13 ms·

Champions of the 401(k) Lament the Revolution They Started

78 points by slededit 10y ago

koolba 10y ago
People talk of pension like they're a sacred right of workers yet nobody will address the fact that they're entirely unsustainable. Any system that tells a worker they can work for 25 years somewhere then receive 25+ years of pensions at their inflation adjusted final salary is a crock. The money has to come from somewhere (and don't give me a bullshit about compounding ... we're talking way more than that). The non-employer (or even worse municipal - yuck!) pension can be created synthetically through a combination of annuities and life insurance. The problem with that approach is that since the other side is a private company that cares about the pay outs (and not just promising obligations to be paid by someone else), it ends up costing way more. Guaranteeing a perpetual $X/month (inflation adjusted) pay out twenty-five years from now is way more expensive than people realize or would be willing to pay for. The real answer is: Accept that fact that most people cannot retire at the same lifestyle the enjoyed while working or adjust the latter well in advance so that instead of saving 5-10% you're saving 50+% of your money.
- ivraatiems 10y ago
  I think you're presenting a false choice. We live in a society where an awful lot of money goes to things and people that don't particularly need or merit it. What you mean to be saying is "accept the fact that without a radical change in how we view the purpose of employment and retirement, most people cannot . . ." Basically, what's the goal? The goal right now is for each entity in the system to hold onto as much money as it possibly can. It's a company-first view of the problem, and therefore not one that really addresses the main point: People shouldn't be expected to work into their old age.
  - koolba 10y ago
    > I think you're presenting a false choice. We live in a society where an awful lot of money goes to things and people that don't particularly need or merit it. That's why people don't have a higher savings rate. Most people are idiots when it comes to spending, the dumbest habit of which is increasing your spending on pace with increased in income. Okay maybe not the dumbest as it's even dumber when they increase it faster than income (ex: new job => new car with higher monthly payment v.s. difference in salary). > What you mean to be saying is "accept the fact that without a radical change in how we view the purpose of employment and retirement, most people cannot . . ." > Basically, what's the goal? The goal right now is for each entity in the system to hold onto as much money as it possibly can. Why is the company holding onto anything? If you're working as an employee and want to retire one day, demand to be paid for the services you're providing now, save them up, invest them, and then it's yours to spend. Why have the company guess at how to manage that? It's putting an awfully lot of eggs in one basket as well as if the company goes under, your pension will take a hit as well (since no company actually has a fully paid for sinking fund). > It's a company-first view of the problem, and therefore not one that really addresses the main point: People shouldn't be expected to work into their old age. Why not? What else are they going to do anyway and why should they be granted N years of do nothingness just because they're old? Sure sounds like a ponzi scheme to me ...
    - ivraatiems 10y ago
      > That's why people don't have a higher savings rate. Most people are idiots when it comes to spending, the dumbest habit of which is increasing your spending on pace with increased in income. Okay maybe not the dumbest as it's even dumber when they increase it faster than income (ex: new job => new car with higher monthly payment v.s. difference in salary). It's also why megacorporations and a very small percentage of people have such immense amounts of money and give essentially nothing back for it. > Why not? What else are they going to do anyway and why should they be granted N years of do nothingness just because they're old? Sure sounds like a ponzi scheme to me... What is so valuable about forcing everyone to work their whole lives? Who benefits?
      - koolba 10y ago
        > It's also why megacorporations and a very small percentage of people have such immense amounts of money and give essentially nothing back for it. Besides you sounding bitter and misinformed or changing the conversation to one about converting the USA to communism, I don't see how that's relevant to this. > What is so valuable about forcing everyone to work their whole lives? Who benefits? They benefit by providing for themselves and their families. They're not being forced to do anything (though food, shelter, and self preservation tend to be good motivators). To flip your question around, why should they get a free ride because they past a certain age? I'm not saying people shouldn't retire, I'm saying that if they want to do it, they need to be realistic about what's financially involved and either save significantly more or realize they're going to be living off of rice and beans.
        ivraatiems 10y ago
        > Besides you sounding bitter and misinformed or changing the conversation to one about converting the USA to communism, I don't see how that's relevant to this. I didn't say that. I think you're leaping to conclusions. What I'm trying to do, to be frank, is poke holes in the assumptions you're making in the first post about how things are and should be. I'm not a communist (it's never worked as envisioned, and likely can't), but I'm getting pretty sick of the notion that our system as-is is the best one for most people. I want to have a conversation about ways it could either be made better, or what it could be replaced with. > They benefit by providing for themselves and their families. They're not being forced to do anything (though food, shelter, and self preservation tend to be good motivators). Again, this is a false choice. It actually is a couple of false assumptions: First, the idea that food, shelter and self-preservation are things that people must earn, rather than have a right to. Second, that people who are in a "do it or die" situation have any real choice, given that almost nobody would choose the "die" part of that. > To flip your question around, why should they get a free ride because they past a certain age? I'm not saying people shouldn't retire, I'm saying that if they want to do it, they need to be realistic about what's financially involved and either save significantly more or realize they're going to be living off of rice and beans. So, first of all, I agree with the notion that in the system as it is, one has to be prudent and thoughtful, one has to save money, one has to plan for oneself. We're in agreement on all that: With the world the way it is, it's important for each individual to plan and put themselves first. I fully understand how to work within the system we have to keep oneself afloat, and I'm not suggesting people shouldn't. Why shouldn't people get a free ride for food, health, shelter? Why are those things things which must somehow be earned? I'm talking philosophically here, not practically. I'm not saying everyone is entitled to caviar and vegan d3 supplements on private yachts, but I don't understand the assumption that, given a society which could technologically provide basics for everyone, people shouldn't have them.
- kobeya 10y ago
  50% would be enough to retire in 7-10 years btw. Actual required savings rates would be lower.
  - kgwgk 10y ago
    Can you explain your calculation? Let's say your income is 100. You spend 50 per year, save 50 per year. How much do you have in 7-10 years? How many decades of retirement can you finance with those savings?
    - the_gastropod 10y ago
      Assuming we're starting at $0, saving 50% will more realistically let you retire after ~17 years. Here's a pretty good article from Mr. Money Mustache that explains the math: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
      - fnovd 10y ago
        The big problem with this table is that it assumes that you want to live on the same amount that you do while saving. If I'm saving 50% of my income to retire in 17 years and then decide I can bump it up to 65% of my income (let's say by no longer dining out) all of a sudden my "retirement" happens 7 years earlier. It feels good to read that because it looks like I'm saving 7 years of work by just saving a bit more. However, the new "retirement income" that I'll be living at goes down from 50% of my income to just 35%--the table expects that, since you can live on the new income, then it is enough for you to retire on. If I raise my savings rate by cutting things I can live without (for now), I'm "locked in" to not having those things in retirement. If I'm making $5k a month after taxes and saving 90% of that (so, living on just $500 a month), MMM's table says I can "retire" in under 3 years. However, that retirement is one in which I live on just $500 a month--not what everyone has in mind when they consider retirement. If I'm making $5000 a month and want to live on $2500 in a month in retirement, I will have to save for considerably longer than 3 years. This is the most glaring at saving 100% of income. It doesn't really make sense that I can "retire" in 0 years by saving 100% of my income. The table is basically saying, "If you can afford to work and not spend any of the money you make, you can drop your income from $5000 to $0 and live without worry!" Never mind that people may have children, or get sick, or feel like traveling, or any other possible scenario in which an extra cost is incurred.
- pdq 10y ago
  Defined contribution plans are such a simpler system. Defined benefit plans need professional actuaries to estimate a future with so many unknown variables: interest rates, rates of investment return, employee lifespans in 20+ years, retirement ages, voluntary employee exit rates (just to name a few). Plus you have the problem of so few companies lasting anywhere near as long as a pension plan would last, so these legacy pensions have to get offloaded to the Pension Benefit Guarantee Corporation. It's no wonder that the private sector has moved from 30% defined benefit and 10% 401k back in 1980, to 2% defined benefit and 33% 401k today.
  - toast0 10y ago
    I think this is exactly right, a defined contribution is simpler, more transparent, and less risky for the employee and the employer. The employee knows exactly how much the employee is contributing (and if it's being contributed in timely fashion), and (vested) contributions are safe from employer bankruptcy or change of jobs. The employee still has market risk, which was present before in that a pension with poor investment results may lead to the pension being assigned to the PBGC and result in a reduced pension. The employer benefits by paying for today's workers only today, and does not have to manage and fund the pension. There are certainly concerns about investment costs / poor investment choices within 401(k) plans, but I think some recent litigation results are likely to improve the landscape. Good plans are available, and companies may have a duty to provide a good plan.
  - crdoconnor 10y ago
    It simply moves the investment work and risks to the individual. It's a minefield for the individual and vastly more complex to manage (individuals are effectively forced into being investment managers... like that's an easy job?). It's ultimately just one part of the seismic shift in wealth to the 0.1%. "Sustainability" is just the thinly veiled excuse.
    - saryant 10y ago
      Is it really unreasonable for someone to read something like Bernstein's "If You Can"? It takes an hour. https://www.etf.com/docs/IfYouCan.pdf https://www.etf.com/docs/IfYouCan.pdf
- ams6110 10y ago
  If you save 10% of your income from your early 20s to 65 you should be quite well set, presuming your expenses drop after retirement (kids are supporting themselves, house is paid off or you downsize to a lower cost smaller residence). If you can save a little more than 10% even better. Problem is most people don't really think about it until they're in their mid 30s at earliest. When you are in your 20s or early 30s and have young kids so many things seem like more important priorities. And most people in their 20s can't even really conceptualize retirement. It seems impossibly far away, time-wise. But missing that first 15 years has a huge impact on the total compounding potential. If you start saving at 35 you have to save a lot more.
  - closeparen 10y ago
    It's amusing to me that people in the tech community think they will get to work that long. Look around your office. Do you see anyone over 40? No? Are you saving enough to retire at 40? Then what do you think is going to happen? EDIT: I will point out that this comment has fluctuated quite a bit between +2 and -2. So, clearly some very different experiences, which is good to hear. Perhaps not as dire as it looks.
    - jghn 10y ago
      Yes I do.
    - swsieber 10y ago
      I see many people over 40. I have co-workers with children my age. Perhaps if you move, you'll find a more respectful and receptive environment for those who are seasoned.
    - ThomaszKrueger 10y ago
      54 here. Will work until drop dead.
    - skookum 10y ago
      By this logic, there must be millions of unemployable past-40 software engineers out on the streets. Or maybe the simpler explanation: Our industry has been growing exponentially for two decades and the cohorts that are past 40 are small compared to the ones that came later. Further, the "look around your office" result varies wildly from office to office. Looking around your average SV startup will skew to gullible, er, I mean risk-tolerant mid-20s engineers. My office is more than half composed of experienced engineers in their mid 30s and up who know their market rate.
- hudibras 10y ago
  >Any system that tells a worker they can work for 25 years somewhere then receive 25+ years of pensions at their inflation adjusted final salary is a crock. Nice strawman you got there. I doubt there's even one pension plan, public or private, in the U.S., Europe, or Asia which is as generous as your example.
  - patio11 10y ago
    California public safety employees (police, fire, etc) get all four prongs of that deal, I think. Technically it's 90% of peak salary but "spiking" is culturally accepted, so in practice you can have more than 100% of your final year salary in pension benefits.
    - chimeracoder 10y ago
      > California public safety employees (police, fire, etc) get all four prongs of that deal, I think. Technically it's 90% of peak salary but "spiking" is culturally accepted, so in practice you can have more than 100% of your final year salary in pension benefits. Government postings are even better. The UN requires only five years of service before you're eligible for pension benefits, and you can still collect those on top of whatever pension your home country government gives you (which is common), or even while being employed in a different government posting. It's not 100% of salary if you only stay 5 years, but it's pretty large - you can easily reach eligibility for a pension that's large enough to live on before you're 30, and then "double up" by taking other government postings whose pension eligibility is handled separately.
      - hudibras 10y ago
        UN pension is 1.5% per year, which you can start collecting when you're 62 years old. Not that unreasonable.
        chimeracoder 10y ago
        > UN pension is 1.5% per year That's the minimum. It goes up from there depending on your position. Typically, you could expect to make a lot, lot more than that, even for very short tenure: http://www.un.org/Depts/OHRM/salaries_allowances/salary.htm http://www.un.org/Depts/OHRM/salaries_allowances/salary.htm > which you can start collecting when you're 62 years old ...yes, but the point is that you only need to be employed for five years to be eligible for lifetime benefits. Work there for 5 years in your 20s and you're set.
- closeparen 10y ago
  >People talk of pension like they're a sacred right of workers yet nobody will address the fact that they're entirely unsustainable If I go eat an expensive meal and, when the check comes, say "sorry, these prices are unsustainable, and making money is not your sacred right" I would be arrested.
- gohrt 10y ago
  Pensions are funded. There is a national pension insurance fund. They are completely sustainable, as long as they are funded. A pension is an annuity. The pension money comes from money that is withheld from wages. Now, if some company engages in wage theft (raids its pension fund), that's fraud just as any Madoff-esque pyramid scheme.
  - hudibras 10y ago
    The HN crowd will never believe this, because it runs contrary to the beliefs of libertarianism and the what-I-vaguely-remember-from-Econ-101 crowd, but correctly-funded public pensions are completely sustainable. The main reason is that public pensions operate on a nearly infinite time horizon, unlike a worker's 401(k).
    - analog31 10y ago
      Long ago, conservatives believed that public assistance made people immoral. Then Ronald Reagan discovered that his own followers actually like their public assistance when it benefits them and not those "other" people. So conservatives changed their tune and began claiming that public assistance is "unsustainable."
    - grzm 10y ago
      The HN crowd will never believe this Please don't make generalizations like this, especially of a community you choose to participate in. Your comment reads perfectly well if you omit everything up through but.
      - hudibras 10y ago
        Good point, thanks.
  - sigzero 10y ago
    California is in a pension crisis because they screwed they whole thing up. When people are involved, expect those screw ups.
- shorttime 10y ago
  If the book I'm reading is to be believed, pensions were paid for by the company with money that would have went to the worker, if not for the pension. This money would then be invested over the career of the worker, similar to a 401k, but the risk is on the company to manage - not the worker. The pension to 401k transition simply offloaded the risk of financial maintenance to the worker, rather than the company. Salaries, supposedly, adjusted accordingly when 401k's came around, which is a whole story in itself. Originally, 401ks were for executives seeking tax-differed income from the company and it morphed in the 80s to become what we see today.
  - hudibras 10y ago
    You're mostly right, but it's also the spreading of risk across many employees (including future employees, not even hired yet) which make pensions viable.
  - bradleyjg 10y ago
    A company, even a fairly big one, can go out of business. Also, most companies are not in the business of managing investments. They are in the business of selling shoes, or oil, or internet ads. There are companies that are in the business of managing investments for the very long term and are regulated so as to minimize the risks of bankruptcy. You or you company can incrementally buy a pension from such a company in the form of a deferred annuity. The only disadvantage to a defined contribution plan with a deferred annuity option is that you and your employer can't mutually pretend there's such a thing as a free lunch in the form of risk free investments with eight percent returns. But on balance I'd consider that a good thing.
  - dragonwriter 10y ago
    > If the book I'm reading is to be believed, pensions were paid for by the company with money that would have went to the worker, if not for the pension. This is evidently not true, as employers did not, when discontinuing pensions, add equal economic value in other compensation. Pensions are a retention program as well as a compensation program.
  - shshhdhs 10y ago
- dragonwriter 10y ago
  > People talk of pension like they're a sacred right of workers yet nobody will address the fact that they're entirely unsustainable. They aren't entirely unsustainable. It's possible for them to be underfunded, but that's structurally avoidable if anyone was concerned. > Any system that tells a worker they can work for 25 years somewhere then receive 25+ years of pensions at their inflation adjusted final salary is a crock. Sure, but real-world pensions rarely come anywhere close to that; even generous ones are almost never fully inflation-adjusted (while COLAs are common, they are often capped at, e.g., 2% annually -- each year, not cumulatively, so they permanently fall behind each year inflation is above the cap) and they usually don't come anywhere close to 100% at 25 years. (I think the most generous rank-and-file current CalPERS plan is 2% per year of service at 55 years, which maxes out at 2.418% at 63+ years, and so would take more than 40 years of service to reach 100% of the base used for calculation -- which for employees hired in something like the last decade is actually the average salary of the last 3 years, not the last single year.)
  - WildUtah 10y ago
    CalPERS users can take extra overtime and duty pay in those last years to inflate the base, also. And that base even without overtime is much higher than the average working salary. And CalPERS assumes a rate of return far higher than it can achieve through investments. That's how CA employees end up with million dollar per year pensions. [0] Happily, some abuses have been reduced slightly in recent years. There's far to go yet. While it is possible for pensions to be funded properly, it's not something state and municipal governments do and the few private companies with defined benefit pensions rarely do so either. In fact, it's literally illegal to fully fund pension benefits in the United States without paying a steep tax penalty for saving too much. The IRS and Congress know that exposing the full cost of what we're promising to pay out would shock too many people and they don't want to know. Better to defer the problem to the next Congress and let them sort it out. The only hope is massive productivity growth. So, techies, get programming those robots and AI bots and new chemical materials and cheap new energy sources. The government has already assumed that they're all going to take off like crazy and forced us to bet the country on that assumption. We're going to need a tech explosion just to keep our heads above water. [0] https://en.wikipedia.org/wiki/City_of_Bell_scandal https://en.wikipedia.org/wiki/City_of_Bell_scandal
scottlegrand2 10y ago
Easy but impossible to implement fix: Everyone can pre or post tax save up to $50K a year in their IRA, no restrictions, phaseouts, or alt min BS, etc. Also no RMDs whatsoever but taxed upon inheritance past $10M like anything else.
- kobeya 10y ago
  Why limit contributions?
  - scottlegrand2 10y ago
    Personally I agree. Practically and politically, good luck convincing the 99% to go along with the 1% deferring taxes on their income indefinitely.
    - chimeracoder 10y ago
      It's not indefinite. Traditional IRAs have mandatory withdrawals, and lifespans are finite, so there's a clear bound on how long the taxes could be deferred.
  - bunderbunder 10y ago
    Think of it from the government's perspective. All an IRA is, is a way to get out of paying taxes on a portion of your income. The government doesn't _really_ want to cut off its income stream any more than is necessary, so they put restrictions on it. The most obvious place to start is limiting how much you're allowed to shelter from taxes in the first place. Framed another way, it's another form of progressive taxation. If you assume that people save for retirement in proportion to how much they earn, then setting a flat limit of how much of your retirement savings can be sheltered from taxes effectively means that less wealthy people can shelter all of it, and as you get richer you pay taxes on a higher percentage of it.
  - bradleyjg 10y ago
    Once a worker has enough savings such that he won't be a public charge in retirement there's no public interest in further savings. We don't need to incentivize behavior that only creates private benefits, such behaviors are their own reward.
kobeya 10y ago
With a 491k I own my retirement savings and they can't be taken from me. I control what investments can be made and my risk tolerances. 401k replaced pensions? Good riddance! The only crime here is 401ks being tied to employment and contribution limits.
- ceejayoz 10y ago
  > With a 491k I own my retirement savings and they can't be taken from me. Sure it can. Congress just has to pass a new tax (or increase the existing brackets) on your distributions.
  - koolba 10y ago
    Yep. Either that or when they decide to "more fairly redistribute" 401k savings between the haves and have-nots. I seriously doubt that would happen but it's not outside the realm of possibility.
    - smallnamespace 10y ago
      I doubt that would ever happen -- people take property rights very seriously here, and 401k money is very clearly the fruit of the owner's labor. The easier way to move money from savers to debtors is to cause inflation, but good luck getting that to happen in today's environment.
      - koolba 10y ago
        You could say the same thing about social security too though I don't think I'll get back >= 100% of what I put in. Between "means testing" (which is stupid because it disincentives saving) and raising the retirement age for non-boomers, it's not looking probable so don't consider your 401k untouchable either.
        smallnamespace 10y ago
        Difference is that SS doesn't have a number that says 'this amount is your exact share of the pot', while your 401(k) does. How a thing is originally presented matters, especially when it comes to what is politically possible.
rubyfan 10y ago
So what's the alternative? Corporations don't have the ability to fund pensions any longer. Margins and benefits have thinned out. The numbers on how many have retirement accounts are quite scary. Who's going to be there to fill that shortfall, social security? Doubtful it'll be there for anyone under 50.
- up_and_up 10y ago
  > Corporations don't have the ability to fund pensions any longer. Margins and benefits have thinned out. That's true. Interesting then that executive pay, golden parachutes etc keep climbing...
- maxxxxx 10y ago
  "Corporations don't have the ability to fund pensions any longer." They don't have the willingness. They could fund them if they wanted to. Maybe some super generous pension plans would have to be cut back. Just look at a lot of execs. They get life-long pensions.
uiri 10y ago
Financial experts recommend people amass at least eight times their annual salary to retire. How exactly does this translate into 25-30x annual expenses (assuming safe withdrawal rate of 3-4%) ? Let's say that taxes eat 25% and these "experts" assume no mortgage (so, what, another 15%? 20%? of gross salary). Eight times will still only cover annual spending of ~30% their gross salary. If these people are spending 50% their gross salary (not unlikely given the abysmal savings rates) they're still in for quite a shock. low interest rates have diluted investment gains This is also quite the non-sequitur given the consistent bull market of the 5+ years. Interest rates go down means bonds go down and money moves to stocks. Interest rates go up means bonds go up and money moves out of stocks. In neither case do investment gains get "diluted" by interest rates being either high or low.
- euphoria 10y ago
  I think they are assuming that some type of social security will be included to make up the difference of that. If I go to ssa.gov's quick calculator and type information corresponding to a full retirement date this year, and a current salary of $80,000, then SSA estimates $2058 monthly benefits, or about $24,700 a year. If this person's personal savings was 8 times $80,000, it would be $640,000. If the safe withdrawal rate were 4%, this would be a withdrawal rate of $25,600 a year. Combining personal savings withdrawals and SSA would yield $50,300 a year, which is probably not far from what a person making $80,000 needs in retirement (62.8% of gross salary). Granted, 4% is maybe only a mostly-safe assumption, and SSA continuing at current levels is probably a mostly-unsafe assumption, but given these assumptions it seems reasonable. I myself would be more comfortable with 10-12x.
- jogjayr 10y ago
  > How exactly does this translate into 25-30x annual expenses (assuming safe withdrawal rate of 3-4%) ? It doesn't, as far as I can tell. Any rule of thumb that answers the question "How much should I save?" but doesn't take into account how much you spend right now, is useless.
smallnamespace 10y ago
As with many things, Singapore seems to have a sensible plan that is neither 100% government managed nor 100% private: - Saving is compulsory and amounts to around 15% of wages for the worker, and another 15% to the employer - Principal growth depends on how the investment performs, but government guarantees at least 2.5%, which is around what you can get from just buying a 30-year Singapore gov't bond - Account holders can choose a restricted number of asset classes to invest in (e.g. ETFs, bonds, gold), but you can't just put it all in a penny stock - You can use the saved funds for health care, housing, education, and a limited number of other needs until retirement -- no taking all the money out and betting it on black Long-term financial planning is inherently risky. Governments aren't necessarily good at managing that risk, but then shoving all that responsibility onto individuals doesn't work that well either, because the truth is that if someone screws up and becomes totally indigent, society still needs to bail them out, if only through paying huge emergency room bills. This seems like a sane compromise: the worker and the government split the risk, but the government also sets sane defaults for employees. [2] [1] https://en.wikipedia.org/wiki/Central_Provident_Fund https://en.wikipedia.org/wiki/Central_Provident_Fund [2] https://en.wikipedia.org/wiki/Libertarian_paternalism https://en.wikipedia.org/wiki/Libertarian_paternalism
- crdoconnor 10y ago
  >You can use the saved funds for health care, housing, education, and a limited number of other needs until retirement A lot of people earn very little and use CPF all up on housing and healthcare (especially if they have a health problem) and are left working menial jobs mopping floors practically until death. It's pretty heart-rending to see elderly hunchbacked men and women cleaning up empty dishes (or selling tissues) underneath glittery multimillion dollar condos built by Bangladeshi migrant workers, but that's Singapore.
- hackerboos 10y ago
  Why are so many people Singapore working into their 70s? https://www.bloomberg.com/news/articles/2015-01-06/what-retirement-singapore-older-workers-stay-on-the-job https://www.bloomberg.com/news/articles/2015-01-06/what-reti...
pensionguy 10y ago
Posting anonymously - I work for a non-public company where I qualify for a pension along with a standard 401K. As of 8 or 9 years ago, new employees no longer are in the pension plan. When I retire in a few years, after 30 or so years of work, my pension will be around 1/3 of my working salary. Not bad. I realize there's a risk that the fund will go under so I don't plan on depending on it, but it will be a nice supplement. From a quick google search, the plan is currently underfunded by 15%, but that number will ebb and flow with the market. Over the years, the company would talk about our "total compensation" which would include how much was contributed to the pension fund so you can think of it just as part of our salary. I've never seen the numbers, but I have heard people talk that within our company, the average retiree only collects for 5-10 years before they pass away - depressing!
- mikekchar 10y ago
  When I worked at Nortel (formerly Bell Northern Research) they gave me a pension. After 5 years at that job I left and received a letter from HR to the effect: "We have cancelled your pension. You are welcome to sue us, but because the amount of your pension was small, we don't think it will be worth your while." A few years after I left, the company ran into trouble (including accounting fraud). At it's height, this was a company of over 100K employees. Once the company went into bankruptcy proceedings, it appealed to the judge to allow them to use the pension money to pay "executive retension bonuses". The idea was that since it was a sinking ship, all the executives would leave, meaning that no financial restructure would be possible. In exchange for pocketing the pension money, they agreed to stay on to the bitter end. True to their word, they did. And people who had pensions were invited to join the list of creditors (in a non-preferred position). Don't rely on your pension.
phkahler 10y ago
I think the key to having more people achieve a good retirement is to reduce the cost of existing as much as possible. That means zero property tax for individuals or at least non-working people. One should be able to buy some property, put a dwelling on it and grow a garden if they choose without any ongoing costs. That would be an idea retirement for some, and the rest can upgrade from there by having more money. But instead we created a society where there are recurring costs to existence and people struggling the most to achieve independence pay the highest tax rates. Just some thoughts, I'm not proposing a comprehensive solution. It's just that we keep wondering how people will fund retirement and I keep coming back to - if it didn't cost so much to exist, there wouldn't be the concern about where the money will come from.
- koolba 10y ago
  > I think the key to having more people achieve a good retirement is to reduce the cost of existing as much as possible. That means zero property tax for individuals or at least non-working people. One should be able to buy some property, put a dwelling on it and grow a garden if they choose without any ongoing costs. That would be an idea retirement for some, and the rest can upgrade from there by having more money. But instead we created a society where there are recurring costs to existence and people struggling the most to achieve independence pay the highest tax rates. Traditionally this existed as parents moving in with their adult children. Half of the bargain would be babysitting your grand kids. In exchange you got a roof over your head, food, and the joy of seeing your grandkids on a daily basis.
  - sammydavis 10y ago
    The reason why this doesn't work is that we have to pay for the services that help all of society. Fireman, police, roads, electricity, making sure that the food we eat is basically healthy. You could argue that "you" are a special person who will never rely on society for anything. You'll make your own clothes, fight your own wars or whatever. But we are all related.
    - koolba 10y ago
twblalock 10y ago
I think the real problem is not the loss of pensions: 401k savings can easily replace pensions if savers make good decisions. The problem is, most people don't make good investment decisions. A single poor decision, such as panic selling during the 2008 recession, can irreversibly ruin peoples' retirement unless they are young and have time to catch back up. Imagine how much worse the impact of the 2008 recession would have been if we had privatized social security and allowed savers to invest the money like they did in their 401ks. On the other hand, I know someone who retired from United Airlines after decades of work as a mechanic, and lost all of his pension because of the financial and legal problems the company and the pension fund were going through. He had to go back to work at a retail store in his late 60s in order to pay the bills. I bet he would have rather had a 401k and some control over his own investments.
- orangecat 10y ago
  A single poor decision, such as panic selling during the 2008 recession, can irreversibly ruin peoples' retirement unless they are young and have time to catch back up. I hear this a lot, but does anyone have actual statistics on how often people try to micromanage their 401k or other retirement accounts? Everyone I've talked to just picks one of the target retirement date funds and leaves it on autopilot.
Decade 10y ago
“Eight states, including Illinois, Massachusetts and California, have plans to set up their own programs for the uncovered that will offer guaranteed returns…” This is the scariest part of the article. Every time I am aware of, wherever price controls are imposed, then that leads to disruptions and shortages. That leads to Venezuela’s collapse, that leads to San Francisco’s housing state of emergency, that even leads to AT&T’s rent seeking approach to innovation. It sucks to contemplate retiring without any guaranteed income, but it’s safer for society as a whole.
jogjayr 10y ago
There are definitely problems with the 401(k) system but I think the article missed a couple of the big ones or misattributed causes: 1. High fees - this is largely because as an employee you're stuck with whatever 401(k) provider your company signed a contract with and which funds are available to invest into. Instead of letting you invest up to the annual limit into the most competitive brokerage account (just like you would for an IRA) and taking a deduction on your taxes. 2. Contribution limits - I'm not actually sure why these exist (maybe someone could educate me). As long as you can't touch the money before age 59.5 (and maybe disallow or restrict borrowing), why is there any sort of limit at all? There's two possible ways uncapped 401(k) might play out - a. people spend most of their money, put the rest into 401(k) - no different than what's happening right now, little different to income tax collected b. people spend a judicious amount of money, put most of it into 401(k) - these people (for now, a minority) would pay significantly less in income taxes. But they'd continue working through to at least 59.5 and they'd be financially secure upon retirement and likely to need less government assistance 3. Availability and complexity - As things stand, there's a 2-tier (or even 3-tier, if you count self-employed 401(k)) retirement savings system in America. There's IRA (Roth and traditional) which anyone can access, but has lower limits and less favorable tax treatment at higher incomes. There's 401(k) which has the problems I described above, plus you need to work at an employer that offers this benefit which seems unfair to people who aren't so fortunate. And there's the self-employed 401(k) which I know almost nothing about except that it has a higher contribution limit ($54k). No wonder most people struggle to manage their retirement savings; it's a very complex system that provides preferential tax treatment to people based on their job and employer. Also, this gem about pensions: > Unlike defined-benefit pensions, which provide set payouts for life, 401(k) accounts rise and fall with financial markets. I consider this a bug, not a feature. Pensions pay out the same amount of money to retirees regardless of market performance but the pension fund itself is still invested in the market. They're shielding current beneficiaries from market performance at the expense of future beneficiaries by (IIUC) raiding principal to pay out yields that haven't been realized. (correct me if I'm missing something here)

78 points by slededit 10y ago

People talk of pension like they're a sacred right of workers yet nobody will address the fact that they're entirely unsustainable. Any system that tells a worker they can work for 25 years somewhere then receive 25+ years of pensions at their inflation adjusted final salary is a crock. The money has to come from somewhere (and don't give me a bullshit about compounding ... we're talking way more than that). The non-employer (or even worse municipal - yuck!) pension can be created synthetically through a combination of annuities and life insurance. The problem with that approach is that since the other side is a private company that cares about the pay outs (and not just promising obligations to be paid by someone else), it ends up costing way more. Guaranteeing a perpetual $X/month (inflation adjusted) pay out twenty-five years from now is way more expensive than people realize or would be willing to pay for. The real answer is: Accept that fact that most people cannot retire at the same lifestyle the enjoyed while working or adjust the latter well in advance so that instead of saving 5-10% you're saving 50+% of your money.

ivraatiems 10y ago
I think you're presenting a false choice. We live in a society where an awful lot of money goes to things and people that don't particularly need or merit it. What you mean to be saying is "accept the fact that without a radical change in how we view the purpose of employment and retirement, most people cannot . . ." Basically, what's the goal? The goal right now is for each entity in the system to hold onto as much money as it possibly can. It's a company-first view of the problem, and therefore not one that really addresses the main point: People shouldn't be expected to work into their old age.
- koolba 10y ago
  > I think you're presenting a false choice. We live in a society where an awful lot of money goes to things and people that don't particularly need or merit it. That's why people don't have a higher savings rate. Most people are idiots when it comes to spending, the dumbest habit of which is increasing your spending on pace with increased in income. Okay maybe not the dumbest as it's even dumber when they increase it faster than income (ex: new job => new car with higher monthly payment v.s. difference in salary). > What you mean to be saying is "accept the fact that without a radical change in how we view the purpose of employment and retirement, most people cannot . . ." > Basically, what's the goal? The goal right now is for each entity in the system to hold onto as much money as it possibly can. Why is the company holding onto anything? If you're working as an employee and want to retire one day, demand to be paid for the services you're providing now, save them up, invest them, and then it's yours to spend. Why have the company guess at how to manage that? It's putting an awfully lot of eggs in one basket as well as if the company goes under, your pension will take a hit as well (since no company actually has a fully paid for sinking fund). > It's a company-first view of the problem, and therefore not one that really addresses the main point: People shouldn't be expected to work into their old age. Why not? What else are they going to do anyway and why should they be granted N years of do nothingness just because they're old? Sure sounds like a ponzi scheme to me ...
  - ivraatiems 10y ago
    > That's why people don't have a higher savings rate. Most people are idiots when it comes to spending, the dumbest habit of which is increasing your spending on pace with increased in income. Okay maybe not the dumbest as it's even dumber when they increase it faster than income (ex: new job => new car with higher monthly payment v.s. difference in salary). It's also why megacorporations and a very small percentage of people have such immense amounts of money and give essentially nothing back for it. > Why not? What else are they going to do anyway and why should they be granted N years of do nothingness just because they're old? Sure sounds like a ponzi scheme to me... What is so valuable about forcing everyone to work their whole lives? Who benefits?
    - koolba 10y ago
      > It's also why megacorporations and a very small percentage of people have such immense amounts of money and give essentially nothing back for it. Besides you sounding bitter and misinformed or changing the conversation to one about converting the USA to communism, I don't see how that's relevant to this. > What is so valuable about forcing everyone to work their whole lives? Who benefits? They benefit by providing for themselves and their families. They're not being forced to do anything (though food, shelter, and self preservation tend to be good motivators). To flip your question around, why should they get a free ride because they past a certain age? I'm not saying people shouldn't retire, I'm saying that if they want to do it, they need to be realistic about what's financially involved and either save significantly more or realize they're going to be living off of rice and beans.
      - ivraatiems 10y ago
        > Besides you sounding bitter and misinformed or changing the conversation to one about converting the USA to communism, I don't see how that's relevant to this. I didn't say that. I think you're leaping to conclusions. What I'm trying to do, to be frank, is poke holes in the assumptions you're making in the first post about how things are and should be. I'm not a communist (it's never worked as envisioned, and likely can't), but I'm getting pretty sick of the notion that our system as-is is the best one for most people. I want to have a conversation about ways it could either be made better, or what it could be replaced with. > They benefit by providing for themselves and their families. They're not being forced to do anything (though food, shelter, and self preservation tend to be good motivators). Again, this is a false choice. It actually is a couple of false assumptions: First, the idea that food, shelter and self-preservation are things that people must earn, rather than have a right to. Second, that people who are in a "do it or die" situation have any real choice, given that almost nobody would choose the "die" part of that. > To flip your question around, why should they get a free ride because they past a certain age? I'm not saying people shouldn't retire, I'm saying that if they want to do it, they need to be realistic about what's financially involved and either save significantly more or realize they're going to be living off of rice and beans. So, first of all, I agree with the notion that in the system as it is, one has to be prudent and thoughtful, one has to save money, one has to plan for oneself. We're in agreement on all that: With the world the way it is, it's important for each individual to plan and put themselves first. I fully understand how to work within the system we have to keep oneself afloat, and I'm not suggesting people shouldn't. Why shouldn't people get a free ride for food, health, shelter? Why are those things things which must somehow be earned? I'm talking philosophically here, not practically. I'm not saying everyone is entitled to caviar and vegan d3 supplements on private yachts, but I don't understand the assumption that, given a society which could technologically provide basics for everyone, people shouldn't have them.
kobeya 10y ago
50% would be enough to retire in 7-10 years btw. Actual required savings rates would be lower.
- kgwgk 10y ago
  Can you explain your calculation? Let's say your income is 100. You spend 50 per year, save 50 per year. How much do you have in 7-10 years? How many decades of retirement can you finance with those savings?
  - the_gastropod 10y ago
    Assuming we're starting at $0, saving 50% will more realistically let you retire after ~17 years. Here's a pretty good article from Mr. Money Mustache that explains the math: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
    - fnovd 10y ago
      The big problem with this table is that it assumes that you want to live on the same amount that you do while saving. If I'm saving 50% of my income to retire in 17 years and then decide I can bump it up to 65% of my income (let's say by no longer dining out) all of a sudden my "retirement" happens 7 years earlier. It feels good to read that because it looks like I'm saving 7 years of work by just saving a bit more. However, the new "retirement income" that I'll be living at goes down from 50% of my income to just 35%--the table expects that, since you can live on the new income, then it is enough for you to retire on. If I raise my savings rate by cutting things I can live without (for now), I'm "locked in" to not having those things in retirement. If I'm making $5k a month after taxes and saving 90% of that (so, living on just $500 a month), MMM's table says I can "retire" in under 3 years. However, that retirement is one in which I live on just $500 a month--not what everyone has in mind when they consider retirement. If I'm making $5000 a month and want to live on $2500 in a month in retirement, I will have to save for considerably longer than 3 years. This is the most glaring at saving 100% of income. It doesn't really make sense that I can "retire" in 0 years by saving 100% of my income. The table is basically saying, "If you can afford to work and not spend any of the money you make, you can drop your income from $5000 to $0 and live without worry!" Never mind that people may have children, or get sick, or feel like traveling, or any other possible scenario in which an extra cost is incurred.
pdq 10y ago
Defined contribution plans are such a simpler system. Defined benefit plans need professional actuaries to estimate a future with so many unknown variables: interest rates, rates of investment return, employee lifespans in 20+ years, retirement ages, voluntary employee exit rates (just to name a few). Plus you have the problem of so few companies lasting anywhere near as long as a pension plan would last, so these legacy pensions have to get offloaded to the Pension Benefit Guarantee Corporation. It's no wonder that the private sector has moved from 30% defined benefit and 10% 401k back in 1980, to 2% defined benefit and 33% 401k today.
- toast0 10y ago
  I think this is exactly right, a defined contribution is simpler, more transparent, and less risky for the employee and the employer. The employee knows exactly how much the employee is contributing (and if it's being contributed in timely fashion), and (vested) contributions are safe from employer bankruptcy or change of jobs. The employee still has market risk, which was present before in that a pension with poor investment results may lead to the pension being assigned to the PBGC and result in a reduced pension. The employer benefits by paying for today's workers only today, and does not have to manage and fund the pension. There are certainly concerns about investment costs / poor investment choices within 401(k) plans, but I think some recent litigation results are likely to improve the landscape. Good plans are available, and companies may have a duty to provide a good plan.
- crdoconnor 10y ago
  It simply moves the investment work and risks to the individual. It's a minefield for the individual and vastly more complex to manage (individuals are effectively forced into being investment managers... like that's an easy job?). It's ultimately just one part of the seismic shift in wealth to the 0.1%. "Sustainability" is just the thinly veiled excuse.
  - saryant 10y ago
    Is it really unreasonable for someone to read something like Bernstein's "If You Can"? It takes an hour. https://www.etf.com/docs/IfYouCan.pdf https://www.etf.com/docs/IfYouCan.pdf
ams6110 10y ago
If you save 10% of your income from your early 20s to 65 you should be quite well set, presuming your expenses drop after retirement (kids are supporting themselves, house is paid off or you downsize to a lower cost smaller residence). If you can save a little more than 10% even better. Problem is most people don't really think about it until they're in their mid 30s at earliest. When you are in your 20s or early 30s and have young kids so many things seem like more important priorities. And most people in their 20s can't even really conceptualize retirement. It seems impossibly far away, time-wise. But missing that first 15 years has a huge impact on the total compounding potential. If you start saving at 35 you have to save a lot more.
- closeparen 10y ago
  It's amusing to me that people in the tech community think they will get to work that long. Look around your office. Do you see anyone over 40? No? Are you saving enough to retire at 40? Then what do you think is going to happen? EDIT: I will point out that this comment has fluctuated quite a bit between +2 and -2. So, clearly some very different experiences, which is good to hear. Perhaps not as dire as it looks.
  - jghn 10y ago
    Yes I do.
  - swsieber 10y ago
    I see many people over 40. I have co-workers with children my age. Perhaps if you move, you'll find a more respectful and receptive environment for those who are seasoned.
  - ThomaszKrueger 10y ago
    54 here. Will work until drop dead.
  - skookum 10y ago
    By this logic, there must be millions of unemployable past-40 software engineers out on the streets. Or maybe the simpler explanation: Our industry has been growing exponentially for two decades and the cohorts that are past 40 are small compared to the ones that came later. Further, the "look around your office" result varies wildly from office to office. Looking around your average SV startup will skew to gullible, er, I mean risk-tolerant mid-20s engineers. My office is more than half composed of experienced engineers in their mid 30s and up who know their market rate.
hudibras 10y ago
>Any system that tells a worker they can work for 25 years somewhere then receive 25+ years of pensions at their inflation adjusted final salary is a crock. Nice strawman you got there. I doubt there's even one pension plan, public or private, in the U.S., Europe, or Asia which is as generous as your example.
- patio11 10y ago
  California public safety employees (police, fire, etc) get all four prongs of that deal, I think. Technically it's 90% of peak salary but "spiking" is culturally accepted, so in practice you can have more than 100% of your final year salary in pension benefits.
  - chimeracoder 10y ago
    > California public safety employees (police, fire, etc) get all four prongs of that deal, I think. Technically it's 90% of peak salary but "spiking" is culturally accepted, so in practice you can have more than 100% of your final year salary in pension benefits. Government postings are even better. The UN requires only five years of service before you're eligible for pension benefits, and you can still collect those on top of whatever pension your home country government gives you (which is common), or even while being employed in a different government posting. It's not 100% of salary if you only stay 5 years, but it's pretty large - you can easily reach eligibility for a pension that's large enough to live on before you're 30, and then "double up" by taking other government postings whose pension eligibility is handled separately.
    - hudibras 10y ago
      UN pension is 1.5% per year, which you can start collecting when you're 62 years old. Not that unreasonable.
      - chimeracoder 10y ago
        > UN pension is 1.5% per year That's the minimum. It goes up from there depending on your position. Typically, you could expect to make a lot, lot more than that, even for very short tenure: http://www.un.org/Depts/OHRM/salaries_allowances/salary.htm http://www.un.org/Depts/OHRM/salaries_allowances/salary.htm > which you can start collecting when you're 62 years old ...yes, but the point is that you only need to be employed for five years to be eligible for lifetime benefits. Work there for 5 years in your 20s and you're set.
closeparen 10y ago
>People talk of pension like they're a sacred right of workers yet nobody will address the fact that they're entirely unsustainable If I go eat an expensive meal and, when the check comes, say "sorry, these prices are unsustainable, and making money is not your sacred right" I would be arrested.
gohrt 10y ago
Pensions are funded. There is a national pension insurance fund. They are completely sustainable, as long as they are funded. A pension is an annuity. The pension money comes from money that is withheld from wages. Now, if some company engages in wage theft (raids its pension fund), that's fraud just as any Madoff-esque pyramid scheme.
- hudibras 10y ago
  The HN crowd will never believe this, because it runs contrary to the beliefs of libertarianism and the what-I-vaguely-remember-from-Econ-101 crowd, but correctly-funded public pensions are completely sustainable. The main reason is that public pensions operate on a nearly infinite time horizon, unlike a worker's 401(k).
  - analog31 10y ago
    Long ago, conservatives believed that public assistance made people immoral. Then Ronald Reagan discovered that his own followers actually like their public assistance when it benefits them and not those "other" people. So conservatives changed their tune and began claiming that public assistance is "unsustainable."
  - grzm 10y ago
    The HN crowd will never believe this Please don't make generalizations like this, especially of a community you choose to participate in. Your comment reads perfectly well if you omit everything up through but.
    - hudibras 10y ago
      Good point, thanks.
- sigzero 10y ago
  California is in a pension crisis because they screwed they whole thing up. When people are involved, expect those screw ups.
shorttime 10y ago
If the book I'm reading is to be believed, pensions were paid for by the company with money that would have went to the worker, if not for the pension. This money would then be invested over the career of the worker, similar to a 401k, but the risk is on the company to manage - not the worker. The pension to 401k transition simply offloaded the risk of financial maintenance to the worker, rather than the company. Salaries, supposedly, adjusted accordingly when 401k's came around, which is a whole story in itself. Originally, 401ks were for executives seeking tax-differed income from the company and it morphed in the 80s to become what we see today.
- hudibras 10y ago
  You're mostly right, but it's also the spreading of risk across many employees (including future employees, not even hired yet) which make pensions viable.
- bradleyjg 10y ago
  A company, even a fairly big one, can go out of business. Also, most companies are not in the business of managing investments. They are in the business of selling shoes, or oil, or internet ads. There are companies that are in the business of managing investments for the very long term and are regulated so as to minimize the risks of bankruptcy. You or you company can incrementally buy a pension from such a company in the form of a deferred annuity. The only disadvantage to a defined contribution plan with a deferred annuity option is that you and your employer can't mutually pretend there's such a thing as a free lunch in the form of risk free investments with eight percent returns. But on balance I'd consider that a good thing.
- dragonwriter 10y ago
  > If the book I'm reading is to be believed, pensions were paid for by the company with money that would have went to the worker, if not for the pension. This is evidently not true, as employers did not, when discontinuing pensions, add equal economic value in other compensation. Pensions are a retention program as well as a compensation program.
- shshhdhs 10y ago
dragonwriter 10y ago
> People talk of pension like they're a sacred right of workers yet nobody will address the fact that they're entirely unsustainable. They aren't entirely unsustainable. It's possible for them to be underfunded, but that's structurally avoidable if anyone was concerned. > Any system that tells a worker they can work for 25 years somewhere then receive 25+ years of pensions at their inflation adjusted final salary is a crock. Sure, but real-world pensions rarely come anywhere close to that; even generous ones are almost never fully inflation-adjusted (while COLAs are common, they are often capped at, e.g., 2% annually -- each year, not cumulatively, so they permanently fall behind each year inflation is above the cap) and they usually don't come anywhere close to 100% at 25 years. (I think the most generous rank-and-file current CalPERS plan is 2% per year of service at 55 years, which maxes out at 2.418% at 63+ years, and so would take more than 40 years of service to reach 100% of the base used for calculation -- which for employees hired in something like the last decade is actually the average salary of the last 3 years, not the last single year.)
- WildUtah 10y ago
  CalPERS users can take extra overtime and duty pay in those last years to inflate the base, also. And that base even without overtime is much higher than the average working salary. And CalPERS assumes a rate of return far higher than it can achieve through investments. That's how CA employees end up with million dollar per year pensions. [0] Happily, some abuses have been reduced slightly in recent years. There's far to go yet. While it is possible for pensions to be funded properly, it's not something state and municipal governments do and the few private companies with defined benefit pensions rarely do so either. In fact, it's literally illegal to fully fund pension benefits in the United States without paying a steep tax penalty for saving too much. The IRS and Congress know that exposing the full cost of what we're promising to pay out would shock too many people and they don't want to know. Better to defer the problem to the next Congress and let them sort it out. The only hope is massive productivity growth. So, techies, get programming those robots and AI bots and new chemical materials and cheap new energy sources. The government has already assumed that they're all going to take off like crazy and forced us to bet the country on that assumption. We're going to need a tech explosion just to keep our heads above water. [0] https://en.wikipedia.org/wiki/City_of_Bell_scandal https://en.wikipedia.org/wiki/City_of_Bell_scandal

scottlegrand2 10y ago

Easy but impossible to implement fix: Everyone can pre or post tax save up to $50K a year in their IRA, no restrictions, phaseouts, or alt min BS, etc. Also no RMDs whatsoever but taxed upon inheritance past $10M like anything else.

kobeya 10y ago
Why limit contributions?
- scottlegrand2 10y ago
  Personally I agree. Practically and politically, good luck convincing the 99% to go along with the 1% deferring taxes on their income indefinitely.
  - chimeracoder 10y ago
    It's not indefinite. Traditional IRAs have mandatory withdrawals, and lifespans are finite, so there's a clear bound on how long the taxes could be deferred.
- bunderbunder 10y ago
  Think of it from the government's perspective. All an IRA is, is a way to get out of paying taxes on a portion of your income. The government doesn't _really_ want to cut off its income stream any more than is necessary, so they put restrictions on it. The most obvious place to start is limiting how much you're allowed to shelter from taxes in the first place. Framed another way, it's another form of progressive taxation. If you assume that people save for retirement in proportion to how much they earn, then setting a flat limit of how much of your retirement savings can be sheltered from taxes effectively means that less wealthy people can shelter all of it, and as you get richer you pay taxes on a higher percentage of it.
- bradleyjg 10y ago
  Once a worker has enough savings such that he won't be a public charge in retirement there's no public interest in further savings. We don't need to incentivize behavior that only creates private benefits, such behaviors are their own reward.

kobeya 10y ago

With a 491k I own my retirement savings and they can't be taken from me. I control what investments can be made and my risk tolerances. 401k replaced pensions? Good riddance! The only crime here is 401ks being tied to employment and contribution limits.

ceejayoz 10y ago
> With a 491k I own my retirement savings and they can't be taken from me. Sure it can. Congress just has to pass a new tax (or increase the existing brackets) on your distributions.
- koolba 10y ago
  Yep. Either that or when they decide to "more fairly redistribute" 401k savings between the haves and have-nots. I seriously doubt that would happen but it's not outside the realm of possibility.
  - smallnamespace 10y ago
    I doubt that would ever happen -- people take property rights very seriously here, and 401k money is very clearly the fruit of the owner's labor. The easier way to move money from savers to debtors is to cause inflation, but good luck getting that to happen in today's environment.
    - koolba 10y ago
      You could say the same thing about social security too though I don't think I'll get back >= 100% of what I put in. Between "means testing" (which is stupid because it disincentives saving) and raising the retirement age for non-boomers, it's not looking probable so don't consider your 401k untouchable either.
      - smallnamespace 10y ago
        Difference is that SS doesn't have a number that says 'this amount is your exact share of the pot', while your 401(k) does. How a thing is originally presented matters, especially when it comes to what is politically possible.

rubyfan 10y ago

So what's the alternative? Corporations don't have the ability to fund pensions any longer. Margins and benefits have thinned out. The numbers on how many have retirement accounts are quite scary. Who's going to be there to fill that shortfall, social security? Doubtful it'll be there for anyone under 50.

up_and_up 10y ago
> Corporations don't have the ability to fund pensions any longer. Margins and benefits have thinned out. That's true. Interesting then that executive pay, golden parachutes etc keep climbing...
maxxxxx 10y ago
"Corporations don't have the ability to fund pensions any longer." They don't have the willingness. They could fund them if they wanted to. Maybe some super generous pension plans would have to be cut back. Just look at a lot of execs. They get life-long pensions.

uiri 10y ago

Financial experts recommend people amass at least eight times their annual salary to retire. How exactly does this translate into 25-30x annual expenses (assuming safe withdrawal rate of 3-4%) ? Let's say that taxes eat 25% and these "experts" assume no mortgage (so, what, another 15%? 20%? of gross salary). Eight times will still only cover annual spending of ~30% their gross salary. If these people are spending 50% their gross salary (not unlikely given the abysmal savings rates) they're still in for quite a shock. low interest rates have diluted investment gains This is also quite the non-sequitur given the consistent bull market of the 5+ years. Interest rates go down means bonds go down and money moves to stocks. Interest rates go up means bonds go up and money moves out of stocks. In neither case do investment gains get "diluted" by interest rates being either high or low.

euphoria 10y ago
I think they are assuming that some type of social security will be included to make up the difference of that. If I go to ssa.gov's quick calculator and type information corresponding to a full retirement date this year, and a current salary of $80,000, then SSA estimates $2058 monthly benefits, or about $24,700 a year. If this person's personal savings was 8 times $80,000, it would be $640,000. If the safe withdrawal rate were 4%, this would be a withdrawal rate of $25,600 a year. Combining personal savings withdrawals and SSA would yield $50,300 a year, which is probably not far from what a person making $80,000 needs in retirement (62.8% of gross salary). Granted, 4% is maybe only a mostly-safe assumption, and SSA continuing at current levels is probably a mostly-unsafe assumption, but given these assumptions it seems reasonable. I myself would be more comfortable with 10-12x.
jogjayr 10y ago
> How exactly does this translate into 25-30x annual expenses (assuming safe withdrawal rate of 3-4%) ? It doesn't, as far as I can tell. Any rule of thumb that answers the question "How much should I save?" but doesn't take into account how much you spend right now, is useless.

smallnamespace 10y ago

As with many things, Singapore seems to have a sensible plan that is neither 100% government managed nor 100% private: - Saving is compulsory and amounts to around 15% of wages for the worker, and another 15% to the employer - Principal growth depends on how the investment performs, but government guarantees at least 2.5%, which is around what you can get from just buying a 30-year Singapore gov't bond - Account holders can choose a restricted number of asset classes to invest in (e.g. ETFs, bonds, gold), but you can't just put it all in a penny stock - You can use the saved funds for health care, housing, education, and a limited number of other needs until retirement -- no taking all the money out and betting it on black Long-term financial planning is inherently risky. Governments aren't necessarily good at managing that risk, but then shoving all that responsibility onto individuals doesn't work that well either, because the truth is that if someone screws up and becomes totally indigent, society still needs to bail them out, if only through paying huge emergency room bills. This seems like a sane compromise: the worker and the government split the risk, but the government also sets sane defaults for employees. [2] [1] https://en.wikipedia.org/wiki/Central_Provident_Fund https://en.wikipedia.org/wiki/Central_Provident_Fund [2] https://en.wikipedia.org/wiki/Libertarian_paternalism https://en.wikipedia.org/wiki/Libertarian_paternalism

crdoconnor 10y ago
>You can use the saved funds for health care, housing, education, and a limited number of other needs until retirement A lot of people earn very little and use CPF all up on housing and healthcare (especially if they have a health problem) and are left working menial jobs mopping floors practically until death. It's pretty heart-rending to see elderly hunchbacked men and women cleaning up empty dishes (or selling tissues) underneath glittery multimillion dollar condos built by Bangladeshi migrant workers, but that's Singapore.
hackerboos 10y ago
Why are so many people Singapore working into their 70s? https://www.bloomberg.com/news/articles/2015-01-06/what-retirement-singapore-older-workers-stay-on-the-job https://www.bloomberg.com/news/articles/2015-01-06/what-reti...

pensionguy 10y ago

Posting anonymously - I work for a non-public company where I qualify for a pension along with a standard 401K. As of 8 or 9 years ago, new employees no longer are in the pension plan. When I retire in a few years, after 30 or so years of work, my pension will be around 1/3 of my working salary. Not bad. I realize there's a risk that the fund will go under so I don't plan on depending on it, but it will be a nice supplement. From a quick google search, the plan is currently underfunded by 15%, but that number will ebb and flow with the market. Over the years, the company would talk about our "total compensation" which would include how much was contributed to the pension fund so you can think of it just as part of our salary. I've never seen the numbers, but I have heard people talk that within our company, the average retiree only collects for 5-10 years before they pass away - depressing!

mikekchar 10y ago
When I worked at Nortel (formerly Bell Northern Research) they gave me a pension. After 5 years at that job I left and received a letter from HR to the effect: "We have cancelled your pension. You are welcome to sue us, but because the amount of your pension was small, we don't think it will be worth your while." A few years after I left, the company ran into trouble (including accounting fraud). At it's height, this was a company of over 100K employees. Once the company went into bankruptcy proceedings, it appealed to the judge to allow them to use the pension money to pay "executive retension bonuses". The idea was that since it was a sinking ship, all the executives would leave, meaning that no financial restructure would be possible. In exchange for pocketing the pension money, they agreed to stay on to the bitter end. True to their word, they did. And people who had pensions were invited to join the list of creditors (in a non-preferred position). Don't rely on your pension.

phkahler 10y ago

I think the key to having more people achieve a good retirement is to reduce the cost of existing as much as possible. That means zero property tax for individuals or at least non-working people. One should be able to buy some property, put a dwelling on it and grow a garden if they choose without any ongoing costs. That would be an idea retirement for some, and the rest can upgrade from there by having more money. But instead we created a society where there are recurring costs to existence and people struggling the most to achieve independence pay the highest tax rates. Just some thoughts, I'm not proposing a comprehensive solution. It's just that we keep wondering how people will fund retirement and I keep coming back to - if it didn't cost so much to exist, there wouldn't be the concern about where the money will come from.

koolba 10y ago
> I think the key to having more people achieve a good retirement is to reduce the cost of existing as much as possible. That means zero property tax for individuals or at least non-working people. One should be able to buy some property, put a dwelling on it and grow a garden if they choose without any ongoing costs. That would be an idea retirement for some, and the rest can upgrade from there by having more money. But instead we created a society where there are recurring costs to existence and people struggling the most to achieve independence pay the highest tax rates. Traditionally this existed as parents moving in with their adult children. Half of the bargain would be babysitting your grand kids. In exchange you got a roof over your head, food, and the joy of seeing your grandkids on a daily basis.
- sammydavis 10y ago
  The reason why this doesn't work is that we have to pay for the services that help all of society. Fireman, police, roads, electricity, making sure that the food we eat is basically healthy. You could argue that "you" are a special person who will never rely on society for anything. You'll make your own clothes, fight your own wars or whatever. But we are all related.
  - koolba 10y ago

twblalock 10y ago

I think the real problem is not the loss of pensions: 401k savings can easily replace pensions if savers make good decisions. The problem is, most people don't make good investment decisions. A single poor decision, such as panic selling during the 2008 recession, can irreversibly ruin peoples' retirement unless they are young and have time to catch back up. Imagine how much worse the impact of the 2008 recession would have been if we had privatized social security and allowed savers to invest the money like they did in their 401ks. On the other hand, I know someone who retired from United Airlines after decades of work as a mechanic, and lost all of his pension because of the financial and legal problems the company and the pension fund were going through. He had to go back to work at a retail store in his late 60s in order to pay the bills. I bet he would have rather had a 401k and some control over his own investments.

orangecat 10y ago
A single poor decision, such as panic selling during the 2008 recession, can irreversibly ruin peoples' retirement unless they are young and have time to catch back up. I hear this a lot, but does anyone have actual statistics on how often people try to micromanage their 401k or other retirement accounts? Everyone I've talked to just picks one of the target retirement date funds and leaves it on autopilot.

Decade 10y ago

“Eight states, including Illinois, Massachusetts and California, have plans to set up their own programs for the uncovered that will offer guaranteed returns…” This is the scariest part of the article. Every time I am aware of, wherever price controls are imposed, then that leads to disruptions and shortages. That leads to Venezuela’s collapse, that leads to San Francisco’s housing state of emergency, that even leads to AT&T’s rent seeking approach to innovation. It sucks to contemplate retiring without any guaranteed income, but it’s safer for society as a whole.

jogjayr 10y ago

There are definitely problems with the 401(k) system but I think the article missed a couple of the big ones or misattributed causes: 1. High fees - this is largely because as an employee you're stuck with whatever 401(k) provider your company signed a contract with and which funds are available to invest into. Instead of letting you invest up to the annual limit into the most competitive brokerage account (just like you would for an IRA) and taking a deduction on your taxes. 2. Contribution limits - I'm not actually sure why these exist (maybe someone could educate me). As long as you can't touch the money before age 59.5 (and maybe disallow or restrict borrowing), why is there any sort of limit at all? There's two possible ways uncapped 401(k) might play out - a. people spend most of their money, put the rest into 401(k) - no different than what's happening right now, little different to income tax collected b. people spend a judicious amount of money, put most of it into 401(k) - these people (for now, a minority) would pay significantly less in income taxes. But they'd continue working through to at least 59.5 and they'd be financially secure upon retirement and likely to need less government assistance 3. Availability and complexity - As things stand, there's a 2-tier (or even 3-tier, if you count self-employed 401(k)) retirement savings system in America. There's IRA (Roth and traditional) which anyone can access, but has lower limits and less favorable tax treatment at higher incomes. There's 401(k) which has the problems I described above, plus you need to work at an employer that offers this benefit which seems unfair to people who aren't so fortunate. And there's the self-employed 401(k) which I know almost nothing about except that it has a higher contribution limit ($54k). No wonder most people struggle to manage their retirement savings; it's a very complex system that provides preferential tax treatment to people based on their job and employer. Also, this gem about pensions: > Unlike defined-benefit pensions, which provide set payouts for life, 401(k) accounts rise and fall with financial markets. I consider this a bug, not a feature. Pensions pay out the same amount of money to retirees regardless of market performance but the pension fund itself is still invested in the market. They're shielding current beneficiaries from market performance at the expense of future beneficiaries by (IIUC) raiding principal to pay out yields that haven't been realized. (correct me if I'm missing something here)