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A preview of the U.S. without pensions

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Re: A preview of the U.S. without pensions

#191

Post by wbillingsley »

ec109685 wrote: post #53
ghufran_syed wrote: post #15

Defined benefit plans are unaffordable, whether for a company or a government. But while defined contribution actually generate great returns, they have the problem that urgent expenses always crowd out saving, particularly for lower income groups (same as it would if income taxes were collected annually, or less frequently). Seems like the optimal solution is to combine the compulsory contribution part of the curren…

Why are defined benefit plans always unaffordable? You don’t want people’s retirements to be affected by the value of their investment at the moment of withdrawal. Instead you want the benefit to incorporate the expected value at retirement of the investment over the long run. The problem with many pensions is that the businesses themselves supporting them essentially went belly up as competition, technology and inve…

Some modern defined benefit schemes do that -- give a formula for the total dollar value you'll receive at retirement. And if you want to convert that to a pension you buy an annuity with it.

However, they seem (to me) to have a couple of problems -

- as the formula is often based on your last five years' average salary, it seems like an "all eggs in one basket" on your salary growing. Which seems to be the inverse of the sort of hedging and diversifying you try to do with personal investments -- if my salary grows I already gain, but I'd like my retirement savings to grow even if for any reason my salary stalls in 20 years' time.

- the formulas seem to be quite fixed and can have some perverse incentives. For instance, "average salary from the last five years" seems (to me) to be partly behind why Vice Chancellor roles changed so much -- someone stepping back from being a VC to being a professor would face a salary drop, which would then affect their defined benefit pension calculation (costing them a lot of money), so it became "up or out" and the idea of university leadership roles as being a service role that academics would take on for a while simply died because it had to be the last role you took before retirement. Ok, that's a bit of an aside about how pension schemes can change the nature of the university, but practically speaking I'd like to keep the option of doing things like semi-retiring at the end of my career (dropping to part-time or doing something interesting that might not increase my salary) without incurring a massive penalty on my retirement savings.

Re: A preview of the U.S. without pensions

#192

Post by TheCoelacanth »

user5994461 wrote: post #103
Joeri wrote: post #68

Earlier quoted context omitted.

It's not a ponzi scheme, it's a numbers game. Basically the formula is: X * Y = A * B, where X is the number of retirees, Y the number of years they live past retirement on average, A the number of people who work, and B the number of years an average career lasts. What is happening in europe is that the right-hand side of the equation is producing a lower number (due to later career starts and less actively working…

The base is a ponzi scheme. Promise to pay people over 65 a guaranteed sum per month and hope that the taxes on working people can fund it. You're right that it doesn't have to be a ponzi scheme. The government could increase the age of retirement and/or lower the pensions. However that's not possible in practice, it doesn't get you elected and it'd provoke massive strikes for months. The government would rather accu…

The "guaranteed sum" is not really guaranteed because the sum is denominated in a currency that is not pegged to any real resource. If the next generation can't produce enough real resources, then the pension amount will just be decreased via inflation.

Re: A preview of the U.S. without pensions

#193

Post by lewis500 »

gedy wrote: post #179
lewis500 wrote: post #105

Earlier quoted context omitted.

By "a few years" I mean about ten or eleven years ago. Fortunately, that means they bought most of their stocks since 2008 and have gotten great returns. They were also fortunate to buy a house in a good neighborhood during the bottom of the slump, and to live in a cheap state. So they can sell their house and almost pay cash for a modest house a little further out from the city. Fortunately, the city has relatively…

Good for them, but do you see how this is essentially a gamble? Had they done the same 5-6 earlier they'd have lost a lot in both investments and real estate in 2008.

Yep they are lucky. The stock market is a gamble in the short run. Even a home is a gamble sometimes. But to me what was important is that they started putting away a much larger share of their income; even negative returns are better than blowing your money on boats or SUV's or a timeshare or gold coins or alaska cruises or whatever stuff TV tells older people to buy. I think the main effect of the stock market doing well wasn't so much to give them returns as to make them super excited about investment; so they scrimped and saved a lot more because it was fun to see their numbers go up so fast. They also worked harder at their jobs (both are self employed) to make more money to put in their retirement fund.

It's also easy to shield yourself from massive losses through diversification. Vanguard even had someone talk them through selecting funds, even when they didn't have much money to invest. I also got them to pay off loans (cars, credit cards), which is the safest investment you can make for the returns.

I should also emphasize that, having started so late, stocks could never be their primary source of income. At a reasonable withdrawal rate I think they'll get about about $15-25k per year. Most of their income will still be from social security. But on a long enough time scale one of them will get senile or cancer or something, and we'll thank god for that big pile of money when it's time to hire help.

Re: A preview of the U.S. without pensions

#194

Post by sumedh »

aaomidi wrote: post #101
sumedh wrote: post #88

Earlier quoted context omitted.

They voted for Trump because he was saying he is going to bring back jobs while Clinton was not exactly sure what her platform was. If I am a 50 year man who lost his job, I am going to vote for Trump. It is just amazing that lot of people including you and Clinton don't understand this simple point.

Oh we do. It's just saying you're going to do something vs actually doing it is much different. It surprises me that Trump supporters can't see beyond words. Hopefully after these four years you will understand that jobs are going to be going away. There is essentially no way to move time backwards to when technology was at its infancy and there were hundreds of jobs. Instead of supporting candidates who give people…

I am not a Trump supporter, I am not even American, I am just a neutral observer so I can see things without the tribe mentality.

> It surprises me that Trump supporters can't see beyond words.

What was the alternative, Clinton was not sure what her platform was and I agree with you, some of her words were very clear, calling the Trump voter a deplorable. That is not how you win elections.

If you are a 50 year old guy who worked hard all his life and then lost his job because the factory went to China are you going to vote for a guy who says he will bring back jobs or are you going to vote for a lady who could not figure out what exactly was her message (yet was in the news for her controversies) and calling you a deplorable. The choice is simple you will vote for the guy who says he will bring back jobs.

Saying Trump is all words is not the argument you can make when the general public have been hearing empty words from establishment politics for many years and yet making deals to ship their jobs overseas.

Re: A preview of the U.S. without pensions

#195

Post by Y7ZCQtNo39 »

user5994461 wrote: post #59
konschubert wrote: post #52

Earlier quoted context omitted.

You can have a "contract of the generations", where the younger generation finances the pensions of the older generation through social security payments. Many countries do it like that.

That's a ponzi scheme. That's what many countries in Europe do and that is currently collapsing. It takes something like 4 active workers to pay the pension of 1 current retiree. The proportion was fine after the baby boom, it's not anymore and it's getting worse.

The max FICA (Social Security) tax in 2017 was $7,886.40, which equates to an income of $127,200 (it's a 6.2% tax). There are many people making below that threshold, and not even paying that much.

You can't live very comfortably on less than $8,000 / year. It takes nearly two workers (maybe three if you consider the average annual income, and that the fair majority workers aren't making maximum FICA payments) to cover every retiree -- which seems to logically require successively larger working age adults than prior generations.

Re: A preview of the U.S. without pensions

#196

Post by Rebelgecko »

gedy wrote: post #180
maerF0x0 wrote: post #162

IMO a major issue is the expectance of someone else to take care of "me". I know that I'm retired for ~30 out of 80 years of my life and thus have to save ~3/8ths of my income, else starve. (Yes, some modifiers for tax brackets, compounding blah blah...) In the past people's children were the "investment" that paid the dividends into old age. Now we no longer have children to bear the burden. Yet we spend the normall…

I hear a lot about the nickel and dime stuff on how to save, but most people get eaten up by interest on home and education loans and medical costs. The other issue is interest rates being so low it amounts to a war on savings that neither party seems to willing to do anything about.

You can't have it both ways. Increasing interest helps people that save but hurts people that are taking out loans.

Re: A preview of the U.S. without pensions

#197

Post by njarboe »

snuxoll wrote: post #182
gedy wrote: post #179

Earlier quoted context omitted.

Good for them, but do you see how this is essentially a gamble? Had they done the same 5-6 earlier they'd have lost a lot in both investments and real estate in 2008.

Recessions like 2008 are part of the normal ebb and flow of the markets, and we're likely heading into another one (though hopefully not quite so bad). 5-6 years earlier wouldn't have made a noticeable difference unless they were planning on retiring between 2008-2012ish, the markets have recovered after all. Personally, if I see the stock market dip like that again I'm going to double down on my 401(k) contributions…

Historically, timing the dips does not work out, but maybe if everyone is thinking that way the strategy could work.

Re: A preview of the U.S. without pensions

#198

Post by Y7ZCQtNo39 »

snuxoll wrote: post #182
gedy wrote: post #179

Earlier quoted context omitted.

Good for them, but do you see how this is essentially a gamble? Had they done the same 5-6 earlier they'd have lost a lot in both investments and real estate in 2008.

Recessions like 2008 are part of the normal ebb and flow of the markets, and we're likely heading into another one (though hopefully not quite so bad). 5-6 years earlier wouldn't have made a noticeable difference unless they were planning on retiring between 2008-2012ish, the markets have recovered after all. Personally, if I see the stock market dip like that again I'm going to double down on my 401(k) contributions…

You should double down on your 401(k) contributions today to better your odds for a comfortable retirement.

I wouldn't let expected market returns impact the amount you feel is appropriate to save/invest today.

Re: A preview of the U.S. without pensions

#199

Post by scarface74 »

yardie wrote: post #177
skookum wrote: post #113

Earlier quoted context omitted.

All the people dying before 65 absolutely do have a bearing on pension payment length: If an employer promises someone a pension at 35 and they don't live long enough to collect then the employer doesn't have to fund that commitment. Using life expectancy at 65 would only be valid if the pensions were being promised only to those who had already lived to 65 and at the time they were 65.

I don’t know about what the pensions from the 50s and 60s but modern pensions have dependency clauses. Based on that the majority of those pensions would pay out. If the pensioner dies their spouse will collect from retirement or 65. If they have no spouse but children the children can collect until 18.

The pensions I've seen give you the option of paying a lower amount for just you or a higher amount to cover you and your spouse if you die first.

Re: A preview of the U.S. without pensions

#200

Post by JoshTriplett »

gedy wrote: post #180
maerF0x0 wrote: post #162

IMO a major issue is the expectance of someone else to take care of "me". I know that I'm retired for ~30 out of 80 years of my life and thus have to save ~3/8ths of my income, else starve. (Yes, some modifiers for tax brackets, compounding blah blah...) In the past people's children were the "investment" that paid the dividends into old age. Now we no longer have children to bear the burden. Yet we spend the normall…

I hear a lot about the nickel and dime stuff on how to save, but most people get eaten up by interest on home and education loans and medical costs. The other issue is interest rates being so low it amounts to a war on savings that neither party seems to willing to do anything about.

> The other issue is interest rates being so low it amounts to a war on savings

I used to think this; then I discovered index funds, and stopped keeping money in a savings account.

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