Retirement benefit of less than $80 a month

[obgyn65]

"Nearly half of all working Americans do not have access to a retirement savings plan at work. For those with a 401(k), the amount in their plan would pay them a retirement benefit of less than $80 a month for life."

Full article :
AARP: A big step toward retirement security

 

[truenorth418]

I'm sorry, but I read this article 3 times and I didn't see anything actually explaining the program. Am I missing something?

 

[marko]

If you click on the article's 'bad trend' hotlink:

"Employers would divert at least 3% of their workers' salaries into a state-administered fund for which private money managers would make investment decisions. At retirement, workers would receive a monthly benefit based on contributions and investment returns, with the state guaranteeing a minimum rate of return."

Sounds like a forced savings plan where employers take a portion of your salary and give it to the government who then pays it back to you years later.

This would supplement the forced savings plan called Social Security where employers take a portion of your salary and give it to the government who then pays it back to you years later (or not).

 

[REWahoo]

I'm sorry, but I read this article 3 times and I didn't see anything actually explaining the program. Am I missing something?

I think the $80/mo number comes from what you'd get if you bought a SPIA using the $25,000 in the average 401k account.

 

[travelover]

............
This would supplement the forced savings plan called Social Security where employers take a portion of your salary and give it to the government who then pays it back to you years later (or not).

Well sort of. Actually the government takes your money and pays it to current retirees. You get a promise that the government will in turn take money from active workers and give the money to you when you retire.

 

[marko]

Well sort of. Actually the government takes your money and pays it to current retirees. You get a promise that the government will in turn take money from active workers and give the money to you when you retire.

Actually, I was just being playful.

 

[HawkeyeNFO]

Don't like it. Too much potential for corruption and fraud on the part of the politicians. Our books have historically been "balanced" by taking from the Social Security funds, which is simply illegal accounting in a non-governmental world. Now the AARP wants to expand that type of program? Bad idea.

 

[nun]

If you click on the article's 'bad trend' hotlink:

"Employers would divert at least 3% of their workers' salaries into a state-administered fund for which private money managers would make investment decisions. At retirement, workers would receive a monthly benefit based on contributions and investment returns, with the state guaranteeing a minimum rate of return."

The UK has recently introduced a law requiring employers to offer retirement savings plans. Employees are automatically enrolled. If the employer cannot offer a qualifying scheme of their own there is a Government approved scheme called NEST (National Employment Savings Trust) that they can use. Under the new law the employer must contribute at least 3% and the employee at least 5%. The employee can opt out of the scheme if they want.

NEST home | UK employer pension scheme | NEST pensions

 

[growing_older]

Sounds like Teresa Ghilarducci has found a sympathetic legislature and gained some traction. This plan is just passed, not yet implemented, and initially only for people who do not have a 401k at work. It provides a government sponsored 401k-like account for people not in a 401k, with some differences. No details yet on tax treatment. It would have a "mandatory enrollment" feature at 3%, like many are suggesting 401k plans should adopt. However, unlike 401k plans, the employee would have no say in how the funds are invested. A government / private "partnership" would manage the accounts and invest only in "balanced" funds. Also, unlike 401k there is no provision to withdraw the money and move to an IRA or other provider of choice if you leave your employer. The money stays in the account until retirement, so if you move from job to job, you keep the same account.

I would be concerned that if the investment choice they make isn't appropriate or if the internal fees are too high, there is no way to vote with your feet and take control of the account. Before too long, this will be a temptingly large pool of money and I'd be concerned that politicians will have a hard time leaving it alone. Lastly, the tax status is unclear; I would want to know a lot more about how the money will be taxed both while accumulating and at disbursement. Can lump sums be withdrawn, or only annuitized?

 

[NW-Bound]

Well sort of. Actually the government takes your money and pays it to current retirees. You get a promise that the government will in turn take money from active workers and give the money to you when you retire.

I have not read the article, but the above sentence caught my attention. I will say that it would not be enough.

In order to solve people's financial trouble, even their current expenses have to be controlled. The government needs to keep all of their paychecks, and only give to the people what they need to spend. No more wasteful spending, no dumb splurging, nor spending on things non-essential like those iThings. Food, and only wholesome food mind you, water, and electricity. That's it! Small houses, not big ones either. Should I go on? No, I think you understand the program now.

 

[M Paquette]

It sounds like this thread is talking about California Senate Bill 1234, the California Secure Choice Retirement Savings Trust.

http://sd22.senate.ca.gov/news/2012...l-signed-law-governor-pens-sb-1234-provides-r

From the National Law Review:

The plan will require all employers with more than five employees to withhold 3 percent of employees’ pay unless employees opt out of the plan. The plan will be administered by a board chaired by the state treasurer, which will select either a private investment firm or the state’s public pension system to invest and maintain the plan’s funds.

Here is the text of the actual law: http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201120120SB1234

 

[haha]

I have not read the article, but the above sentence caught my attention. I will say that it would not be enough.

In order to solve people's financial trouble, even their current expenses have to be controlled. The government needs to keep all of their paychecks, and only give to the people what they need to spend. No more wasteful spending, no dumb splurging, nor spending on things non-essential like those iThings. Food, and only wholesome food mind you, water, and electricity. That's it! Small houses, not big ones either. Should I go on? No, I think you understand the program now.

This would at least have the benefit of protecting those of us who already live like this. As it is, we will be raided in the interest of "equality".

Ha

 

[youbet]

Don't like it. Too much potential for corruption and fraud on the part of the politicians.

Nooooooo...... That could never happen!

 

[ratto]

Nooooooo...... That could never happen!

Didn't Bernie Madoff say something similar before?

 

[marko]

This would at least have the benefit of protecting those of us who already live like this. As it is, we will be raided in the interest of "equality".

Ha

Ha, I think the new-speak word is "fairness".

 

[marko]

I can see it now: "Gee Joe, I'd like to keep you on the job here, but the gov't mandated 3% contribution is killing me...however, if you were to opt out of the program......"

 

[ziggy29]

How many of these folks who have "$80 a month" in a 401k also have a decent pension waiting for them? I grow very tired of these articles that make broad statements about how inadequate everyone's retirement savings is when they don't consider that some of these folks will have a pretty good pension that meets all their financial needs.

 

[Walt34]

How many of these folks who have "$80 a month" in a 401k also have a decent pension waiting for them? I grow very tired of these articles that make broad statements about how inadequate everyone's retirement savings is when they don't consider that some of these folks will have a pretty good pension that meets all their financial needs.

I've wondered about that too. Lots of people have pensions, even if they aren't as generous as in times past.

That said, I know a bunch of my relatives are going to be in very deep financial doodoo (some already are) when they find out what it costs to maintain the lifestyle they envision after work.

 

[lrak]

How many of these folks who have "$80 a month" in a 401k also have a decent pension waiting for them? I grow very tired of these articles that make broad statements about how inadequate everyone's retirement savings is when they don't consider that some of these folks will have a pretty good pension that meets all their financial needs.

Likewise, what percentage of people roll their old 401k accounts into the account their current provider provides? I know a few people that have more than six 401k accounts! I myself have two since a previous employer's plan offers me some better options than my current plan provides. That 401k account does have less than $25k in it. I don't think the company that manages it knows the account is less than 4% of our total retirement account balances...

 

[2B]

AARP is politically biased and operates with questionable ethics (IMHO) so I would look upon any proposal from them with a jaded eye. Whether you agree with them or not, their position on the Affordable Care Act agreeing to take money from Medicare reimbursements cost them many members. They are currently trying harder to appear "non-partisan." Their questionable ethics comes from their business model. They charge people membership fees to try to sell them insurance and investment products which creates the bulk of their income.

If they favor forcing people to invest in retirement plans, they are obviously hoping to get on the bandwagon selling plans. If the government is serious about having people save for retirement, they would open up the government's thrift plan to every American.

BTW - My 401k has less than 5% of my total assets. I have the option to roll over into an IRA which I do every other year or so.

 

[NW-Bound]

Likewise, what percentage of people roll their old 401k accounts into the account their current provider provides? I know a few people that have more than six 401k accounts! I myself have two since a previous employer's plan offers me some better options than my current plan provides. That 401k account does have less than $25k in it. I don't think the company that manages it knows the account is less than 4% of our total retirement account balances...

This and some earlier posts about pensions show how retirees manage to live despite their apparent lack of funds, and that the underbridges are not crowded with geezers.

 

[samclem]

Likewise, what percentage of people roll their old 401k accounts into the account their current provider provides?

I wonder why folks do this. Surely most could do better by rolling them over to their own IRA account. This usually provides more options and lower costs. The only "advantage" I see is being able to take a loan against the 401K, but this is usually a bad move anyway.

 

[2B]

I wonder why folks do this. Surely most could do better by rolling them over to their own IRA account. This usually provides more options and lower costs. The only "advantage" I see is being able to take a loan against the 401K, but this is usually a bad move anyway.

I personally have not met anyone that rolled their 401k over to a new employers' plan. I know many people that either withdrew their money, rolled it over to an IRA or just left it at their old employer.

 

[growing_older]

I have changed jobs and whenever possible moved my 401k from my previous employers plans (usually high fee funds with limited choices) to a rollover IRA with much better options. For many people in my situation, the idea of measuring final 401k balance will be very misleading.

I also have concerns that setting a standard of 3% and setting the expectation that the government has determined that this will improve retirement could make people think this is sufficient, but it is no where close.

Here's a post where someone did the math:
Senator DeLeon’s Universal Retirement Security Act « CIV FI

As the chart following this post proves, taking 3.0% from a paycheck – assuming normal inflation and minimal merit increases (which increases ultimate fund earnings by concentrating more investment in the early career years) – will buy a person who retires after 40 years of full time work at a final annual salary of $50,000 with a whopping $2,010 pension per year; that’s an extra $168 per month.

So if the problem is average 401k balance at retirement generates an annuity of only $80 per month, this new plan substitutes a government run and controlled investment scheme in which workers cannot rollover balances and get better investment choices in an IRA of their own choosing. And the benefit for an average worker following the guideline generates instead of $80 a month a new benefit of $168 per month.

This does not sound like a solution, it sounds like a nose in the tent for more "solutions" in the future with significant risks of dismantling the 401k/IRA system (that does work for some people, especially ER) in exchange for a system that's not nearly as good.

 

[ERD50]

I also have concerns that setting a standard of 3% and setting the expectation that the government has determined that this will improve retirement could make people think this is sufficient, but it is no where close.

Agreed. 3% isn't going to get you very far.

To think in extremely simplistic terms, let's say a career salary that just matched inflation, and investments that just matched inflation - if you worked for 35 years, and planned for a 35 year retirement, wouldn't you expect to have to put away 50% of your income to match your final salary for 35 years?

You can adjust that a bit for say a 40 year career and a 30 year retirement, but that's still going to be far above 3%. I recall a frugal co-worker who said he felt he had to save half his paycheck - this might have been his thinking.

-ERD50