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Comment by ThrustVectoring | Hacker News Reader

The 401k being 100% yours is a somewhat significant downside, too. It means that the funds get transferred to your heirs on death, diverting funds from supporting retirement in general. This can be counteracted by purchasing an annuity, but that usually isn't the route taken by retirees. Overall, it means that saving for retirement is more expensive than it needs to be, since you're also effectively saving for an inheritance too.

The pension, on the other hand, effectively collects mortality credits as beneficiaries die and distributes them to survivors.

The ideal retirement system would be effectively some sort of actuarially adjusted tontine. Nothing gets left behind when you die - instead, it gets split among surviving retirement savers in an actuarially fair manner.

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Except for the fact that psychologically, those who think, expect, or worry that their money might outlive them may take significant comfort in that money being passed to their heirs. This may make them more likely to save for retirement, even at the risk of over-saving, because the benefit of that money is not fully "lost" on death.

You don't want to (IMO) design a retirement system where the well-to-do have every incentive to opt-out.

Erm, what? Yeah, you want to structure a retirement system where the well-to-do want to opt out. Otherwise, we're giving tax advantages for "retirement saving" that really goes to heirs. How it's currently structured in the US, we do so through contribution limits.

If all the retirement system change is make rich people opt out and have poor people who die early pay for the retirement of poor people who die late, it's a smashing success.

I see your point, but in any private system where only the poor participate, only the poor pay the fees that allow the system to exist, so you either further disproportionately disadvantage them financially and/or you provide them with notably worse service and support than the well-to-do enjoy for their investments.

We might have different definitions of "well to do". I was thinking of households making over $500k per year.

There actually used to be accounts like this. Apparently common in some parts of the world, not so much in the US.

https://en.wikipedia.org/wiki/Tontine

Old-style tontines are not actuarially fair - they are significantly more valuable for you if you have a higher life expectancy. It transferred wealth from older individuals with a higher chance of dying to younger individuals with a lower chance, with the obvious failure mode of a tontine being something you sign your children or grandchildren up for.

Actuarially fair tontines would yield mortality credits based off age and amount invested. So if you had a 10% risk of dying in a year based off actuarial tables, and you had a balance of $10k, you'd have 1000 mortality credit units. 1% chance of dying means only 100 mortality credits. So there's no advantage to signing up younger folks - the lower risk of dying proportionally lowers the mortality credits earned.

I agree that it's worth acknowledging the effects of 401ks as having some downsides for retirement in general. That said, I don't think it's fair to consider it a "significant" downside at face value when the upside of the transaction is that you can leave it to your heirs. For someone who values individual agency and family values that's going to be an upside, for someone who values optimizing around what benefits society at large it's obviously a negative. I might also be wildly misunderstanding you though so please correct me if I've gone off track.

If you plan for a 20 year retirement, but live an extra 10-20 years and run out of money, that is a pretty significant downside.

Another advantage of retirement policies that can take advantage of actuarial risk, is that they can also adjust their market risk to match the actuarial distribution. The common advice is to have most of your 401k in bonds and other safe assets by the time you retire to protect against market volatility. But if you live another 40 years, you will have missed out on a lot of potential investment return if you were all in on bonds. Pooled retirement solutions can balance those risks better.

I'm optimizing both for "what system is best for society to implement" as well as "what system is best for individuals within it". There's a pretty significant individual upside - people who were unable to save enough for retirement can now retire due to their tax-advantaged plan earning mortality credits.

Being able to leave assets to heirs comes at a price. Just look at the pricing of the different single premium immediate annuity options - anything that also preserves assets to heirs in certain conditions also costs significantly more for the same income stream. The goal of retirement programs in general should be to ensure that as many people as possible aren't destitute in old age as cheaply as possible, IMO.

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