Hacker News Reader

Comment by jxjnskkzxxhx | Hacker News Reader

"Pensions are unpalatable". You don't have pensions in the USA? Meaning like an account into which you can put pretax money and in exchange you can't take it out until later in your life (but can invest it)?

View on HN

A "pension" means an employer-funded pool of money that pays out fixed payments after a certain age. What you're describing exists (somewhat unevenly) in the US, but it's employee funded. The employee must take active steps to contribute, which means they lose part of their income until they retire and there may or may not be employer contributions. People who can't afford to contribute, or put it off for a few years (most people) end up with insufficient funds at retirement, which becomes a social problem.

Those aren't, and never were, pensions. Few pension programs exist anymore, they were (almost) all replaced with retirement accounts starting I don't even know when, but finishing by the mid 1980s. The pension programs were all going bankrupt due to various reasons (bad economy, American industrial collapse, etc) but mostly demographic implosion.

Pensions are still common with government jobs.

> The pension programs were all going bankrupt due to various reasons

And my state is having this problem right now.

We have tax advantaged retirement accounts, which have weird contribution rules that assumed companies would replace spending they were doing on pensions with contributions to these accounts (spoiler alert: didn't happen) that keep contributions limited to pretty low levels unless your employer kicks in huge amounts, which almost none do (that is, there are limits on what you can contribute, and separate limits on what your employer can contribute, and the latter is significantly higher). Also some of them require your employer to have such a program, or else you can't participate, which further limits your max contributions if yours doesn't.

Further, since individual contributions aren't mandatory, that money is freed up for zero-sum competition over things like good schools for your kids (that is, housing in good districts) so if you don't choose "defect" and spend the money instead of saving it, your family's overall worse off than it would be if everyone had to contribute.

Also, a tax-advantaged savings/investment account isn't the same thing as a pension.

we have a concept called a 401k (and for non-profits a 403b). You contribute some % of your paycheck and your employer matches some amount of that (potentially with a vesting schedule)

The money can be invested, and then at some age (55.5 i believe?) you can access the money without being taxed. There is a maximum you can contribute per year etc etc.

I am not old enough to ever have had a pension option in my entire life, but I believe 401Ks are overall worse, because pensions come w/ some amount of guaranteed payout + someone managing the fund to ensure that happens. a 401K can go to zero, and you can forget to contribute (and most of the money is your own money anyways)

> The money can be invested, and then at some age (55.5 i believe?) you can access the money without being taxed. There is a maximum you can contribute per year etc etc.

Not quite - you're given a tax benefit (i.e., not taxed) on your contributions when you contribute them, but when you withdraw funds you pay income tax. If you withdraw before the 'retirement age' (55.5, as you say) then you pay an additional penalty.

The idea being that you would be in a higher tax bracket during your earning years, but in retirement you'd be theoretically in a lower tax bracket, therefore would get some tax savings. Additionally, since the tax savings is taken off of the 'top' of the bracket when you contribute and when you withdraw its added to the 'bottom'.

There's also Roth contributions (where you get no benefit now, but don't pay taxes on gains later when you withdraw), but not all plans offer this.

Pensions are not under your control. mostly they were good but once in a while the company you worked for, for 30 years went bankrupt and then you found out the penson was in company stock so not only were you out your job/income you also lost your retirement. In response to that we now have laws about what pensons can invest in - but that means their returns are terrible and so they are not a good roi.

more people have access to a 401k today than ever had a pension as well.

> You contribute some % of your paycheck and your employer matches some amount of that (potentially with a vesting schedule)

This is actually completely optional, many employers do not. For example mine does not do any matching or contributions

> The money can be invested, and then at some age (55.5 i believe?) you can access the money without being taxed. There is a maximum you can contribute per year etc etc.

So the tax side of this depends on if the 401k was done as Roth or traditional. Traditional IRAs are tax advantaged but not tax free. Contributions are pre-tax from the employee's paycheck. Roth on the other hand is post tax and tax free on withdrawal (assuming no penalties).

The pensions I had in mind (UK) don't have any guaranteed payout and can go to zero. We don't have to have anyone "managing" them, and I for one think that's a good thing.

We don’t have traditional defined-benefit pensions, or not outside of the public sector.

> We don’t have traditional defined-benefit pensions, or not outside of the public sector.

That's a fairly popular belief, but even now (well, as of March 2023), several decades after the general move against them, 15% of private sector workers have access to a defined-benefit pension plan.

https://www.bls.gov/opub/ted/2024/15-percent-of-private-indu...

Reply on news.ycombinator.com