getting and EF while poor

[disneysteve]

The average renter earns about $16 an hour. But a new report says renters actually need to earn $20 more an hour — $36.13 to be exact — to afford a two-bedroom, modest rental in the state.

Again, stats like that confuse me. Obviously, people aren't earning that much but they are renting so how do they come up with those numbers? People are affording it somehow.

[Smallsteps]

Again, stats like that confuse me. Obviously, people aren't earning that much but they are renting so how do they come up with those numbers? People are affording it somehow.

That is why the words poor / poverty / affordable and frugal are IMO words without clear definition.

If you were able to get a Mortgage ( not the free for all anyone with a pulse mortgages) you are doing better then you think.
If you are able to put any part away for retirement you are better off then you think.

Most of the stats figuring out costs are based on assumptions. I looked at what was in these figures and the "average " they used was far above what I spend on things like clothing allowances and food and even gas amounts. Many figure in items that lower earners do not buy.
Also in most states the HCOLA raise the average for the states when in reality other areas in a state can be more affordable.

[~bs]

Again, stats like that confuse me. Obviously, people aren't earning that much but they are renting so how do they come up with those numbers? People are affording it somehow.

The way the stats work is they apply a single baseline to be able to make comparisons across different markets. By using a single affordability metric, you can see which markets are way out of whack with other markets, and the residents going to extra lengths to survive.

simple, packing more people into the 2 bedroom house or living 2-3 people in a tiny studio. The standard housing cost measurement is based on 30% of salary for rent/mortgage cost. Reality is that people are spending much more of their salaries on housing and getting more roommates to make up the $20 gap. I know it sounds crazy, but it's normal around here. Every so often we'd get a house fire, a single story house that burns might displace like 8-10 people.

[disneysteve]

The way the stats work is they apply a single baseline to be able to make comparisons across different markets. By using a single affordability metric, you can see which markets are way out of whack with other markets, and the residents going to extra lengths to survive.

simple, packing more people into the 2 bedroom house or living 2-3 people in a tiny studio. The standard housing cost measurement is based on 30% of salary for rent/mortgage cost. Reality is that people are spending much more of their salaries on housing and getting more roommates to make up the $20 gap. I know it sounds crazy, but it's normal around here. Every so often we'd get a house fire, a single story house that burns might displace like 8-10 people.

And then they run into insurance issues because they were exceeding the capacity or had more people living there than code allows for

[~bs]

im not sure if that's something the insurance company really looks into. at least the media doesnt report that. It happens frequently enough that you'd think they'd report insurance claim getting denied on that basis. Off the top of my head, I dont remember ever seeing a fire insurance clause regarding max occupancy of the house/apartment. I do know that they prefer the home to be occupied versus vacant.

i have seen them deny deliberate arson by the owners though.

[LivingAlmostLarge]

I started work in 1989, I believe. Maybe 1988. I quit when I got married in 1999, and I remember that I got a large raise one month before I quit, which raised me up to $12.05 an hour, I think. Might have been $12.50 or something close. I know my take home was $1,000 a month and $550 went to my mortgage, so $450 for all of my bills and groceries. My husband makes over $100,000 a year, so we are not poor by any means, but we are probably the least well off in our neighborhood from the looks of things. I started the 403b during a huge bull market, so my money was earning a ton more in the 403b than it would in a savings account. And it was taken out of my check before I got it, so it was like I never had it to begin with. I realized that I could either be poor for a while now, or poor my whole life if I didn't start saving for retirement so that was my priority. I did try to have an EF, but I would need a new tire because some idiot smashed a beer bottle in the parking lot, or I needed a new muffler, or a friend desperately needed help and then didn't pay me back. It was so much easier to use the 403b because there were no restrictions, no fees, I paid the interest to myself instead of a bank, and my retirement balance still kept going up even after borrowing from it.

that's exactly what I mean. It's hard to imagine living like that. I get some of it. We were definitely on the lower end growing up. Definitely my mom was paycheck to paycheck and using loans to go on vacation. I always cringe when she laughs and said she took out a loan for us to go to disneyland the summer before i turned 5. She thought just once we should be able to do something fun. And my family were going to go as cheap as possible to stretch a dollar. Doing crazy flights and drives and sharing rooms and cooking. So she took out a loan. People here (including myself) would probably shame her for spending money we didn't have. But hearing from Msomnipotent sort of what I feel happened. My mom didn't save for retirement until I was done with college. However she had a pension so she got super lucky. She didn't know anything about saving for retirement but like she said the main thing is people always said leave your money with the state and retire early and well! And she did. She had 35 years and she gets 70% of her income now, free medical, and paid for it by saving nothing. This is how pensions don't work.

[~bs]

A lot of people in the baby boomer generation with pensions lived like that. my parents both have federal pensions and they probably make close to what they did while working. having a pension (and relying on it) essentially means you can go through life with 0 savings and still be able to come out ok in the end.

I think in general, working a job with a pension makes raising a family a little easier. Even if you have low/no savings for the 18 years+ you're raising your kids, you're still building a nest egg in the form of the pension. With a private company, they may match a portion of 401k contributions, but even contributing 3% plus 3% match or something similar is not adequate for retirement. You'd probably need 15%-20% savings to match a good pension.

[LivingAlmostLarge]

A lot of people in the baby boomer generation with pensions lived like that. my parents both have federal pensions and they probably make close to what they did while working. having a pension (and relying on it) essentially means you can go through life with 0 savings and still be able to come out ok in the end.

I think in general, working a job with a pension makes raising a family a little easier. Even if you have low/no savings for the 18 years+ you're raising your kids, you're still building a nest egg in the form of the pension. With a private company, they may match a portion of 401k contributions, but even contributing 3% plus 3% match or something similar is not adequate for retirement. You'd probably need 15%-20% savings to match a good pension.

Yep my mom is a boomer. She is 67. She retired at 55 with 70% of her income. Yep she said she gets that sort of thing doesn't exist. You save nothing and can almost replace your income when you retire and save nothing into the pension fund. Actually they took 7.8% but it was only ~$200k when she retired at 55. That money she ran through in 5.6 years I calculated for her based on $4k/month. And that is 20% of what she would have needed to save to generate that much income. Hence why pensions are going broke. She's been living off the state dime now for 7+ years. I thin they deserve it, but boy is it a good way to live.

[disneysteve]

You'd probably need 15%-20% savings to match a good pension.

Exactly, which is why the standard advice is to save at least 15% for retirement from the time you start working.

[disneysteve]

You save nothing and can almost replace your income when you retire

I wonder how true it actually is that you were saving nothing. Might your salary have been higher if the company wasn't funding a pension on your behalf? It was part of your total compensation package. Isn't it generally true, for example, that government jobs pay less than comparable jobs in the private sector? Is that partly because the government job comes with the government pension?

Does anyone know if anyone has studied this? Is there any data to suggest or support that workers today aren't actually any worse off without pensions because they're earning more in the process? They have to do their own retirement savings instead of it being done automatically for them but if they have more money to work with than they otherwise would, maybe they aren't really missing out on anything.

[~bs]

I wonder how true it actually is that you were saving nothing. Might your salary have been higher if the company wasn't funding a pension on your behalf? It was part of your total compensation package. Isn't it generally true, for example, that government jobs pay less than comparable jobs in the private sector? Is that partly because the government job comes with the government pension?

Does anyone know if anyone has studied this? Is there any data to suggest or support that workers today aren't actually any worse off without pensions because they're earning more in the process? They have to do their own retirement savings instead of it being done automatically for them but if they have more money to work with than they otherwise would, maybe they aren't really missing out on anything.

It is generally true that salaries are lower than the private sector which is offset by the extra fringe benefits. It's not always the case though, and really depends on the state/county/fed job and the position.

Every once in a while people talk about cutting back or getting rid of the pension or reducing vacation/sick days or otherwise cutting back on benefits, but what that will do is make the job less attractive than the private sector, resulting in unfilled positions or less qualified candidates. In my state, there are a lot of positions, generally specialized positions, that are chronically vacant. And the reason is that the salary structure doesn't adequately compensate for the position. If the position pays 200k private sector, why would a qualified individual want to work for the government for 80k starting.

So in the sense that the government job pays 15% lower or so than the private sector, in essence, that underpayment can be considered the "savings". for the pension. So you are correct, that the pension is essentially a type of forced savings. Also many pensions nowadays do require some sort of employee contribution

[Smallsteps]

I had a discussion the other day about this type of thing. many things have this kind of trade off.... maybe a lower salary but more generous benefit packages. One way or another people are paying into things.
I think I offended some of my friends when I pointed out how some thought saving for yourself ad making choices like the 401k system was the best thing for all …. and now ….they sit and lament over the Good ole days of pensions.
Public pensions are becoming a sore spot for the simple fact they simply did not manage them well or fund them enough for the big promises they made. NO one wants to be the one to speak the truth that simply the well is dry so they keep digging deeper.

[~bs]

Yeah, if you make $100k private sector and put $20k/year towards your 401k, that may be roughly equivalent to the 80k government salary with pension

Correct, a lot of the issues with pension funding are because of theyre not managed well or made promises they couldnt keep. That's part of the problem with politicians, they make short term decisions to benefit themselves (in this case, buying votes) and not thinking about long term implication (such as the underfunding problem)

In my state, the politicians raided the pension fund systematically to fund pet projects in the 2000s. Now we're sitting on a pension deficit of 10 billion (roughly equal to the state budget for 1 year) Had they not raided the fund, there would be no deficit. So now, they're making hefty "catchup contributions", which are projected to increase yearly for the next 30 years before they get caught up. To me, its amazing that this type of financial mismanagement went unpunished. But I guess that's par for the course in politics. Even that detroit pension fund bankruptcy that made news a few months back could have been avoided by not engaging in decades of mismanagement.

[LivingAlmostLarge]

I wonder how true it actually is that you were saving nothing. Might your salary have been higher if the company wasn't funding a pension on your behalf? It was part of your total compensation package. Isn't it generally true, for example, that government jobs pay less than comparable jobs in the private sector? Is that partly because the government job comes with the government pension?

Does anyone know if anyone has studied this? Is there any data to suggest or support that workers today aren't actually any worse off without pensions because they're earning more in the process? They have to do their own retirement savings instead of it being done automatically for them but if they have more money to work with than they otherwise would, maybe they aren't really missing out on anything.

DS maybe it is true that you save the difference. But clearly BS and my Mom are not the outlier but rather the norm of both federal workers and workers in general. Save nothing for retirement but still come out making the same because the pension takes care of it. Now if you tell me that workers are automatically enrolled in 401k from their first job? Maybe. But when the average 401k balance is $100k and as you like to point out that's like only 50% of the population even has access to it, then how is it ubiquitous? How have people actually saved 15%? I mean 15% of $50k ($7500) for even 10 years @ 6% will yield $98k. Or 4% will yield $90k. So you tell me how are people really saving if the average balance is $100k? Even 0% will give you $75k after 10 years. So how much are people really saving?

[disneysteve]

DS maybe it is true that you save the difference. But clearly BS and my Mom are not the outlier but rather the norm of both federal workers and workers in general. Save nothing for retirement but still come out making the same because the pension takes care of it. Now if you tell me that workers are automatically enrolled in 401k from their first job? Maybe. But when the average 401k balance is $100k and as you like to point out that's like only 50% of the population even has access to it, then how is it ubiquitous? How have people actually saved 15%? I mean 15% of $50k ($7500) for even 10 years @ 6% will yield $98k. Or 4% will yield $90k. So you tell me how are people really saving if the average balance is $100k? Even 0% will give you $75k after 10 years. So how much are people really saving?

Pensions certainly had the advantage of being automatic and idiot-proof. You couldn't raid your pension account to buy a new car or go on vacation but people do it all the time with their 401k. And participation wasn't voluntary so you got it no matter how bad your own financial habits were. Auto-enrollment in 401k plans is a great idea but many places still do so at far too low a level to be worthwhile. I think it's 3% where I work. It's better than nothing but certainly isn't nearly enough if that is your only retirement savings. And even if it automatically goes up 1%/year, it will be a decade or more before you're actually saving enough.

Used properly, 401k plans are great. The problem is that most people don't use them properly.