The solution is to not offer pensions.
Pensions are complicated by lump sum payouts, survivor benefits for spouses, and a bunch of other things. But you collect them for life. If you live a short time, the 401k might be a better outcome and the beneficiaries of your will can inherit the wealth (or your spouse, if you outlive them, vs reduce survivor benefits). If you live a long time, it's overwhelmingly likely you have not saved up enough for it, and short of letting the elderly eat cat food and die on the street, the costs of that outcome are socialized to the rest of us.
If you as an individual still want proper longevity insurance and the predictability of a defined-benefit-plan without this risk, just use the personal retirement savings to buy an annuity.
Also, how are you just ignoring have to rely on the honesty/fiscal stability of the company backing your hypothetical annuity in the space of two paragraphs?
Pensions are disappearing anyway so I feel like we're arguing the nutritional value of eating yangtze river dolphins, but that is because 401 plans are cheaper for employers and there is a lucrative fee structure in administering them, not because of an intrinsic flaw of pensions.
And PBGC is woefully underfunded. It’s already needing a bailout with just a few failing multi employer funds. It’s mostly for show I presume, since this isn’t even the first time it’s getting bailed out.
https://www.bloomberg.com/news/articles/2019-07-25/house-pas...
There is still loads of risk to the employer as they are on the hook for any future shortfall. Shortfalls are common as there is huge correlation of risk, such as actuaries systematically under estimating gains in life expectancy. That's why most such schemes are in deficit.
One of the problems that caused the decline of DB pensions is the accounting industry decided on such a unlikely scenario that inflated the cost to the employer immensely.
One pension trustee commented that the scenario came true you'd be more concerned about your stockpile of tined goods and shotgun shells than a pension.
So who pays the accountants and who now has a nice excuse to shut down its scheme :-)
This article is about a British company. 401ks do not exist in the UK, and you get a lot of benefits and tax allowances from pensions that you get out of no other investment vehicle over here.
An interesting place to see this is in groups of US military members talking about the pension plan they just had the option to switch. The 401k version has a higher expected value than the pension version, yet many people who are themselves sticking things out to pension age prefer the pension age. Though it may be that people staying in the military trend risk averse.
I'm sure this is more nuanced, and risk aversion may depend on the type of risk (ex. financial risk vs physical risk). But it still sounds really strange to me to characterize individuals who volunteered to join an organization that may (and probably will) put then in very dangerous situations as "risk averse".
One can also plan to off themselves once they're unable to support themselves. I say plan, because I'm sure saying it is easy, but when it comes time to do it, it'll be much more difficult.
Also, what is this sacrifice you are talking about? Just another one "kids these days!"
I almost involuntarily typed "OK Boomer" in response to that.
*I'm Gen X, not a Millenial, but still
We can't simultaneously have ever-rising property values and affordable housing. Without affordable housing, many people are choosing to defer having kids (including, as you say, by pursuing more education to get higher-paying jobs), which reduces the worker/retiree ratio. That in turn makes it more expensive to be old, requiring more yet more savings.
To me a lot of this problem like a pathological response to the US's lack of good long-term pension coverage. Our every-man-for-himself, devil-take-the-hindmost approach causes a lot of scarcity thinking, which makes it hard to adopt sensible systemic solutions.
And it isn't a problem in all cities either. From what I hear costs are going down in many industrial cities as residents leave to seek more abundent jobs elsewhere.
As to the latter point, I'd be interested to see your data. The Case-Shiller metro indexes are all up over the last 5 years. [1] The metro area with the least inflation is New York, which doesn't match.
[1] https://us.spindices.com/additional-reports/all-returns/inde...
Take away the wealth transfer from cities to non urban areas and the only people living in rural areas will be the wealthiest and end of the world preppers.
This has absolutely nothing to do with partying. And if you're choosing to have kids for the purpose of having a support network when you're older, that's kind of a fucked up rationalization for it. At that point, society has failed you somewhere along the way. Even ancient societies had other methods of supporting the elderly in the community or through some form of welfare.
1. Save money.
2. Have 3-5 kids.
3. Kill yourself.
What I’m hearing is that you prefer 2 & 3?
1. Had the government or community take care of the elderly.
2. Criminalize poverty and force them to work or be imprisoned.
3. Let them die.
Even the Roman Empire had pension for people that served in the military. You can take your pick as to which system you'd prefer, but pensions have quite literally existed for thousands of years in some form.
It’s disingenuous to assert that the alternative to no pension is blood in the streets.
For 5: Even in those non-American societies they have recognized that leaning 100% on your family is generally a bad thing for working professionals. Or at least those companies are not willing to pay for their employees to take care of their elderly or disabled family members.
Why would you assume the rate of increase would keep increasing at the same rate?
So yeah, I agree it won't maintain a steady growth rate in the long term. I just don't think it'll stop before it causes some pretty big problems.
[EDIT] incidentally I'm not aware of high-profile projections of this stuff that have HC costs doing anything but continuing up way faster than inflation through at least 2030, provided the regulatory environment remains fairly similar. Even Warren's plan isn't projected to do much about that—need price controls in one form or another (like AFAIK every other OECD state uses) and a fix for our doctor supply problem, at least, probably, to do much about the rising costs.
If anything naive extrapolating shows falling costs as a percentage of GDP, and sustainable rising real costs.
The only way we get crazy numbers is extrapolating using the average from 2000-2020, but there's no reason to do that.
https://www.statista.com/statistics/184968/us-health-expendi...
If you are not going to make the effort, why should he take your criticism seriously?
I can however tell you that naive extrapolation is definitely the wrong way to do it.
Look at the 2nd derivative it's all over the place, so assuming that it will magically stay constant is wrong. The 2nd derivative of healthcare as a percentage of GDP is actually negative over the last few years.