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Old 03-19-2015, 10:14 AM   #141
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I'll give you an example. The current rate is 18.7% of your gross income. At the average annual salary of 32,100 €, you and your employer together pay 6,002.70 € into the pension system. For that, you earn exactly 1 "pension point". If you make less, you get fractions of a point; more, more points. They are capped at 2.0561 points, because you do not have to contribute for salaries >66,000 €/a. (66,000 / 32,100 = 2.0561).
If you plug some numbers into the SS calculator, they are not that different (adjusting for the contribution rate).

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I'll let you calculate for yourself whether you like these numbers. Would you take this deal if it weren't compulsory, and the alternative would be to keep the 6,003 € and invest them yourself in some tax-sheltered vehicle like an IRA? I know what I would prefer.
Of course the attractiveness of the alternative depends on the future expected returns which are not all that good right now. Plus if SS were abolished I think it's unlikely that the employee would receive the employer contribution in wages.

But the real benefit of SS is that you can't mess it up. And even more importantly your relatives and neighbors can't mess it up either.
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Old 03-19-2015, 10:15 AM   #142
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I don't do Roth. I'm pretty sure my tax bracket will be lower when I start taking money out of the K plan. One of my employers used to let us contribute after-tax once we hit the 402g limit. That's pretty rate nowadays though.
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Old 03-19-2015, 11:33 AM   #143
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If you plug some numbers into the SS calculator, they are not that different (adjusting for the contribution rate).
I agree! So why do people seem to think, 'Germany has this fine state pension, they don't need tax-advantaged savings'? It's basically just your SS, but funded by a shrinking percentage of the population, with stagnating wages, in an aging country with rising life expectancy. The US are at least attractive to smart, hard-working, well-educated immigrants.

And why are American people complaining about company pensions being abolished? They'll get SS. I was always under the impression that the company pension used to be almost the US equivalent of our state pension, but it seems you used to have more of a three-legged-stool approach: SS + company pension + private (tax-advantaged) savings. Sounds comfy - I think I need a green card, and a time machine.
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Old 03-19-2015, 12:05 PM   #144
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Legg Mason reports that investors think they'll need $2.5 million for comfortable retirement. Story doesn't say anything about pensions, ss, or the timeline to have $2.5 million. Not much context other than people feel behind. Does this amount ring true to folks here? I guess this is one of those how much is enough stories, but I'm curious as to people first-blush reactions and how it jives with their own experiences. Is there any value to stories like these or are they just PR fodder? Any thoughts?


http://finance.yahoo.com/news/u-inve...5UNDIAnQzQtDMD
Getting back to the first post here. Have been thinking about that Legg Mason article. One of the many things this article does not talk about are the income streams a person may have along the way, aside from savings. It appears to assume they have nothing else but their savings. I don't know if Legg Mason really believes everyone needs 2.5 million or if they should plan on at least trying to generate that or more during the retirement years.

It seems to me as long as you can "generate" that 2.5 million to say $3 million plus along the way, in INCOME, for 30 years with all your income streams, one should be good to go. After all $100,000 X 30 years = 3 million. Doesn't matter where it comes from….just that it comes, if that is your need. Right?

Not to minimize that it also takes a lot of planning to generate those income streams along the way.
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Old 03-19-2015, 02:31 PM   #145
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$2.5 million to retire (Legg Mason PR story)

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.



It seems to me as long as you can "generate" that 2.5 million to say $3 million plus along the way, in INCOME, for 30 years with all your income streams, one should be good to go. After all $100,000 X 30 years = 3 million. Doesn't matter where it comes from….just that it comes, if that is your need. Right?
.

Yes. That's how I read the article. The ability to generate 30-40x is needed to retire early and fund life til age 95 for a couple. That means covering expenses (on average ) of 60k/year (approx USA household income) and so requires either a nut worth 2.5M in today dollars or equivalent.

what exactly those expenses are will vary across population as will the amount and sources of that equivalent income - could be SS,pensions, passive income, inheritance, a big fat portfolio, or some combination.

It makes sense on a very aggregate and average basis. Mileage will absolutely vary.

It's also based on a survey as I recall so it's what relatively savvy retirement savers think.

How could THEY be wrong ??!!! THEY - probably a lot like those on this board- intelligent. Savvy. Planners who have actually thought through the game plan.
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Old 03-19-2015, 07:11 PM   #146
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I agree! So why do people seem to think, 'Germany has this fine state pension, they don't need tax-advantaged savings'?
I came to US from Canada and given that "socialism" is dirty word in America, I was very surprised to see how much one could get from SS. Without looking at the calculators I would have just assumed that Canada would be much better on that front.
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Old 03-20-2015, 12:19 AM   #147
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In this thread, Retirement without a safety net, in my post exchange with Meadbh, I was surprised to learn that the U.S. SS benefit is generally higher than Canadian CPP. However, the maximum contribution in the US is about triple the maximum that a Canadian has to pay.

Also, an Australian poster showed that the Australian OAP (Old Age Pension) which is means tested (similar to US SSI for the indigent) is A$2,790 per month for a couple (A$1850 for a single person), a lot higher than US SSI which is only about $700. In fact, it is higher than SS that many US workers get! It is even better than SSI, in that the recipient is allowed to own his home which may be worth up to $2M.

Now, I wonder how much Australians have to pay in taxes to get that. Nothing is ever free.

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Compulsory, yes. Very good - no, I don't think so. Both I and my employer are forced to pay huge amounts into the system, but my return on that "investment" will likely be negative.

I'll give you an example. The current rate is 18.7% of your gross income. At the average annual salary of 32,100 €, you and your employer together pay 6,002.70 € into the pension system. For that, you earn exactly 1 "pension point". If you make less, you get fractions of a point; more, more points. They are capped at 2.0561 points, because you do not have to contribute for salaries >66,000 €/a. (66,000 / 32,100 = 2.0561).

The rate is likely to increase in the mid-term to something north of 20%. The contribution assessment ceiling of currently 66,000 €/a increases every year, so I have to pay more and more each year, because I make a good salary.

The current "value" of a point is 28.61 €/month. In other words, the 6,003 bucks this year buy an annual pension of 28.61 €/month x 12 months = 343.32 €/a. (This amount will be increased a little in most years, but it is not likely to keep up with inflation IMO.)

But, of course I do not get that pension immediately - that will take 34 years! (Regular pension age for my age cohort is currently planned to be 67, and I'm almost 33. It is likely to be raised - there's discussions about age 70.)

I'll let you calculate for yourself whether you like these numbers. Would you take this deal if it weren't compulsory, and the alternative would be to keep the 6,003 € and invest them yourself in some tax-sheltered vehicle like an IRA? I know what I would prefer.

Americans, consider yourselves fortunate.
The US SS system subsidizes lower-wage workers with contributions from higher earners. I am not saying that is good or bad, just that is the nature of this social program. So, a high-wage earner would be much better off if he were allowed to save and invest that money himself. In contrast, a lower wage earner will do better with SS than with his own savings, particularly if he also has a non-working wife who automatically collects 1/2 of his benefits.

About the German system, you said that 6003€ in tax in one year provides 1 point, which gives a benefit of 343€/year when you retire. But if a person does that for 40 years, does he get 343€ x 40 = 13720 € per year at retirement?
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Old 03-20-2015, 03:18 AM   #148
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I came to US from Canada and given that "socialism" is dirty word in America, I was very surprised to see how much one could get from SS. Without looking at the calculators I would have just assumed that Canada would be much better on that front.
Without taking the thread too far OT (yes, yes, I know - what long thread doesn't go OT at some point!) and also without wanting to risk awaking Porky by commenting on a post that used the world "socialism" , there was a definite difference for me between what I thought the US would be like when I first came here, and what it actually was like.

Before arriving, I had heard/was told that it was sink or swim in the US. People were free to succeed beyond their wildest dreams, and also to fail miserably. There were no safety nets, went the story, and I would triumph or fall flat on my face due to a combination of sheer blind luck, and my own character, drive and determination. To a 20-something year-old, it was thrilling. I was the protagonist in my own heroes journey and, naturally, I would emerge victorious!

It took a while, but it began to dawn on me that there were all kinds of social programs in place and, with the glaring exception of healthcare, the system of social safety nets wasn't that different from those in Europe and Canada. Funny thing, how countries create and keep alive their own folklore and myths...............
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Old 03-20-2015, 04:11 AM   #149
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About the German system, you said that 6003€ in tax in one year provides 1 point, which gives a benefit of 343€/year when you retire. But if a person does that for 40 years, does he get 343€ x 40 = 13720 € per year at retirement?
Exactly. And if you want to take the pension before official retirement age, there is of course a penalty, 0.3% per month. If you postpone, the payment increases by 0.5% per month.
It's taxable income, and health insurance is also deducted, so the net amount is less.

Edit to add: It's not "6003€ in tax", but "6003€ in pension contributions", but I guess that's what you meant. Income tax comes on top of that, of course.
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Old 03-20-2015, 08:28 AM   #150
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Germany probably needs the tax revenues for other things such as socialized medical.


How much do you (or your company) have to pay for medical insurance?
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Old 03-20-2015, 10:03 AM   #151
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Exactly. And if you want to take the pension before official retirement age, there is of course a penalty, 0.3% per month. If you postpone, the payment increases by 0.5% per month.
It's taxable income, and health insurance is also deducted, so the net amount is less.

Edit to add: It's not "6003€ in tax", but "6003€ in pension contributions", but I guess that's what you meant. Income tax comes on top of that, of course.
Yes, I am aware that you have other taxes. By the way, SS is really a tax because the same as with a general tax, an individual is not guaranteed any return. SS is not a contractual obligation. The US Supreme Court said so in 1960 in the case of Flemming v. Nestor. You may not even get anything.

Anyway, it appears that the German system benefit is proportional to the lifetime contribution. The US SS is not. A worker with an annual income of $100K gets about 2.5X the benefits of one who makes $25K, not a 4X factor.

Also, one who works 40 years does not get 2x the benefits of one who works 20 years.
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Old 03-20-2015, 10:25 AM   #152
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It took a while, but it began to dawn on me that there were all kinds of social programs in place and, with the glaring exception of healthcare, the system of social safety nets wasn't that different from those in Europe and Canada. Funny thing, how countries create and keep alive their own folklore and myths...............
Very interesting to hear your perspective on this. As you say, we are generally led to believe that Europe is the "Nanny State", at least historically speaking compared to US. Can I ask how long ago was your initial experience and, if it was a while ago, do you think the "safety net" has changed dramatically?

My curiosity is in whether it has changed, not whether it should or shouldn't have, or how so (i.e. not looking for political view).
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Old 03-20-2015, 10:39 AM   #153
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Yes, $2.5 million seems reasonable for my situation - 52, no pension but SS, and $80k a year expenses.
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Old 03-20-2015, 10:49 AM   #154
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...It took a while, but it began to dawn on me that there were all kinds of social programs in place and, with the glaring exception of healthcare, the system of social safety nets wasn't that different from those in Europe and Canada. Funny thing, how countries create and keep alive their own folklore and myths...............
I knew a guy who, with the help of his siblings, emigrated to the US from the Netherlands. After being here about 2 years, working so hard just to get money for medical insurance for his family, he gave up and moved back. I think he would have stayed if ACA was available. Just one data point...
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Old 03-20-2015, 10:53 AM   #155
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interesting....come to think about it, I personally only know one European who has moved here and stayed - does the UK count as Europe?
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Old 03-20-2015, 10:56 AM   #156
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Our nephew married a Dane. She is happy here. Her uncle independently moved to the US with his family. I heard that they loved it here. In megacorp, I worked with a guy who moved to Germany, but then moved back to the US. Of course there were a few Canadians who came here and stayed.
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Old 03-20-2015, 11:21 AM   #157
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I forgot that one of my wife's friends is a Norwegian along with her husband, and another friend is German. They are retired now, and we never heard of them mentioning the thoughts of moving back.

And then, there are tons of European immigrants on this forum who moved and worked here.
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Old 03-20-2015, 11:33 AM   #158
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Now, on the other hand, I personally know a guy, who with the help of Megacorp, came from Africa to the US to study geophysics (fully paid) with the plan to return and be a geophysicist. Last I heard he's married with kids and driving a cab in Houston.
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Old 03-21-2015, 10:47 AM   #159
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Yes, $2.5 million seems reasonable for my situation - 52, no pension but SS, and $80k a year expenses.
For where you're living sure, but as a blanket statement for people looking at retirement it's horrible.
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Old 03-21-2015, 11:23 AM   #160
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Horrible?? I don't get it. If someones expectations for a happy life before and after retirement require perpetual very high income most are creating a self fulfilling prophecy of unhappiness. Very few high wage earners will save enough to maintain their lifestyle without a move to a lower COL area. As has been emphasized many times on this forum flexibility and an ability to tighten spending are critical to most happy retirements.
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