The "Retirement Crisis" is worse than we thought

[NW-Bound]

The comment in jest by Haha spurred an interesting history topic that gets me to research a bit more to learn about American history.

It's hard not to get back to this.

... it was truly another war with the British, who did invade the US back and burned down the White House in 1814.

Maybe the Canadians were just peace-loving colonists who got caught in the middle. I should remember to research this some more.

Yes at the time we were all British, at least as subjects!

Yes my understanding was that they just wanted to be left alone (otherwise they would have occupied the White House).

Yes the Canadians had no grandiose plans other than to avoid the rebels. They were referred to as the United Empire Loyalists.

Even the son of no less than Benjamin Franklin, William Franklin, the last provincial governor of New Jersey, was a Loyalist. Many of the Loyalists fled to New Brunswick rather than stayed in the newly born US. When in Saint John, NB, I visited the downtown cemetery where many of the Loyalists were reported to be buried. There were indeed many tombstones with dates back to the 1800s, but the engravings were so worn out that they were not legible.

About the burning of the White House, it was really British troops who did it. And they almost captured the First Lady if she was not fast enough to flee when the British troops were spotted in the horizon. Hard to believe how Madison, who was out to visit another battlefield, and his generals did not know about the approaching enemy.

A Web site said that "soldiers reportedly sat down to eat a meal made of leftover food from the White House scullery using White House dishes and silver before ransacking the presidential mansion and setting it ablaze."

But then, "less than a day after the attack began, a sudden, very heavy thunderstorm—possibly a hurricane—put out the fires. It also spun off a tornado that passed through the center of the capital, setting down on Constitution Avenue and lifting two cannons before dropping them several yards away, killing British troops and American civilians alike. Following the storm, the British returned to their ships, many of which were badly damaged. The occupation of Washington lasted only about 26 hours. After the "Storm that saved Washington", as it soon came to be called, the Americans were able to regain control of the city".

There's a lot of luck in the course of history, but it is still the complacency or ineptitude of the American troops then in Washington that let the British into DC.

And with that, we are now back to the discussion of how luck plays a role in ER.

 

[Texas Proud]

I'm skeptical just from personal experience. DW was a public school teacher in Illinois for many years. All the school districts here offer zero match and the 403b plans are administered by insurance companies which frequently offer only high ER, actively managed MF's. Most send generous kickbacks or pretend to provide some intangible benefit (such as "employee retirement counseling") to the school boards. Compared to my 401k with a private sector employer, DW's 403b sucked. I worked hard to sort through the BS to keep her fees reasonable and her investments in decent MF's.

Glad you got a good deal. I was unaware that some 403b plans offered a match. And congrats on getting yours up into the several million bux category! Even with DW maxing out her contribution many years, we never came close to that due to no match, crappy fund choices, etc.

I have two sisters who also had crappy 403s.... no match and crappy investment options... the one that worked at a university had every single investment option with a 1.5% ER as that was the max allowed by the university and all options took advantage of it...

 

[Chuckanut]

I have two sisters who also had crappy 403s.... no match and crappy investment options... the one that worked at a university had every single investment option with a 1.5% ER as that was the max allowed by the university and all options took advantage of it...

Yes, my 403b option was just awful. No match and very high fees. I can forgive the no match since I had a pension that my employer was contributing to along with me. No point in being greedy. But, the high fees for funds that did not come close to the Index Funds was just to much.

Fortunately, one day I found a brochure about the state Deferred Comp plan in the teacher's lounge. It seems that the state had decided to let teachers participate in the plan. There was no match, but the choice of funds was good with several index funds that were actually a bit cheaper than Vanguard.

What I noticed was that nobody in power in either the district Administration or my [-]omnipotent[/-] messed up teacher's union, did anything to tell the staff about the Deferred Comp plan. I was lucky that I found the brochure on a table in the staff room. How pathetic is that?

 

[Gumby]

The young wife has been a public school teacher for the past 28 years. Her 403b has never had a match and has almost always had bad options with high fees. Of her fellow teachers who do contribute (a surprisingly large number do not) they tend to gravitate to the annuity products that the plan "advisors" sell them. As most here know, a 403b is already tax deferred. To then choose a tax sheltered annuity within such a plan is just insane. You are paying higher costs for something entirely unnecessary.

The one and only saving grace was that the school system offered a single Vanguard fund when she started (VFINX, I think). They discontinued it as an option after a few years, but allowed participants to continue with a "self-directed" account at Vanguard, which she has done ever since. She has to pay a special fee of $40 per year to keep that option, but it has been well worth it, as she has been able to allocate and reallocate her accrued funds and new contributions to any Vanguard fund.

 

[Dash man]

Luck is when preparation meets opportunity. I was given opportunities by being born in the US, but if I didn't prepare as many I've known have failed to do, I would not be in the situation I am. I was given an opportunity by meeting my beautiful wife, but if I hadn't learned and prepared to be the person I am, I never would have gotten a second look from her. So we're all lucky by preparing ourselves by not wasting education and other opportunities we've had in life. That's how luck affects ER.

 

[NW-Bound]

Reading about the atrocities with 403b plans makes me wonder why the victims do not march up to the plan administrators with pitch forks.

 

[jazz4cash]

I like to self compare with the group in our plan and/or broader groups. I look on Brightscope to compare broad stats for plans of companies in our industry. It's interesting to note the admin/fiduciary of some of our mom and pop channel partners is often someone I would not trust.

Our plan use to provide details very similar to what Texas Proud reported but they stopped about 10 yrs ago. Now I can only review the annual ERISA report to glean average balance, contribution rate, and ROR for the group. It's hard to tell about rollovers but of the 100 or so co-workers I've talked to, none seemed to understand they could do a partial rollover if they had a better investment available outside the plan (like a credit union CD). Likewise I never met anyone outside of HR that actually read the SPD.

 

[NW-Bound]

...My friend describes his good fortune as dumb luck but he also earned his fortune (modest though it may be) in Saudi Arabia. How many forum readers would embrace that assignment as a way to build wealth?

Our friend Nemo was humble when he called his years working in Saudi "dumb luck". As for me, it will take a lot of money, and I mean a lot, to pay me to visit as a tourist for a week, let alone work there a few years.

There are many "lucky" assignments like the above, awaiting people who complain that they have not had a break.

 

[Nemo2]

Our friend Nemo was humble when he called his years working in Saudi "dumb luck". As for me, it will take a lot of money, and I mean a lot, to pay me to visit as a tourist for a week, let alone work there a few years.

7 years, 6 weeks, and 2 days...it wasn't that bad, but I did count every single one of them.

There are many "lucky" assignments like the above, awaiting people who complain that they have not had a break.

I don't want to hijack the thread and veer off into a "My life in Saudi" reminiscence, but one particular theme became very evident during my stay:

- at the beginning of the contract there was virtually nothing there in the way of telco infrastructure, and the guys who were first over were the 'pirates', (unfortunately I wasn't among the original group but, as new Texans say, "I got there as soon as I could".)

- towards the end of the contract, when everything was up & running, the 'Gray People' arrived; the offices were (almost) indistinguishable from offices in Canada, and for the G.P.s this was simply another temporary transfer that might help (or not) their careers. They would NOT have ventured over during the early days.

- by which time, as in the movies of the Old West when the cowtown gets a mayor and a chamber of commerce, the 'pirates' were somewhat of an embarrassment.

Different people, different perspectives, and from day one my focus was to accumulate money and quit working. Getting there was 'luck' and I took full advantage of it.

 

[brett]

In our jurisdiction the percentage of employees covered by an employer pension, defined benefit or defined contribution, has been decreasing each year. There are also many employers who have reduced their percentage matching rates.

Plus, there is a surprisingly large number of ees who have the option of participating in an er sponsored matching plan but fail to take advantage of it for whatever reason.

I believe that the results of this will become increasing evident over the next ten years.

 

[scrabbler1]

I have two sisters who also had crappy 403s.... no match and crappy investment options... the one that worked at a university had every single investment option with a 1.5% ER as that was the max allowed by the university and all options took advantage of it...

Sounds a lot like the 403b plan my ladyfriend is in. When the large hospital took over her small cardiology practice in 2011, she was able to do a rollover of the profit sharing balance into the plan. But all the funds had ERs well north of 1% except for a PIMCO fund I knew of because I was in it for a few years near the end of my career in the mid-2000s. At least she has a 75% match of 6% of her contributions but I was still appalled at the set of mostly terrible choices.

 

[Texas Proud]

Reading about the atrocities with 403b plans makes me wonder why the victims do not march up to the plan administrators with pitch forks.

My guess is that since most people were going to get a pretty good pension that not many people actually contributed to the plan...

I also think that it was a rigged system... IOW, years ago there were a few major players who sold the districts on their plan and nothing happened after they were in...

Last, the unions (if there was any) was more concerned with the pension and working conditions and never complained...


But, as I said, just a guess...

 

[Texas Proud]

7 years, 6 weeks, and 2 days...it wasn't that bad, but I did count every single one of them.



I don't want to hijack the thread and veer off into a "My life in Saudi" reminiscence, but one particular theme became very evident during my stay:

- at the beginning of the contract there was virtually nothing there in the way of telco infrastructure, and the guys who were first over were the 'pirates', (unfortunately I wasn't among the original group but, as new Texans say, "I got there as soon as I could".)

- towards the end of the contract, when everything was up & running, the 'Gray People' arrived; the offices were (almost) indistinguishable from offices in Canada, and for the G.P.s this was simply another temporary transfer that might help (or not) their careers. They would NOT have ventured over during the early days.

- by which time, as in the movies of the Old West when the cowtown gets a mayor and a chamber of commerce, the 'pirates' were somewhat of an embarrassment.

Different people, different perspectives, and from day one my focus was to accumulate money and quit working. Getting there was 'luck' and I took full advantage of it.

This goes way back to the late 70s... I was just out of school and working in the mail room of an engineering company.... we were doing one of those 10X10 football squares where you buy as many as you want for $1 apiece.... while doing that, one of the guys said that one of the employees who was in Saudi said they did the same over there, but it was $1,000 per square and winner take all!!! Yes, $100,000 if you got lucky.... he said there was nothing to spend money on over there so it was 'easy' to do...

 

[Nemo2]

. he said there was nothing to spend money on over there so it was 'easy' to do...

I spent the first three years in Riyadh on single status; room/food/laundry all included.....drew $50 every two weeks, and was hard pressed to spend it.

Came back with a box load of pirated audio tapes at $1 apiece.

Another guy I knew in Toronto prior to going to Riyadh, spent a couple years there, and when his job was phased out, landed another in Dubai or somesuch.........totally different scenario...there were bars, he bought a powerboat, never saved a penny.

He forgot why he was there......I didn't.

 

[Retirement Nerd]

The last stats I read was that less than 3% of employers now offer pensions. I am personally against 401k style accounts being the only source for retirement. Particularly when the idea behind pensions included people being able to retire when they were age/service eligible, and not also based on how the economy was doing at the moment.

 

[samclem]

I am personally against 401k style accounts being the only source for retirement. Particularly when the idea behind pensions included people being able to retire when they were age/service eligible, and not also based on how the economy was doing at the moment.

What's your proposal? First, it's not the only retirement program,. SS provides a foundation retirement income to prevent probation even if a worker takes no responsibility for their future. Despite recently fashionable talk to the contrary, US businesses and workers compete in a global market now, few employers can carry people on the books for 40 years as requirements change. Even in the good old days, there was never a time when most US workers had a pension. And ask anyone who quit or was fired before being vested, or even before their high-earning years, about the wonders of a traditional pension. In many ways more people have more opportunity to have a comfortable retirement with today's portable DC plans and IRAs than ever before in US history.

 

[NW-Bound]

Read about the Australian system, and one will see that it makes a lot of sense. Everybody has to save money, like SS. And employers have to match, like SS. It's a portable 401k that people take from job to job. The gummint cannot change how much benefit is paid out, because the money belongs to the worker.

People whose savings fall short for whatever reasons (illness, job loss, etc...) will get a reasonably generous minimum pension of AU$22.8K/year for a single person and AU$34.4K for a couple, but it is means tested. The asset test is quite generous too, being a AU$250K home for a single person, and AU$375K home for a couple.

Our SS system has all kinds of weird rules, such as spousal benefit for divorcees, file-and-suspend, etc... And why is it that you need 40 quarters minimum to get anything? And why working longer than 35 years gets you nothing more? Still, they keep changing it because they run out of money.

 

[Retirement Nerd]

What's your proposal? First, it's not the only retirement program,. SS provides a foundation retirement income to prevent probation even if a worker takes no responsibility for their future. Despite recently fashionable talk to the contrary, US businesses and workers compete in a global market now, few employers can carry people on the books for 40 years as requirements change. Even in the good old days, there was never a time when most US workers had a pension. And ask anyone who quit or was fired before being vested, or even before their high-earning years, about the wonders of a traditional pension. In many ways more people have more opportunity to have a comfortable retirement with today's portable DC plans and IRAs than ever before in US history.

The comment from the other poster about the Australian system seems worth checking into. That is a type of solution I wondered might be possible in the US. My only issue with 401k type of accounts right now are the fact they will lose value when someone may be "forced" retired because of the economy. Something that happened to my mother in 2008. She was laid off, and at a time when her 401k took a massive hit from the recession. She never found another full-time job again. She was also too young for SS. Long story short, she would have been out on the street if family couldn't have helped. And she is a financially responsible person. Her only debt at the time was the mortgage.

I'm not a financial expert by any means, but when talking about the death of pensions in general, over the last 30 years, pensioners from various companies have been told their pensions are being reduced or even eliminated, all the while the executives for those companies were seeing their retirement accounts and other compensation increase far higher than the average worker, I have serious doubts every negative change to someone's retirement account is because the companies have fallen on hard times. And 401ks when they came into existence, were "advertised" as supplemental retirements; not a person's only type of retirement with a company.

Four years ago I stumbled across a book called "Retirement Heist" from a journalist named Ellen Schultz. The book explained in detail (even with the names of some of the executives from various US companies), how companies have used loop holes and "back alley" type tactics to access retiree accounts that were supposed to be safe from companies using for other purposes. The companies inflated supposed increased liabilities of retiree pensions and retiree health care; meanwhile increasing executive compensation (including a separate "supplemental" retirement for the executives).

The book is a good read, and if anything, at least further confirms the fact you really need to have more than one source of income in both your working and retired life.

 

[LOL!]

Read about the Australian system, and one will see that it makes a lot of sense. Everybody has to save money, like SS. And employers have to match, like SS. It's a portable 401k that people take from job to job. The gummint cannot change how much benefit is paid out, because the money belongs to the worker.

I believe something like this might be attempted in California, but also I believe Congress is trying to make it illegal to do so. Here is old news on the subject:
https://www.bloomberg.com/news/articles/2016-11-28/the-blue-state-plan-to-fix-retirement which was linked in the link in the 4th post of this thread.

 

[LOL!]

BTW, going back to the earlier linked articles which were about employer-sponsored retirement plans and seemed to ignore IRAs, I found that IRAs actually have more assets:

By contrast, $7.3 trillion was held in I.R.A.s at year-end 2015, and $6.7 trillion in workplace-defined contribution plans, according to the Investment Company Institute.

found in: https://www.nytimes.com/2017/02/18/your-money/retiring-longevity-planning-social-security.html

 

[Mdlerth]

...when talking about the death of pensions in general, over the last 30 years, pensioners from various companies have been told their pensions are being reduced or even eliminated, all the while the executives for those companies were seeing their retirement accounts and other compensation increase far higher than the average worker, I have serious doubts every negative change to someone's retirement account is because the companies have fallen on hard times.

When I joined my megacorp, the CEO was paid about 40x what a starting engineer made. About the same as a MLB pitcher.

Today it's about 400x. Again, about the same as a MLB pitcher.

Of course, today the CEO manages 100,000 fewer employees. Baseball season is still 162 games.

 

[kcowan]

and ask anyone who quit or was fired before being vested, or even before their high-earning years, about the wonders of a traditional pension. In many ways more people have more opportunity to have a comfortable retirement with today's portable DC plans and IRAs than ever before in US history.

I was offered many jobs and when I asked about the pension plan (compared to my DB vested one) they said there is not one and I said the salary was not enough to make me leave.

One of my buddies left and took his vested rights of $ 80k and 5 years later, I got a pension worth $720k. I think they just adjusted the value during those years.

 

[Meadbh]

Let's invade Canada, Mexico, and anywhere else we can get to without needing too much equipment. Then we'll need more men and women in uniform, and the US retirement situation won't be anywhere near as dire.

Ha

Wouldn't need any more men to invade Canada. Couple hundred thousand troops could easily do it, at least initially.

Don't even think about it! But we would happily take California, Oregon and Washington off your hands.

 

[brucethebroker]

Yeah, but the the Treaty of Ghent ending the war had been signed two weeks before the battle began....

It would appear that word had not gotten to the British Army on the day of the invasion............

 

[kcowan]

Another guy I knew in Toronto prior to going to Riyadh, spent a couple years there, and when his job was phased out, landed another in Dubai or somesuch.........totally different scenario...there were bars, he bought a powerboat, never saved a penny.

He forgot why he was there......I didn't.

Yes I knew a number of engineers who went there and "lived large". Then they returned and worked for the man the rest of their lives.

Even when I worked in Manila and Kuala Lumpur, there were guys who lived to the limits of their earnings. It seems to be a mind set for certain people.

We will not meet them on this board.