jfc why did this useless call get scheduled from 6-7pm the day before new year’s eve? especially when all of this could have been handled by email. it’s not even my client, it’s the counterparty. at least i didn’t have to go anywhere.
“I had one piece of advice for younger people in their 30s: Go back to work,” he said. “Even if your company doesn’t let you come back, create your own working environment and invite some people over.”
I lol’d
Trending on the same site.
1. Don’t borrow for college.
Wow thanks for the advice.
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There are some good tips in there. Deferring the commencement of Social Security is a good one that is seldom used. But over all it’s a lot of vague garbage. Like this one:
What the fuck is anyone supposed to do with any of that? The only concrete parts of it (don’t put your investments on auto pilot / adjust to market conditions) are demonstrated to fail when Joe Schmoe tries to actively manage his own money.
How to be financially successful.
Step 1: Don’t borrow money for college
Step 2: ???
Step 3: Get a college degree
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You forgot:
- ???
- Buy a home with straight cash, homie.
As always, the real guides for being financially successful are:
- Start out rich.
- The end.
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I used to think this, but now I’m less sure.
I thought they structured the payouts based on actuarial tables of life expectancy. So they made taking it early vs taking it late a neutral decision (i.e. aggregate payout should be the same). Really the deciding factor should be how healthy you are compared to the average 60-something person.
So, in theory, even if you didn’t need it, if you just took it early and invested it in something low risk, it would be the same as taking it later. I get that there are probably no boomers who actually do that.
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That’s not the only lottery win that leads to success. Even if you grew up not rich, if you won the genetic intelligence lottery and the good parent lottery, that works too. I’m sure we all know plenty of people who made it that way too.
You can certainly make it with just that much, sure, but no one writes financial guides about that. The financial guides that get written up always have these steps that are impossible if you’re not already pretty loaded.
Isn’t that exactly the type of advice Dave Ramsey built his fortune on. If anything, his advice is actually bad if you’re rich and pretty close to optimal if you’re not.
His investing advice blows donkey balls. And his paying off debt strategy is mathematically sub-optimal, but may work better for human nature reasons I guess.
Yeah, “pretty close to optimal” was probably generous on my part. It’s probably the human nature thing plus the fact he breaks the advice into simple steps that a child could follow.
But my main point is that step one of the Dave Ramsey plan is most definitely not “start out rich”.
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???=pull up your bootstraps in all cases.
I think we can assume brainiac here was born on second base. At least.
The “right” answer varies but person, but the current best thinking on this for the typical person boils down the following points:
- Because private sector workers don’t get defined benefit pensions anymore, most people benefit economically from having as much guaranteed-for-life income as possible. Making the monthly SS payment as big as possible, and covering the deferral with savings, is a good strategy for most people.
- Unless you are already terminally ill or something like that, it’s generally not a good idea to try to “beat the actuarial adjustment” by guessing that you will live longer or shorter than the actuarial average. The reason is that the “sampling error” in your date of death is greater than the variance in the expected date of death for healthy vs. unhealthy people. The actuarial neutrality only works in large groups - 10,000 people taking it early will have an equivalent value to 10,000 people taking it late, but any one person has no assurance of the actuarial value of early vs. late.
- If you take it early and invest in something, you will pay taxes on the income from SS and taxes on the investments. If you defer commencement you defer taxes as well.
Obviously, this is right in your wheelhouse. Here’s some things I don’t get:
First
It’s true that the one person has no assurance, but it seems that he should be just as likely to come out ahead with one strategy than the other.
As far as guessing based on how healthy you are I agree that’s pretty tough and like you I’d only assume shorter than average life expectancy if I had something seriously wrong with me.
Also
Are tax payments not included in these actuarial calculations? Calculating the relative value of money today vs money in the future really should involve tax considerations.
All Dave Ramsey-ish advice: If you’re rich, enjoy your life now. If you’re middle class, sacrifice until you’re 65, then pray you’re healthy enough to enjoy life. If you’re poor, build a life for your kids to enjoy.
Debt snowball is mathematically sub-optimal but psychologically more optimal than avalanche though. I think it is even more optimal when we adjust for the population of folks taking Ramsey’s advice. I listened to his show for a bit and these people are broke, in debt, and scared. Money is an emotional drain on their lives and getting any win can be a serious turning point. The Snowball method isn’t perfect psychologically though. For example, one big problem I see with this psychological win is that it is kind of reinforcing the same incentive pathways that helped get the people into debt in the first place (i.e. spending money to feel good) but applying it to debt.
FWIW, I got lucky when I started being able to pay off my debt in that the Snowball and Avalanche methods ended up being the exact same order.
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The adjustment is not this refined. They way they do it is they occasionally have the actuarial team at SS calculate adjustment factors based on longevity and interest rates at that time. Then they keep those adjustments for a while for both administrative ease and to avoid making people think that you’re constantly changing the rules on them. Tax rates are not taken into account as far as I know, I mean they aren’t even adjusting for changes in pre-tax market interest rates. It’s also very hard to predict what one’s tax rates would be in retirement, for some people the SS benefit is going to be like 70%+ of their post retirement income and for other people they will have post retirement income in much higher tax brackets. Definitely not a one size fits all situation.
Anyway, the actuarial factors are surprisingly resilient to bad inputs, lol. An early retirement adjustment factor is calculated by dividing one actuarial factor by another. Assumption changes impact both the numerator and denominator, so while they can be important they do to some extent cancel each other out.