Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Re: Retirement plans too risky?
Old 05-07-2007, 04:05 AM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Re: Retirement plans too risky?

Quote:
Originally Posted by youbet
If the pension plan and the insurance company are both AAA rated, etc., wouldn't market performance impact the pension plan and the SPIA in the same way?
Yes and No... They typically buy long-term bonds and rely on the coupons... The company absorbs the market risk. One of the main benefits to the owner is the pooling of money. Two notable risks are: 1) Inflation (you need to deal with it somehow) and 2) company risk (hence the triple A).

You could try to duplicate the income stream with high grade bonds (you would have less diversification). What you cannot do is pool money. Essentially with a high quality Insurance company, one is paying for a pension with professional management.

Some people do not believe in them... I believe they have a place... and that is for creating a basic floor income stream.
__________________

__________________
chinaco is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Retirement plans too risky?
Old 05-07-2007, 07:29 AM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
Re: Retirement plans too risky?

Quote:
Originally Posted by chinaco
Yes and No... They typically buy long-term bonds and rely on the coupons... The company absorbs the market risk. One of the main benefits to the owner is the pooling of money. Two notable risks are: 1) Inflation (you need to deal with it somehow) and 2) company risk (hence the triple A).

You could try to duplicate the income stream with high grade bonds (you would have less diversification). What you cannot do is pool money. Essentially with a high quality Insurance company, one is paying for a pension with professional management.

Some people do not believe in them... I believe they have a place... and that is for creating a basic floor income stream.
Your answer doesn't make sense and I'm thinking we're talking about two different things ref "pension." By pension, I mean a corporate or governement DBP pension. Perhaps you're referring to a contributory situation such as a 401K?
__________________

__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Re: Retirement plans too risky?
Old 05-07-2007, 10:35 AM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
kcowan's Avatar
 
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 5,718
Send a message via Skype™ to kcowan
Re: Retirement plans too risky?

Quote:
Originally Posted by youbet
Your answer doesn't make sense and I'm thinking we're talking about two different things ref "pension." By pension, I mean a corporate or governement DBP pension. Perhaps you're referring to a contributory situation such as a 401K?
Yes he is referring to someone without a DBP. It is essentially buying yourself an equivalent to a DBP. To me it makes sense as a hedge against inflation, especially for anyone likely to live longer than average.
__________________
For the fun of it...Keith
kcowan is offline   Reply With Quote
Re: Retirement plans too risky?
Old 05-07-2007, 11:38 AM   #24
Recycles dryer sheets
 
Join Date: Nov 2004
Posts: 117
Re: Retirement plans too risky?

Quote:
Originally Posted by kcowan
...To me it makes sense as a hedge against inflation, especially for anyone likely to live longer than average.
How about for someone likely to *BE RETIRED* longer than average?

Isn't that what we should be worried about? After all, it seems to me that someone who retires at 65 and lives until 95 faces the same financial challenge as someone who retires at 45 and lives until 75.

Traditonal retirements last 10-20 years, I think. I'm aiming to be retired for 30, 40 or more years.
__________________
slepyhed is offline   Reply With Quote
Re: Retirement plans too risky?
Old 05-07-2007, 05:41 PM   #25
Full time employment: Posting here.
 
Join Date: Jan 2007
Posts: 582
Re: Retirement plans too risky?

Quote:
Originally Posted by SoonToRetire
So the question arises, with an increasing number of retirees, can companies keep growing earnings at a sufficient rate to support retiree financial needs?

So, the aforementioned column aside, how sure are we that the market can support us all?
I apologize for not being able to be more specific, but I remember getting a "newsletter" from TRowe or someone addressing this question, and it pointed out that individual households with average/modest incomes only own something like 20% of the market. In other words, the market isn't supporting "us all," most of it is owned by insitutional investors and the extremely wealthy who won't be draining the money out any time soon.
__________________

WM is offline   Reply With Quote
Really Good Advice from Ferri and Siegel
Old 03-08-2009, 06:46 PM   #26
Dryer sheet wannabe
 
Join Date: Apr 2008
Posts: 12
Really Good Advice from Ferri and Siegel

Quote:
Originally Posted by mickeyd View Post
To say that many of our fellow citizens are not prepared for their retirement future reminds me of a conversation that I had about 3 months ago with a neighbor of mine. This fellow is an attorney in private practice and on the subject of investing for retirement he advised me that almost all of his retirement savings were in a bond fund with Merrel Lynch.

I started talking about asset allocation, time horizon, S/D and risk/reward, indexing etc. He was speechless. It turns out that he had never heard of these terms nor these concepts. A 45 year old lawyer!

I suggested that he pick up Boglehead Guide to Investing and bone up on a few of the basics.

I saw him about a month later and he said that he had read the book twice and was embarrassed at how ignorant he was on the subject. He is now on to bigger things~Bogle, Brenstein, Siegel, Graham, Swedroe, Ferri etc.
I'll bet that attorney neighbor today couldn't be more pleased with that Ferri asset allocation advice in mid 2007 to move from nearly all bonds to 80/20 (stocks/bonds) since diversification thru index equity funds globally made it all safe.
__________________
Robert8 is offline   Reply With Quote
Old 03-08-2009, 08:20 PM   #27
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,883
Quote:
Originally Posted by Robert8 View Post
I'll bet that attorney neighbor today couldn't be more pleased with that Ferri asset allocation advice in mid 2007 to move from nearly all bonds to 80/20 (stocks/bonds) since diversification thru index equity funds globally made it all safe.
I couldn't be more pleased with Ferri's asset allocation advice in his 2006 book, All About Asset Allocation, in which he states:

Quote:
At its core, asset allocation is a three-step process:

1. Determine the portfolio's overall equity and fixed-income mix based on an investor's needs and tolerance for financial risk.

2. Develop a portfolio of fundamentally different investments that are expected to have a low correlation with one another and are expected to deliver a fair rate of return given each investment's inherent risk.

3. Rebalance the investments annually to control overall portfolio risk and increase long-term return.
(pp. 73-74, emphases mine)

I found Rick Ferri's book to be one of the most helpful to me and I would recommend it to anyone as one of the best available.

Apparently you have a beef with something you heard somewhere but it's not clear where, or what caused you to dredge up this old thread.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 03-08-2009, 09:34 PM   #28
Dryer sheet wannabe
 
Join Date: Apr 2008
Posts: 12
I have a beef with the hubris on the thread. If you actually read the original linked article it sounds very reasonable in its concerns about the riskiness of individuals investing on their own in DC plans and yet many of the responses were mocking of the articles concerns.Many posters were so certain that they could invest wisely on their own in mainly equities and that stock investing would do very well for them in the long run.

The one poster claims his neighbor the attorney in 2007 shouldn't have been mainly in bonds - that was ignorance on the part of the lawyer. No, that attorney needed to be mainly in well diversified stocks and the poster set the attorney straight.

It's hard to say whether the attorney should have been mainly in stocks or bonds, but the attitude that he was grossly ignorant about investing compared to a person who has read a Ferri or Seigel book that advises that long term investors, who believe apriori that they are risk tolerant, should be mainly in stocks, because in the LR stocks are nearly a sure thing, is certainly an ignorant point of view.

You apparently disagree with that, so we will have to agree to disagree.
__________________
Robert8 is offline   Reply With Quote
Old 03-08-2009, 10:10 PM   #29
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,883
Quote:
Originally Posted by Robert8 View Post
I have a beef with the hubris on the thread.
Well, thank you for providing us with an example!

Quote:
Originally Posted by Robert8 View Post
If you actually read the original linked article it sounds very reasonable and yet nearly all the responses were mocking. Nearly every poster was so sure they could invest wisely on their own in mainly equities and that stock investing would do very well in the long run.
I didn't see anything nearly as unreasonable in this ancient thread you dredged up, as was your comment.

Quote:
Originally Posted by Robert8 View Post
The one poster claims his neighbor the attorney in 2007 shouldn't have been mainly in bonds - that was ignorance on the part of the lawyer. No, that attorney needed to be mainly in well diversified stocks and the poster set the attorney straight.
You didn't provide a quote, but I believe the quote from that poster to which you are referring is,
Quote:
This fellow is an attorney in private practice and on the subject of investing for retirement he advised me that almost all of his retirement savings were in a bond fund with Merrel Lynch.

I started talking about asset allocation, time horizon, S/D and risk/reward, indexing etc. He was speechless. It turns out that he had never heard of these terms nor these concepts.
Asset allocation, time horizon, and the rest are fundamental concepts of investing. Those who didn't pay any attention to them and, for example, had all their assets in one stock got slaughtered in 2008. We have had several sad and wrenching threads posted by people who didn't diversify and lost their life savings. These concepts don't imply that the attorney should not have been mainly in bonds.

Diversification begins with not putting all your eggs in one basket (in other words, not putting all your investments in closely correlated asset classes). Investors would be best advised not to indulge in that practice.

Quote:
Originally Posted by Robert8 View Post
It's hard to say whether the attorney should have been mainly in stocks or bonds, but the attitude that he was grossly ignorant about investing compared to a person who has read a Ferri or Seigel book.
The authors and books that were cited were standard, recent sources for information on investing. They promote a balance between stocks and bonds that is determined by the risk tolerance of the investor (as I took the trouble to show by typing in paragraphs from Ferri's book in my above post, for example). If the attorney hadn't even heard of any of them, or of any of the terms or concepts put forth in articles and books about investing, it is pretty shocking. Even if he had someone else managing his accounts, he was not getting the information he needed to understand whether or not his investments were being handled appropriately.

Quote:
Originally Posted by Robert8 View Post
You apparently disagree with that, so we will have to agree to disagree.
I think you dredged up an old thread and started dissing some of the usual investment gurus in order to get a reaction (yawn). I'm going to bed so if you continue I won't be reading it.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 03-08-2009, 10:32 PM   #30
Dryer sheet wannabe
 
Join Date: Apr 2008
Posts: 12
I brought this up because I believe the article in the OP has a lot of truth in it. And those truths are a lot easier for people to see now than it was back in 2007. Here are parts of the original article.

Emily K. Kessler's job is all about risk. She's not a stunt double, or a fighter pilot, or even a preschool teacher (think of the germs!). She's an actuary -- she studies risk for a living.

So when Kessler decides something is unduly risky, it's worth listening. Her current concern: retirement plans. Kessler, who works for the Society of Actuaries, wrote the report for a group called Retirement 20/20, a collection of pension and financial experts who took a look at the troubling transformation of our nation's retirement systems.The new emphasis on 401(k) and other retirement savings plans puts too much responsibility on individuals -- creating too much risk of failure...

Under the defined-contribution system, if you guess wrong -- or life goes wrong -- there's no recourse....

And a better system wouldn't expect us to be our own investment managers. Trust me -- The Washington Post would have never hired me to manage its pension funds.

"Why would any reasonable person think that people not trained in investments would be able to make these decisions in a sensible way?" asked 20/20 participant Zvi Bodie, professor of management at Boston University. "I've been teaching investments for 35 years, so to me it's second nature. But let's take an area like medicine.
"Now, I consider myself a reasonably well informed consumer of medical services, but I wouldn't dream of diagnosing my own illnesses . . . even if my doctor said, 'You know, performing minor surgery is really not such a big deal. I can give you the equipment and a brochure, and you can take care of it on your own.' That's what we're doing now with 401(k) plans."
__________________
Robert8 is offline   Reply With Quote
Old 03-09-2009, 04:14 AM   #31
Dryer sheet wannabe
sindy9001's Avatar
 
Join Date: Mar 2009
Posts: 11
Thank you , Robert. I just looking for it.
__________________
sindy9001 is offline   Reply With Quote
Old 03-09-2009, 12:20 PM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
TromboneAl's Avatar
 
Join Date: Jun 2006
Posts: 11,197
Quote:
many of the responses were mocking of the articles
This is what we do here.
__________________
Al
TromboneAl is offline   Reply With Quote
Old 03-09-2009, 04:12 PM   #33
Thinks s/he gets paid by the post
 
Join Date: Jul 2004
Posts: 1,072
Quote:
Originally Posted by FinallyRetired View Post
I've bet my retirement on that assumption, as have many others. The risk is that we're wrong, but unless I find a better alternative, I have to remain in the market. By the way, the GAO agrees with you. Here is their report, written for the ultimate reading-challenged bureaucrat who only has time to read the title:

BABY BOOM GENERATION: Retirement of Baby Boomers Is Unlikely to Precipitate Dramatic Decline in Market Returns, but Broader Risks Threaten Retirement Security

The "but" is summed up in the following paragraph:

"While the boomers’ retirement is not likely to cause a sharp and sudden
decline in asset prices, the retirement security of boomers and others will
likely depend more on individual savings and returns on such savings. This is
due, in part, to the decline in traditional pensions that provide guaranteed
retirement income and the rise in account-based defined contribution plans.
Also, fiscal uncertainties surrounding Social Security and rising health care
costs will ultimately place more personal responsibility for retirement saving
on individuals. Given the need for individuals to save and manage their
savings, financial literacy will play an important role in helping boomers and
future generations achieve a secure retirement."

http://www.gao.gov/new.items/d06718.pdf
Interesting - that was a 2006 document - based on what has happened in the last 6 months or so along with what is being proposed, I would say the assumptions regarding this report are now moot. I've come to conclusion there is either a concerted effort or half-concerted effort to bring down the private means for retirement and have it be fully replaced with a government-run one ala similar to social security. If the private wealth is decimated and then taxes are raised to provide for the new basket of services being provided by the government, then we need to work longer as well as depend more on the government for our retirement well-being. Remember all of the fights over the 'privatization of social security' awhile ago? Isn't this the best way to seriously put any idea like that to bed? I mean if the market can't 'protect' those 401Ks/403Bs, then it certainly can't protect social security, so we need another mechanism to 'protect' the people and their retirements.

Lastly, there was an interesting post made regarding lifestyle in Europe - yes, socialism can be lulling, however, the comment made that all of one's income is taken up with 'surviving' and it is difficult to 'save a bit extra', leading one to rely upon the government for all services. It is difficult to break out of that continued existence.....I see that as very true - I live over here in Germany and one sees the lulling effect.
__________________
Deserat aka Bridget
“We sleep soundly in our beds because rough men stand ready in the night to visit violence on those who would do us harm.” - George Orwell/Winston Churchill
deserat is offline   Reply With Quote
Old 03-09-2009, 04:39 PM   #34
Full time employment: Posting here.
 
Join Date: Feb 2008
Posts: 920
I've gone pretty far with self surgery, mainly removing foreign objects from fingers and feet. It probably results in more pain and collateral damage than if I went to a doctor but definitely cheaper.
__________________
tuixiu is offline   Reply With Quote
Old 03-09-2009, 07:48 PM   #35
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Quote:
Originally Posted by deserat View Post
Interesting - that was a 2006 document - based on what has happened in the last 6 months or so along with what is being proposed, I would say the assumptions regarding this report are now moot. I've come to conclusion there is either a concerted effort or half-concerted effort to bring down the private means for retirement and have it be fully replaced with a government-run one ala similar to social security. If the private wealth is decimated and then taxes are raised to provide for the new basket of services being provided by the government, then we need to work longer as well as depend more on the government for our retirement well-being. Remember all of the fights over the 'privatization of social security' awhile ago? Isn't this the best way to seriously put any idea like that to bed? I mean if the market can't 'protect' those 401Ks/403Bs, then it certainly can't protect social security, so we need another mechanism to 'protect' the people and their retirements.

Lastly, there was an interesting post made regarding lifestyle in Europe - yes, socialism can be lulling, however, the comment made that all of one's income is taken up with 'surviving' and it is difficult to 'save a bit extra', leading one to rely upon the government for all services. It is difficult to break out of that continued existence.....I see that as very true - I live over here in Germany and one sees the lulling effect.
Excellent! we have just solved the SS and medicare problem. Baby boomers need to work until they die. Brilliant.
__________________

__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Predictors of a Happy Retirement Rich_by_the_Bay Life after FIRE 24 07-13-2006 09:59 PM
Targeted retirement funds - I don't get it. HBH FIRE and Money 7 03-11-2006 02:58 PM
Diversifying My Retirement Funds and Confused Rob Other topics 1 10-31-2005 10:59 AM
Declining COL in retirement?... Cb FIRE and Money 31 06-09-2005 02:47 PM
Scott Burns: Stay safe on retirement spending PL FIRE and Money 49 12-22-2004 11:59 AM

 

 
All times are GMT -6. The time now is 04:59 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.