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Traditional pensions are fundamentally unsustainable endeavors under modern demographics. You cannot pay decent benefits to a growing retired population while c

Traditional pensions are fundamentally unsustainable endeavors under modern demographics. You cannot pay decent benefits to a growing retired population while collecting reasonable dues from a shrinking working population. As we've seen, all retirement funds, even the remaining pensions, have largely switched their investments to the stock and bond markets in the vain hope that this fundamental conundrum will be solved through moonshots and financial tricks. The 401(k) is just one piece of a much bigger puzzle.

vineyardlabs 2y ago
I agree with your general idea here but could it not be argued that pensions are just an abstraction on top of 401ks in the sense that if the demographics are shifting such that non-producers outweigh producers then you would expect the economy and business profits to suffer. These effects would cause broad slow growth or even reductions in business valuations, and therefore poor performance in investment accounts broadly.
- kbolino 2y ago
  Yes, and I think that describes the past few decades in Japan (among other factors). Other options included pensioners taking a haircut and/or workers taking a paycut, neither of which is particularly palatable and still runs us into the ground eventually. Increasing corporate taxes could square the circle for a little while, but then corporations would slowly move more operations offshore, decreasing tax revenues eventually anyway. There's also the option of cutting other government expenditures, but eventually that stops working and at least some of the things that were cut can't stay un(der)funded forever. The only other (distantly) feasible idea I can think of would be, again with an eye to Japan (of the past), near-total isolation from other countries economically, but that would have an even more substantial stagnating effect.
sangnoir 2y ago
> You cannot pay decent benefits to a growing retired population while collecting reasonable dues from a shrinking working population How does this jibe with ever-increasing profits?
- kbolino 2y ago
  An S&P 500 index fund has an average annualized rate of return of about 8% over the past 50 years. It is barely beating inflation but if you can accept the risk that you might be in a -10% year at any given time instead of a +20% year then it's the best place to put your money. This is where those profits are going, and that long-term rate of return hasn't moved much. A traditional pension fund cannot afford that kind of risk without a massive cash buffer and could not have captured that value anyway because it cannot cover its own firm's losses with some other firm's gains. After all, it's not like the same 500 companies are occupying the index as decades ago, and even those that stick there have changed relative positions a lot. The only thing that could have conceivably replaced traditional pensions and captured all of this value and given it to the workers "fairly" without suppressing the factors that made it possible would have been a sovereign wealth fund run passively but competently by the government, but such a thing is in and of itself a moonshot.

vineyardlabs 2y ago

I agree with your general idea here but could it not be argued that pensions are just an abstraction on top of 401ks in the sense that if the demographics are shifting such that non-producers outweigh producers then you would expect the economy and business profits to suffer. These effects would cause broad slow growth or even reductions in business valuations, and therefore poor performance in investment accounts broadly.

kbolino 2y ago
Yes, and I think that describes the past few decades in Japan (among other factors). Other options included pensioners taking a haircut and/or workers taking a paycut, neither of which is particularly palatable and still runs us into the ground eventually. Increasing corporate taxes could square the circle for a little while, but then corporations would slowly move more operations offshore, decreasing tax revenues eventually anyway. There's also the option of cutting other government expenditures, but eventually that stops working and at least some of the things that were cut can't stay un(der)funded forever. The only other (distantly) feasible idea I can think of would be, again with an eye to Japan (of the past), near-total isolation from other countries economically, but that would have an even more substantial stagnating effect.

sangnoir 2y ago

> You cannot pay decent benefits to a growing retired population while collecting reasonable dues from a shrinking working population How does this jibe with ever-increasing profits?

kbolino 2y ago
An S&P 500 index fund has an average annualized rate of return of about 8% over the past 50 years. It is barely beating inflation but if you can accept the risk that you might be in a -10% year at any given time instead of a +20% year then it's the best place to put your money. This is where those profits are going, and that long-term rate of return hasn't moved much. A traditional pension fund cannot afford that kind of risk without a massive cash buffer and could not have captured that value anyway because it cannot cover its own firm's losses with some other firm's gains. After all, it's not like the same 500 companies are occupying the index as decades ago, and even those that stick there have changed relative positions a lot. The only thing that could have conceivably replaced traditional pensions and captured all of this value and given it to the workers "fairly" without suppressing the factors that made it possible would have been a sovereign wealth fund run passively but competently by the government, but such a thing is in and of itself a moonshot.