131–140 of 155 posts
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It’s only ok because they’ve written all the laws for themselves. Of course the common person would not deem this to be ok.
We the people of the United States of America elect the people that write the laws. If we don't like what they're doing, vote them out and vote in people that will write the laws we want.
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If people want to set up annuities that is totally welcome. But they shouldn't be tied to the employer. It should be a separate company that exists solely for the purpose of paying the benefits at retirement. Depending on an employer for your retirement is, in the modern market, a proven bad idea. It's terrible what happened to your grandparents (to anyone else nearing retirement, take this as a cautionary tale and g…
I agree, and the same should be true for health insurance, gym memberships, etc. However, in a practical sense, your point doesn’t matter because all retirement plans accessible to the majority of people are employer-based. Most people only get access to 401(k) plans through an employer, and the only reason it’s worthwhile for them is for the employer match (asset growth won’t be meaningful, particularly compared wit…
It's tax deferred, too, which is pretty important. Even if you don't think asset growth is significant (and it usually is significant... it's just not guaranteed or predictable) In your peak earning years, you are making a bunch of money (hopefully) and therefore paying a bunch in taxes. In your retirement, well, maybe you'll be making a lot of money, in which case, paying taxes isn't such a big deal, or maybe you won't be making very much money at all, in which case, you won't have to pay very much in taxes on that money.
At least if you are where I am, making good money (and paying good taxes) but don't have a huge amount stashed away, stashing pre-tax money has huge benefits over stashing post-tax money.
(If you do stash post-tax money, check into the roth IRA; it means you won't pay taxes when you take it out. Of course, you can only directly contribute to a roth ira if you don't make much money... but the 'backdoor roth' is something to ask your tax professional about... and if you earn enough that you can't contribute to a roth ira, you should have a tax professional. I personally recommend the 'enrolled agent' credential)
I think the only time you don't want to max out your tax-advantaged savings palan is if you aren't making enough money to max out your tax-advantaged plans and save enough short term money.
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If people want to set up annuities that is totally welcome. But they shouldn't be tied to the employer. It should be a separate company that exists solely for the purpose of paying the benefits at retirement. Depending on an employer for your retirement is, in the modern market, a proven bad idea. It's terrible what happened to your grandparents (to anyone else nearing retirement, take this as a cautionary tale and g…
I agree, and the same should be true for health insurance, gym memberships, etc. However, in a practical sense, your point doesn’t matter because all retirement plans accessible to the majority of people are employer-based. Most people only get access to 401(k) plans through an employer, and the only reason it’s worthwhile for them is for the employer match (asset growth won’t be meaningful, particularly compared wit…
No, 401K pensions are 'defined contribution' systems; you put in X, your employer puts in X/2 (or whatever it is they decide. X/2 is common in my area, but as you point out, some lower-end employers contribute nothing at all, while others have weird vesting schedules on it.) - when you retire, you get out... however much that money has grow (or lost) - no guarantees, just a tax deferral on money you invest for retirement.
Usually when people talk about pensions, they are talking about /defined benefit/ pensions. These are essentially like an annuity that is only good if the issuing company doesn't go under; you work until you retire, and you get some fixed amount of income every month until you die (or the company goes under)
The idea that a defined benefit pension is very much like a lifetime annuity is key to understanding why pensions seem to work fine in some times and not so fine in other times; In the '80s, when my parents were getting jobs that got them defined benefit pensions, you could run out and buy T-bills and expect to make significantly more than inflation. annuities made a lot of sense. By the time it was my turn in the late 90s/early aughts? T-bills no longer returned significantly more than inflation. Safe investments became a lot less profitable, and thus defined benefit pensions became a lot more difficult.
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> It should be a separate company that exists solely for the purpose of paying the benefits at retirement. Yes. S.O.C.I.A.L. S.E.C.U.R.I.T.Y. Look how well Americans will fight for and defend Social security benefits. We really should just force an expansion of Social Security like most civilized countries.
1. "S.O.C.I.A.L. S.E.C.U.R.I.T.Y." isn't a separate company. It's a US government program. 2. Social Security isn't doing much better. It will be broke in ~15 years, paying out exactly as much as it takes in. https://www.cnn.com/2018/06/05/politics/social-security-bene...
This is how it works today; working people pay in, and our parents or grandparents get that money.
Any perceived financial trouble is because we've now got people living longer, and so we've got more retirees for the same number of workers. This... just means we need to raise taxes.
I mean, really, I think it's silly to say we have a special tax for social security; my understanding is that the money goes into the general fund anyhow (and it's been running a surplus for some time now)
We don't have a special tax for the army that you only have to pay on your first $128K/yr, why do we have that for social security?
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401ks are investment vehicles or "buckets" that contain investments, rather than investments themselves, so a 401k's risk level depends entirely on the underlying assets (investments) that it holds. There is nothing inherently more safe about a 401k from an investment perspective compared to any other type of bucket. Within their 401k, most people hold a higher percentage of stocks (more to gain) earlier in their wor…
I think a deeply underappreciated point in all this is to stop and consider that the description you’ve given above, which is a really nice summary, would be so utterly bonkers advanced-sounding and deeply complicated to average workers that they would absolutely have no comprehension whatsoever what any of this means, how to act on it, etc. Even working in quant finance and managing these portfolios for huge pension…
https://www.amazon.com/Simple-Path-Wealth-financial-independ...
One beef I have with the finance industry is that very few people, especially professionals, will give you the above info in an actionable manner to do it yourself. And given the way they are compensated, it's not a big surprise. I would like to see it more open and approachable like programming. But I do believe that the average person can understand the basic concepts of buckets, index funds, risk allocation, and reducing risk over time.
I do think that the weird high-fee niche investment case is unfortunately quite common. Perhaps one more big idea for most people to understand is that even most financial professionals can't beat the market, though it almost goes against their own compensation incentives to admit that.
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I agree, and the same should be true for health insurance, gym memberships, etc. However, in a practical sense, your point doesn’t matter because all retirement plans accessible to the majority of people are employer-based. Most people only get access to 401(k) plans through an employer, and the only reason it’s worthwhile for them is for the employer match (asset growth won’t be meaningful, particularly compared wit…
>So we are still equally reliant on employers as the facilitator of access to a retirement benefit. Functionally it’s truly not different than pensions, only the underlying financial instrument is different. No, 401K pensions are 'defined contribution' systems; you put in X, your employer puts in X/2 (or whatever it is they decide. X/2 is common in my area, but as you point out, some lower-end employers contribute no…
It’s still just as tied up with employers as before, even though the instrument functions very differently (some might argue it operates far worse) than pensions.
Often if you lost a job or changed jobs after some years of service, you were eligible for partially vested pension amounts, so even the idea that you can “take your 401(k) with you” when you quit / lose a job is still pretty analogous with employer tie-ups in pensions. And there can be issues about vesting for an employer match or no match at all. Additionally, the employer chooses who your asset manager will be, and may not choose a large, low-fee, good customer service option like Vanguard or something. Just another way the employer dictates how this retirement vehicle affects workers.
I’m not saying 401(k) is the same as defined benefit at all. Only that the move towards defined contribution plans has not actually decoupled retirement plans from employer intervention in any meaningful way. Employer control is roughly just as it always has been, only now employees are forced to bear the risk of the underlying assets, instead of compeling the employer organization (which is far more capable of absorbing risk and riding out downsides) to bear that risk.
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I don’t think it’s as simple as this, because alternative instruments for retirement, like 401(k) or “higher wages now” have a lot of severe problems too and typically have no legal recourse for affected people when those instruments experience failures. My grandparents had 401(k) retirement savings and were basically wiped out by the 2008 financial crisis. I think it would be no exaggeration to say that the crisis d…
>Asking average citizens to understand market volatility and diversification and to rely on the total abject falsehood that “markets just go up in value” is equally immoral. Why? We expect people who drive cars to understand the basics of driving to the extent it is safe for them to drive. Simple diversification isn't a hard concept. Neither is risk/reward in determining where to put your money. >The aspect of pensio…
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So you are supposed to just give your estate to the government? Fuck that.
Why not? Then the wealth can be distributed to everyone fairly. Having this safety net available for everyone and not just the rich would reduce the need for wealth hoarding in the first place. Your ideology has no justification besides your own particular interest in the class position of your offspring.
To me the bigger culprit is the unfunded pension as a tool of retirement planning. Unfunded pensions are failing or on the brink of failing almost everywhere they are tried. It's a huge scandal and deeply immoral IMO. I read the other day that NYC alone has over $100bn in unfunded pension liabilities. There is simply no budget to pay that down. Unfunded pensions taking down numerous economies in Europe. There is a co…
Why isn't it a solution to simply require pension funds to be fully funded, perhaps under a separate legal entity that's protected from raiding by PE firms? Why is it that the "unfunded pension" crisis always makes people question the second term in the phrase instead of the first?
The second reason is that when companies used to create or agree with their unions to create defined-benefit pension plans, the benefit formulas at retirement were usually based on years of service, not years of service under the plan, so the plans are born with a large unfunded obligation for the years of service that the current employees have already accumulated.
Back when I did pension math, over 40 years ago, the typical (and government approved) way to deal with unfunded liabilities from either of these 2 causes (or any other), was to increase the employer contributions a little bit, so that the unfunded amount of the liability would vanish after 30 years. Because investment results, longevity, retirement rates, etc, would fluctuate, the amount of the extra contribution would be re-figured every year, and a few good years might eliminate the deficit.
A shorter period of funding for the deficits, maybe 10 or 15 years, might improve the situation somewhat in some of these cases. But that is not a solution. Note the long discussion above about problems of state and local government plans. These are quite a bit different, because their are no greedy investors calling the shots for state and local governments, and IRS regulations about what plans qualify for tax deductions for the employer don't have traction in the public sector.
In the private sector, these stories will become increasingly rare, as workforce unionization is very low, and virtually all the non-union plans have been replaced by 401k plans and defined-contribution pension plans that do not include any concept of an accrued benefit or unfunded liability. That is America's real pension scandal, but it is another story.
The real problem is that the situation is too complicated. It is often very difficult to tell whether a company is being streamlined or being looted. Creating a comprehensive set of rules to prevent looting out from under a corporate or even multi-employer pension plan and a watchdog agency that could enforce them wisely for the benefit of workers would be a very ambitious project.