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View Diary: States starting to take action on retirement security (42 comments)

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  •  Very Bad Analysis (4+ / 0-)
    Recommended by:
    jbsoul, barbwires, blueoasis, antirove

    In July 1982, following the recession of 1981 but before the strongest years of the 1980s and 1990s kicked in, the Dow closed at 1,000.  In July 1999, the Dow closed at 11,000.  For this 17 year period, the dow grew at an average annual rate of 28%.  

    In the last 14 years, the Dow has gone from 11,000 to 15,000, for this period, the growth is about 2.5%.

    That's 14 years in which the market has returned nothing more than the rate of inflation. How many college savings plans were torched in 2000 and again in 2008? Fact is, there is nothing to suggest that from this point forward the Dow will do any better than 2 or 3% growth similar to the economy for the rest of Obama's term.

    So, an 18 year old will have grown up watching college costs rise at an annual rate of about 6% while his college savings plan returned only 2.5%.

    Or take a 35 year-old in 1999 who was diligent in paying student loans off, saving a down payment for a house, saving to start a family, and start a college savings plan.  So, then at 35 began to save 10% for retirement as well - and has 14 years of shit returns to show for it.

    Or a 42 year-old in 1999 who turns 56 this year - half of his remaining working years are over, and he earned just 2.5% on his 401(k) plan for these past 14 years.  How does he make this up? Is the market really going to return 17.5% for the next 14 years so that he'll average 10%? No.

    In fact, is it even going to return 7.5% per year for the next 14 years so that he'll average 5%? Maybe, but that's the best he can hope for.  

    All those pension plans that had 10% returns factored in; all those 401(k) plans that told you 6% was a conservative return to expect - for 14 years it hasn't happened.

    Fact is, we have lost too much for too long - both college and retirement are beyond too many people's means.  Social mobility is mostly gone, and the jobs we are creating don't pay enough to save enough in the first place, let alone deal with such low returns.

    Welcome to the future - 1% well off and 99% headed towards serfdom.

    Liberalism is trust of the people tempered by prudence. Conservatism is distrust of the people tempered by fear. ~William E. Gladstone, 1866

    by absdoggy on Fri Jul 05, 2013 at 01:27:00 PM PDT

    [ Parent ]

    •  I'm sure any shorter period can be cherry picked (0+ / 0-)

      To validate any analysis you want.

      We were not ahead of our time, we led the way to our time.

      by i understand on Fri Jul 05, 2013 at 01:38:10 PM PDT

      [ Parent ]

      •  Not cherry picking - your period is meaningless (2+ / 0-)
        Recommended by:
        barbwires, blueoasis

        I don't care what the market has done over 100 years - that period is meaningless.

        First, the return over the past 100 years is more like 7.5%, not 10%.

        Let's look at the long history over 3 generations and where we are now:

        1913 - 1943: Because of the effect of the Great Depression and WWII, the Dow went from 90 - 110 during that period, an average increase of less than 1%.  

        1943 - 1973: Grows from 150 to 850, about 6.3%.

        1973 - 2003:  Grows from about 1,000 to 11,500, about 8.5% per year.

        1983 - 2013:  For this generation, we had 19.5% growth over the first 15 years, then 3% over the last 15 years.

        The question is: can we count on the 1980s and 1990s happening again? No, not at all.

        Now that defined benefit plans are out the window and government help for college is lower and lower and the cost of college higher and higher, if all we have is 3% growth over the next 15 years, it will decimate us.

        Also, compared to the past, there is so much volume in the market due to 401(k)s and due to pension plans investing a higher % of their holdings in stocks.  To say nothing of the effect of hedge funds and derivatives.

        We cannot put our retirement and college savings eggs in the basket of the stock market and expect this to work.  We need more programs like social security and non-profit annuity plans.

        Liberalism is trust of the people tempered by prudence. Conservatism is distrust of the people tempered by fear. ~William E. Gladstone, 1866

        by absdoggy on Fri Jul 05, 2013 at 02:44:15 PM PDT

        [ Parent ]

    •  btw, I have no idea why you would look at the dow (0+ / 0-)

      We were not ahead of our time, we led the way to our time.

      by i understand on Fri Jul 05, 2013 at 01:38:47 PM PDT

      [ Parent ]

      •  Really? (0+ / 0-)

        Possibly because it's the most commonly-measured-against index for returns, and because far more than half of the mutual funds and other devices available through 401ks return significantly less per year than DJIA?

        •  You must mean most commonly reported against. (0+ / 0-)

          I don't know anyone who benchmarks off the DOW. Anyone who is banking their retirement on what 30 stocks do is a idiot.

          We were not ahead of our time, we led the way to our time.

          by i understand on Sun Jul 07, 2013 at 10:47:45 AM PDT

          [ Parent ]

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