getting and EF while poor

[Captain Save]

If you're poor .. the key is to increase your income..,,, Why don't all these retirement/FIRE people talk about that... Hmmm I wonder why.. things that make you go hmmmmmmmm....

[~bs]

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.

Also 401ks subject you to market risk, which can be good or bad, depending on your investment choices and stock market. pensions pay on a set formula. It's basically similar to a private social security plan

[disneysteve]

Also 401ks subject you to market risk, which can be good or bad, depending on your investment choices and stock market. pensions pay on a set formula. It's basically similar to a private social security plan

Definitely. Pensions clearly have some advantages. 401ks also have some advantages. Neither is perfect and 401ks are a lot more hands on which is problematic. Plus the existence of 401k loans is one of the worst financial inventions ever.

[~bs]

. Plus the existence of 401k loans is one of the worst financial inventions ever.

Agreed. The model for drawing out of a 401k should follow the restrictions for early retirement/drawing of pension. Basically requiring medical disability requested by the physician and approved by the pension board. Allowing people to withdraw retirement funds for short term hardship is foolish.

[Captain Save]

Agreed. The model for drawing out of a 401k should follow the restrictions for early retirement/drawing of pension. Basically requiring medical disability requested by the physician and approved by the pension board. Allowing people to withdraw retirement funds for short term hardship is foolish.

It's my money .. why shouldn't I be allowed to withdraw?

Enough with the hand holding... The problem is people are not responsible.. the longer you hold their hands ... the more drastic the problem gets. People don't have a right to retire.. it's a choice..

[~bs]

^Because then they cry later when they dont have enough money and are now poor and living on government handouts? If you said people would be 100% responsible for their actions, I might have agreed with you, but the fact is they are not. They are dependent on taxpayer funded welfare. There are many rules and laws in place to protect people from their own stupidity and unethical behavior. pension/401k laws are nothing new.

Edit: It's also the reason why the government was trying to institute mandatory minimum 401k withholdings and mandatory automatic 401k deductions when employees are hired (and force them to opt out if they chose)

[disneysteve]

It's my money .. why shouldn't I be allowed to withdraw?

Fair question, but there are plenty of financial investments that limit or restrict your access to the money, or impose a steep penalty to get at it. I took my mom to the bank this morning because they were having an attractive CD promotion (3.1% for 13 months). She has the right to withdraw the money at any time, but she'll forfeit 6 months worth of interest if she does.

You can cash out your 401k early and lots of people do despite the 10% penalty that they pay in the process.

But where's the penalty for 401k loans? You and I know there is a hidden penalty in that you lose a bunch of compounding time but the average Joe doesn't know or care about that. If you want to borrow from your 401k, there should be a big cost involved to at least try and deter your stupidity. Why not impose the same 10% penalty there is on early withdrawals? Want to borrow 30K to buy a shiny new car? Sure. Just pony up the $3,000 fee to do so. Still want that money?

[Smallsteps]

Definitely. Pensions clearly have some advantages. 401ks also have some advantages. Neither is perfect and 401ks are a lot more hands on which is problematic. Plus the existence of 401k loans is one of the worst financial inventions ever.

I agree.
The hands on aspect of 401k only really benefits those who are confident (or willing to learn) in their money managing skills. During downturns it became crystal clear .In the group I worked with those who picked options based on past return ( were high risk ) lost a lot in their 401 while others who are more diversified only had small losses that would rebound quicker.
Some co- workers who lost a lot freaked out and stopped contributions, even complained they could not cash out while still working there..

I was actually amazed that at one job so many co-workers had loans against their 401k, I had the idea,
I thought there were strict requirements to get a loan like an emergency or something but most were not emergency situations. I would have been stressed ( in their shoes) knowing that if I wanted to change jobs or lost my job that loan would be due immediately.

I have had friends whom also cashed out their 401K plan( when changing jobs) instead of rolling over mostly because they did not understand how easy that process can be.
Many simply should be encouraged to open an IRA to roll over to as they sign up for a 401k plan. I have not seen the percentages of how many simply never opened an IRA even that product has been a hands on tool that is older then the 401K.

Pensions are idiot proof but I really do not think Auto enrollment in 401k makes it closer to pensions. It only solves the first roadblock of signing up. If a pension invests badly then they can blame the administrators but if they choose bad choices they have no one to blame.

This is why financial common sense is a personal thing and policy or programs will not fix that. The EF is a common sense move most people should make but as the world as gone to have a money issue GO FUND ME. some simply do not see the point of EF.

Retirement is another issue simply put low income often do not clearly see that even a small bit can grow over time. The sky is falling issue with SS and any fix keeps getting kicked down the road because if they have to make choices it will hurt a re-election bid for most politicians.


401k was suppose to help but guess what a large percentage did not bother signing up. Also to encourage people who are leery about contributing in CASE they needed the money so in came the loan options that are not that strict.
Then came the what to do when you change jobs many at least in many examples I have seen, co-workers cash out and pay the penalty and think they can start later or whatever. I think the information of what to do is there but written in legal ease and paragraphs long so many skip that and just cash out.

Now it is hard in some cases very hard to save anything but I find that even small amounts add up faster then most think.
I am not one of chase better interest rates so yes if I moved money from account to accounts and bank to bank I could have done better but even with slow and steady in a bank of your choosing works.

[msomnipotent]

Pensions are far from idiot proof. They are underfunded pyramid schemes. Underfunding leads to either riskier investment strategies, an unexpected loss of benefits, a taxpayer bailout, or all of the above. And that is if the person you entrusted with your money didn't pilfer it. It happens. One of my relatives did exactly that and I don't even think that the person went to jail for it, unless relatives just didn't say anything about it. Just look at the mess Chicago made of their pensions. I would be surprised if any of my family that are city workers now will get anything close to what they are promised when they retire.

Speaking of retirement, most working poor know that they will not be retiring, so they don't see the point of saving for it when they can be paying bills now. I have posted a few times about how everyone in my family was against me signing up for the 403b because "that is for rich people". I got a lot of flak for a long time until they started to see that I had a plan and I would, in fact, be able to retire at some point in my life.

I am 100% against any sort of penalty for taking a loan out on my own 401k or 403b. As DS has said, "there are plenty of financial investments that limit or restrict your access to the money, or impose a steep penalty to get at it." Why should there be another one? Who would get this penalty? The employer? The plan administrator? The government? Why should they? I pay the admin fees, I contribute the money, and I choose the investments. There is already a penalty for not paying it back, plus income taxes. There is no reason for there to be a tax just because some people don't manage their money as well as others. You might as well have a "sink garbage disposal penalty tax" for everyone because some people stick their hands in and get hurt.

[msomnipotent]

Thanks for sharing. That is definitely tight, particularly with such a high cost of housing compared to income.

It was extremely tight most of the time. I'm 99% sure I was making $10.25 an hour when I got the mortgage. Even with 20% down, I had a hard time getting a mortgage. I had a hard time even getting a realtor, but I finally found a female realtor who found a condo I could afford and a female mortgage broker who would give me a mortgage. They kept shouting, "Girl power!!!" a lot. Lol.It goes back to what I said about poor people knowing poor people. I told one of my professors that I couldn't get a realtor, so he had one call me. She knew a mortgage broker. None of my friends knew a realtor because they all rented or lived with their parents. A lot of their parents rented. But if you needed your car or house burned to the ground for insurance money, I knew someone that knew someone. It is all about who you know!

[LivingAlmostLarge]

It was extremely tight most of the time. I'm 99% sure I was making $10.25 an hour when I got the mortgage. Even with 20% down, I had a hard time getting a mortgage. I had a hard time even getting a realtor, but I finally found a female realtor who found a condo I could afford and a female mortgage broker who would give me a mortgage. They kept shouting, "Girl power!!!" a lot. Lol.It goes back to what I said about poor people knowing poor people. I told one of my professors that I couldn't get a realtor, so he had one call me. She knew a mortgage broker. None of my friends knew a realtor because they all rented or lived with their parents. A lot of their parents rented. But if you needed your car or house burned to the ground for insurance money, I knew someone that knew someone. It is all about who you know!

THIS!!! My mom had no idea that when you bought a house you had to repair it. They had only lived in rentals. So when she bought our first place that was the first place that ANYONE in our family owed. It was a very proud moment. She won the lottery for buying homes for low income (she actually came in 2nd but the 1st number drawn wasn't there!!) and picked the biggest lot for the same money as other. Of course she put the house super forward because she couldn't afford to pave the driveway otherwise. She only got a mortgage because of the low income program. And her parents and grandparents hadn't ever had a bank account and luckily my uncle took her to the bank and showed my mom how to bank and pay bills. He paid all of the family bills by high school and picked pineapples to make ends meet. My mom worked at 15 at a drivein for free food. Poor people only know poor people is totally true.

After my mom got her degrees she said if they had know all the handouts and scholarships they could have qualified for it would have made life easier. But they didn't know that. But then once she got her degree she knew people, and knew how to work the system. She got stuff for my grandparents like food stamps, medical, section 8, top of the list priority housing (she knew people then), etc. But when you are poor, it's really hard to navigate even the paperwork to get more.

Something she always mentions is working at the hospital, she had a TON of friends. So back to work after 4 weeks and she needed formula. She couldn't afford it being a single parent. But the hospital supply guy gave her cases of the free samples to take home and that's what I was raised on. Those 2 oz samples. He also gave her cans of formula, which my uncle and aunt needed as well since they were also working full time and my grandmother was watching all of us kids using formula. 3 kids in 24 months. We also got free samples of diapers which we couldn't afford and my mom kept that for night time or else it was cloth diapers that leaked.

I know how it is to use food stamps. Looking back now I can't believe my grandma used to sort on the belt and she'd make me calculate how much we could spend and then allocate into what qualified and what didn't. Also since she worked at the elderly center she also got free cheese blocks and food which was for seniors. Another way that it really depends on who you know.

I admit as I write this I cringe a little that now I can afford pretty much what I want at a grocery store. But I guess as my mom says we've made it. She always wanted to be able to walk into a store and be able to buy stuff without looking to see if it was "on sale" and that being the only time we could afford it.

[creditcardfree]

LAL and misomnipotent, you (or your family) are both examples of living in low income situations, but eventually overcoming the poverty level. Poverty doesn't have to be a lifetime experience in the United States particularly.

[~bs]

unfortunately changing one's situation requires extraordinary effort, which the average person doesn't want to do

[LivingAlmostLarge]

LAL and misomnipotent, you (or your family) are both examples of living in low income situations, but eventually overcoming the poverty level. Poverty doesn't have to be a lifetime experience in the United States particularly.

but see it's not that easy. There a lot of people holding you back including your family. My grandfather wanted to go to college. He wanted to become an engineer. He was very smart. But his dad said it was a waste of time and money. There was no way they were helping and he needed to get a job. So he didn't go. And regretted it. Probably why he pushed all his kids so hard and really focused on developing us. I recall sitting with him for hours doing the multiplication table. He was a lot of fun even though he was ALSO the cause of my mom's poverty. He gambled and so when times were good they were good. When times were bad they were bad. I recall when I was done with college visiting home, i took him for a drive and we chatted and I filled gas. I paid and he asked me for a pack of cigs. I said I'll buy it but it's killing you. He had a 1/2 pack to pack a day habit of kool menthols. He said I'm already dead. I kissed on the cheek and bought the cigs and sighed. He also said don't start and I'll smack you upside the head if you do and if you become a drunk ( 3 of his brothers died of alcoholism). He died about 5 years later. I sound crazy but I adored him. He was a good guy I can't explain it.

It's really not easy when your own family helps with keeping you down. They encourage bad behavior and pull you down. Those people usually don't have any idea how to get food stamps (true story), section 8 housing, etc. Like i said it wasn't until my mom was a social worker and learned to work the system and make friends. But my mom and aunts and uncles worked instead of scoring scholarships they had no idea. They could have used free money. They had no idea until later. They could have used hand-outs earlier as well. Again no idea. So you struggle more than you should because people who have money know not to use payday loans or check cashing places. They have a bank account. They don't keep cash in a mattress.

Small things like that keep people poor.

[creditcardfree]

but see it's not that easy. There a lot of people holding you back including your family. My grandfather wanted to go to college. He wanted to become an engineer. He was very smart. But his dad said it was a waste of time and money. There was no way they were helping and he needed to get a job. So he didn't go. And regretted it. Probably why he pushed all his kids so hard and really focused on developing us. I recall sitting with him for hours doing the multiplication table. He was a lot of fun even though he was ALSO the cause of my mom's poverty. He gambled and so when times were good they were good. When times were bad they were bad. I recall when I was done with college visiting home, i took him for a drive and we chatted and I filled gas. I paid and he asked me for a pack of cigs. I said I'll buy it but it's killing you. He had a 1/2 pack to pack a day habit of kool menthols. He said I'm already dead. I kissed on the cheek and bought the cigs and sighed. He also said don't start and I'll smack you upside the head if you do and if you become a drunk ( 3 of his brothers died of alcoholism). He died about 5 years later. I sound crazy but I adored him. He was a good guy I can't explain it.

It's really not easy when your own family helps with keeping you down. They encourage bad behavior and pull you down. Those people usually don't have any idea how to get food stamps (true story), section 8 housing, etc. Like i said it wasn't until my mom was a social worker and learned to work the system and make friends. But my mom and aunts and uncles worked instead of scoring scholarships they had no idea. They could have used free money. They had no idea until later. They could have used hand-outs earlier as well. Again no idea. So you struggle more than you should because people who have money know not to use payday loans or check cashing places. They have a bank account. They don't keep cash in a mattress.

Small things like that keep people poor.

Yes I get it. I'm not naive. Family keeps you down. I see this in my own extended family. Beliefs about 'how things are' are generational. But math is math. Live on less than you earn and you can save. Math wise it is nearly always possible. Budgets are about personal behavior. If you cannot change your behavior for whatever reason to match the math needed then you are going to have a much harder time. And yes, if you are unaware of your benefits as low income that will hurt you as well. My sister teaches at a Title 1 school, which often has classes for those that qualify for benefits. The schools are teaching the parents what is available now, which may not have been the case for your parents, but it is now in some states.