Holy Social Security

[fskimospy]

It's not, and you're acting like that's a good thing. Portability and vesting before an arbitrary service date (like 20 years with a single employer) is a major reason why defined contribution plans are VASTLY superior to old-style pension/defined benefit plans. If Social Security is going to continue to exist, it should be completely transformed into a system where participant contributions are invested into U.S. Treasury debt they own in personal accounts. Even if the accounts are administered by the U.S. government that's infinitely better that the system we have now. The mere idea that you, Eskimospy, and the like are defending the current travesty of a system we have now makes me wonder what your ulterior motives are for not wanting to make such an obvious and hugely positive change.

Defined contribution plans are most certainly not better for employees than defined benefit plans. (they offload risk to the employee as opposed to the employer) This is precisely the reason so many companies have switched to them.

The reasons to not put them into 'accounts' is pretty obvious. What would the account even represent? What happens when the account runs out, etc? Out of curiosity, I'm excited to hear what you believe our sinister motives are. This should be good.

 

[glenn1]

Defined contribution plans are most certainly not better for employees than defined benefit plans. (they offload risk to the employee as opposed to the employer) This is precisely the reason so many companies have switched to them.

The reasons to not put them into 'accounts' is pretty obvious. What would the account even represent? What happens when the account runs out, etc? Out of curiosity, I'm excited to hear what you believe our sinister motives are. This should be good.

Yeah sure, defined contribution plans are better if you still live in the 1950s where people still work for large employers like Kodak for 20 years plus and never switch jobs. Or aren't fired or laid off right before you vest your pension or meet the service anniversary for payouts. And then presume the company doesn't go bankrupt and you only get pennies on the dollar from the PBGC. Finally, if you should happen to live long enough the paid out pension benefits will exceed the breakeven of accumulated value in a defined contribution account. Which wouldn't go poof if you died soon after retirement unless you chose to annuitized just like a pension.

 

[fskimospy]

Yeah sure, defined contribution plans are better if you still live in the 1950s where people still work for large employers like Kodak for 20 years plus and never switch jobs. Or aren't fired or laid off right before you vest your pension or meet the service anniversary for payouts. And then presume the company doesn't go bankrupt and you only get pennies on the dollar from the PBGC. Finally, if you should happen to live long enough the paid out pension benefits will exceed the breakeven of accumulated value in a defined contribution account. Which wouldn't go poof if you died soon after retirement unless you chose to annuitized just like a pension.

And with a 401(k) you better hope the stock market doesn't tank when you need to retire. (2008, anyone?)

You better be willing to live with worse returns.

You better be willing to live with higher fees, etc as well.

Pensions simply outperform 401(k)s. There's not really much else to be said about it.

http://www.towerswatson.com/en/Insi...us-DC-Investment-Returns-the-2009-2011-Update

If you want to claim that 401(k)s are giving a greater benefit to the average employee than a pension plan would, please cite a source for this information?

 

[glenn1]

And with a 401(k) you better hope the stock market doesn't tank when you need to retire. (2008, anyone?)

You better be willing to live with worse returns.

You better be willing to live with higher fees, etc as well.

Pensions simply outperform 401(k)s. There's not really much else to be said about it.

http://www.towerswatson.com/en/Insi...us-DC-Investment-Returns-the-2009-2011-Update

If you want to claim that 401(k)s are giving a greater benefit to the average employee than a pension plan would, please cite a source for this information?

You better be willing to stay with the same employer for decades when you could have changed jobs for a much higher salary, perhaps multiple times.

Pensions simply outperform 401(k)s - if you are a relic of the Mad Men days still working in one of the handful of jobs not offshored to China already and willing to go down with the ship of a failing company just to get that extra year or two to make your 20 with Eastern Airlines. Or Enron.

 

[fskimospy]

You better be willing to stay with the same employer for decades when you could have changed jobs for a much higher salary, perhaps multiple times.

Now you're reduced to just making things up?

Pensions simply outperform 401(k)s - if you are a relic of the Mad Men days still working in one of the handful of jobs not offshored to China already and willing to go down with the ship of a failing company just to get that extra year or two to make your 20 with Eastern Airlines. Or Enron.

They also outperform them according to actual econometric analysis instead of ranting. (also, what makes you think you need 20 years to be vested in a pension fund? Have you ever worked for a company with one>)

 

[Brovane]

It's not, and you're acting like that's a good thing. Portability and vesting before an arbitrary service date (like 20 years with a single employer) is a major reason why defined contribution plans are VASTLY superior to old-style pension/defined benefit plans. If Social Security is going to continue to exist, it should be completely transformed into a system where participant contributions are invested into U.S. Treasury debt they own in personal accounts. Even if the accounts are administered by the U.S. government that's infinitely better that the system we have now. The mere idea that you, Eskimospy, and the like are defending the current travesty of a system we have now makes me wonder what your ulterior motives are for not wanting to make such an obvious and hugely positive change.

I have a defined benefit Pension plan with my current private sector employer and the vesting was 5-years with my current employer. Not sure were you get that the norm is 20-years with a single employer. Each type of system has it's benefit and weakness. Social Security is good because it acts as Insurance and gives you a defined benefit regardless of what happens. You don't need to ditch one to benefit for the other. For my personal retirement I am glad I have what I call 3 key pillars. The first two pillars are Social Security and my Pension plan. The last pillar is my 401k. I am glad that I have all three. My Mother worked as school teacher for 40-years and she depends on her Pension exclusively (No Social Securtiy) from CALSTRS. However her Pension benefit from her number of years of employment meant that she had almost no drop in take home pay after retirement.

 

[Fern]

Defined Benefit plans have the following vesting requirements:

1. At 5 yrs the employee is 100% vested. Or

2. A 3-7 yrs vesting schedule (20% @ 3 yrs, 40% @ 4, 60% @ 5, 80% @ 6, 100% thereafter.)

Fern

 

[Spungo]

And with a 401(k) you better hope the stock market doesn't tank when you need to retire. (2008, anyone?)

You're working with the assumption that markets collapse with no warning. This is simply not true. There were tons of warnings that the market was about to crash. Remember that the stock market is a lagging indicator of the economy. It also lags behind the bond market.
-2006: the fed raised interest rates from 1% to 5% to precipitate a crash in equity markets. "Don't fight the fed" as they say.
-2006: Schiff Mortgage Banker speech
-2007: the yield curve inverted, meaning long term rates were lower than short term rates. This almost always signals the beginning of a recession.
-Early 2008: oil price collapsed as credit tightens and the economy contracts.
-Early 2008: copper price collapsed. Copper is an indicator of economic activity because it's used for wiring.
-January 2008: Dow Jones and S&P 500 both drop below the 50 week moving average, indicating a change in trend.

You better be willing to live with higher fees, etc as well.

If $50/year of transaction fees will break you, you have no chance of retiring.

Pensions simply outperform 401(k)s. There's not really much else to be said about it.

If the company goes bankrupt, you lose your pension. It's that simple. This is even starting to happen to government pensions. There's no way Detroit and Baltimore can pay for all the things it promised, so someone is going to get a haircut at some point. The benefit of a defined contribution pension is that nobody can jack your money.

 

[fskimospy]

You're working with the assumption that markets collapse with no warning. This is simply not true. There were tons of warnings that the market was about to crash. Remember that the stock market is a lagging indicator of the economy. It also lags behind the bond market.
-2006: the fed raised interest rates from 1% to 5% to precipitate a crash in equity markets. "Don't fight the fed" as they say.
-2006: Schiff Mortgage Banker speech
-2007: the yield curve inverted, meaning long term rates were lower than short term rates. This almost always signals the beginning of a recession.
-Early 2008: oil price collapsed as credit tightens and the economy contracts.
-Early 2008: copper price collapsed. Copper is an indicator of economic activity because it's used for wiring.
-January 2008: Dow Jones and S&P 500 both drop below the 50 week moving average, indicating a change in trend.

If $50/year of transaction fees will break you, you have no chance of retiring.

If the company goes bankrupt, you lose your pension. It's that simple. This is even starting to happen to government pensions. There's no way Detroit and Baltimore can pay for all the things it promised, so someone is going to get a haircut at some point. The benefit of a defined contribution pension is that nobody can jack your money.

Well since you can predict the market so well you are wasting your talents on here right now. You could be (literally) making billions with that kind of expertise. Or in reality you're being a Monday morning quarterback.

The risk of an individual running into financial problems with his retirement fund is vastly larger than a whole company or municipality going broke. Pensions also outperform 401(k) portfolios.

This isn't that complicated.

 

[JockoJohnson]

Who the hell keeps all of their money invested in stocks 2 to 5 years before retirement? This is why we need to have mandatory finance classes in high school.

The two different 401k plans that I was involved in had simple options for most people: pick your retirement year (in increments of 5) and the money would automatically start moving based of the current year. In English...30 to 10 years, funds are heavily invested in stocks and some bonds and savings. Within the last 10 years before retirement, the money allocation changes --- lots in bonds and savings and lesser amounts of RISK in stocks. I chose to manage mine instead of using one of the retirement year plans.

As for pensions vs. 401k, I am too lazy to see which offers a better return but I do know that a lot of companies do not offer pensions but do offer employer matched 401k plans. This is just anecdotal evidence but of the 8 or so companies that I have worked for throughout my life, only one offered a pension plan. And I just got a notice to cash out or wait until retirement. I am too afraid of the company not being around in 25 to 30 years so I cashed out with the penalty. My 401k is doing just fine and better than ever since I knew to move my money around before the crash.

 

[Brovane]

If the company goes bankrupt, you lose your pension. It's that simple. This is even starting to happen to government pensions. There's no way Detroit and Baltimore can pay for all the things it promised, so someone is going to get a haircut at some point. The benefit of a defined contribution pension is that nobody can jack your money.

You don't loose your Pension when a company goes bankrupt. The traditional defined beneft Pension plans are protected by law. That means creditors have no claim on assets in a company's traditional pension plan. You could see a reduction in benefit's. Most private-sector defined-benefit pension plans are insured by the Pension Benefit Guaranty Corp., which is funded by insurance premiums paid by employers. If a company's pension plan becomes underfunded and the company cannot make up the shortfall, the PBGC takes over and continues to pay retirement benefits up to the limits set by law. You might see a reduction in benefits but your Pension wouldn't just disappear.

 

[fskimospy]

Who the hell keeps all of their money invested in stocks 2 to 5 years before retirement? This is why we need to have mandatory finance classes in high school.

The two different 401k plans that I was involved in had simple options for most people: pick your retirement year (in increments of 5) and the money would automatically start moving based of the current year. In English...30 to 10 years, funds are heavily invested in stocks and some bonds and savings. Within the last 10 years before retirement, the money allocation changes --- lots in bonds and savings and lesser amounts of RISK in stocks. I chose to manage mine instead of using one of the retirement year plans.

As for pensions vs. 401k, I am too lazy to see which offers a better return but I do know that a lot of companies do not offer pensions but do offer employer matched 401k plans. This is just anecdotal evidence but of the 8 or so companies that I have worked for throughout my life, only one offered a pension plan. And I just got a notice to cash out or wait until retirement. I am too afraid of the company not being around in 25 to 30 years so I cashed out with the penalty. My 401k is doing just fine and better than ever since I knew to move my money around before the crash.

Lots of companies offer 401(k) instead of a pension, yes. The main reason they do this is because of risk. If the stock market tanks and you run a pension fund, the company is on the hook to make up the difference. With a 401(k) the employees are screwed. Companies clearly prefer the latter.

401(k) was never actually intended to be a primary retirement vehicle for people. Overall the results from it are pretty bad.

 

[xBiffx]

401(k) was never actually intended to be a primary retirement vehicle for people. Overall the results from it are pretty bad.

Neither is Social Security...

There is no one stop shop here.

 

[Brovane]

Neither is Social Security...

There is no one stop shop here.

Well Apparently certain posters think 401k is the best solution for retirement income.

 

[Spungo]

Well since you can predict the market so well you are wasting your talents on here right now. You could be (literally) making billions with that kind of expertise. Or in reality you're being a Monday morning quarterback.

Be patient. It takes time to make billions. I'm up 20% this year, and I think that's pretty good. The average hedge fund is actually down YTD, so I'm currently doing better than most fund managers.

btw I've been making the same warnings for the past year. Copper has been in a down trend since 2011. Oil dropped by an astonishing 40% since June; I don't think any of us saw that coming. High yield credit is flashing red again. The BIS and fed have repeatedly stated that stocks are overpriced. Larry Summers said something like stocks are "more fully valued" than they were in 2007, which means they're extremely overpriced.

The risk of an individual running into financial problems with his retirement fund is vastly larger than a whole company or municipality going broke. Pensions also outperform 401(k) portfolios.

It depends. Pensions are invested in stocks and bonds, so there's really nothing special about a pension. You can do better than the pension if you use basic common sense when investing. One of the disadvantages of a pension fund is that large amounts of money are difficult to move around. You can't buy or sell a billion dollars worth of stock in one day. Doing so could move the price dramatically. It's also difficult to sell options for a billion dollars worth of stock. Large funds also have no way of investing in small cap stocks because small caps don't have enough liquidity. As a result, large funds are restricted to buying things that are very large and usually overpriced. This is why small cap stocks typically trade at lower multiples.

The other advantage of managing your own money is that you can bet against the crowd. A fund manager can never do that. If he bets against the market and makes 5% instead of 15% for the year, he's fired. Conversely, if the manager follows the crowd and loses 20% in a year, he will not be fired as long as everyone else took a hit as well. That kind of twisted incentive means fund managers can't do what they think is correct because it might cost them their job.
It's very similar to comparing a corporate job against running your own business. If you run your own business, you can build your own computer. $1000 will build a very good CAD computer with an i7 processor, overclocked if you want, and a fairly high end gaming video card. To do the same thing in a corporate office would cost a minimum of $5000. The computer I'm using right now uses a Xeon processor instead an i7. Why? I don't know. The video card cost about $3000 because it has driver support for things like Maya. Do I ever use Maya? No. This computer would be just as fast in AutoCAD if it had a $500 gaming video card. The computer has an SAS card for no apparent reason. The CPU is not overclocked nor can it be overclocked. All of these weird choices were made as part of the Cover Your Ass policy. The people ordering these computers know it's a scam, but you'll never be fired for ordering overpriced computers. Trying to save money is what gets people fired. Trying to improve the system gets people fired. Trying to be more productive gets people fired. Trying to get better returns on stocks by going against the trend gets people fired.

 

[fskimospy]

Haha no. Getting better returns gets you more funding.

Forget investing for yourself, the real money to be made is by investing with other people's money and taking a cut. If you have produced consistent returns like you claim, you should market a fund or a stock picking service based on this evidence. You will be rich in no time.

Why have you not done this already? (Other than the fact that you're a walking dunning-Krueger effect, haha)

 

[fskimospy]

It's also funny that you say no one saw lower oil prices coming. Before you claimed that higher oil prices were proof of the mystery inflation you just knew was there. Now that they have gone way down you just pretended that argument never existed instead of realizing that your whole theory was full of shit.

 

[Spungo]

Forget investing for yourself, the real money to be made is by investing with other people's money and taking a cut. If you have produced consistent returns like you claim, you should market a fund or a stock picking service based on this evidence. You will be rich in no time.

You're saying you would invest your money with some random person who called you out of the blue? You might trust telemarketers, but most people don't. Starting a hedge fund and finding clients is far more difficult than you realize.

It's also funny that you say no one saw lower oil prices coming. Before you claimed that higher oil prices were proof of the mystery inflation you just knew was there. Now that they have gone way down you just pretended that argument never existed instead of realizing that your whole theory was full of shit.

You can believe whatever religion you want, but I choose to follow the data. Oil prices go up during inflation and they go down during deflation. These are dictionary definitions. Since money is created as debt, deflation would indicate a lot of debts have gone into bankruptcy.

Instead of just ranting about my theories being wrong, you should profit from my being wrong. You can bet against me by buying high yield bonds: JNK.
I always tell people how they can bet against me but I get the feeling nobody puts their money where their mouth is.

 

[Spungo]

You don't loose your Pension when a company goes bankrupt.

I had this a bit mixed up. Companies were simply stealing the pension money. It had nothing to do with them going bankrupt.
http://www.salon.com/2011/09/17/retirement_heist_interview/

So even when they had these benefits promised to them in writing, they legally lost. Union employees had physical legal contracts that had been collectively bargained that said, “We promise you lifetime coverage.” So the employers claimed, “We didn’t mean your lifetime, we meant the life of the contract,” and it worked.

 

[fskimospy]

You're saying you would invest your money with some random person who called you out of the blue? You might trust telemarketers, but most people don't. Starting a hedge fund and finding clients is far more difficult than you realize.


You can believe whatever religion you want, but I choose to follow the data. Oil prices go up during inflation and they go down during deflation. These are dictionary definitions. Since money is created as debt, deflation would indicate a lot of debts have gone into bankruptcy.

Instead of just ranting about my theories being wrong, you should profit from my being wrong. You can bet against me by buying high yield bonds: JNK.
I always tell people how they can bet against me but I get the feeling nobody puts their money where their mouth is.

No, I just mean you should advertise. If you are as right as you claim, start a blog with your market picks. People will surely notice if you beat the market so handily year after year.

I have just shown you repeatedly how the things you have claimed are demonstrably false. It is abundantly clear you don't know what you're talking about. I don't play the market.

 

[glenn1]

No, I just mean you should advertise. If you are as right as you claim, start a blog with your market picks. People will surely notice if you beat the market so handily year after year.

I have just shown you repeatedly how the things you have claimed are demonstrably false. It is abundantly clear you don't know what you're talking about. I don't play the market.

Still more correct than you, who seems to think the country and its citizens got stuck in the 1940s and never left. Yeah, pure brilliance supporting pensions when the average worker tenure is now 4.6 years and the average worker would never collect on them even if they were offered. Why not tell workers to move to Detroit to get jobs with autoworkers while you're at it and invest all their savings in Enron.

 

[piasabird]

If the price of the dollar goes down, the price of gold and oil goes up. However, what is really happening is the supply of oil is increasing. If the price of oil is high enough it becomes economical to develop domestic supply of oil. If the price of oil goes down this resource development drops off because investors want to make money.

If the price of gas drops then often large customers try to lock in on the lower price and do long term contracts. Obviously if I was in the gasoline business, I would buy all the oil I can get when the price is low.

Likewise if the value of Gold drops to say below $500, I would buy some gold.

Inflation is difficult to measure because the government keeps changing how inflation is calculated. So you cant really trust any government dollars. The current administration is telling lies right and left on everything they are doing.

So how much interest are you getting on bank deposits? 1%? When it gets up to say 4% I will believe we have some inflation.

 

[piasabird]

They were just talking about an overall increase in job numbers were increasing, but the pay rates were not increasing. That tends to reflect a lack of real inflation. Granted inflation is not normally measured till after the fact.

 

[Brovane]

I had this a bit mixed up. Companies were simply stealing the pension money. It had nothing to do with them going bankrupt.
http://www.salon.com/2011/09/17/retirement_heist_interview/

So even when they had these benefits promised to them in writing, they legally lost. Union employees had physical legal contracts that had been collectively bargained that said, “We promise you lifetime coverage.” So the employers claimed, “We didn’t mean your lifetime, we meant the life of the contract,” and it worked.

That reference is about retiree Health care coverage cuts. Not actual cuts in benefit payments. The important thing is to use multiple tools to save for retirement.