- quote -

I am sure that is true that for some new people that post here saving
is a problem. Although I don't completely agree that being fully debt
free (except for a mortgage) should be a prerequiste for retirement
investing...especially if one has an opportunity for a 401k match and
is not taking advantage of it. But your point is well taken in that
being able to save is important. Personally, I am very cheap when it
comes to certain things. I like to buy items on sale if possible. I
like to comparision shop on the internet before buying higher priced
items. And obviously cutting back on consumption will always help.
These are the types of things that when added up, do save money. Yes
it can take some time, but usually that time is spent doing something
that is nonproductive anyway. So finding creative ways to save money
should be as much of a consideration as investing it.

I was actually logging into Vanguard's site today and noticed an
article discussing the "saving too much" theory
https://flagship.vanguard.com/VGApp/...272007_ALL.jsp

JB

- quote -

EXCELLENT point.

I realize this isn't a Frugal Living newsgroup. But sometimes I see
threads started by people whose problem isn't a lack of investment savvy
so much as it is profligate spending. Oh, they ask what seems to be a
question about investment strategy. But if you read between the lines it's
clear they have poor work prospects, are drowning in debt, living paycheck
to paycheck, and looking for some quick fix, financial engineering
solution.

In my view many of these people need nothing more than a lecture on
thrift. (A la Dave Ramsey, although I concede that his faith-based
approach is offputting to some.) But those of us who are regulars in this
group can't resist supplying all kinds of esoteric financial planning
advice. Before you know it, the thread spirals out of control and becomes
a debate among very sophisticated people about incredibly fine points.
(Actively managed! Index funds!) Or we suggest educational efforts that
are (to me anyway) totally unhelpful for novices, like "read Graham's
book." I think that many who wander in here for the first time require
little more during their first year trying to dig out of the consumer
credit hole than to be told to start clipping coupons and bringing lunch
to work. Once they've paid off the credits cards, own their car free and
clear and established a reserve fund then we debate the next step. Until
then, I think we do them a disservice by suggesting that "investing" can
solve their problems when it's really SAVING they need.

"Thumper" <jaylsmith[at]comcast.net> wrote in message
news:utak33tgn452gj4dhuogbl90s689u7ue0p[at]4ax.com...
- quote -


Define "swimming in it". Do you mean you won't have enough to cover
expenses, or that you won't be able to live high on the hog?

Elizabeth Richardson

On May 4, 12:15 am, Thumper <jaylsm...[at]comcast.net> wrote:
- quote -

This is so rare nowadays (except perhaps in the public sector, and
there, there is more and more outsourcing of jobs to private
contractors).

Even with the pension plan, a 401K, and SS I
- quote -

The only thing you can say is that the DB plan and SS mean you can
afford to take higher risks in the 401k eg by tilting towards small
cap value funds (and my personal favourite at the moment) large cap
value funds, and in general holding equities only in the 401k.

On May 3, 10:50 pm, Will Trice <wwtr...[at]paragondynamics.com> wrote:
- quote -

An analysis which seems to ignore uncertainty about future income (due
to changes in the economy, or personal health) and also liquidity
costs of borrowing money (you borrow money at a higher rate than you
can invest it, in an equally safe asset).

The old rules of thumb hold, I think. Most people need to avoid
consumer debt (other than a 25 or 30 year mortgage), and to save at
least 10% of their gross income towards retirement. Ideally 15%
(including employer contribution towards pension).

I think the problem is we live in a society that rewards impatience,
and makes it possible for us to borrow freely. There's endless
research that shows human beings are not very good at deferring
current pleasure for future gain.

Thumper wrote:

- quote -

This part of my post addressed exactly that, perhaps not the way you
were thinking. Health is a variable, often a binary one, i.e. able to
work or not. Most of the conversation here presumes that one can work
until a retirement date of their own choosing. The woman whose story I
cited above might have lived high on the hog for those 20 years and now
found herself unable to buy groceries.
(I understand your intent, though, one can save and at 62 find they are
no longer fit to travel, and the bankroll is of little use to them.)
There is no one 'right' answer to any of this, just some difficult
choices along the way.
JOE

On Mon, 30 Apr 2007 08:04:04 -0500, darkness39[at]yahoo.com wrote:

- quote -


I agree. I have a defined benefit plan and will retire after 44 years
with the same employer. Even with the pension plan, a 401K, and SS I
won't be swimming in it.
Thumper

On Mon, 30 Apr 2007 08:04:04 -0500, "HW \"Skip\" Weldon"
<skip5700removethis[at]hotmail.com> wrote:

- quote -


- quote -

I wonder what you would hear if you could talk to the ones who
scrimped all their lives and died at 65.
Thumper
- quote -

On Mon, 30 Apr 2007 19:16:52 -0500, joetaxpayer
<joetaxpayer[at]nospam.com> wrote:

- quote -


What you fail to mention is the really big variable, HEALTH. I talk
to people every day that saved for retirement by not going on
vacations they wanted or buying the car they wanted, only to be
afflicted with an illness that prevents these things now.

Even worse is saving, saving, saving, and losing your mate. One must
have balance in these things. If you want that Latte and can afford
it, go for it.
Thumper


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.

On Mon, 30 Apr 2007 11:33:49 -0500, PeterL <po.ning[at]gmail.com> wrote:

- quote -


Exactly.
Thumper

In article <463A58FA.20602[at]paragondynamics.com> ,
Will Trice <wwtrice[at]paragondynamics.com> wrote:

- quote -

Living beneath one's means will _not_ mean a positive outcome,
in the event of unpredictable events that wipe out any temporary
accumulation from doing so. Life is _much_ more uncertain, for
huge numbers of people, than so simple a prescription allows for.
It is fine, as far as it goes -- and such a buffer may be very
helpful in some disastrous events, but may in others make little
or no difference.

joetaxpayer wrote:

- quote -

Indeed. Interestingly (and perhaps disturbingly), under certain
scenarios, Kotlikoff's methodology will recommend living above your
means, and financing your lifestyle. Remember that he's all about
consumption smoothing - you want to live at about the same lifestyle all
your life. So if you're in an earnings lull (or maybe even at the
beginning of your career), then just borrow money and live it up.
You'll pay that money back when you're making more money later. Yikes!

-Will

On May 2, 8:59 pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:
- quote -

Yes. But you didn't need the book to tell you that. The other side
of that is you need to *invest* that money at a decent rate of return
(ie in stocks or real estate).

The book goes into enormous detail about how they do it, but there's
no way of telling if that is a successful strategy, because the
underlying data is a cross-section (rich people at one time) rather
than a tracking survey (following people through their lives).

There might be lots of people who founded their own dry cleaning
businesses, for example, (the book loves small business owners), but
never made a dime-- they pumped their savings back into the business,
and it didn't work out.

- quote -

No but Dickens wasn't telling us the way to wealth. The way to wealth
in Dickens was to befriend an escaped convict in the marshes, who
later goes to Australia, makes a fortune, and leaves it to you in his
will.

- quote -

I read it (and its successor book) as much more prescriptive than
that, and quite moralistic. We had these 'good people' and the
spendthrifts.

There's an industry around this book, and I was trying to highlight
the basic methodological flaw which makes it useless.

joetaxpayer wrote on [Wed, 2 May 2007 19:29:57 -0500]:
- quote -

Wow. That'd be nice. Your assumptions make a little more sense now.

Though I've never seen a 100% match

- quote -

The assumption is that the company is matching the first, say 6%, dollar
for dollar. Someone earning $50K/yr putting in the 6% would have
deposited $5000 over a 20 month period. The $5000, matched, is $10K in
the account. And the employee is only out of pocket $3750 (federal 25%
bracket). Depending on the plans rules, all $10,000 might be available
as a loan, which if used to clear up the bulk of one's credit cards, can
free up cash, and save in this case, as much as $1000/yr in interest.

I am not a fan of pyramiding debt using this method, but given a choice,
I'd look at the numbers long and hard before foregoing that 401(k) match.
JOE

joetaxpayer wrote on [Wed, 2 May 2007 18:21:07 -0500]:
- quote -

How does putting in 5K pre-tax allow for borrowing of 10K according to
this?


Of the myriad 401Ks I have been in, none have allowed borrowing this
mythical 10K if you have under 20K in the account.

Justin wrote:

- quote -

"No matter how much you have in your 401(k) plan, you probably won't be
able to borrow the entire sum. Generally, you can't borrow more than
$50,000 or one-half of your vested plan benefits, whichever is less. (An
exception applies if your account value is less than $20,000; in this
case, you may be able to borrow up to $10,000, even if this is your
entire balance.)"

snipped from a finance web site. Each company has its own rules, but I
believe this is the IRS general rule. I admit that my suggest is a bit
convoluted, not for every one. As with any idea, it may apply to someone
who is disciplined, and can stick to a plan. This is a
suggestion/observation BWS offers "there are a whole slew of messy
assumptions in this math", I don't just accept this, I agree with it. It
falls into a category of the CC cash advance at low rates to either earn
interest at a higher rate or pay higher loans, that needs quite the
disciple to work as well.
JOE
JoeTaxpayer.com

joetaxpayer wrote on [Wed, 2 May 2007 15:09:30 -0500]:
- quote -

Huh? What?

Any 401(k) I have been has only allowed you to borrow 50% max of what's
in there.

joetaxpayer <joetaxpayer[at]nospam.com> writes:
- quote -

There are a whole slew of messy assumptions in this math,
too many to make it worth most of the (otherwise interesting)
exercise you went through.

Barring the most extreme of circumstances, I'd generally
recommend never borrowing from your 401k, even if it is
permitted under one's plan.


--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

BreadWithSpam[at]fractious.net wrote:

- quote -

Keep in mind, the first $10,000 in the 401(k) is 100% available for a
loan, about 8% rate. A 25% bracket person puts in $5000, costing them
$3750, but creating $10000 that can be borrowed at 8% rate. That $10,000
can be used to pay off a card that was costing $2000/year in interest,
and freeing up monthly funds to make further 401(k) deposits with no
further borrowing needed. As with anything, there are risks, but a
disciplined person can use this concept to save, pre-tax, and to
leverage their way out of debt. (Yes, there was a spreadsheet behind
this, long and boring. End result was a good jump start toward the
retirement savings.)
JOE