California alone had $113 billion in unfunded liability

[TVC15]

Originally Posted by TVC15

I don't understand why we are not taught all through our school years how to save and invest money for retirement. It shoud be a required curriculum for all kids at some point in school.

Originally Posted by Phil306

Because that is NOT the responsibility of a school. That is the responsibility of the PARENT. Oh, I forgot, its never someone's personal responsibility to take charge of their kids and teach them something. We are, after all in California, its always someone's else's responsibility.

School is not only a place to learn to read and write. Learning to invest is a fundamental practice for everyone. Most people do not understand the basics of investing and saving money...how can you expect them to teach their kids?

[TVC15]

Originally Posted by ryuns

Fair point! Yeah, sorry, I was just being a douche. I long for nuanced talk around these topics, but I've become a bit calloused from reading the back-and-forth on similar threads that pit those reveling in the schadenfreude derived from any trouble Kommie Kalifornia and Obummer (ugh) seem to face vs the pollyannas. My own lack of time to craft a sufficient number of well thought out responses to seem to make a dent in that discourages me. To be fair, there's some really good discussion here.

Anyway. Pragmatically, we may need an alternative to pensions. History has shown that, generally, governments are not good stewards of them. They overpromise them to employees to make up for stagnated wages when they can't afford to give a proper raise, they waive requirements for employee contributions when expected returns are good, and they arguably overestimate their own expected return (this is a hugely difficult issue though, and it's not as simple as saying the 30-year bond return is "correct" and historical averages are "wrong"). And this is me as a liberal talking. I'd like to see more government services (better infrastructure, more mass transit, universal health care) and the pensions issue is a huge ball and chain for well-meaning governments trying to do their jobs in the present, saddled with the debts of the poor decisions of their predecessors.

Re: expected return. Super tricky issue. If you save for retirement personally (401k, etc) and have done the calculations yourself, you know the degree to which your projected return on investment your projected retirement date is. Pensions are only slightly less susceptible because they can invest, theoretically, for time infinity. They can weather financial crises arguably better than an individual retiring at the "wrong time" because of this. (This can be mitigated in large part by individuals who reduce the risk and expected return of their portfolio as retirement approaches. How many 60-year old were on the news in the last 5 years complaining about how half their savings was wiped out? Partly their fault, as they should have been mostly invested in bonds at that point, but I digress...).

Do we need to shift away from pensions? Probably, but I don't know how. The huge unfunded liability will have to get plugged somehow, and moving new employees (who have proportionately higher contributions due to Brown's legislation) to a defined contribution scheme won't help. But taxpayers would surely benefit by moving that liability off the books. Even if the "unfunded liability" were zero, the state (which is to say taxpayers) still bears the investment risk, and it would be a huge benefit to move retirement off the books at the end of the fiscal year.

Assuming we lack the political will or desire to do that, I think there are some additional steps to take. While CalPERS/STRS projections for expected return are understandable, I think they need to dial that back a little to reduce the risk of taxpayers getting stuck with the bill. Maybe not to the super low "devil's advocate" number (30 year bond rates while bonds are at record low seems a bit unfair), but lower than the historic averages. And Brown's legislation should have gone farther. Increase gradually the contributions from EVERYONE (mostly from new employees, but gradually from current employees too, as well as, gradually, the state's contribution), and delay the retirement age with less than X number of years of service, gradually increasing said delay until you get to zero years of service (ie, new employees).

I personally prefer a defined contribution plan. The money in my 401k and IRA is mine immediately, and I take it with me no matter what. It's not a political football.

Just my two cents.

Nice post!

I also lean towards the 401K and IRA system. Another reason young ones should be required to take a course in school to cover this subject. I am currently taking courses from TD Ameritrade in order to be a more informed investor. I am amazed at how much I am learning. I like to take responsibility for my savings and investments...but I need more knowledge to fully understand my options. I don't want to end up like all those elders who lost most of their investments due to not fully understanding the market.

[Youthanasia]

Originally Posted by Leonard64

$884.00 Billion

No big deal, that works out to just a bit over $24,000.00 for every man, woman and child in CA. Lets see that is nearly $100,000.00 for a family of 4. No big deal right? That includes illegal and legal residents.

Of course by January the amount will have gone up to even more. Get out the check book, the tax man cometh.

$24k per person, hell I'd bet most people in California have more than that in credit card debt alone.. so yeah no big deal, if people can spend themselves into a firey inferno of debt then point the finger at employee pensions as the big evil then I say let the ship sink.

[expatCA]

Originally Posted by Youthanasia

$24k per person, hell I'd bet most people in California have more than that in credit card debt alone.. so yeah no big deal, if people can spend themselves into a firey inferno of debt then point the finger at employee pensions as the big evil then I say let the ship sink.

How many families of 4 could do the $100,000.00 plus all other taxes they pay now? Or how many young single people could do $24,000.00 easily?

[ryuns]

Originally Posted by TVC15

Nice post!

I also lean towards the 401K and IRA system. Another reason young ones should be required to take a course in school to cover this subject. I am currently taking courses from TD Ameritrade in order to be a more informed investor. I am amazed at how much I am learning. I like to take responsibility for my savings and investments...but I need more knowledge to fully understand my options. I don't want to end up like all those elders who lost most of their investments due to not fully understanding the market.

There are some great investment websites and message boards out there. I'm a big fan of Bogleheads.org. There are people there who put a ton of time in to working with you to recommend investments, tell you why, etc. There's a lot of technical discussion there too, but the "help with my investments" section is really good.

While I have my doubts that the average youngin' has the initiative to learn about investing and ability to delay gratification sufficient to save well for retirement on their own, if most employers offered low-cost 401k's with a default contribution to a reasonable lifecycle fund, that would be fine for most people.

[9162]

The question is, why should state workers be so privileged to not have to rely on Social Security like the res of us?

[Dean Trails]

Originally Posted by TVC15

Nice post!

I also lean towards the 401K and IRA system. Another reason young ones should be required to take a course in school to cover this subject. I am currently taking courses from TD Ameritrade in order to be a more informed investor. I am amazed at how much I am learning. I like to take responsibility for my savings and investments...but I need more knowledge to fully understand my options. I don't want to end up like all those elders who lost most of their investments due to not fully understanding the market.

Fidelity and Vanguard have similar programs that are worth looking into. And, Vanguard is one of the lowest with regards to fees. Make sure that IRA is a Roth. Nice to not have the Government standing with their hand out. Of course, i suppose that rules will be changed eventually. Nanny will want her cut!

[TVC15]

Originally Posted by Dean Trails

Fidelity and Vanguard have similar programs that are worth looking into. And, Vanguard is one of the lowest with regards to fees. Make sure that IRA is a Roth. Nice to not have the Government standing with their hand out. Of course, i suppose that rules will be changed eventually. Nanny will want her cut!

Absoutely it is!

[ryuns]

Originally Posted by Dean Trails

Fidelity and Vanguard have similar programs that are worth looking into. And, Vanguard is one of the lowest with regards to fees. Make sure that IRA is a Roth. Nice to not have the Government standing with their hand out. Of course, i suppose that rules will be changed eventually. Nanny will want her cut!

All things in moderation. Even in the future, just like now, I'm sure we're going to have low tax brackets for first batch of money you make. As a retiree, you can make use of the low tax brackets with taxable money. Roth does hedge your bets that taxes will be higher in the future, but I also expect my "income" to be lower in retirement, since I won't have to be saving anymore, some of my nest egg will be in Roth or taxable accounts, I may not need to pay a mortgage anymore, etc.

But I do second the recommendations--Vanguard is a super solid company and the low fees save a heap of money, compounded over the decades.

[ryuns]

Originally Posted by 9162

The question is, why should state workers be so privileged to not have to rely on Social Security like the res of us?

Apples and oranges. State workers pay in to the pension fund their entire career, the state pays another sum, and the pension fund manages it. Most state workers also pay for social security. Does your job give you a 401k match? My last job matched dollar for dollar up to 8%.

By the way, it's not just "state" workers--all career public sector workers are part of some sort of pension scheme. "State" workers are actually the saints in this equation because they pony up for their share of the contribution, while many local government employees do not.