Sunday, March 27, 2011

Another Cautionary Tale

The New York Times/Yahoo offer this:

... [T]he Employee Benefit Research Institute found the majority of American workers had put away less than $25,000 for their golden years. But even those people are in better financial shape than Susanna Wilson, 70, who saved nothing.

Her only dependable income is a Social Security check of about $900 a month.

“I can never retire,” she said, her voice trembling as she stared at the floor of her living room in Grass Valley, Calif. “Probably about every two weeks when the bills are due, that’s when I get really worried. I think ‘How am I going to pay this one?’ ” ...

Ms. Wilson is not unlike people in their late fifties and sixties who have come into my office. Their stories, quite similar to hers, often go like this:

"I've been working for thirty years without a problem, but now all the work's dried up. I can't get on anywhere. I've only got fifteen years in the Motion Picture Industry Pension Plan because I worked half of that time non-union.

"I've got five thousand dollars saved up, and that's it. And I'm three years away from Social Security. What can you do for me?"

More often than not, my answer is "Not much."

Here are the realities about life in the United States, circa 2011:

1) Social Security will be around for awhile, but no way is it going to cover your living expenses in retirement if you choose to hang onto your working-years lifestyle. And/or stay in the country.

2) Defined Benefit Plans (monthly annuities) are steadily disappearing from the American landscape. The Motion Picture Industry Pension Plan, one of the hardy survivors, is okay but not overly generous. And you may not have a lot of years in it, so the payout might be skimpy.

3) Most people are way too optimistic about how much their 401(k) Plan will earn, and tend to underfund it. Many other people don't participate in a 401(k) Plan at all because they are in and out of work a lot and need every dime, or simply can't be bothered.

4) Most people don't invest money outside of their retirement accounts, but live paycheck to paycheck.

Susanna Wilson, when you strip away all the bark, is a lot like men and women working in the animation business. She went job to job, she was in and out of the work force, she hit various road bumps as she moved down Life's Highway.

And she didn't save anything.

That, friends and neighbors, is the nub of it: If you reach your sixties and you've got little in the bank, you will likely find yourself between a rock and a bigger, harder rock. Because that support group you relied in for work has up and retired, and employment opportunities will dwindle. And you are probably too old to retrain and start a new career. And you are still a few years away from Medicare, Social Security and the industry pension.

Which is why I am telling you for the umpteenth time to start socking it away. (The earlier you do this, the better off you will be.) Why I am telling you to use your 401(k) Plan, even if there is no match. (And more and more there is no match.) Why I am telling you to wise up and take a long hard look at the choices you're making and the road you're on and whether they will serve your purposes over the next twenty or thirty years.

You don't think about these things today, you'll be crying about these things several thousand tomorrows from now. Maybe even sooner.

In the meantime, here are the TAG 401(k) Information and Enrollment Meetings that have been set up for working members over the next couple of weeks:

Disney TV Animtn -- Mon., Mar. 28, 10-11 a.m., Rm. 1173

Disney Toons -- Mon. Mar. 28, 2-3 p.m., Rm. 2025

WDAS -- Tues. Mar. 29, 10-11 a.m., Conf. Rm. 1300

DWA -- Tues. Mar. 29, 2-3 p.m., Dining Rooms B & C

CN Studio -- Wed. Mar 30, 12-1 p.m., conf. rm.

6point2 -- Wed. Mar. 30, 3-4 p.m.

Fox Animtn -- Thurs. Mar. 31, 2-3 p.m.

WB Animtn -- Mon. Aprl 4, 10-11 a.m., conf. rm.

Sony Pict. Anmtn -- Tues. Aprl 5, 2-3 p.m.

Film Rmn -- Wed. Aprl 6, 10-11, glass conf. rm.

Nick Studio -- Thurs., April 7, 2-3 p.m., conf. rm.


Anonymous said...

Sock it away, yes. Social Security was never meant to be the end-all-be-all for retirement, anyway. And if they "privatize" it things will only get worse--especially with no real wall street reforms.

Corporations need to start paying their FAIR share. Time to close the loopholes, folks.

General Electric made $14.2 billion in profit last year, $5.1 billion of which was made in the United States. The corporation received $3.2 billion in tax benefits, but did not pay any money in taxes.

In 2009, Oil giant Exxon Mobil made $19 billion, but paid no federal income taxes. Instead, the corporation received a $156 million rebate from the IRS.

And it's time to stop classifying individual stock holders as "small business owners" as the gNOp continues doing.

Steve Hulett said...

We live in a corporatist state. We have to deal with it.

Save for your retirement. The kind of pensions your grandparents enjoyed are G*O*N*E.

Anonymous said...

Thank you for posting this stuff, Steve. I know too many VFX artists in their late 40's and early 50's who work from gig to gig and have nothing saved for their retirement. They're not sure what they'll do.

I also know younger VFX artists who want to save, but they don't know how. They've vaguely heard of Vanguard index funds and high-interest savings accounts, but they don't know how to put their long-term retirement funds in the former and short-term emergency funds in the latter. They also don't know about using bond funds to lower the risk of their portfolios.

I'm stuck on #4, myself. I max out my Roth IRA and SEP-IRA whenever I qualify for each one, but I have yet to dip a toe into taxable investing waters. I need to work on that part.

Steve Hulett said...

When you get to the investing part, a few basic strategies:

1) Park investment money in broad-based stock index funds. Vanguard Total Stock market (domestic) and Vanguard Total International Index (foreign).

If you can scrape together ten grand, you can sink it into Vanguard Total Stock Market and pay .06% in costs. Studies have shown that the expenses you pay are most of the investment-return ball game. (If they're high, you lose. If they're low -- like under .2% -- you win.)

2) Put bond money in IRA (tax deferred) accounts. Put Real Estate Investment Trusts (REITS) in IRA accounts.

You can't go far wrong building your investment portfolio with low-cost Vanguard index funds on both the bond and stock side. It's a good strategy to set an allocation (60% stocks/40% bonds from age 25 to 40; 50%/50% in middle age; 40% stocks/60% bonds from 65 onward) and sticking with it.

Keeping it clear and simple is the best strategy, I think. But that's me.

Steve Hulett said...

One last thing: The reason to have stocks in investment accounts and bonds in tax deferred accounts is tax efficiency.

Broad-based equity funds have minimal tax consequences because they don't have high stock turnover as actively-managed stock funds often do.

With bond funds, you pay taxes on the interest, so it's best to keep them in 401(k)s and IRAs where there are no taxes paid until you draw on them at retirement age.

Jason MacLeod said...

I like what Steve has to say. Mutual funds are another thing to hold in a tax-deferred account, that way you do not have to pay taxes on the transactions that happen annually to rebalance the funds. Again, looking at expense ratios is a good way to start ranking funds. High expense ratios are a red flag, as are sales loads ( a one-time fee charged when you buy the fund. ) I personally avoid any fund that wants to charge a sales load. I don't believe any of the options in the Guild 401k plan charge a load, but many funds in the open market do. Buyer beware.

Two other points about participating the Guild 401k, or any 401k plan that you have the option to contribute to:

You contribute pre-tax dollars, thus lowering your adjusted gross income. This can make a big difference for taxes.

You can contribute $16,500 for FY2010. (not including the allowable catch-up contributions for those over 50 years old ). The IRA limits top out at $5,000 each for both normal and Roth. There are also income limits on the IRA contributions that you need to pay attention to, particularly if you are married and both partners earn income.

Finally, the IRS website has the rules in detail. You owe it to yourself to be knowledgeable about your options. There might be valid reasons for not putting money away for retirement, but ignorance is not one of them.

Anonymous said...

Steve and Jason: Great posts! I wish more people in our industry would learn more about investing. Please keep this kind of posts coming.

Another thing I would like to add: If you have the means while you are young, please invest! The sooner you do, you won't have to invest as much if you started later. Let compounding interest do most of the work so you don't have to save so much later in life. Even if it's $10 or $20 a week, or even per month. Hopefully it will become a habit. You probably won't even miss it. With any luck, after 30-40 years of doing this, you may not need social security (more than likely it won't be there anyway).

I started putting money away in my late 20's/early 30's and I wished I started earlier!

One final thing I like to add is: don't spend more than you make! It's been mentioned many times here on the blog, I think it can't be repeated enough. I'm pretty low on the pay scale of the animation industry, but I'm able to put money away for retirement. I know people who make over twice as much as I do and they're strapped for cash just for their day to day living.

Anonymous said...

Great posts , being in and out of work with freelance and studio work but doing Ok overall during the year. In spring I calculate my federal and state taxes with and without an IRA deduction and then use my increased tax refund to help fund an IRA contribution for the previous year. This decreases the taxes we owe for last year and uses the withheld funds for the IRA account. Being married filing jointly , we have socked away $10k per year.

Anonymous said...

The single most ignored fact about the miracle of compounding interest is that close to 80% of the value occurs in the last 20% of time. That means you need to be especially vigilant in your years right before retirement or you will fall far short of your goal. So don't get old and lose your job when you turn fifty. Seems unfair, no?

Anonymous said...

Think of money as a commodity. It helps temper your expectations of the 'magic' of compounding interest.

rufus said...

Great post. However, I also share the outrage of the first commenter about GE and Exxon Mobil, and who knows how many other corporations, not paying their dues, stealing from everybody's future. I think it's rather sad how sedate the middle class seems to be....


Anonymous said...

The kind of pensions your grandparents enjoyed are G*O*N*E."

Pensions are just the start of it. The 25-35 year olds in this nation are the first generation in the history of the United States to have a lower standard of living than their parents did.

I'm 39 and out of all of my friends on the west and east coast, maybe one or two have established the life that we all grew up in. Everyone rents. Everyone lives paycheck to paycheck. If you are pulling down a salary that can afford you investments and you have job security, you are the the exception. Cherish it. And don't buy real estate - because those numbers are going to continue to drop for another five years(at least).

In 1960 the average home cost equalled a couple year's salary.

Anonymous said...

Yes. Sock what away? Dimes?

Anonymous said...

To Anon @ 2:02:00,
I'm sure we all spend money on things we don't need (cigarettes!, the 6th latte this week, that third flat-screen tv for the kitchen, the 152nd vinyl toy collecting dust on a shelf). Perhaps instead of buying this stuff, we should try to save the money. I'm not saying live like a pauper, but there's got to be some wiggle room with what you're buying. Maybe have a steak once a week instead of every night. Try to live below your means.

And if you're out of work in the animation industry, try to find work elsewhere. We're all creative people, we can try to be creative in finding work. I was out of the animation industry for 7 months at one time. I found a job at an industrial design-type of company making signs, banners, etc. It wasn't as fun as drawing cartoons, but it was something I could do and it held me over until the next animation job popped up.

Anonymous said...

In 1960 the average home cost equalled a couple year's salary.

Actually, in 1960 the average house cost the equivalent of three years of the average family's income.

For last year, from the stats I can find, the median US home price was $166,100, and the median US household income was $50,000/yr. (Compare that with $16,500 and $5620, respectively, in 1960). Not nearly the dire change you're suggesting. Not to say the economic realities of the present day aren't concerning, but as an older gent here, I remember some pretty concerning economies before.

Anonymous said...

The median home price in Los Angeles is $329,000.

Anonymous said...

The median US income in 1960 was $50,000 a year?!!?? I don't think so. That's WAY too high a figure.

The income for an average family in 1960 was $6,180 per year. (hard to believe right?)

And the average home cost $12,700.00

Which would be exactly what was stated: two years salary. Now, based on the figure above, the average home price in los angeles currently(with the average graphic artists' pay being between 45 and 55 grand a year) is nearly equal to 9 years salary.

Thats quite a drop off in the standard of living. Its a massive drop. There is no economy since the depression that compares to this one.

Anonymous said...

Yes. Depression is a good word for this. Great Recession is hedging something fundamentally deeper.

Ummm...speaking of investment, is anyone aware of what is going on in the world? There is an awful lot of shit broken in the global economy, of which this is all about. It's not just about LA. Let's be frank - be seriously f**king careful out there. kay?

Even the experts agree that in their lifetime, they have never seen the scale of this before. For example -

Anonymous said...

The anonymous fool who is comparing data from 1960 to now is cherry picking what data they want to use to prove their point. You've found faulty national data, you've misrepresented that data (you don't double 'household income' to get 'a couple's income,' idiot), and you're comparing that faulty, misrepresented data to Los Angeles housing prices.

Here's a couple of links showing that in 1960 (and all the way till around 1975) median home prices were about triple median household incomes. Now they're about 3.6 times household income.

The numbers I used for 1960 median household income can be found from multiple legitimate sources and are correct. Median household income in 2008 was the $50000 number I gave (at least according to those dopes at the Census -- some economists pegged it at $52000), and is around $47000 now because of the high number of unemployed.

Just today an economist on NPR was talking about how national housing prices, relative to household income, are the best they've been in 4 decades (this is factoring in mortgage interest rates, which any homeowner like myself will tell you is huge). But you want to believe we're in some economic never-never land, because you're emotionally invested in spreading doom and gloom.

We're in a crummy economic place in many ways, but misrepresenting the facts is no way to deal with it.

Anonymous said...

You're numbers are jacked. Median home price to median household income was 3:1 in 1960, and continued there until 1975. It went a little crazy, and is resetting itself now. Currently it's at 3.6:1. That's historically high, but not as freakish as it's being made out to be. This data is very easy to find. When you factor in mortgage interest rates, home prices are actually the lowest they've been in decades.

Using housing data from a very high priced area, and then using national income numbers, and doubling 'household' income to account for 'couples' (you really didn't study math and statistics, did you?) is nonsense.

I know none of that matters if you're one of the unemployed, or you want to buy a nice house in a decent part of Los Angeles, but that's using anecdotal data to justify conclusions about the entire economy.

Anonymous said...

"...When you factor in mortgage interest rates, home prices are actually the lowest they've been in decades..."

Federal Funds Rate is currently .25%, and scraping the floor. When the Fed is forced into the position of raising it, all homes will suddenly become amazingly affordable again!

Anonymous said...

"Using housing data from a very high priced area, and then using national income numbers"

Ummm, Anon 6:17...

I used income stats for los angeles:

And paired it with average home prices for los angeles:

You retorted with a double shot of assumption combined with stale snarkiness. You're a little sensitive aren't you? Maybe you should stay away from the internet "for 5 or 6 days".

Anonymous said...

And inflation is back! There goes all my retirement figures again. Yay!

Anonymous said...

sneaky thing, inflation. they will figure out how to take away your ability to save anything, in one way or another.

Anonymous said...

I used income stats for los angeles:

And paired it with average home prices for los angeles:

And that was my point. The original commenter (you?) presented misinformation about national stats for 1960, and made outrageous claims about current national stats, to draw dire and exaggerated conclusions.

The evidence that was offered, by you, wasn't national evidence. The original point that in the past an average household could buy a house with a single year's income was false, as was the comparison to the current year.

But hey, if you want to wildly misrepresent national data from 1960, and then compare that misinformation to housing stats for Beverly Hills to draw conclusions about where the economy is now, be my guest. I will definitely take a break from discussing this with people who don't know what they're talking about, and who can't stick to a consistent idea.

Anonymous said...

No one is presenting housing stats for Beverly Hills.
At all. Not once.

You chimed in and I proved you wrong. Get over it dude.

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