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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

#161

Post by Y7ZCQtNo39 »

jstewartmobile wrote: post #18
wildmusings wrote: post #6

Defined benefit plans, i.e. pensions, are a total disaster. They are premised on a fantasy: that the pension fund will make enough money on the market to to pay its liabilities, or that the backing entity will bail it out if not. Those are bad assumptions. The result is pension funds going broke across the country, and it's just getting started. Defined contribution plans, 401k's and such, are much more sensible. You…

I'm not sure 401ks are so great. Many charge ridiculous management fees for funds that track mundane things like the S&P 500, but if you want that employer match, no way around it. Mostly a case of perfectly intelligent people throwing wads of money into the market on autopilot because that's all the 401k lets you do. Lambs to the slaughter! edit: Example: Back when I was on 401k, was into a S&P500 fund that had an e…

> Mostly a case of perfectly intelligent people throwing wads of money into the market on autopilot because that's all the 401k lets you do. Lambs to the slaughter!

That's called "buy and hold" investing (putting additional dollars you have into the market, as your paychecks come in).

Historically, it's been a great way to grow wealth. You invest in index funds, and you get basically the market return less some fees.

> expense ratio over 1.5%

This is worse-case scenario. Employers are coming around to see these fees as astronomical. Plus, well-funded 401(k)'s can get institutional rates, due to their portfolio size. We're talking expense ratio's of 0.03, 0.02, almost non-existent.

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

#162

Post by maerF0x0 »

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 normally sacrificed dollars on lattes, world travel, iphones (and whatever icon of excess you choose).

I realize many people say its "hard" to save these days. But I also think there is some spectrum involved with doing what pays vs what one "wants" and ensuring one's lifestyle matches their actual ranked income in a society. (ie, if you earn on the 10th percentile, then you probably should be spending on the 10th percentile on dinners out or whatever icon of excess you want to pick on.)

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

#163

Post by rwmj »

VLM wrote: post #156
ac29 wrote: post #123

Earlier quoted context omitted.

To add to that, this pension (and many others) was structured such that payouts are non-linear based on number of years worked, so for example, you might get: 0-5 years worked: no pension 5-10 years worked: 5% pension 10-20 years worked: 20% pension 30+ years worked: full pension By preventing workers from being able to work the full 30+ years, they never had to pay the full pension. One of the workers in the story m…

The popular marketing reason why the pension disappeared is the factory closed. The real reason the pension disappeared is the proposed vesting duration was ridiculous. I am older so current jobs have no pension of course, but when I worked jobs with pensions, the vesting duration was typically something like 3 to 5 years for 100% vesting, sometimes only 2 years for 50% vesting. In fact I have a pension from a previo…

Thanks for replying. I found an article about "vesting duration" for US pensions, and if I'm understanding correctly this means that after you leave the job for years, the pension you are entitled to drops to half and (after more years) completely disappears. This seems incredible to me! Surely this would mean that younger workers who work for a company even for a long time but then leave would never collect a pension from that company?

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

#164

Post by maxxxxx »

ajmurmann wrote: post #14
shorttime wrote: post #8

Terrible spot to be in, hoping I will avoid it with a traveling retirement plan (401k). How do other 1st world countries manage elderly workers/people that should no longer work? SS is an option and I don't believe it will go bankrupt, wages of about 125K contribute to SS, anything larger does not. Just have to adjust that limit to keep it where it needs to be. So that helps a little bit.

I think most European countries have more generous/realistic state provided, financial retirement support.

In Germany there is a lot of talk about "Altersarmut" which means poverty when aged. It's not as bad as the US but a lot of people also have a very uncertain future.

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

#165

Post by typomatic »

selestify wrote: post #38
user5994461 wrote: post #34

Earlier quoted context omitted.

It varies vastly by country. In France, the state calculates a percent of your income during the 4X years you were working and gives you that as a pension. The estimation can be pretty complicated, but that's fair enough for a one line explanation. The system will collapse eventually. More and more elderly to support by less and less active workers. The younger population is suffering from vast unemployment (25%) and…

> More and more elderly to support > The younger population is suffering from vast unemployment It appears there is a lot of work to be done and a lot of idle workers to do it. The fact that both can exist in tandem seems like an indictment of how horribly inefficient our economic systems currently are.

Yeah, we've outscaled capitalism and it no longer allocates resources well.

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

#166

Post by maxxxxx »

wildmusings wrote: post #6

Defined benefit plans, i.e. pensions, are a total disaster. They are premised on a fantasy: that the pension fund will make enough money on the market to to pay its liabilities, or that the backing entity will bail it out if not. Those are bad assumptions. The result is pension funds going broke across the country, and it's just getting started. Defined contribution plans, 401k's and such, are much more sensible. You…

401k is based on a fantasy too: that a regular guy can manage his money though ups and downs in the economy, personal crises and other events.

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

#167

Post by ThrustVectoring »

nugget wrote: post #157
ThrustVectoring wrote: post #155

Earlier quoted context omitted.

There's a huge problem with defined contribution plans that isn't in defined benefit plans: the contributions belong to the retiree and get inherited by their children, rather than helping fund seniors as a class. Ideally you'd want some sort of tontine-like features, where people receive mortality credits based on their contributions and actuarial tables for their age. It'd mean that saving enough for retirement is…

If you annuitize your 401k balance at retirement you're effectively participating in a Tontine-like structure with fees paid to the insurance and reinsurance companies in return for administration and risk mitigation.

Indexed annuities are crap, single premium inflation-indexed annuities are pretty much the ideal product but not enough people are buying it for it to be offered, and buying a flat single-premium immediate annuity has some execution problems with dealing with inflation properly. There's significant execution hurdles with this plan.

And like, yeah, this solves the problem for me, but I'm already a high-income earner who is financially literate enough to reason through these things. Having it be opt-out or mandatory solves this for the people who aren't as lucky.

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

#168

Post by walshemj »

sbennettmcleish wrote: post #91

These "company managed" pension schemes have always fascinated me and would seem ripe for corruption / raiding by the company if they're short a few $$$. Seems like in Australia we're in a pretty good position with "superannuation" https://en.wikipedia.org/wiki/Superannuation_in_Australia being compulsory since 1992 and is typically managed by completely unrelated parties to your employer. The payments are generally…

In the UK due to some scandals in the past (Robert Maxwell) the pension schemes I know about have independent trustees nominated or elected by employer and employees who have to follow a legal scheme of arrangement and are also audited.

The problem with a lot of pension fun is the accountancy industry have set unrealistic rules for how you define the liability this handing the employer an excuse to close the schemes - I have had an off the record briefing for one scheme this was over a change from RPI to CPI.

At this meeting a trustee commented the worst case scenario that you have to allow for was one where the economy had effectively collapsed and making sure that you had a stockpile of canned good and shotgun shells would be more important that receiving a pension check :-)

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

#169

Post by newfoundglory »

pinewurst wrote: post #146
sbennettmcleish wrote: post #91

These "company managed" pension schemes have always fascinated me and would seem ripe for corruption / raiding by the company if they're short a few $$$. Seems like in Australia we're in a pretty good position with "superannuation" https://en.wikipedia.org/wiki/Superannuation_in_Australia being compulsory since 1992 and is typically managed by completely unrelated parties to your employer. The payments are generally…

I have a good friend in Australia whose employer stole at least $10K from his superannutation - apparently without any comebacks.

The ATO enforces superannuation payment by employers and they can do so pretty effectively - your friend should try going to them https://www.ato.gov.au/Individuals/Super/Unpaid-super-from-y...

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

#170

Post by walshemj »

e40 wrote: post #132
sbennettmcleish wrote: post #91

These "company managed" pension schemes have always fascinated me and would seem ripe for corruption / raiding by the company if they're short a few $$$. Seems like in Australia we're in a pretty good position with "superannuation" https://en.wikipedia.org/wiki/Superannuation_in_Australia being compulsory since 1992 and is typically managed by completely unrelated parties to your employer. The payments are generally…

That's why independently run 401(k)'s are the best. I'm a trustee of the one for our company, and there's no way I could raid it.

But its an awful DC scheme you cant put much in there is zero tax relief an employer Mach is tiny the UK from April mandates 5% match for an employer -better than nothing I supose
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