7 ms·

I don’t think it’s as simple as this, because alternative instruments for retirement, like 401(k) or “higher wages now” have a lot of severe problems too and ty

by mlthoughts2018 8y ago

I don’t think it’s as simple as this, because alternative instruments for retirement, like 401(k) or “higher wages now” have a lot of severe problems too and typically have no legal recourse for affected people when those instruments experience failures. My grandparents had 401(k) retirement savings and were basically wiped out by the 2008 financial crisis. I think it would be no exaggeration to say that the crisis directly caused her death when she likely would have had many more good quality years of life had they not been forced to live in a deeply meager way after the value of their retirement fund plummeted at a moment when they needed it severely. Asking average citizens to understand market volatility and diversification and to rely on the total abject falsehood that “markets just go up in value” is equally immoral. The aspect of pensions, to me, that satisfies the primary moral constraint of the situation is that you are guaranteed income of a certain level, so that the organization granting the pension has to bear the risk of volatility in whatever funding instruments are used to back it. The problem is more about determining why pensions became unfunded, what insurance products would be required to ensure that cannot happen (or at least cannot drop below some minimum insured level), and why government entities failed to budget and save accordingly, in an actuarial sense, to meet pension costs. In my view, we are part of an unbelievably huge quality of life theft right now, a generational heist, pulling wool over everyone’s eyes to think that defined contribution retirement vehicles are somehow an acceptable alternative to defined benefit retirement vehicles.

toasterlovin 8y ago
> In my view, we are part of an unbelievably huge quality of life theft right now, a generational heist, pulling wool over everyone’s eyes to think that defined contribution retirement vehicles are somehow an acceptable alternative to defined benefit retirement vehicles. At the end of the day, it's all a defined contribution vehicle, because the future is unknowable. The question is whether you choose to deal with that reality up front or kick the can down the road.
rubidium 8y ago
If people want to set up annuities that is totally welcome. But they shouldn't be tied to the employer. It should be a separate company that exists solely for the purpose of paying the benefits at retirement. Depending on an employer for your retirement is, in the modern market, a proven bad idea. It's terrible what happened to your grandparents (to anyone else nearing retirement, take this as a cautionary tale and get your money in something safe). But hearkening back to the "glory" days of employer-paid pensions is not a viable solution.
- pm24601 8y ago
  > It should be a separate company that exists solely for the purpose of paying the benefits at retirement. Yes. S.O.C.I.A.L. S.E.C.U.R.I.T.Y. Look how well Americans will fight for and defend Social security benefits. We really should just force an expansion of Social Security like most civilized countries.
  - theandrewbailey 8y ago
    1. "S.O.C.I.A.L. S.E.C.U.R.I.T.Y." isn't a separate company. It's a US government program. 2. Social Security isn't doing much better. It will be broke in ~15 years, paying out exactly as much as it takes in. https://www.cnn.com/2018/06/05/politics/social-security-benefit-cuts/index.html https://www.cnn.com/2018/06/05/politics/social-security-bene...
    - eropple 8y ago
      #1 - I think he knows that. Don't you? #2 - Social Security needs work, but it's not going to be "broke". It can't be "broke". It's a required expense by law. It will be funded from other sources. And, not all that long after it hits that break-even point, we'll start seeing the demographic adjustment--i.e., the Baby Boomers dying off in quantity--begin to adjust that back towards the other direction. As usual, when one finds oneself repeating things said by people who want to destroy institutions, one should look deeper into them for truth.
    - pm24601 8y ago
      Only fix needed to "unbreak" Social Security: Remove the income cap limit. ( https://www.fool.com/investing/2017/12/10/what-is-the-2018-maximum-social-security-tax.aspx https://www.fool.com/investing/2017/12/10/what-is-the-2018-m...) All income over $128K is does not have a social security tax on it. Remove the cap and there will be no problem.
    - lsc 8y ago
      social security isn't an investment program. When it started during the great depression, the money put in by workers was immediately paid out to retirees who hadn't contributed to the system. This is how it works today; working people pay in, and our parents or grandparents get that money. Any perceived financial trouble is because we've now got people living longer, and so we've got more retirees for the same number of workers. This... just means we need to raise taxes. I mean, really, I think it's silly to say we have a special tax for social security; my understanding is that the money goes into the general fund anyhow (and it's been running a surplus for some time now) We don't have a special tax for the army that you only have to pay on your first $128K/yr, why do we have that for social security?
heneryville 8y ago
How on earth could a retirement savings have been totally wiped out by the 2008 financial crisis? If you had bought at the peak and sold at the bottom (unlikely for a retirement account), you'd have lost at most 50% of your value. Holding on 5 more years and you'd be totally recovered.
- sct202 8y ago
  They probably didn't have a whole lot of buffer when they retired, so having a drop of half right when they start to use the money could cause their fund to become unsustainable. Plus a lot of older people tend to rebalance towards bonds when they retire, so if they did that at 2008/2009 they wouldn't have gotten to recover as much from the stock markets in 2010+.
  - qeternity 8y ago
    If they were retiring within 5 years and had substantial equity holdings, then this is the real problem. They should have been mostly in credit and as rates plummeted, credit rallied. They would have done quite well.
    - maxxxxx 8y ago
      "They should have been mostly in credit and as rates plummeted, credit rallied. They would have done quite well." That's the thing with investment advice. There is a lot of "should" and "would" advice in hindsight but not so much concrete advice about the now. Also, if you just have a major medial issue, all your well-laid plans will be moot. We are engaging in a massive financial experiment over the last few decades. I know people who started working in the 80s and did extremely well. But they started from a low stock market, had massive housing appreciation and didn't have huge college debt. If you started working in 2000 with a Dow of 11000 the picture is less pretty. And for people who are starting now it's just plain ugly. Houses are already super expensive, they have college debt and the stock market is expensive. They won't see the growth the people who started in the 80s saw. But somehow they are still held to the same standards.
PurpleBoxDragon 8y ago
>Asking average citizens to understand market volatility and diversification and to rely on the total abject falsehood that “markets just go up in value” is equally immoral. Why? We expect people who drive cars to understand the basics of driving to the extent it is safe for them to drive. Simple diversification isn't a hard concept. Neither is risk/reward in determining where to put your money. >The aspect of pensions, to me, that satisfies the primary moral constraint of the situation is that you are guaranteed income of a certain level, so that the organization granting the pension has to bear the risk of volatility in whatever funding instruments are used to back it. But you aren't guaranteed it because things can happen. Immoral or even illegal things, or just having a run of bad luck. Regardless of the cause, there is a risk for the money not being there when you need it, a risk that seems to be worse than a 401(k) or equivalent. That risk includes governments not doing what you think they should've done, because no matter how much you think they should've done something they didn't do, it still wasn't done (in this case, companies weren't forced to fund and protect their pensions). If you have your own money, you can at least protect against this by having diversified investments, and if you are an adult who is allowed to vote then you can understand the concept of not putting all your eggs in one basket.
- mlthoughts2018 8y ago
  Your comparison between comprehending financial principles (which are “not hard” according to you) with comprehending driving a car tells me you are severely disconnected from regular folks. I don’t think it will be productive to try to convince you of my view point. The best I could do is try to lobby for laws that prevent attitudes like yours from applying regular people, because it would amount, quite literally, to preying on the incompetence of average workers who don’t have specialized financial decision making skills... which is largely what our whole banking and retirement systems are set up to do.
  - PurpleBoxDragon 8y ago
    >Your comparison between comprehending financial principles (which are “not hard” according to you) with comprehending driving a car tells me you are severely disconnected from regular folks. People understand the concept of 'don't put all your eggs in one basket'. People understand the concept of 'no pain, no gain'. It is not difficult to apply these to stocks. This isn't about understanding accounting or understanding exactly how to measure the risk of a stock. You don't need to understand physics to understand why a seat belt saves lives. You just need a very basic understanding of being ejected from a car. This isn't about getting them enough understanding to build a seat belt that saves lives, only about getting enough understanding to use the seat belt provided. >The best I could do is try to lobby for laws that prevent attitudes like yours from applying regular people, because it would amount, quite literally, to preying on the incompetence of average workers who don’t have specialized financial decision making skills... which is largely what our whole banking and retirement systems are set up to do. You will find that people do not like being treated as children and will avoid your regulations for the sake of making profit, often choosing far more unwise methods than the ones you are preventing. If your political stance is to treat adults, especially older adults nearing retirement as children, you will find yourself unable to enact any of the silly measures you think will help. We can't even get the elderly who no longer can safely drive vehicles to stop driving them, an action that puts the lives of innocents at risk. It will be taken, perhaps justly so, as trying to legally forbid the common methods from making a profit and forcing them to use worse options that will allow them to be taken advantage of, just like modern day pensions do.
T2_t2 8y ago
Is the problem then the search for a solution that works 100% of the time? I don't see any solution not having a downside, except maybe a UBI, and that's, lets be honest, just way too expensive. I think superannuation (or 401K in US parlance) with a means tested pension backstop is the most likely to be successful, simply because it removes this sort of shenanigans, and at scale becomes a really boring industry where shonksters are less likely to exist (NOTE: LESS not ZERO) but still has a social backstop for people that just don't ever get it.

toasterlovin 8y ago

> In my view, we are part of an unbelievably huge quality of life theft right now, a generational heist, pulling wool over everyone’s eyes to think that defined contribution retirement vehicles are somehow an acceptable alternative to defined benefit retirement vehicles. At the end of the day, it's all a defined contribution vehicle, because the future is unknowable. The question is whether you choose to deal with that reality up front or kick the can down the road.

rubidium 8y ago

If people want to set up annuities that is totally welcome. But they shouldn't be tied to the employer. It should be a separate company that exists solely for the purpose of paying the benefits at retirement. Depending on an employer for your retirement is, in the modern market, a proven bad idea. It's terrible what happened to your grandparents (to anyone else nearing retirement, take this as a cautionary tale and get your money in something safe). But hearkening back to the "glory" days of employer-paid pensions is not a viable solution.

pm24601 8y ago
> It should be a separate company that exists solely for the purpose of paying the benefits at retirement. Yes. S.O.C.I.A.L. S.E.C.U.R.I.T.Y. Look how well Americans will fight for and defend Social security benefits. We really should just force an expansion of Social Security like most civilized countries.
- theandrewbailey 8y ago
  1. "S.O.C.I.A.L. S.E.C.U.R.I.T.Y." isn't a separate company. It's a US government program. 2. Social Security isn't doing much better. It will be broke in ~15 years, paying out exactly as much as it takes in. https://www.cnn.com/2018/06/05/politics/social-security-benefit-cuts/index.html https://www.cnn.com/2018/06/05/politics/social-security-bene...
  - eropple 8y ago
    #1 - I think he knows that. Don't you? #2 - Social Security needs work, but it's not going to be "broke". It can't be "broke". It's a required expense by law. It will be funded from other sources. And, not all that long after it hits that break-even point, we'll start seeing the demographic adjustment--i.e., the Baby Boomers dying off in quantity--begin to adjust that back towards the other direction. As usual, when one finds oneself repeating things said by people who want to destroy institutions, one should look deeper into them for truth.
  - pm24601 8y ago
    Only fix needed to "unbreak" Social Security: Remove the income cap limit. ( https://www.fool.com/investing/2017/12/10/what-is-the-2018-maximum-social-security-tax.aspx https://www.fool.com/investing/2017/12/10/what-is-the-2018-m...) All income over $128K is does not have a social security tax on it. Remove the cap and there will be no problem.
  - lsc 8y ago
    social security isn't an investment program. When it started during the great depression, the money put in by workers was immediately paid out to retirees who hadn't contributed to the system. This is how it works today; working people pay in, and our parents or grandparents get that money. Any perceived financial trouble is because we've now got people living longer, and so we've got more retirees for the same number of workers. This... just means we need to raise taxes. I mean, really, I think it's silly to say we have a special tax for social security; my understanding is that the money goes into the general fund anyhow (and it's been running a surplus for some time now) We don't have a special tax for the army that you only have to pay on your first $128K/yr, why do we have that for social security?

heneryville 8y ago

How on earth could a retirement savings have been totally wiped out by the 2008 financial crisis? If you had bought at the peak and sold at the bottom (unlikely for a retirement account), you'd have lost at most 50% of your value. Holding on 5 more years and you'd be totally recovered.

sct202 8y ago
They probably didn't have a whole lot of buffer when they retired, so having a drop of half right when they start to use the money could cause their fund to become unsustainable. Plus a lot of older people tend to rebalance towards bonds when they retire, so if they did that at 2008/2009 they wouldn't have gotten to recover as much from the stock markets in 2010+.
- qeternity 8y ago
  If they were retiring within 5 years and had substantial equity holdings, then this is the real problem. They should have been mostly in credit and as rates plummeted, credit rallied. They would have done quite well.
  - maxxxxx 8y ago
    "They should have been mostly in credit and as rates plummeted, credit rallied. They would have done quite well." That's the thing with investment advice. There is a lot of "should" and "would" advice in hindsight but not so much concrete advice about the now. Also, if you just have a major medial issue, all your well-laid plans will be moot. We are engaging in a massive financial experiment over the last few decades. I know people who started working in the 80s and did extremely well. But they started from a low stock market, had massive housing appreciation and didn't have huge college debt. If you started working in 2000 with a Dow of 11000 the picture is less pretty. And for people who are starting now it's just plain ugly. Houses are already super expensive, they have college debt and the stock market is expensive. They won't see the growth the people who started in the 80s saw. But somehow they are still held to the same standards.

PurpleBoxDragon 8y ago

>Asking average citizens to understand market volatility and diversification and to rely on the total abject falsehood that “markets just go up in value” is equally immoral. Why? We expect people who drive cars to understand the basics of driving to the extent it is safe for them to drive. Simple diversification isn't a hard concept. Neither is risk/reward in determining where to put your money. >The aspect of pensions, to me, that satisfies the primary moral constraint of the situation is that you are guaranteed income of a certain level, so that the organization granting the pension has to bear the risk of volatility in whatever funding instruments are used to back it. But you aren't guaranteed it because things can happen. Immoral or even illegal things, or just having a run of bad luck. Regardless of the cause, there is a risk for the money not being there when you need it, a risk that seems to be worse than a 401(k) or equivalent. That risk includes governments not doing what you think they should've done, because no matter how much you think they should've done something they didn't do, it still wasn't done (in this case, companies weren't forced to fund and protect their pensions). If you have your own money, you can at least protect against this by having diversified investments, and if you are an adult who is allowed to vote then you can understand the concept of not putting all your eggs in one basket.

mlthoughts2018 8y ago
Your comparison between comprehending financial principles (which are “not hard” according to you) with comprehending driving a car tells me you are severely disconnected from regular folks. I don’t think it will be productive to try to convince you of my view point. The best I could do is try to lobby for laws that prevent attitudes like yours from applying regular people, because it would amount, quite literally, to preying on the incompetence of average workers who don’t have specialized financial decision making skills... which is largely what our whole banking and retirement systems are set up to do.
- PurpleBoxDragon 8y ago
  >Your comparison between comprehending financial principles (which are “not hard” according to you) with comprehending driving a car tells me you are severely disconnected from regular folks. People understand the concept of 'don't put all your eggs in one basket'. People understand the concept of 'no pain, no gain'. It is not difficult to apply these to stocks. This isn't about understanding accounting or understanding exactly how to measure the risk of a stock. You don't need to understand physics to understand why a seat belt saves lives. You just need a very basic understanding of being ejected from a car. This isn't about getting them enough understanding to build a seat belt that saves lives, only about getting enough understanding to use the seat belt provided. >The best I could do is try to lobby for laws that prevent attitudes like yours from applying regular people, because it would amount, quite literally, to preying on the incompetence of average workers who don’t have specialized financial decision making skills... which is largely what our whole banking and retirement systems are set up to do. You will find that people do not like being treated as children and will avoid your regulations for the sake of making profit, often choosing far more unwise methods than the ones you are preventing. If your political stance is to treat adults, especially older adults nearing retirement as children, you will find yourself unable to enact any of the silly measures you think will help. We can't even get the elderly who no longer can safely drive vehicles to stop driving them, an action that puts the lives of innocents at risk. It will be taken, perhaps justly so, as trying to legally forbid the common methods from making a profit and forcing them to use worse options that will allow them to be taken advantage of, just like modern day pensions do.

T2_t2 8y ago

Is the problem then the search for a solution that works 100% of the time? I don't see any solution not having a downside, except maybe a UBI, and that's, lets be honest, just way too expensive. I think superannuation (or 401K in US parlance) with a means tested pension backstop is the most likely to be successful, simply because it removes this sort of shenanigans, and at scale becomes a really boring industry where shonksters are less likely to exist (NOTE: LESS not ZERO) but still has a social backstop for people that just don't ever get it.