Republican duopoly crams down their throats.
They’re mad as hell and, as evidenced in Cleveland and Philadelphia, they’re just starting to realize how powerful they are. They don’t need to take it anymore.
The Vermont senator closed the first night of the Democratic National Convention in Philadelphia with a show of unity, but his supporters weren’t necessarily with him.
After a contentious start to the Democratic convention, Bernie Sanders took the stage at the end of the night on Monday, to an adoring crowd. By the time he left, he did not seem to have succeeded in convincing his most ardent supporters to stand with Hillary Clinton.
Sanders framed the election as a clear choice between the threat of Donald Trump in the White House, and the far better outcome of a President Hillary Clinton. “We need leadership, which brings our people together and makes us stronger—not leadership which insults Latinos, Muslims, women, African Americans, and veterans and divides us up,” Sanders warned. “By these measures, any objective observer will conclude that—based on her ideas and her leadership—Hillary Clinton must become the next president of the United States. The choice is not even close.” The line met with loud cheers and applause.
Hillary Clinton is running as the candidate of continuity—but Bernie Sanders, Elizabeth Warren, and most white Democrats think America is headed in the wrong direction.
Many commentators, watching the two party’s conventions, have noted that Democrats and Republicans seemed to describing different countries. But if you listened carefully last night, you heard two groups of Democrats describing different countries too.
The night began with Michelle Obama, who said, “I wake up every morning in a house that was built by slaves. And I watch my daughters—two beautiful intelligent black young women—play with the dog on the White House lawn. And because of Hillary Clinton, my daughters and all of our sons and daughters now take for granted that a woman can be president of the United States. Don't let anyone ever tell you that this country is not great. That somehow we need to make it great again. Because this right now is the greatest country on Earth.”
Ask yourself, is all that wasted time really rewarding? And other tips from Charles Duhigg, who wrote the book on productivity.
Why is it that the more work I have to do, the more the Internet beckons me into its endless maw of distraction? Oh Lord, I will say, appealing both to myself and to whatever blog-God might be listening, I have an hour to finish this article.
But first, isn’t this Tasty video fascinating? I’ve never thought about making buffalo-fried cheese nuggets before, but now that I’ve watched a pair of disembodied hands prepare them so expertly, I should definitely head over to Amazon and Prime me some buffalo sauce.
This is how I found myself, exhausted after leaving work at 8 p.m. one day recently, flopping onto my bed, still in my pencil skirt, and clicking open a horrific, traffic-mongering slideshow linked from the bottom of an article I was reading. It was about Stars Without Makeup or What Child Stars Look Like Now or some other rancid meat for my hungry lizard brain.
The president’s belief in policies that can benefit all Americans is being repudiated by voters, in favor of a vision of politics as a zero-sum game.
The 2016 presidential race represents a vivid rejection of the Obama style. This is easy to miss: His approval ratings are climbing, and Hillary Clinton won the Democratic primary by running as his successor. But the two most dramatic and portentous campaigns of the year, Donald Trump’s vertiginous win and Bernie Sanders’s astonishing insurgency, both flew in the face of the Obama era’s premises.
The Obama style had two pillars. He brought to apotheosis the American political tradition of redemptive constitutionalism. This is the creed of Abraham Lincoln’s Gettysburg Address and Second Inaugural, Martin Luther King Jr.’s “I Have a Dream” speech, and Lyndon Baines Johnson’s nationally televised speech on the Voting Rights Acts of 1965, in which he promised, “we shall overcome.” Redemptive constitutionalism holds that democracy and equal freedom really are the nation’s foundations, that slavery and Jim Crow were terrible deviations from these principles, and that, if we manage to take them seriously, to live by them, Americans will finally be free together.
The pressures of national academic standards have pushed character education out of the classroom.
A few months ago, I presented the following scenario to my junior English students: Your boyfriend or girlfriend has committed a felony, during which other people were badly harmed. Should you or should you not turn him or her into the police?
The class immediately erupted with commentary. It was obvious, they said, that loyalty was paramount—not a single student said they’d “snitch.” They were unequivocally unconcerned about who was harmed in this hypothetical scenario. This troubled me.
This discussion was part of an introduction to an essay assignment about whether Americans should pay more for ethically produced food. We continued discussing other dilemmas, and the kids were more engaged that they’d been in weeks, grappling with big questions about values, character, and right versus wrong as I attempted to expand their thinking about who and what is affected—and why it matters—by their caloric choices.
Physicists can’t agree on whether the flow of future to past is real or a mental construct.
Einstein once described his friend Michele Besso as “the best sounding board in Europe” for scientific ideas. They attended university together in Zurich; later they were colleagues at the patent office in Bern. When Besso died in the spring of 1955, Einstein—knowing that his own time was also running out—wrote a now-famous letter to Besso’s family. “Now he has departed this strange world a little ahead of me,” Einstein wrote of his friend’s passing. “That signifies nothing. For us believing physicists, the distinction between past, present, and future is only a stubbornly persistent illusion.”
Einstein’s statement was not merely an attempt at consolation. Many physicists argue that Einstein’s position is implied by the two pillars of modern physics: Einstein’s masterpiece, the general theory of relativity, and the Standard Model of particle physics. The laws that underlie these theories are time-symmetric—that is, the physics they describe is the same, regardless of whether the variable called “time” increases or decreases. Moreover, they say nothing at all about the point we call “now”—a special moment (or so it appears) for us, but seemingly undefined when we talk about the universe at large. The resulting timeless cosmos is sometimes called a “block universe”—a static block of space-time in which any flow of time, or passage through it, must presumably be a mental construct or other illusion.
It’s known as a modern-day hub of progressivism, but its past is one of exclusion.
PORTLAND, Ore.— Victor Pierce has worked on the assembly line of a Daimler Trucks North America plant here since 1994. But he says that in recent years he’s experienced things that seem straight out of another time. White co-workers have challenged him to fights, mounted “hangman’s nooses” around the factory, referred to him as “boy” on a daily basis, sabotaged his work station by hiding his tools, carved swastikas in the bathroom, and written the word “nigger” on walls in the factory, according to allegations filed in a complaint to the Multnomah County Circuit Court in February of 2015.
Pierce is one of six African Americans working in the Portland plant whom the lawyer Mark Morrell is representing in a series of lawsuits against Daimler Trucks North America. The cases have been combined and a trial is scheduled for January of 2017.
Biology textbooks tell us that lichens are alliances between two organisms—a fungus and an alga. They are wrong.
In 1995, if you had told Toby Spribille that he’d eventually overthrow a scientific idea that’s been the stuff of textbooks for 150 years, he would have laughed at you. Back then, his life seemed constrained to a very different path. He was raised in a Montana trailer park, and home-schooled by what he now describes as a “fundamentalist cult.” At a young age, he fell in love with science, but had no way of feeding that love. He longed to break away from his roots and get a proper education.
At 19, he got a job at a local forestry service. Within a few years, he had earned enough to leave home. His meager savings and non-existent grades meant that no American university would take him, so Spribille looked to Europe.