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Old 08-13-2012, 03:51 PM   #41
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DC plans work well for me as I work in a state university, I'm single, childless and well compensated.

I don't pay into SS, but the state mandates that I pay 11% of salary into a state retirement plan and they contribute 5%. As I work for state government there is a 457 plan that I put $22k/year into and as I work for a university there is also a 403b that I pay $22k/year into. As a consequence of all this tax deferral my tax rate last year was actually lower the Mitt Romney's.......but so was my income.
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Old 08-13-2012, 04:29 PM   #42
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Don't like the idea of forced savings. Our markets have become more about speculation than investing. IMO, I don't believe anyone should have more than half of their savings in securities of any type. Doesn't surprise me if Wall Street will be in the ears of our elected officials to make investing mandatory.
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Old 08-13-2012, 04:36 PM   #43
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The fact is that retirement planning takes a combination of discipline, knowledge, and available cash that very few have. The 401k provides nice fees to financial companies, and is good if you want portability, but it is poorly suited to the vast majority of people who lack the discretionary cash and knowledge to make good use of it. Combine this with the reduction in overall employee compensation when defined benefit plans were replaced by DC plans with an employer contribution that was worth far less to the employee than the old DB plans and it's small wonder that US retirement accounts are so small.

The UK faces a similar issue of low retirement savings rates and to address this they have done two things.

They have reformed their equivalent of SS by removing any connection to earnings. High earners used to get a bigger monthly check than lower income people, but now the retirement benefit is calculated only on number of years you've worked. If you reach 30 years of contributions you get maximum benefit and everyone gets exactly the same. The contributions tax remains a percentage of earnings paid by both the employee and employer so you pay more the more you earn, similar to FICA, but you don't get a bigger benefit. The result is that low income people have seen a big increase in their benefit and high earners have seen it reduced. The reasoning is that low income people rely more on the state benefit than high earners so a higher state pension to them will reduce poverty and the high earners won't miss the lower state pension because they have additional sources of retirement income.

Secondly the UK has introduced a mandatory DC pension plan that every employer must offer unless they have an equivalent or better company plan. The company must pay into this, but the employee has the option to opt out. It's called the National Employment Savings Trust (NEST)

NEST home | UK employer pension scheme | NEST pensions

However, I don't see these approaches being implemented in the US because of the egalitarian aspects of the first and the mandate of the second.
First, while I have spent a lot of time in the UK and love it there, I'm glad that I don't live there. The new SS scheme you described seems to be a modern day version of Robin Hood - and state sponsored at that.

Second, I don't agree with your opening comment on 401k's. The ERs at my employer plans were pretty middle of the road - not as low as Vanguard, but in the middle. And given the ability to rollover to a tIRA or to a subsequent employer 401k (or let it sit at the former employer 401k) portability options are available. The problem is that most people are stupid and refuse to save for the future but would rather bitch that they don't have enough to retire.
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Old 08-13-2012, 04:36 PM   #44
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SS provides enough income for most people to live modestly in retirement. They may have to downsize into a small apartment or trailer if they haven't saved anything else or if they borrowed against their home equity.

However, they won't starve, and plenty of people in this country have it much worse than seniors living only on SS.
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Old 08-13-2012, 04:48 PM   #45
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First, while I have spent a lot of time in the UK and love it there, I'm glad that I don't live there. The new SS scheme you described seems to be a modern day version of Robin Hood - and state sponsored at that.
What Nun says is not the full picture. Since ~1985 workers have been able to "contract out" of the UK equivalent of FICA. Instead of paying ~6.2% of their gross income to FICA they can pay half of that and invest the other in private retirement funds. At FRA they get a greatly reduced state pension.

DW's brother has done this for the last 25 years and it is working out pretty well for him. The UK also has an equivalent of IRA's, called ISA's, which also can be invested in equity and bond funds etc. At age 70 one must convert his/her tax deferred savings into an annuity unless they can prove sufficient other income sources above a certain level.
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Old 08-13-2012, 04:49 PM   #46
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I don't believe the dollars quoted in most studies - I think most people under-report or knowingly give false information - to protect their identity. On the other hand, I think the numbers in the Fidelity study are truly representative of actual retirement balances.
I believe it, my MegaCorp look at actually employee participation, not a survey, they found only 76% rate. That's right, 24% did not even take advantage of the free company match, how dumb is that?!? So that's 24% aren't saving squat, zip, nada, nothing.
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Old 08-13-2012, 06:46 PM   #47
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SS provides enough income for most people to live modestly in retirement. They may have to downsize into a small apartment or trailer if they haven't saved anything else or if they borrowed against their home equity.

However, they won't starve, and plenty of people in this country have it much worse than seniors living only on SS.
Exactly. This is why I think we should do everything possible to strengthen SS in its present form. As a society we are remarkably reticent to be compelled by government to do anything and I think all plans to make 401K style plans compulsory will run into fierce opposition. Likewise I don't think most people will agree to betting SS funds in the stock market. That leaves a program structured along the lines of current SS as the only type of program that has broad enough support to stand a chance of continuing on an ongoing basis.
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Old 08-13-2012, 07:00 PM   #48
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Exactly. This is why I think we should do everything possible to strengthen SS in its present form. As a society we are remarkably reticent to be compelled by government to do anything and I think all plans to make 401K style plans compulsory will run into fierce opposition. Likewise I don't think most people will agree to betting SS funds in the stock market. That leaves a program structured along the lines of current SS as the only type of program that has broad enough support to stand a chance of continuing on an ongoing basis.
My father (who is blue collar middle class) always says if we took all the money from the rich and redistributed it to everyone equally, in 10 years the rich would have it all back. He didn't say this to knock rich people, but to knock the general stupidity many people have with their money. If you really want to help these people (which may actually be the majority now) you have to save them from themselves and having people pay more into SS to get more in return has merit. Although I believe it punishes responsible people by denying them their money where they may do better investing on their own. And actually trusting the government that the increased money deducted will actually be there for them down the road is a whole other problem.
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Old 08-13-2012, 07:19 PM   #49
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So that's 24% aren't saving squat, zip, nada, nothing.
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But - they have 100% of that money to immediately spend on whatever! ...

Eat, drink, and be merry - for tomorrow.....?
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Old 08-13-2012, 07:30 PM   #50
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My father (who is blue collar middle class) always says if we took all the money from the rich and redistributed it to everyone equally, in 10 years the rich would have it all back. He didn't say this to knock rich people, but to knock the general stupidity many people have with their money. If you really want to help these people (which may actually be the majority now) you have to save them from themselves and having people pay more into SS to get more in return has merit. Although I believe it punishes responsible people by denying them their money where they may do better investing on their own. And actually trusting the government that the increased money deducted will actually be there for them down the road is a whole other problem.
I think your father is a wise man. Of course any program like SS punishes those that are smart enough to invest on their own and do better but it seems that most people on their own just don't make decisions for their own best interest when that benefit is in the far off future.

As to trusting the government, all I can say is that the SS trustees seem to be candid as to when the system runs short of money (2033) in the sense of payments being reduced by 25%. Since the political establishment seems to have its knickers wrapped around the axle at the moment, who knows what will happen...
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Old 08-13-2012, 07:45 PM   #51
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I don't think the 401k is failing most of these folks because they mis-manage the money(pick the wrong funds, investments, etc...). I think it is failing them because they lack the finanical discipline to actually contribute the proper amount. Some that do initially ruin their plan buy doing hardship withdrawals or constantly doing 401k loans.
Probably, but the reason that the 401k has failed doesn't really matter. What matters is that the 30 year experiment with the 401k failed to provide a generation with an adequate retirement. So, it should be replaced and my choice would be to increase SS since that program has been successful over nearly 80 years.
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Old 08-13-2012, 07:57 PM   #52
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As to trusting the government, all I can say is that the SS trustees seem to be candid as to when the system runs short of money (2033) in the sense of payments being reduced by 25%.
Instead of knowingly setting the table for a SS cliff in 2033, the reduction should be phased in. For example, until/unless there is funding to fill the shortfall, reducing SS payments by 1 pecentage point each year beginning now will give everyone time to better adjust.
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Old 08-13-2012, 08:03 PM   #53
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Instead of knowingly setting the table for a SS cliff in 2033, the reduction should be phased in. For example, until/unless there is funding to fill the shortfall, reducing SS payments by 1 percentage point each year beginning now will give everyone time to better adjust.
I think this is the same as saying you favor a gradual phasing out of the social security system, starting immediately. Getting benefits down by 25% in 25 years, just matches the approximate decline from now to 2033. The system continues to fall increasingly short thereafter. People just tend to mention 2033 because of the "trust fund" accounting. Your 1% decline per year would have to continue well beyond 2033.
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Old 08-13-2012, 08:34 PM   #54
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Probably, but the reason that the 401k has failed doesn't really matter. What matters is that the 30 year experiment with the 401k failed to provide a generation with an adequate retirement. So, it should be replaced and my choice would be to increase SS since that program has been successful over nearly 80 years.
I'm not sure that SS has been as successful as you think since it is on financial shaky ground according to its own actuaries.

I think it would be better to educate people to use 401k's the way they should be used (and many people on these boards are testimonials to the fact that the 401k can be very successful if properly used) than to expand the role of government and promote more dependency on government.

Let's face it, there were people who lived paycheck to paycheck and didn't save for the future when DB plans were prolific and today - it is just more important to do so today because that company provided pension isn't there anymore.

If the citizens are so stupid that they can't see the light then I think the republic is doomed. However, anecdotally, I think our children are doing better than our generation did in terms of saving for the future. DD has more than the average cited in the article saved and one nephew has had a Roth since he was 16, so there is some hope.
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Old 08-13-2012, 08:35 PM   #55
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What Nun says is not the full picture. Since ~1985 workers have been able to "contract out" of the UK equivalent of FICA. Instead of paying ~6.2% of their gross income to FICA they can pay half of that and invest the other in private retirement funds. At FRA they get a greatly reduced state pension.

DW's brother has done this for the last 25 years and it is working out pretty well for him. The UK also has an equivalent of IRA's, called ISA's, which also can be invested in equity and bond funds etc. At age 70 one must convert his/her tax deferred savings into an annuity unless they can prove sufficient other income sources above a certain level.
You used to be able to "contract out" of the "additional state pension" (which gave you additional state retirement benefit commensurate with your higher earnings) and instead put a percentage of your salary into a private or company pension plan. That option is now not available and from 2012 you have to contribute to the additional state pension if you earn enough. In the pension reform legislation it looks like this additional state pension will be abolished and a flat rate pension calculated on years on contributions rather than the value of your contributions will be adopted.
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Old 08-13-2012, 08:53 PM   #56
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First, while I have spent a lot of time in the UK and love it there, I'm glad that I don't live there. The new SS scheme you described seems to be a modern day version of Robin Hood - and state sponsored at that.
I agree with your conclusion. The scheme I describe is proposed by the Conservative dominated Government and is supported across the political parties. The reforms include a single flat rate pension; increase of the pension age up to 67 and equalizing the pension age for men and women. So high earners will get a smaller state pension, low earners will get bigger state pensions, but everyone will have to wait longer for them and if you are a woman you will have to wait even longer.

It seems like a good compromise to me and a practical solution to increase the income of those that need it most. It includes the principle of "From each according to his ability, to each according to his need" to satisfy the left, it satisfies the accountants and actuaries as it reduces the pensions bill through a flat rate payment started at a later age and it satisfies the right as it eliminates a lot of pensions bureaucracy and shrinks government.
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Old 08-13-2012, 09:00 PM   #57
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SS provides enough income for most people to live modestly in retirement. They may have to downsize into a small apartment or trailer if they haven't saved anything else or if they borrowed against their home equity.

However, they won't starve, and plenty of people in this country have it much worse than seniors living only on SS.
And if they don't have any bread they can eat cake.
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Old 08-13-2012, 10:23 PM   #58
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.....It includes the principle of "From each according to his ability, to each according to his need" ....
Sounds to me like a kissing cousin of socialism.
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Old 08-14-2012, 06:12 AM   #59
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Sounds to me like a kissing cousin of socialism.
It does include some socialist principles, which are the aspects I, and the UK left, like. The UK pension reform also includes mandatory DC pension savings by the employee and the employer. My point was to show that UK's pension reform includes principles from the left and the right and it hopes to achieve a practical solution to the low level of retirement savings. The flat rate state pension redistributes state benefits from high earners to lower income people who generally have less private retirement savings. This makes pensions far simpler, removes a whole level of benefits claims (makes the right happy) and hopefully brings the lower income people out of poverty. Also mandatory DC savings is planned to give everyone in the UK an additional retirement account very similar to the US 401k.

Such a system is a good shot at giving people a secure retirement. The socialist parts of it and the Government mandate of saving for retirement would have a hard time passing in the US......but it is an approach that has the potential to solve the lack of retirement income problem.
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Old 08-14-2012, 11:17 AM   #60
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[mod hat on]This thread is now closed.

Following the Community Rules, in future threads please remember to refrain from posts discussing political philosophy or announcing your own political philosophies to the forum. Thank you! [/mod hat off]

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