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It seems the latest plan for the Chicago pensions is to issue $10bn in bonds with the assumption this will earn more in the fund than interest they will pay on

It seems the latest plan for the Chicago pensions is to issue $10bn in bonds with the assumption this will earn more in the fund than interest they will pay on the bonds. If the markets keep booming absolutely. Though risky to tackle excessive debt with more debt. Especially while the markets are likely near their cyclical peak. They also talk about increased taxes. But no mention of the pension members taking a haircut or contributing more which would seem a fair and financially stable option, though obviously not politically. https://chicago.suntimes.com/news/rahm-emanuel-10-billion-city-pension-bonds-borrowing-plan/ https://chicago.suntimes.com/news/rahm-emanuel-10-billion-ci... I always felt a good pension system would be to have something like Australia's where 10% of your pay goes into a fund you can't touch til ~65. You can invest it how you want within reasonable parameters to avoid scams etc but the money must be saved. This combined with a government pension that starts at 65 on poverty line payments but increases each year you dont take it. This way people don't have to fund their full retirement lenght and takes away planning for the unknown moment of death, assuming increases are reasonable. People can plan to fund say 15 years of retirement and then know they hit X+15 years increases pension which is more affordable to the govt as many citizens will die during the self-funding period removing that obligation.

wahern 8y ago
I always felt a good pension system would be to have something like Australia's where 10% of your pay goes into a fund you can't touch til ~65. Social Security taxes in the U.S. amount to 12.4% of wages, exclusive of income taxes. And that's just to fund poverty line benefits. How are poverty line benefits funded in Australia? From regular income taxes?
- DreamSpinner 8y ago
  Yes, there is a state issued (means tested, but not that hard to get) Pension that is funded out of general revenue. The 10% that is referred to is a separate but mandatory amount known as "supperannuation" - this is taxed at a reduced rate. I believe that this is similar to a 401K in the US, except that it's mandatory for all workers who earn over a small amount (less than the minimum weekly earning). The long term intent of this is to increase "private" savings to reduce the general-revenue funded pensions (though there is a large industry around structuring assets and savings to allow people to have their savings and still get the pension). https://en.wikipedia.org/wiki/Superannuation_in_Australia https://en.wikipedia.org/wiki/Superannuation_in_Australia
  - jschwartzi 8y ago
    The thing about 401ks in the US is that you have to be working for a corporation to get one. If you are a 1099 none of your retirement savings can be tax-deferred. IRAs are kind of a joke compared to 401k and a lot of the tax benefits for "small businesses" don't really matter if you're a sole proprietorship with no other employees.
    - scarface74 8y ago
      The thing about 401ks in the US is that you have to be working for a corporation to get one. If you are a 1099 none of your retirement savings can be tax-deferred. https://money.usnews.com/investing/articles/2016-02-22/retirement-plan-options-for-1099-employees https://money.usnews.com/investing/articles/2016-02-22/retir...
    - maxxxxx 8y ago
      It's the same stupidity with the rules for health insurance. Why are any of these tax benefits dependent on where you work? They should all be available to everybody. Easier for companies and better for employees. It's pretty crazy that important things like retirement savings or health insurance are decided by companies and not the employees.
      - 2359623598 8y ago
        You need to read up on the US tax code, because you're completely losing out. In the current US tax system there's no reason why you would want to be a W2 instead of a 1099. Being a sole proprietorship, you as an individual can enroll in an ACA marketplace plan. Get a Bronze-level HDHP plan with HSA. That means the most out-of-pocket will be around $6K if a really bad emergency happens that requires surgery or you're incarcerated in a 'mental health' facility against your will, but _should_ be $0 if you take advantage of the free preventative stuff granted by the ACA and take your health seriously by eating right, exercise, learn basic first aid, and perform preventative maintenance on your organic machinery. You'll pay considerably less premiums and you'll be incentivized to never go to the scam artists that are doctors. ACA premiums and tax credit subsidies are based on your MAGI, which means if you're a 1099, you have extreme flexibility and precision in making sure your MAGI ends up right at the subsidy cliff, 150% of the poverty level. At the end of the year, when you tally your final income and figure out which of many ways to reduce your taxable income down to 150% poverty level, the IRS will pay you _more_ money as a _refundable_ credit than you even paid into the premiums in the first place, since the subsidy credit is based on the 2nd lowest Silver tier plan available in your location whereas you would have bought the much cheaper Bronze plan with HSA. Given the self-employed health care premium deduction (~5K), HSA contribution ($3.5K), IRA contribution ($5.5K), solo 401k contribution ($18K employee, $35K "employer"), and whatever miscellaneous deductions fit your specific situation, if you can't find a way to get your MAGI down you have no business complaining in the first place due to your extravagant income.
- adrianratnapala 8y ago
  There is an old-age pension scheme which is funded out of normal revenue (our constitution frowns of government revenues going into special pots of money). This is entirely separate from the system called superannuation where a mandatory fraction of your income goes to a retirement fund of your choice. (Obviously I am grossly simplifying). From what little I understand of US politics, any move to something like superannuation gets called "privatizing social security", and is a no-go zone. On the other hand our government pension system is proudly socialistic and does not pretend to be an individual savings plan. Social security seems very 20th century American in that it puts an individualistic veneer over a programme that makes more sense from a socialist point of view.
  - Spooky23 8y ago
    Eventually you’ll see superannuation at the state level in the US. The problem is that government is good at big procurement, and these funds will cost wall st billions in fees.
- madengr 8y ago
  Meanwhile, if I could have invested that 12% in a 401k, in addition to the 15% I contribute, I could have already retired in my 40’s. SS is such a horrible scam. Run an amortization table on what you could have done with it, and what you’ll get to in return in even the shittiest interest rate. It’s depressing.
  - wahern 8y ago
    In 2009? Social security is a defined-benefit program, not defined-contribution. It matters when you're talking about securing the elderly from severe deprivation, especially when they're the most vulnerable. And what about the guy who blows his savings on bad tech stocks? Are you and the rest of the electorate prepared to kick him to the curb? You may spend extravagantly expecting to live to 85, but what if you live to 105? Social Security acts more like a life annuity. Yes, the rate of return sucks, but relative to what the free market offers in life annuities its not too bad. Social Security taxes are capped at $128,000 for 2018 (it's indexed and increases each year). If you say you could have retired at 40 without cherry-picking retrospective market highs, I assume you've been making significantly more than the SS cap all this time. So, I ask you, did you actually investment 27% of your income over that cap in retirement funds? (Whether tax deferred or not shouldn't matter.) Social Security is a back stop. It's hardly ideal but it doesn't exist in isolation. It exists in a context where financial markets and retirement funds are very lightly regulated. Where enforcement regimes are often intentionally left toothless and ineffective. Privatization of Social Security would be more likely to end up like in Chile[1], where banks skim double-digit management fees and enforcement of mandatory contributions is absent, than in Australia or Singapore where private, individual savings plans work within a constellation of supplementing policies. [1] Using a system largely designed by conservative American economists.
    - madengr 8y ago
      I’ve been making 401k contributions for 22 years (through the 2000 and 2008 dips), most of that time, maxing it out. If I add in the additional SS tax (limited by the cap), stopping contributions at 67, by 85 I’d have $17M accumulated at a 4% interest rate. As I said, you have to run the numbers yourself, but it’s mind boggling how much you are losing, even more so if you die at 67, the government walks away with it all.
- nmalaguti 8y ago
  Don’t forget that the 12.4% is capped at about $130k of income. Social security would be able to offer much more than just poverty line benefits by removing the cap.
  - deleted 8y ago
    [deleted]
maxxxxx 8y ago
"It seems the latest plan for the Chicago pensions is to issue $10bn in bonds with the assumption this will earn more in the fund than interest they will pay on the bonds. " What could go wrong here? Seems like a 100% bullet proof plan!
- madengr 8y ago
  The pension liability for the top 100 paid public school administrators in IL is over $1B.
  - maxxxxx 8y ago
    They always can hire some more administrators that look into the issue and propose solutions...

wahern 8y ago

I always felt a good pension system would be to have something like Australia's where 10% of your pay goes into a fund you can't touch til ~65. Social Security taxes in the U.S. amount to 12.4% of wages, exclusive of income taxes. And that's just to fund poverty line benefits. How are poverty line benefits funded in Australia? From regular income taxes?

DreamSpinner 8y ago
Yes, there is a state issued (means tested, but not that hard to get) Pension that is funded out of general revenue. The 10% that is referred to is a separate but mandatory amount known as "supperannuation" - this is taxed at a reduced rate. I believe that this is similar to a 401K in the US, except that it's mandatory for all workers who earn over a small amount (less than the minimum weekly earning). The long term intent of this is to increase "private" savings to reduce the general-revenue funded pensions (though there is a large industry around structuring assets and savings to allow people to have their savings and still get the pension). https://en.wikipedia.org/wiki/Superannuation_in_Australia https://en.wikipedia.org/wiki/Superannuation_in_Australia
- jschwartzi 8y ago
  The thing about 401ks in the US is that you have to be working for a corporation to get one. If you are a 1099 none of your retirement savings can be tax-deferred. IRAs are kind of a joke compared to 401k and a lot of the tax benefits for "small businesses" don't really matter if you're a sole proprietorship with no other employees.
  - scarface74 8y ago
    The thing about 401ks in the US is that you have to be working for a corporation to get one. If you are a 1099 none of your retirement savings can be tax-deferred. https://money.usnews.com/investing/articles/2016-02-22/retirement-plan-options-for-1099-employees https://money.usnews.com/investing/articles/2016-02-22/retir...
  - maxxxxx 8y ago
    It's the same stupidity with the rules for health insurance. Why are any of these tax benefits dependent on where you work? They should all be available to everybody. Easier for companies and better for employees. It's pretty crazy that important things like retirement savings or health insurance are decided by companies and not the employees.
    - 2359623598 8y ago
      You need to read up on the US tax code, because you're completely losing out. In the current US tax system there's no reason why you would want to be a W2 instead of a 1099. Being a sole proprietorship, you as an individual can enroll in an ACA marketplace plan. Get a Bronze-level HDHP plan with HSA. That means the most out-of-pocket will be around $6K if a really bad emergency happens that requires surgery or you're incarcerated in a 'mental health' facility against your will, but _should_ be $0 if you take advantage of the free preventative stuff granted by the ACA and take your health seriously by eating right, exercise, learn basic first aid, and perform preventative maintenance on your organic machinery. You'll pay considerably less premiums and you'll be incentivized to never go to the scam artists that are doctors. ACA premiums and tax credit subsidies are based on your MAGI, which means if you're a 1099, you have extreme flexibility and precision in making sure your MAGI ends up right at the subsidy cliff, 150% of the poverty level. At the end of the year, when you tally your final income and figure out which of many ways to reduce your taxable income down to 150% poverty level, the IRS will pay you _more_ money as a _refundable_ credit than you even paid into the premiums in the first place, since the subsidy credit is based on the 2nd lowest Silver tier plan available in your location whereas you would have bought the much cheaper Bronze plan with HSA. Given the self-employed health care premium deduction (~5K), HSA contribution ($3.5K), IRA contribution ($5.5K), solo 401k contribution ($18K employee, $35K "employer"), and whatever miscellaneous deductions fit your specific situation, if you can't find a way to get your MAGI down you have no business complaining in the first place due to your extravagant income.
adrianratnapala 8y ago
There is an old-age pension scheme which is funded out of normal revenue (our constitution frowns of government revenues going into special pots of money). This is entirely separate from the system called superannuation where a mandatory fraction of your income goes to a retirement fund of your choice. (Obviously I am grossly simplifying). From what little I understand of US politics, any move to something like superannuation gets called "privatizing social security", and is a no-go zone. On the other hand our government pension system is proudly socialistic and does not pretend to be an individual savings plan. Social security seems very 20th century American in that it puts an individualistic veneer over a programme that makes more sense from a socialist point of view.
- Spooky23 8y ago
  Eventually you’ll see superannuation at the state level in the US. The problem is that government is good at big procurement, and these funds will cost wall st billions in fees.
madengr 8y ago
Meanwhile, if I could have invested that 12% in a 401k, in addition to the 15% I contribute, I could have already retired in my 40’s. SS is such a horrible scam. Run an amortization table on what you could have done with it, and what you’ll get to in return in even the shittiest interest rate. It’s depressing.
- wahern 8y ago
  In 2009? Social security is a defined-benefit program, not defined-contribution. It matters when you're talking about securing the elderly from severe deprivation, especially when they're the most vulnerable. And what about the guy who blows his savings on bad tech stocks? Are you and the rest of the electorate prepared to kick him to the curb? You may spend extravagantly expecting to live to 85, but what if you live to 105? Social Security acts more like a life annuity. Yes, the rate of return sucks, but relative to what the free market offers in life annuities its not too bad. Social Security taxes are capped at $128,000 for 2018 (it's indexed and increases each year). If you say you could have retired at 40 without cherry-picking retrospective market highs, I assume you've been making significantly more than the SS cap all this time. So, I ask you, did you actually investment 27% of your income over that cap in retirement funds? (Whether tax deferred or not shouldn't matter.) Social Security is a back stop. It's hardly ideal but it doesn't exist in isolation. It exists in a context where financial markets and retirement funds are very lightly regulated. Where enforcement regimes are often intentionally left toothless and ineffective. Privatization of Social Security would be more likely to end up like in Chile[1], where banks skim double-digit management fees and enforcement of mandatory contributions is absent, than in Australia or Singapore where private, individual savings plans work within a constellation of supplementing policies. [1] Using a system largely designed by conservative American economists.
  - madengr 8y ago
    I’ve been making 401k contributions for 22 years (through the 2000 and 2008 dips), most of that time, maxing it out. If I add in the additional SS tax (limited by the cap), stopping contributions at 67, by 85 I’d have $17M accumulated at a 4% interest rate. As I said, you have to run the numbers yourself, but it’s mind boggling how much you are losing, even more so if you die at 67, the government walks away with it all.
nmalaguti 8y ago
Don’t forget that the 12.4% is capped at about $130k of income. Social security would be able to offer much more than just poverty line benefits by removing the cap.
- deleted 8y ago
  [deleted]

maxxxxx 8y ago

"It seems the latest plan for the Chicago pensions is to issue $10bn in bonds with the assumption this will earn more in the fund than interest they will pay on the bonds. " What could go wrong here? Seems like a 100% bullet proof plan!

madengr 8y ago
The pension liability for the top 100 paid public school administrators in IL is over $1B.
- maxxxxx 8y ago
  They always can hire some more administrators that look into the issue and propose solutions...