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Doesn't it strike anyone as wrong that we should be entitled to essentially guaranteed returns for retirement savings? There's no skill or activity involved, i

Doesn't it strike anyone as wrong that we should be entitled to essentially guaranteed returns for retirement savings? There's no skill or activity involved, its purely: those with money get 6-10% more every year. And as this site shows, it stacks up quickly. It just doesn't seem fair that someone who put in money earlier should have so much more than someone who started later, or was never able to

Joel_Mckay 2y ago
In general, people don't think in inflationary dollars. 2025 is going to be one heck of a circus... =3
dndn1 2y ago
Hi - author here - these compound returns are not guaranteed. I reinforce this point under health warnings. Here the 6% compound returns is an assumption. If that's good or bad to use depends on the purpose of the projection. For long projections in medium-risk funds this might be a reasonable value - but it can also be far off, especially in the short-term. I made a separate post that surfaces results from an assumed distribution of outcomes rather than a single value, called Visualizing Risk: https://calcwithdec.dev/posts/viz-risk/ https://calcwithdec.dev/posts/viz-risk/ (basically a monte carlo simulation) Also, in my pension calculator example on calculang.dev you can change all the assumptions: https://calculang.dev/examples-viewer?id=pension-calculator https://calculang.dev/examples-viewer?id=pension-calculator (excluding tax relief bits - it's just an example)
- spencerflem 2y ago
  Yeah didn't mean it as a critique of you or the article! More just kinda speculating about society I do think we try very hard to keep it as guaranteed as possible, if something would happen to stocks as a whole the government is willing to pull a lot of stops
  - dndn1 2y ago
    Aha - I get you!
  - tjohns 2y ago
    > I do think we try very hard to keep it as guaranteed as possible, if something would happen to stocks as a whole the government is willing to pull a lot of stops As a matter of policy, the government explicitly doesn't set policy in attempt to influence stock returns. However, the government does try to prop the broader economy up. Rightfully so, because if that collapses you have people without jobs or rapid inflation. Neither of which are good for society. It just so happens that stock returns are indirectly coupled to overall economic performance, so a healthy economy (generally) means a healthy stock market.
    - deleted 2y ago
      [deleted]
nly 2y ago
There are no guaranteed returns. Stocks aren't guaranteed to beat inflation, even over decades. Now, my parents generation had truly guaranteed defined benefit pensions where their employer effectively backstopped their lifetime liabilities. That not being available today is "unfair" in my view.
- jandrewrogers 2y ago
  A defined benefit pension can't guarantee anything either and you have no control over that risk. Ask anyone who received pennies on the dollar because the "backstop" went bankrupt with an inadequately funded pension. The big advantage of a defined contribution plan is that you control your risk of loss. If you feel stocks are too risky then don't invest in stocks.
  - FateOfNations 2y ago
    OP seems to be Irish. Outside the US, "pension" means retirement plan/savings in general, including defined contribution plans. This contrasts with the US, where "pension" is a defined-benefit plan, almost always sponsored by one's employer or union.
jayd16 2y ago
I don't think we're ever going to get around the concept of staking money for a return. However, we can certainly push for a tax structure that curbs the power of old money and better rewards labor, if we choose to do so.
koolba 2y ago
> Doesn't it strike anyone as wrong that we should be entitled to essentially guaranteed returns for retirement savings? The only guaranteed returns are nominal government bonds (currently about 4.5%) and inflation adjusted government bonds (currently about 2.15%). Everything else has a risk component. And even the inflation adjusted one is under the assumption that you agree with and trust the government’s calculations for inflation. The more general concept that you’re entitled to keep money you already have or that you’re entitled to the gains of money you already have (or the risks you took) is fundamental to capitalism. If you’re going to throw that concept away, you’ll be hard pressed to find a working long term example of success.
BeetleB 2y ago
> It just doesn't seem fair that someone who put in money earlier should have so much more than someone who started later, or was never able to Nor would it be fair that someone who made sacrifices to save should have the same money as his neighbor who just spends it all because he wants to. I'm guessing what you wrote is not what you meant, but of course those who save for a longer period will have more. Assume there are no investment gains. You're putting money in a 0% interest bank account. Are you suggesting it's unfair that the person who puts more money in ends up with ... more money?
- spencerflem 2y ago
  Not the money saved but the "free" money from the 6% returns, that wasn't from sacrifices as much as just the rewards of already having money. Phrased it oddly, but index funds give me a weird feeling of getting something for nothing.
  - Panzer04 2y ago
    Probably you should feel more aggrieved by government bonds, which are as close to riskless as it gets if you buy short-dated securities. Index funds are still riskyz though everyone forgets that when the market keeps going up.
akamaka 2y ago
Is it unfair that if someone plants a tree, they get free apples for the rest of their life? It’s easy to see finance as just a game of numbers, but underlying it are real things that provide real future value.
- spencerflem 2y ago
  Is buying an index fund the same as planting a tree? The odd thing to me, that I still havent been able to wrap my head around, is that it's no work at all. It's money that comes to you because you had it, not because you did anything.
  - tjohns 2y ago
    For the purposes of this analogy, yes. The "work" is losing access to your money. You're foregoing the ability to buy nice material things today, in exchange for investing in a business so that they can use your funds to do something productive with it instead. Real work does actually happen at other end of the exchange. On top of that, there's the risk that a business you invest in might fail, and you lose all of that money permanently. You earn a premium for accepting that risk. After 10+ years (market downturns historically can last up to a decade, so you need to be prepared not to access your funds for a long while in the worst case) you can start getting that money back. That's the fruit from the tree. The only thing that's different is that with an index fund is that you're investing in hundreds of companies, rather than individual ones. Which you should be doing anyway in order to mitigate the risk of any one company failing.
  - triceratops 2y ago
    You (usually) have to work to earn the money in the first place.
- lotsofpulp 2y ago
  >but underlying it are real things that provide real future value. This is why spencerflem is correct, and why governments around the world are scrambling to figure out what to do about sub replacement rate total fertility rates and top heavy population histograms. You can have all the investments and assets and money in the world, but if there are insufficient hands to perform the services and deliver the goods you want (automation notwithstanding), then there is nothing real underlying those numbers on the brokerage statement. The political issue of a top heavy population is clear, the rent seekers, those who want income for doing nothing is directly at odds with the goals of the younger population, because the younger population knows they are going to get less.
tjohns 2y ago
Nothing is guaranteed. There are absolutely down years (and down decades) where negative returns are possible. "There's no skill or activity involved" is a gross simplification. When you save funds in a lower-risk security like bonds, you're being paid interest in exchange for the time-value of not using that money. The value-producing activity here is letting somebody else use your money instead of yourself. When you invest in higher-risk securities (like the stock market), it's the same but with an added premium in exchange for the risk. The more risk you take on, the higher the return. Make no mistake, the risk is very real. But if you properly diversify and work over a long enough time horizon (again, the implication here is that you might not be able to access your money without loss for a decade+ in a large downturn), it's possible to constrain that risk to within an acceptable envelope.
- spencerflem 2y ago
  Right, but I only have access to the 'time value' of the money because I have money. I'm not producing the value, I'm letting someone else do that and taking a cut. It's really really not a skill, the steps are: 1. Buy a total market index fund 2. Wait And I get free money for allowing other people to do work I do this anyways ofc but it does feel odd
zie 2y ago
Those that had money earlier earned that money somehow, presumably by taking risks and earning the reward from those risks, instead of the risk showing up. The more risk you take, you hopefully get more expected return, but of course with more risk taken. The risk must show up eventually or it wouldn't be a risk. There is no guarantee of that return. There is risk with investing. Without risk, there can be no return. You can diversify some of the risk by owning lots of companies, but that doesn't make all risks go away.

Joel_Mckay 2y ago

In general, people don't think in inflationary dollars. 2025 is going to be one heck of a circus... =3

dndn1 2y ago

Hi - author here - these compound returns are not guaranteed. I reinforce this point under health warnings. Here the 6% compound returns is an assumption. If that's good or bad to use depends on the purpose of the projection. For long projections in medium-risk funds this might be a reasonable value - but it can also be far off, especially in the short-term. I made a separate post that surfaces results from an assumed distribution of outcomes rather than a single value, called Visualizing Risk: https://calcwithdec.dev/posts/viz-risk/ https://calcwithdec.dev/posts/viz-risk/ (basically a monte carlo simulation) Also, in my pension calculator example on calculang.dev you can change all the assumptions: https://calculang.dev/examples-viewer?id=pension-calculator https://calculang.dev/examples-viewer?id=pension-calculator (excluding tax relief bits - it's just an example)

spencerflem 2y ago
Yeah didn't mean it as a critique of you or the article! More just kinda speculating about society I do think we try very hard to keep it as guaranteed as possible, if something would happen to stocks as a whole the government is willing to pull a lot of stops
- dndn1 2y ago
  Aha - I get you!
- tjohns 2y ago
  > I do think we try very hard to keep it as guaranteed as possible, if something would happen to stocks as a whole the government is willing to pull a lot of stops As a matter of policy, the government explicitly doesn't set policy in attempt to influence stock returns. However, the government does try to prop the broader economy up. Rightfully so, because if that collapses you have people without jobs or rapid inflation. Neither of which are good for society. It just so happens that stock returns are indirectly coupled to overall economic performance, so a healthy economy (generally) means a healthy stock market.
  - deleted 2y ago
    [deleted]

nly 2y ago

There are no guaranteed returns. Stocks aren't guaranteed to beat inflation, even over decades. Now, my parents generation had truly guaranteed defined benefit pensions where their employer effectively backstopped their lifetime liabilities. That not being available today is "unfair" in my view.

jandrewrogers 2y ago
A defined benefit pension can't guarantee anything either and you have no control over that risk. Ask anyone who received pennies on the dollar because the "backstop" went bankrupt with an inadequately funded pension. The big advantage of a defined contribution plan is that you control your risk of loss. If you feel stocks are too risky then don't invest in stocks.
- FateOfNations 2y ago
  OP seems to be Irish. Outside the US, "pension" means retirement plan/savings in general, including defined contribution plans. This contrasts with the US, where "pension" is a defined-benefit plan, almost always sponsored by one's employer or union.

jayd16 2y ago

I don't think we're ever going to get around the concept of staking money for a return. However, we can certainly push for a tax structure that curbs the power of old money and better rewards labor, if we choose to do so.

koolba 2y ago

> Doesn't it strike anyone as wrong that we should be entitled to essentially guaranteed returns for retirement savings? The only guaranteed returns are nominal government bonds (currently about 4.5%) and inflation adjusted government bonds (currently about 2.15%). Everything else has a risk component. And even the inflation adjusted one is under the assumption that you agree with and trust the government’s calculations for inflation. The more general concept that you’re entitled to keep money you already have or that you’re entitled to the gains of money you already have (or the risks you took) is fundamental to capitalism. If you’re going to throw that concept away, you’ll be hard pressed to find a working long term example of success.

BeetleB 2y ago

> It just doesn't seem fair that someone who put in money earlier should have so much more than someone who started later, or was never able to Nor would it be fair that someone who made sacrifices to save should have the same money as his neighbor who just spends it all because he wants to. I'm guessing what you wrote is not what you meant, but of course those who save for a longer period will have more. Assume there are no investment gains. You're putting money in a 0% interest bank account. Are you suggesting it's unfair that the person who puts more money in ends up with ... more money?

spencerflem 2y ago
Not the money saved but the "free" money from the 6% returns, that wasn't from sacrifices as much as just the rewards of already having money. Phrased it oddly, but index funds give me a weird feeling of getting something for nothing.
- Panzer04 2y ago
  Probably you should feel more aggrieved by government bonds, which are as close to riskless as it gets if you buy short-dated securities. Index funds are still riskyz though everyone forgets that when the market keeps going up.

akamaka 2y ago

Is it unfair that if someone plants a tree, they get free apples for the rest of their life? It’s easy to see finance as just a game of numbers, but underlying it are real things that provide real future value.

spencerflem 2y ago
Is buying an index fund the same as planting a tree? The odd thing to me, that I still havent been able to wrap my head around, is that it's no work at all. It's money that comes to you because you had it, not because you did anything.
- tjohns 2y ago
  For the purposes of this analogy, yes. The "work" is losing access to your money. You're foregoing the ability to buy nice material things today, in exchange for investing in a business so that they can use your funds to do something productive with it instead. Real work does actually happen at other end of the exchange. On top of that, there's the risk that a business you invest in might fail, and you lose all of that money permanently. You earn a premium for accepting that risk. After 10+ years (market downturns historically can last up to a decade, so you need to be prepared not to access your funds for a long while in the worst case) you can start getting that money back. That's the fruit from the tree. The only thing that's different is that with an index fund is that you're investing in hundreds of companies, rather than individual ones. Which you should be doing anyway in order to mitigate the risk of any one company failing.
- triceratops 2y ago
  You (usually) have to work to earn the money in the first place.
lotsofpulp 2y ago
>but underlying it are real things that provide real future value. This is why spencerflem is correct, and why governments around the world are scrambling to figure out what to do about sub replacement rate total fertility rates and top heavy population histograms. You can have all the investments and assets and money in the world, but if there are insufficient hands to perform the services and deliver the goods you want (automation notwithstanding), then there is nothing real underlying those numbers on the brokerage statement. The political issue of a top heavy population is clear, the rent seekers, those who want income for doing nothing is directly at odds with the goals of the younger population, because the younger population knows they are going to get less.

tjohns 2y ago

Nothing is guaranteed. There are absolutely down years (and down decades) where negative returns are possible. "There's no skill or activity involved" is a gross simplification. When you save funds in a lower-risk security like bonds, you're being paid interest in exchange for the time-value of not using that money. The value-producing activity here is letting somebody else use your money instead of yourself. When you invest in higher-risk securities (like the stock market), it's the same but with an added premium in exchange for the risk. The more risk you take on, the higher the return. Make no mistake, the risk is very real. But if you properly diversify and work over a long enough time horizon (again, the implication here is that you might not be able to access your money without loss for a decade+ in a large downturn), it's possible to constrain that risk to within an acceptable envelope.

spencerflem 2y ago
Right, but I only have access to the 'time value' of the money because I have money. I'm not producing the value, I'm letting someone else do that and taking a cut. It's really really not a skill, the steps are: 1. Buy a total market index fund 2. Wait And I get free money for allowing other people to do work I do this anyways ofc but it does feel odd

zie 2y ago

Those that had money earlier earned that money somehow, presumably by taking risks and earning the reward from those risks, instead of the risk showing up. The more risk you take, you hopefully get more expected return, but of course with more risk taken. The risk must show up eventually or it wouldn't be a risk. There is no guarantee of that return. There is risk with investing. Without risk, there can be no return. You can diversify some of the risk by owning lots of companies, but that doesn't make all risks go away.