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Old 08-10-2010, 02:07 PM   #41
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We happened to catch economic lightning in a bottle in the 25 years after WW2 and started basing future assumption on that abnormally prosperous period.
Yes, and considering that many of those people who enjoyed that prosperity also suffered the Depression and rationing and other sacrifices of WWII, I'd say we were due for an 'abnormally prosperous period'.

I agree with you, with global competition and other factors, just treading water is about all one can reasonably expect for the foreseeable future (how long is that anyway?).

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Old 08-10-2010, 02:12 PM   #42
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I think the "golden age" for retirement is probably over. Contextually, it amounted for less than 1% of all human recorded history. It was probably a fluke and it certainly proved to be unsustainable. We might be simply reverting back to the mean. People will have to work longer and/or provide for their own retirement. It sucks, I know.
I suspect that if the last 50-60 years was less than 1% of recorded history and we're reverting to the mean, you youngsters who didn't squeeze in under the gate better work on your hunting and gathering skills and plan on dying of old age in a few weeks.
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Old 08-10-2010, 02:33 PM   #43
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the 401k is the biggest ever con played on the American workforce.
I completely disagree from my perspective, .... I understood the implications of not having a pension .... The 401k (along with regular taxable savings) provides me with the flexibility to FIRE earlier and with less restrictions.
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I think the ultimate solution is to educate from a very young age - people need to learn to take care of themselves financially so they don't effectively become wards of the state.
Very well stated SunsetSail. Good to see that you 'get it'. All of us should do what we can to make sure our kids, or other young people in our life 'get it', too. Personally, I'd like to see some sort of annual or quarterly training class that all employees would need to take, so that this sinks in.

I'd feel a lot better if I 'owned' the benefits I was promised. Pensions, retiree health care, any future benefit that isn't a fully funded contractual obligation is a bit of a scam. Companies used these benefits to attract employees, yet, they were 'promises' and we could not know which companies would be able to keep their promises or not. A pay-as-you-go system is much better, IMO.

401k a 'con'? Gee, my 'con' is worth about 4x the value of my non-COLA'd pension. Which is the 'con'?

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Old 08-10-2010, 04:48 PM   #44
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I'd feel a lot better if I 'owned' the benefits I was promised. Pensions, retiree health care, any future benefit that isn't a fully funded contractual obligation is a bit of a scam. Companies used these benefits to attract employees, yet, they were 'promises' and we could not know which companies would be able to keep their promises or not.
Agreed.

As a military service member I am promised a COLA'd pension, worth maybe $45k/year in present dollars, starting in my early 40's if I stick around for 20 years. A lot of people seem to think that such a generous DB plan is the best deal in town. And if all works out as promised, then they are probably correct.

But I'm young and a lot can change over the next 60 years. Rather than vague promises of future payments, I would much prefer to see this money in my paycheck now so that I could save/invest/diversify it myself.

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Old 08-10-2010, 05:55 PM   #45
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Agreed.

Rather than vague promises of future payments, I would much prefer to see this money in my paycheck now so that I could save/invest/diversify it myself.

Tim
Me too, the thing is that you don't see that money. The "401k con" was the removal of DB plans without replacing their value with increased employee wages that sensible people would then save for retirement. The replacement of DB plans with 401ks that are majority self funded resulted in an effective pay cut. The poor management, corruption or insolvency of DB plans is just further evidence of the contempt in which the US middle class is held by the occupants of the boardroom and a poor excuse for the 401k.

I don't know what fraction of the retirement savings fiasco is because of poor financial management and what part due to the decline in real wages over the past 40 years, but both are surely part of the problem. However, I have friends with children who are in their 40s are sensible, hardworking, have college degrees and work in professional jobs and I know that they are only contributing to their 401ks up to the company match and don't have large 401k balances. They also have to save for college, many have seen their health premiums increase while their wages stagnate and most are frightened about their jobs. Whenever, we talk about finances I'm embarrassed that I'm so close to ER. I'm frugal and I have a good job, but the major reason I can contemplate retiring is because I'm single and have no children and live pretty much as I did in college 30 years ago; I have a line item in my budget for beer. The majority of Americans can't live like that because they have greater responsibilities and those are the ones that need a realizable path to retirement and one just doesn't exist anymore.
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Old 08-10-2010, 06:00 PM   #46
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I agree with a lot of your post, but don't put all the blame on people for the impending disaster. Sure, people should spend less, but the destruction of the defined benefit pension plan is a major component of the problem and that's down to employers wanting to boost profits and take compensation away form employees to give to shareholders. It worked for a while, but was as shortsighted as spending recklessly.

Not assigning any blame. Just stating what has been commented on in the popular press and in many posts on this forum... "Many Americans have not prepared for retirement".

I agree that the loss of defined benefit plans has left some to fend for themselves. But nevertheless, people have to deal with reality.
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Old 08-10-2010, 06:20 PM   #47
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Whether they realized it along the way or not... these people over spent in their younger years (assuming the lack of a job is not temporary).


The tough reality is that the day of reckoning has come for many boomer retirees... as it will for many more in the next 20 years. Americans have been over spending in their younger years (living above their long-term means). Their future standard of living will be lower. To try to keep it near the previous level, they can continue working as long as they can... but they are much less likely to get a job with the same replacement wage. Many will need to stop work because of health problems as they age.

The moral of this story is save early and live within one's long-term means. Better yet, plan for a potential unexpected events such as forced early job loss which translates to a plan of LBYM (at a young age) to mitigate the risk. If things workout in their favor... they may be able to FIRE.


The sad fact is that many people who wind up in really bad circumstances got there because of no plan what so ever. They just kept spending! Those who planned and saved may not be where they had hoped... but are likely in a much better position.

At least many boomers have pensions... it will be much worse for the next generation unless they get their financial life in order.
This is an incredibly poorly informed and complacent post. I am really surprised at your lack of understanding.

Many of these people never had any money to save- if there ever was anything left after rent and food and a little beer to make Dad's life endurable, it went to getting some child's rotting teeth fixed.

I realize that the "disadvantaged" groups with political power, or the power to scare municipal governements with threats of violence will do better, but there will alwys be people who really cannot make it in the modern world, which demands intellectual and behavioral traits and skills that are way beyond these groups. Some from thse groups will always make it in the world, but let us not forget the bell curve; it is real.

I am not saying that we should necessarily try to do anything about this, but why heap scorn on people who are already downtrodden and hapless?

Ha
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Old 08-10-2010, 06:23 PM   #48
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"Many Americans have not prepared for retirement"...
My two younger brothers have good income, yet I doubt that they save any money other than maxing out their 401k. They don't want to crimp their lifestyle by giving up fancy home improvements and the BMW SUVs. But it's their choice. I don't ask.

And I am sure that many workers do not or cannot even max out the 401k contributions.
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Old 08-10-2010, 06:52 PM   #49
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Here is a little story. This is back in 1974 or so, my wife worked for Philco Ford/Aeroneutronic Ford, she worked in HR and gave people their exit interviews and whatever, since they were laying off. Guess who got layed off at 9 years and 11 months, when you needed 10 years to vest in the pension. Her bosses told her no problem will fix it. Well 36 years later she still is a little POed. Funny thing is we still buy Fords.
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Old 08-10-2010, 08:11 PM   #50
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The "401k con" was the removal of DB plans without replacing their value with increased employee wages that sensible people would then save for retirement.
It's not a 'con'. It may have been a reduction in the total compensation package that people received, but they were free to look for a better one if they could find it.

Companies didn't 'need' to offer pensions - they did it to compete for employees. And they could compete (and did) with 401K matching. If they could have just cut compensation, they would have - they didn't need to wait for any 401K rules.

I believe that what you are seeing is the effect of global competition, the 'flat world'. That may be a harsh reality for many of us, but it isn't a 'con'.

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The majority of Americans can't live like that because they have greater responsibilities and those are the ones that need a realizable path to retirement and one just doesn't exist anymore.
Probably true for too many, but it would carry more weight if we didn't see record sales and long lines for non-necessities like iPads and iPhones in the midst of a deep recession. Are the majority of those people funding their retirement before buying toys? I doubt it.

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Old 08-10-2010, 09:19 PM   #51
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I am not a fan of defined benefit schemes - too much uncertainty for both the employer, the employee and the employer's shareholders. As an employee, I much prefer having control over my own money and the certainty of knowing that I am not at risk of having my financial position eroded by actuarial shortfalls or other problems. As an investor, I prefer not to invest in companies which have substantial obligations which are either inadequately funded or which inflate the company's cost structure and render it less competitive than other companies.

In addition, I totally fail to understand why an employer should be expected to take any responsibility for the financial well being of an employee once the employee ceases to be employed (injury on the job or similar being the only exception which comes to mind).

Given the wide range of issues associated with adequately funding retirees' financial needs, I am increasingly a fan of the Australian model - complusory contributions from employers and employees with simple default options for those who do not wish to make decisions on how to invest and a very substantial degree of flexibility for those who wish to manage their own money.
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Old 08-10-2010, 09:27 PM   #52
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I agree with a lot of your post, but don't put all the blame on people for the impending disaster. Sure, people should spend less, but the destruction of the defined benefit pension plan is a major component of the problem and that's down to employers wanting to boost profits and take compensation away form employees to give to shareholders. It worked for a while, but was as shortsighted as spending recklessly.
In the old days people use to have a pension plan is a myth. From my research at no point were more than 1/3 of Americans employed in the private sector ever covered by defined benefit plan and those fully vested probably in the 25% range. Up until the 401K plan most American's had NO retirement plan. The majority of American don't work for either the Government or a Fortune 500 corporation, they work for small or medium business. In fact I think former and even current worker of small or medium business are probably the most underrepresented on this board. Probably because it is hard for them to retire early without the generous benefits offer by government and many megacorps.

It has never been practical for small or medium business to offer pension plan. To which I say thank god, or the pension mess we are currently in
would be even worse.


I think as a society and individually we lived beyond our means for too long. Sadly I don't have clue how to fix the problem, but pining for corporation to bring back the mythical pension of yesteryear is definitely not a solution.
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Old 08-10-2010, 09:32 PM   #53
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I am not a fan of defined benefit schemes - too much uncertainty for both the employer, the employee and the employer's shareholders.
+1.

And some of those schemes are really "schemes"! Has anyone missed the recent thread on the $600K/year pension of the city manager of the town of Bell in California? The one where, somehow, several adjacent towns will have to pitch in to cover that liability?
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Old 08-11-2010, 03:06 AM   #54
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In addition, I totally fail to understand why an employer should be expected to take any responsibility for the financial well being of an employee once the employee ceases to be employed (injury on the job or similar being the only exception which comes to mind).
Same for employer provided/subsidized health care. Probably one of the reasons health care is such a mess now.

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Given the wide range of issues associated with adequately funding retirees' financial needs, I am increasingly a fan of the Australian model - complusory contributions from employers and employees with simple default options for those who do not wish to make decisions on how to invest and a very substantial degree of flexibility for those who wish to manage their own money.
I would have liked to have operated under such a system.
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Old 08-11-2010, 09:20 AM   #55
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And some of those schemes are really "schemes"! Has anyone missed the recent thread on the $600K/year pension of the city manager of the town of Bell in California? The one where, somehow, several adjacent towns will have to pitch in to cover that liability?
They are "schemes" to the taxpayer, but not to those fortunate enough to receive one...

Depends on which side of the fence you're on -- whether you're on the inside or on the outside looking in...
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Old 08-11-2010, 10:11 AM   #56
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Agreed.

Rather than vague promises of future payments, I would much prefer to see this money in my paycheck now so that I could save/invest/diversify it myself.

Tim
Me too, the thing is that people didn't see the money in their wage packets. I like 401k plan's versatility are that I have control over them, but most people thought that they were getting a benefit of equal value as well and that wasn't the case.

I once worked for UTC and had a 401k and a DB plan. My division was very small and full of entrepenurial scientists and engineers doing cutting edge research and contracts for the US Government. We had a great "esprit de corps". Then UTC sold us and the new owners didn't have a DB plan so even though the employees all had individual contracts we asked for wage increases worth the future value of the pension. Being physicists and engineers we had all the numbers to hand and a not much of a regard for authority. The new company offered us a Money Purchase Pension Plan (MPPP) that they would fund. We accepted. However, 3 years latter they "improved" our benefits and told use that the MPPP would be replaced by stock options. At this lots of people left and I ended up at a local University. The company was screwed for about 2 years until they could hire new people. They are still in business and have reduced costs so on one level its a success story, but the people who stayed tell me that the atmosphere has been poisoned, their stock options are worthless and they no longer go the extra mile, they do just enough.

The ironic thing is that the University where I work has a DB and a 401k plan, both are funded by 11% mandatory deductions and a 5% match from the University, and I chose the 401k plan as I knew that it would be less than 10 years until I ERed. So 401ks are great in some circumstances.
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Old 08-11-2010, 02:28 PM   #57
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When large layoffs became a common management tool (mid to late 80s), execs then said it was due to skill mismatch, and it was up to employees to make sure their skill sets were what companies needed. Similar to the pension discussion were having here.

US business has learned to extract value from labor while reducing benefit cost, holding compensation, and limiting training and education. This has led to historically high labor productivity and profit margins. Profits, however, have not been reinvested in labor either directly (training) or indirectly (taxes, then skill development). They have, however, been used to reward senior corporate management. Hundreds of billions have been transferred via stock compensation and little tax has been paid on that (relative to average labor tax rates).

Yes, it is up to people to make the right choices early in life, in education as well as finances. The deck is stacked against the average family, however, and as long as senior corporate management benefits personally (and obscenely), its hard to see how this will change.
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Old 08-11-2010, 04:02 PM   #58
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They have, however, been used to reward senior corporate management. Hundreds of billions have been transferred via stock compensation and little tax has been paid on that (relative to average labor tax rates).
Heads of large US Corps do get paid more than foreign corps and higher than prior to the mid 80s (my guess). But this compensation issue is a dividing point and doesn't help anyone. The amount of money doesn't move the needle on the P&L of large corps. Take away all the compensation from all the executives of large corps and we would still be in the same place.
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Old 08-11-2010, 05:35 PM   #59
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Heads of large US Corps do get paid more than foreign corps and higher than prior to the mid 80s (my guess). But this compensation issue is a dividing point and doesn't help anyone. The amount of money doesn't move the needle on the P&L of large corps. Take away all the compensation from all the executives of large corps and we would still be in the same place.
I agree while certainly in individual case the pay is obscene given the poor performance of the CEO. Collectively it isn't a huge amount of money. Collectively last Fortune 500 CEOs made 5.7 billion compared to earnings of 391 billion.and revenues of 10.7 trillion. By way of comparison the payroll of Major league baseball is 2.8 billion, and the average salary is 3.3 million. So on average the Fortune 500 CEO earns three times a baseball player. Is this really that outrageous?
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Old 08-11-2010, 05:53 PM   #60
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Heads of large US Corps do get paid more than foreign corps and higher than prior to the mid 80s (my guess). But this compensation issue is a dividing point and doesn't help anyone. The amount of money doesn't move the needle on the P&L of large corps. Take away all the compensation from all the executives of large corps and we would still be in the same place.
True as far as it goes, but on an individual basis this is a lot of money and it can cause the executives to make incredibly unsafe bets in order to get the short term jump in corporate value that drives those salaries and bonuses.

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I agree while certainly in individual case the pay is obscene given the poor performance of the CEO. Collectively it isn't a huge amount of money. Collectively last Fortune 500 CEOs made 5.7 billion compared to earnings of 391 billion.and revenues of 10.7 trillion. By way of comparison the payroll of Major league baseball is 2.8 billion, and the average salary is 3.3 million. So on average the Fortune 500 CEO earns three times a baseball player. Is this really that outrageous?
Yes it is. In the frst place a baseball player is (or should be) paid based on his relatively short term perfomance. It is measurable, and it is known that he's going to burn out and possibly be crippled or in pain for the rest of his life. Most, but not all, pro athletes earn what they are paid. Plus, they are entertaining. CEO pay is based on the same concept, but the measurements are easily manipulated. At least the cheating ball player is putting the steroids in their own bodies. The executives are shooting up the shareholders without their knowledge.

If a company wants to pay a corporate hotshot to run it, I have no problem with that. If they put in their 10, 20, or 30 years, then give them a hefty (but reasonable) pension. But I think any BoD worth their salt should insist on clawback clauses in the contract, and these multi-million dollar pensions after working for 14 months are absurd.

Oh well, just one more thing to put in the "if I ran the world" folder.
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