A preview of the U.S. without pensions
mercurynews.com
mercurynews.com
Recently, I made this visualization of how US social security benefits are calculated:
https://lewis500.github.io/socialsecurity
Before I made it I actually had no idea. I think I might have worked a little harder to earn money when I was younger if I'd understood.
They aren't wealthy by any means, like the retirees out here in California who have a million dollars (or several). But between their stocks, the home equity, the two social security checks and a small pension my dad got from spending time at a job at the city government they'll be alright.
Personally, if I see the stock market dip like that again I'm going to double down on my 401(k) contributions.
I wouldn't let expected market returns impact the amount you feel is appropriate to save/invest today.
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.
That's the wrong statistic to use and completely wrong conclusion.
Life expectancy _for a 65 year old_ person in 1950 was another 13.9 years. That rose only to 19.1 years in 2010 (newest number I found at a glance).
All the babies and people dying before age 65 reduce the average life expectancy drastically, but have no bearing on pension payment length.
I'd argue this has an impact on the "savings rate" per employee, but not on the average payout length.
Your argument is only correct if we define the average payout length to only factor in those employees who receive at least one check. However the original quote that you claimed was wrong is referring how much the pension has to pay out on average, which is not limited to those who live long enough to collect a payout. Their average payout length of 3 years factors in a whole bunch of $0 payouts, whereas your average ignores all of the zeros.
And that's a very hard number to come by, because as I've argued you would have to factor in all other reasons why a pension might have to be paid out longer or not at all.
Certainly "3 years of average payout" must be completely and utterly wrong because this number includes infants etc which were never employed. Infant and child mortality has an enormous impact on average life expectancy.
Source is here, starting on page 53, there's a nice table of life expectancy by age and date: https://www.cdc.gov/nchs/data/nvsr/nvsr65/nvsr65_08.pdf
The "pension affordability crisis" was patently never actually about pension affordability. If GDP goes up 400% since the 1960s while dependency ratios go up a mere ~15%, there's clearly something else going on.
That thing was a politically directed wealth transfer from poor to rich.
Exactly what led corporate America away from pensions is a matter of debate among scholars, but there is little question that they seem destined for extinction, at least in the private sector.
Oh, please. Nobody seriously debates this, the answer is right there. The policy of the federal government, since Reagan, has been to bust the power of unions every chance they get. Just look at the decisions of the NLRB before and after Reagan.
Labor lost power, corporations gained it. First pensions were reduced, then deliberately underfunded, then raided, then eliminated. The government went along with all of that.
All of this would have happened with unions and deciding in favor of labor whenever possible. Instead we did the opposite, and here we are in an unsustainable class war with the ugliest aspects of our past coming back to haunt us.
I am all for ending labor as we know it and letting machines do most of the work. But humans must still be in charge, not capital/corporations/sociopaths/liars/lobbyists and so on.
[1] http://www3.weforum.org/docs/WEF_White_Paper_We_Will_Live_to... [PDF]
Presumably “the world” will have many many more folks making more money by then given the rates of economic growth in third world countries. 10B people can cover 400T in 10 years paying just $10 a day.
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 made directly by your employer into the fund of your own choosing.
The biggest thing is once you've had this contributed to YOUR account, it is YOURS (drawable from age 65) and doesn't matter what happens to the fortunes of your employer(s) in the future.
Of course, he also inherited thousands of acres of land, so he’s not exactly in a bad place had it not been funded again.
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 :-)
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.)
I used to think this; then I discovered index funds, and stopped keeping money in a savings account.
Well, at least until the robots come - then retirement will be the least of our issues.
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 investors took their toll.
For states, the reason is population. If your pop doubles every 50 years, then you only need 2 young people to pay for one retiree. If it's the opposite (Japan now, US in a few decades), then you are screwed.
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.
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 much more economically feasible.
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.
Ask yourself who benefits when you see scare stories about pensions
> Years ago, Coomer and his co-workers at the Tulsa plant of McDonnell-Douglas, the famed airplane maker, were enrolled in the company pension, but in 1994, with an eye toward cutting retirement costs, the company closed the plant.
Did the McDonnell-Douglas company not pay into a separate pension fund, or did they raid the fund somehow?
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 mentions receiving 1/5 of full pension after being laid off due to the closure.
I know most of the DB plans were structured in a similar way, i.e. earlier years with the company have less impact on the overal pension. But this one looks more like a lottery, where you bet to stay employed at the same company for 30 years no matter waht.
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 previous employer projected to be worth $800/month which by then will be about the price of one cup of starbucks coffee...
To make it crystal clear, the pension was eliminated when the vesting duration was moved from perhaps 4 years to 30+ years.
https://www.investopedia.com/terms/v/vesting.asp
https://www.investopedia.com/partner/investopedia/articles/r...
More like if you work somewhere for enough years, you'll the golden handcuffs of extra bonus, or the flip side if you quit each job after two years you get nothing.
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 they will never achieve 40 years of continuous work in their lifetime.
> 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.
The whole system collapse when taxes are not enough to cover the pensions that were promised. It's a ponzi scheme.
They do in countries with extensive social systems. Look at Germany. There is boom for daycare services, retirement homes, various mobility devices, the country is sucking in females aged 40-60 from Poland employed (gray/black market mostly, I'm wondering who will take care of them in 20-30 years) to take care of Germany elderly, etc.
I don’t think any country can sustain a 25% unemployment rate for any length of time without it having catastrophic second- and third-order effects. That’s the problem, not the concept of taxpayer-funded pensions. All sorts of things are going to be underfunded or otherwise hosed if you’re struggling with 25% unemployment for any length of time. Nations have imploded over far less.
For comparison, the _average_ SS benefit in US is ~$15K, and max is ~$31K
On an unrelated note, the article mentioned in passing that some of these people are in debt paying for their children's college. Why does anyone feel like it's their responsibility to get in debt to put their children through college? Let their children go to a more affordable college, or let them take out debt on their own.
Every financial planner tells you to take care of your own retirement before you worry about your children's college.
I've made a lot of mistakes and made some intentionally choices that in my mid 40s, I don't see a comfortable retirement in my future even at 65. I'm not complaining about it, I like what I do, it's not physically demanding, and as a developer, my job is my hobby. I can't see myself not at least working part time in technology in some form.
Oh. Wait. That's par for the course on HN.
God forbid you think anything different from the hive mind. If you do, you're not welcome here.
Personally, I pay more in student loans than every one of my parents, aunts, and uncles pay on ybeir mortgage. I pay 2-3 times more in rent than their mortgage. I might be ok but only because of a high paying tech job. Those at the lower end the scale are absolutely fucked.
There was a lot of misguided misdirection in trying to sell every US citizen on home ownership, but there was also a tinge of romanticism towards the principle that maybe everyone could have their own small slice of the pie rather than a few fat cats owning the whole thing with all of us begging to borrow a piece.
Individuals can get lines of credit issued against their homes or reverse mortgages. Also there's a plethora of subprime debt individuals can acquire and default on ranging from autos to ones education.
Companies can keep issuing bonds so that on some end of the food chain, central banks can keep purchasing them.
Governments can keep issuing bonds, even at negative interest rates, central banks can keep purchasing them.
If it isn't clear, this can go on forever and will always end well.
Many countries do it like that.
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.
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 population), which requires reducing the left-hand side accordingly (by increasing retirement age or cutting pensions). The system cannot collapse (there's always a right-hand side), but it can require severe adjustments.
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 accumulate debt for 20 years than cut any pension. Then the next generation has to deal with unfunded pensions and trillions of debt. It's actually possible to go beyond recoverable and collapse because of the non elasticity, this has happened before historically.
That doesn't make any sense. The next generation could have enough real resources or not. If they have they will be OK, if they don't they will have a problem. Real resources in the future come from investment now, not from "saving money".
Saving money makes sense in a personal perspective, but not as a nation.
In exchange, the nation promises to give you 80% of your last average salaries as a monthly income after you retire (in half a century) until the end of your life.
These numbers are not linked to real resources and are not adjusted periodically.
Number_of_retirees * averagr retirement_payment = number_of _people * average_retirement insurance_payments
You can also prop up the right side with tax money from other sources.
I'm not saying it's perfect or even that it works well.
But there is nothing inherent in it that requires a growing economy.
How is that when we talk about this, nobody mentions that if the gross domestic product per capita goes up enough, there is not problem.
The 'savings' perspective makes only sense in the personal sense.
I mean, the problem is not money. If in 20 years we have robots, infrastructure, cheap energy, etc enough for feeding and taking care of everybody there is not problem.
If we don't, never mind the 'savings' that you have, because the real limit are real resources.
In the end, the bread that goes on the table in 50 years will be produced by a farmer of the future generation.
Savings and social security are just two different ways of writing the same contract.
In no away shape or form a ponzi scheme.
> A Ponzi scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading.
Not surprised you're using a throw-away username and I'm going to downvote it accordingly.
> A Ponzi scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors
It's not a 100% perfect match, but there are certainly enough similarities between how Social Security systems work and the basics of a Ponzi scheme that you'll have to make an actual criticism of the comparison if you want to argue how they're not the same.
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.
It also creates quite perverse incentives, as older folks want to reduce their retirement age (even as they live way longer) and raise the contributions of younger people (to pay for the extra costs).
Both things are sort of not true anymore in developed nations.
[1] The only systems I see are either underfunded due to growth assumptions they haven't been able to hit, or are funded through natural resources that the country just happened to have. If there are exceptions I would genuinely like to know.
We have population growth fueled by immigration. If not for this the US would have population decline. This is what makes us very much an outlier amongst developed nations [1]. Despite this our pension funding situation does not look good.
[1] Germany probably has strong net inflows of educated workforce from EU nations as well.
Our retirement systems are broken, and part of it stems from their own excessive costs, but there is no sinhle cause here, its a complex issue with complex causes, and shifting demographics and economic growth are only very minor factors. Bad policy, cynical politics and budget shenanigans, self interested executives, and simple incompetence and hobest mistakes all play the bigger part.
Lower life expectancy solves the pension issue easy peasy....
Republicans: This is too much money, we can't afford it, it's take from the rich, give to the poor, these social programs need to end. Grandma deserves to die under a bridge by herself, it's her own fault she didn't work harder or save more.
Me: A bullet to the head of the aging is more ethical than the Republican prescription. Yes, absolutely take the money from the wealthy and keep grandma off the street. Jesus...
That's every bit as immoral as leaving grandma on the street.
Clinton won the poor, Trump won the rich. When will you all stop with this?
On of my coworkers ended up in the hospital. She was taken on then dropped by 4 insurance companies, this was directly after she lost her military coverage.
She's 15k in debt working a job that pays $200/week.
I can toss a lot more stories back at you if you want.
Another possibility could be due to fraudulence during the application process?
But yeah, grabbing at straws here.
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.
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 a false hope of steel jobs think about different systems to support everyone in the upcoming job armageddon.
Would have been nice if the opposite side articulated what exactly that they were thinking of doing or at-least some vague idea would have been nice. Repeatedly saying "most qualified in the history to run as president" is not very convincing.
> 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.
If you were FDR, how could you possibly know that average person will live 10 years longer, or that we're going to end up with birth control and a consequent demographic cliff?
This is not really what happened though, people who made it to working age generally did not live that much longer.
Not so much a dispute as a clarification...
Defined contribution plans, 401k's and such, are much more sensible. You set aside a percentage of your income, your employer throws some in for you as well, and you decide how to invest it. You decide what level of risk you want to take with your future wealth, and you reap the gains and losses.
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 expense ratio over 1.5%. It may not sound like much, but that's compounded year-after-year. All of the other funds the 401k allowed had equally scandalous expense ratios.
After starting a business, I rolled over into an IRA. Switched to a different S&P500 fund with expense ratio of 0.09%. Same curve, but I keep more of my money.
It would be nice if people had more latitude in what they could put their retirement into--especially when it comes to tangible things, like buildings or equipment--that you can get some value out of even if the market happens to be down when you retire.
It would be nice if people could keep the match and have more control over their portfolios. Buy & sell stocks, bonds, commodities, etc. whenever instead of a very small basket of mutual funds that can only be juggled a few times a year.
The employment contract was accompanied by a 50 page document explaining the pension system, a long tutorial on risks/asset-types/location/diversification and everything you ever wish to know about pension, and last but not least the 20 funds they make available to us.
No, some employers just pay in whether you do or not, and your contribution doesn't in any way change theirs.
You can also open an IRA on your own and stuff that to the limit every year. Again there is a Roth version, which you can dip into for certain things before retirement age without penalty, and never pay tax on the withdrawal because tax was paid already going in.
Another thing to look into is if your employer can offer an HSA qualifying health care plan. You get a tax deduction on the front end when funding the HSA, and it can grow tax free, with tax free withdrawals for qualifying medical expenses - the trick is to never use it while you're working. Just pay co-pays, and deductible amount from pocket, instead of from the HSA. Use the HSA later to pay the things Medicare doesn't (which is a lot).
The best way to avoid taxes is to make the maximum possible contribution every year now while you can.
https://www.rothira.com/roth-ira-limits
and/or
https://www.irs.gov/retirement-plans/2017-ira-deduction-limi...
I can't contribute to my old Roth but I have a trad IRA I can legally contribute to.
One interesting point to make is to some extent its all a waste of time; the annual contribution limit for Roth or Trad IRAs is less than the monthly cost of my Uncles nursing home; all you're going to do by investing in IRAs is make some middleman slightly richer before you go on full government assistance; the IRA is not going to last long and your body is going to last longer. The purpose of "the system" is to get all your money before you die, so struggling to accumulate more merely means you'll get some rich guy a bonus for taking lots of your money as opposed to little of someone elses money.
There are no weird income or investment limitations on plain old investment accounts, which is why my plain old brokerage account is something like 10x larger than my two IRAs. Likewise my MiL is using her suburban house as her retirement account, more or less. Also the fedgov thinks people retire at 65, every single person, which is comical; due to ageism in my field I need a way to get an income for decades before I am 65 so IRAs that limit access for decades are kinda stupid to invest in unless you're in a "pocketwatch and lifetime sinecure position" job where you can reasonably expect to retire from that single lifetime employer at 65...
> due to ageism in my field I need a way to get an income for decades before I am 65…
Yeah, my thinking is the same, so for the past year I've been working on a framework I could use to swing trade futures via an online brokerage.
So far in my backtests from the end of 2004 to mid 2017 (about 12.7 years) I'm getting and avg return of %5.5, avg volatility of %6.8, and worst draw down of %9.7 percent.
Still trying to improve things, but I hope to hook it up an brokerage api, and monitor it on autopilot in the next year or so, but compared to the stats of the S&P 500 and the risk to get those returns during the same timeframe, I'm thinking about doing this sooner rather than later with where I'm at now.
As an individual, I don't think I can just compete with the insider dealing and foreign CB buy-and-hold of the s&p 500 with a passive strategy… so for me, I think the odds are evened out in the futures market.
For those who are self employed should look into SEP and SIMPLE IRAs, in addition to making the max contribution to a Roth IRA and HSA.
For those over 50, many offer additional catch up contribution limits, which raise the max contribution you can make each year.
It is still a thing though. Father-in-law had most of his stuff at Edward Jones. Some of their fees put mine to shame:
https://www.edwardjones.com/planfees/fees-compensation/mutua...
edit: Most of his had different titles, but their largest holdings were the same handful of stocks. We overlaid the S&P 500 on top of most of them--practically identical performance from time of inception!
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.
With something tangible, like a building, or a piece of equipment, you can still get some kind of revenue stream from the use of it while you wait for the market to recover.
If Wal-Mart guy could have put some of his retirement into lawn equipment or a hot-dog cart, I'm almost certain he could make more in an afternoon with that than what Wal-Mart is paying him for a week's work.
My employer uses Vanguard and gives us access to Vanguard's institutional S&P500 fund at 3.5 basis points. Our plan rules also allow for in-service contributions from existing IRA assets so I've been moving all my IRAs into my 401k for access to these cheap funds.
AFAIK, most Asian countries do work this way. Given American salaries, this should be very easy to manage in US
Only if you are making Silicon Valley money somewhere outside of Silicon Valley. Otherwise, not so easy.
Given American cost of living, this is no longer feasible.
Also the impact of divorce and other kinds of freedom, the structure of obligation no longer works like that either.
WTF! So a company is not allowed to consider costs in a cost cutting decision? Was this not a conscious risk an employee took by accepting a job on the chance of pension received if they were not fired before retirement? How is it different from buying a ton of stocks of failing companies and then suing if the price crashes further?
Not really. The case doesn’t seem to involve the company trying to default on existing obligations. It involves them projecting future costs and deciding whether to carry them. This is akin to laying off an employee, something most states freely permit, more than defaulting on pay for work already done.
Closing a plant to save money isn’t per se illegal (¶ 222). The employer just had to show they had a legitimate reason for closing the plant (¶ 223).
Instead, they kept talking about how the pension plan had nothing to do with the plant’s closure (¶ 226). That was not credible (¶ 263). (The plant’s employees had helped lobby for a new F-15 contract (¶ 15). There may have been political reasons the company couldn’t say “pension costs factored into our decision, though other reasons were prominent, too”.)
Since the “Defendant was in the best position to put forth the actual reasons for its decision, if in fact such reasons were legitimate” and it “repeatedly failed to do so, engaging in a pattern of discovery abuse and refusal to respond to proper inquiries by both Plaintiffs and the Court“ (¶ 257) the plaintiffs won (§ 4).
It is unclear how cleanly this unusual case generalises to the claim made in the original article.
[1] https://law.justia.com/cases/federal/district-courts/FSupp2/...
Disclaimer: I am not a lawyer. This is not legal advice.