Comments on: Chart of the day, retirement account edition A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: zopem2 Fri, 16 Sep 2011 11:19:07 +0000 This is quite possibly the worst chart ever. For those of you who were even remotely fooled into thinking that this guy has any idea what he is talking about; please think again. The chart is a joke. What is wrong? Let me help:

1) You can not chart average balances to compare total returns with an index. The contributions being made to the 401k accounts would skew the results (like it does here)

2) The chart axes should show percentage changes, not absolute values. This also skews the graph and makes it impossible to interpret (not that the underlying data has any validity)

3)A growth in 401k account balances could be attributed to non-market factors such as: more people retiring or leave the firm (smaller denominator), accelerated contributions (higher numerator), or some other factor.

The only thing that this chart measures, at least in proportional terms, is the author’s relative level of stupidity vs. the average population. As you can see it is rising over time, presumably as he becomes more confident in his poorly researched theories. Honestly, what qualifications do you need to be a financial writer? Apparently none.

By: TFF Thu, 15 Sep 2011 21:43:49 +0000 “Plus the grandparents provide childcare while both parents work, if needed, saving money.”

Our first child was born in 2002. I could have quit at that time (or if I wanted to be fair to my employer, a few months ahead of the birth). Instead we arranged for my mother-in-law to live with us for a year and a half, while I continued working. That continued employment generated another $80k-$90k in income, which has grown to $150k-$200k in our retirement accounts.

Giving up $90k of income in your early 30s is very expensive.

By: DanHess Thu, 15 Sep 2011 19:24:11 +0000 “That is always the alternative. Rethink some of our assumptions about living arrangements (children moving out only when they get married, elderly parents living with children) and you save a lot of money over what has in recent decades been the American norm. It might not be fun to live with your MIL, but there are times that it makes clear economic sense.”

Yup. There’s the number one answer, tough as it will be. All the supersized houses built in recent years are perfect for multi-generational living, and now they are cheaper. Plus the grandparents provide childcare while both parents work, if needed, saving money. If the grandparents need to be cared-for, their adult children can do that, saving more money. Less wild living means fewer visits to the shrink, saving yet more money.

By: TFF Thu, 15 Sep 2011 13:03:04 +0000 Here’s a thought…

When states want growth, they frequently use tax incentives to steal companies from other states.

If the US wants growth, might it steal talent, capital, and innovation from other countries? What policies would favor this?

By: Auros Thu, 15 Sep 2011 04:27:22 +0000 I’m with AlexH and Silliness, above; the chart makes no sense. Of course 401k balances outperform market indicators. The 401k balances have money pouring in, in the form of deposits. If we were in a normal economic period when you were hiring lots of young go-getters, then the average would not go up quite so much from that effect, but at the moment, nobody’s hiring, and if anything we’re seeing a process where the most recent hires get laid off.

By: y2kurtus Thu, 15 Sep 2011 02:32:05 +0000 DanHess you are right on the money. I actually think it is even bleaker for the wealthy nations. One generation ago there were only 1 billion people who lived under the framework of capitalisim and democracy. We are fast approaching 4 billion living under those conditions today. Much as I would like to belive that a banker in the US is worth more than a banker in Vietnam the invisible hand seems to think that developed nation incomes are a little too high emerging economy incomes are a little to low.

The key is how fast will the global economy rebalance the massive inequities that exist today. Even if it takes an entire generation it will feel like we are at best swimming franticly in place. Tell your loved ones to constantly strive to build up both their marketable skills and personal capital… anyone who dosen’t will almost surely be falling behind.

By: TFF Thu, 15 Sep 2011 02:30:36 +0000 DanHess, you know that I am a big proponent of education, both for self-improvement and as an economic driver. (It makes more sense to employ people as teachers than to employ people building more McMansions, or a bridge to nowhere…)

That said, Megan McArdle had an interesting commentary on a post by Arnold Kling: ive/2011/09/the-new-new-new-economy/2450 28/

Specialized skills are still in demand, but compensation may be plateauing. And part of the reason they are well-compensated is because they are rare. Train ten million IT professionals and you will have 9 million unemployed IT professionals (with falling salaries for the remaining employed).

My sense is that creativity and entrepreneurship are still immensely valuable, and likely always will be. But can this be an answer for the broader economy?

“The thing left to do is make one’s life cheaper.”

That is always the alternative. Rethink some of our assumptions about living arrangements (children moving out only when they get married, elderly parents living with children) and you save a lot of money over what has in recent decades been the American norm. It might not be fun to live with your MIL, but there are times that it makes clear economic sense.

By: DanHess Thu, 15 Sep 2011 02:03:49 +0000 TFF —

I agree with would, answers are very tough. Certainly, there is no sense in make-work or having people do things that aren’t really important just to keep them busy.

I was listening to NPR on Monday night (a rerun of something from earlier that day). The topic related to job creation with Texas being a case study. Huge job creation, but the jobs often don’t pay that great.

Then they had a snippet of Bill Gross talking and my ears perked up. Basically he said that Americans in the globalized world just have to get used to earning a lot less. To hear him talk, we Americans just have to get used to Texas-style job creation, i.e. you can get your jobs but not for great pay. As you can imagine, the NPR callers don’t accept that and I partially agree with them that solid pay is still possible with useful education.

But I think the ‘great adjustment’ will have to involve US wages coming down a lot because we aren’t even on the same order of magnitude as China yet and not all of the adjustment will come from them.

The thing left to do is make one’s life cheaper.

(1) Houses and mortgages are now much more affordable. Enjoy if you can, or get a downpayment so you can participate there.
(2) Online education is opening up. You can learn anything you want to under the sun and then certifications, bar exams and all the rest.
(3) Walmart helped gut American manufacturing. One might as well take advantage of their low, low prices and let the rich support the boutique stores.
(4) The best forms of recreation are free. ;)

People will just have to humble themselves or hustle hard. True status is not primary about material wealth anyway, it is about integrity and charity, education and manners.

By: TFF Thu, 15 Sep 2011 00:22:11 +0000 DanHess, that is an excellent point. Have been pondering it for a decade, and still don’t have a solid answer.

I could describe my own vision for a “right-sized” economy, but others obviously prefer a different emphasis. Ideally each individual should have the opportunity to find their own answer.

The greatest challenge may be distribution of the wealth. We can meet the basic needs of society with fewer workers than ever before — so how shall the other 90% of the population be employed?

If you get a chance, read the “Beggars in Spain” series by Nancy Kress (c) 1993. Hopefully we can find a better answer than that.

By: chappy8 Wed, 14 Sep 2011 23:03:01 +0000 This graph is incredibly misleading. Show me a graph that shows the average balance per eligible employee, not just those with balances. The reality is that many Americans aren’t covered by a pension of any kind, and that the median balance is $0. I’d also be interested to know if the TR match has changed over time. Also, while Brightscope ratings are limited, TR’s rating does seem to be above it peers.

Frankly, I think this post is a little off. If you ask me the most important thing for retirement saving is having a good job with an employer that offers generous benefits and is a meticulous plan fiduciary that monitors plan costs. Of course, once these selections are made, actually contributing to the plan is important.