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I'd like, if I may, to steer the discussion back to investment for retirement, and defined-benefit vs. defined-contribution pensions. Note last week's horrendous carnage in stock markets around the world. For persons whose retirement is largely contingent on their success as investors, last week was a brutal shock. Yes, experienced investors should not panic and should not suddenly redefine their outlook based on one single week's performance. Even so, such drops - seemingly without any economic justification, at least not in America or Europe - are deeply unsettling, and suggest that a "crisis" can materialize out of nowhere.
The bottom line is that for salaried professionals 30 years ago, investment was a hobby and a sideshow. While perturbed by sudden drops in the market, they'd have little reason for outright worry, being insulated from market vicissitude by their defined-benefit pensions. The same professions today might actually command a higher salary (inflation-adjusted) than before, but investment has become of necessity a core pursuit, and no mere hobby.
I wonder what would happen if the shocks of last week, and of this past August, become "the new normal"? How many people would get scared out of stocks, causing a cascading effect in the market in the short-term, and reducing their own retirement prospects in the long term?
Looking towards the next 30 years, suppose that the Millennials actually do get remunerative jobs, and do pay off their debts, and do save diligently for retirement - but that they're inept or unlucky investors? In other words, if they do everything right, but still come out poorly - what then? A crisis?
Millennials will live in one room and the world is their oyster, cell phone. What's wrong with that. Millions are living like that already.
Each generation will adjust their standard of living accordingly.
You have mis-stated the situation of public pensions, as if they were all the same. The truth is that public pensions vary enromously in terms of their generosity (not all are "cushy" by any means, but the media writes about the ones that are because it's more eye-catching) and their funding health. For the most part, it's not like tax revenues fund the pensions of retired public workers; instead, their contributions and those of the employers were placed into the pension fund during all the years of their employment to be invested in stocks, bonds, real estate, etc. so as to pay the pension obligations going forward.
Yes, there are some poorly funded public pension systems which do in fact fit your description. My quarrel with your post is that you have taken that subset of systems and pretended that there is no other kind.
One key to the degree of your emotionality on this subject is your word "completely". Defined benefit pensions are going to vanish "completely"? That is quite absurd, although I'll probably be dead in 20 more years so I won't be able to come back and argue the point with you. If you had written that many public pensions will be scaled back, I can agree with that. In some places it has already happened for new hires.
You are not comprehending what I wrote. I'm saying that defined benefit pensions in the public sector are going to vanish. Not because of unfunded pension liability but because taxpayers will vote to do away with them rather than pay ever-increasing taxes to fund benefits they don't themselves receive. 20 or 30 years from now, no new hire public sector employee will have any access to a defined benefit pension.
This isn't emotional. It's pretty clear that this is what is going to happen. They've already vanished in the non-union corporate world. In many new union contracts, all they're getting is 401(k) matching. There's enormous pressure to do this at the state level. Any state that agreed to the new ACA Medicaid eligibility requirements is getting eaten alive. Typically, 1/3+ of the state budget is now going to fund the 50% state cost of Medicaid.
On this, I think, we all emphatically agree. There's no crisis now. There won't be a crisis for the next 10-15 years or so. But slowly, tensions are mounting.
Here too I can't quibble. But what's so baffling is that precisely as the US has been losing so much relative ground over the past 10 years, the dollar has been strengthening, and US stock markets have been handily outpacing most foreign markets. This is a dual penalty for US-based equity investors seeking to diversify abroad.
Simply put, why isn't the dollar trading at $1 = 50 Yen, or $1.65 = 1 Euro? Why isn't the Nikkei at 45,000 and the DAX at 17,000?
The economy of the country is doing fine. The median person in the country is roughly flat with a decade ago. The bottom half are going backwards in standard of living. The top 0.1% are seeing almost all of the gains of the last 5 years.
We're quickly reverting to the wealth and income stratification we saw in the 19th century into the early 20th century. The people with the capital to invest in automation will continue to get richer. The people whose labor is devalued by that automation will continue to get poorer.
The only people who will be able to retire without an enormous hit to their standard of living are those with defined-benefit pensions and the top-30% or so who have the income level to accumulate wealth.
You are not comprehending what I wrote. I'm saying that defined benefit pensions in the public sector are going to vanish. Not because of unfunded pension liability but because taxpayers will vote to do away with them rather than pay ever-increasing taxes to fund benefits they don't themselves receive. 20 or 30 years from now, no new hire public sector employee will have any access to a defined benefit pension.
This isn't emotional. It's pretty clear that this is what is going to happen. They've already vanished in the non-union corporate world. In many new union contracts, all they're getting is 401(k) matching. There's enormous pressure to do this at the state level. Any state that agreed to the new ACA Medicaid eligibility requirements is getting eaten alive. Typically, 1/3+ of the state budget is now going to fund the 50% state cost of Medicaid.
Alaska has already moved from defined benefit to defined contribution. Public employee pensions are a ticking time bomb. There is no way that new employees can fund their own retirements as well as those of all the retirees before them. It's just a matter of time before every state that hasn't already gone to defined contribution does so. Those that don't, are doomed to financial collapse. As the problem gets worse, the taxpayers will revolt and no amount of union PAC money will stop state legislators from making the necessary reforms.
Alaska has already moved from defined benefit to defined contribution. Public employee pensions are a ticking time bomb. There is no way that new employees can fund their own retirements as well as those of all the retirees before them. It's just a matter of time before every state that hasn't already gone to defined contribution does so. Those that don't, are doomed to financial collapse. As the problem gets worse, the taxpayers will revolt and no amount of union PAC money will stop state legislators from making the necessary reforms.
There's no "ticking time bomb" except for some public safety pensions the majority of defined benefit pensions are well funded and in most cases employees contribute the lions share of funding. This all BS brought to you by Wall Street which is just dying to kill all pensions and replace them with 401 and 457 k plans so that they can get their greedy hands on that money and take a good portion of it in management fees.
Taxpayers will revolt because Ronnie Raygun started the ball rolling with killing off private sector unions so many taxpayers understandably feel cheated when they aren't getting the same pension as public employees, but it might not turn out as well as they expect it to. You aren't going to get a CPA to work in the public sector in the San Francisco Bay Area for 60-$70K if they kill defined benefit pensions. Those accountants (as well as a large number of other public sector professional employees) will demand private sector wages which are currently 90-120k and if they don't get it they will leave and go to work for a private firm..so much for the taxpayer revolt lol
There's no "ticking time bomb" except for some public safety pensions the majority of defined benefit pensions are well funded and in most cases employees contribute the lions share of funding. This all BS brought to you by Wall Street which is just dying to kill all pensions and replace them with 401 and 457 k plans so that they can get their greedy hands on that money and take a good portion of it in management fees.
Taxpayers will revolt because Ronnie Raygun started the ball rolling with killing off private sector unions so many taxpayers understandably feel cheated when they aren't getting the same pension as public employees, but it might not turn out as well as they expect it to. You aren't going to get a CPA to work in the public sector in the San Francisco Bay Area for 60-$70K if they kill defined benefit pensions. Those accountants (as well as a large number of other public sector professional employees) will demand private sector wages which are currently 90-120k and if they don't get it they will leave and go to work for a private firm..so much for the taxpayer revolt lol
It's hard to argue with someone drinking all that Kool-Aid, but the fact of the matter is that only about three states are fully funded. And as budgets tighten, taxpayers will be upset that public sector employees are making more in retirement then they are making working. This isn't a Wall Street issue. Look at what happened in Detroit. That's what's going to be happening at the state level. And the family making $40,000 a year in the private sector isn't going to be too happy about paying higher taxes so the retired public sector family can keep getting their $120,000 a year retirement. I saw a study about California firefighters. It takes 24 currently working firefighters to pay the retirement income of one firefighter. That is not sustainable. It's going to collapse at some point in time in every state. Alaska went from defined benefit to defined contribution. There are still plenty of applicants for every job posted by the State of Alaska. Defined benefit plans are going to be extinct. It's just a matter of time and time is running out.
Millennials will live in one room and the world is their oyster, cell phone. What's wrong with that. Millions are living like that already.
Each generation will adjust their standard of living accordingly.
I cannot compete in the online selling world with a one-room existence.
It's hard to argue with someone drinking all that Kool-Aid, but the fact of the matter is that only about three states are fully funded. And as budgets tighten, taxpayers will be upset that public sector employees are making more in retirement then they are making working. This isn't a Wall Street issue. Look at what happened in Detroit. That's what's going to be happening at the state level. And the family making $40,000 a year in the private sector isn't going to be too happy about paying higher taxes so the retired public sector family can keep getting their $120,000 a year retirement. I saw a study about California firefighters. It takes 24 currently working firefighters to pay the retirement income of one firefighter. That is not sustainable. It's going to collapse at some point in time in every state. Alaska went from defined benefit to defined contribution. There are still plenty of applicants for every job posted by the State of Alaska. Defined benefit plans are going to be extinct. It's just a matter of time and time is running out.
It drives me nuts to see this incomprehensible coalition of public employee unions and poor people.
The unions say they're sticking up for and protecting poor people from budget cuts and I'm wondering HowTF does that work when every dollar in inflated public employee compensation (current and deferred) is a dollar unavailable to spend on the poor.
That excellent point is so often over looked. My example is even more instructive that the example of your wife. I get about $160 per month, yet it would be erroneous to conclude that I am struggling financially. I have a comfortable, but not lavish, pension and live quite well. (The salary of my career job was not subject to Social Security [FICA] withholding, so my SS benefit is based on paltry amounts that I earned from part-time jobs while in college and from occasional moonlighting jobs later.)
Therefore, as you point out, the "average" SS retirement benefit understates what the average person who worked for a lifetime gets.
My mom paid in almost nothing. She worked a little before she was 40 but not much then worked for the post office 20 years not paying SS. When she retired they said no SS for her since she wasn't paying in. When dad died they gave her SS of about 4,000 a year to make her pension and SS equal what she would have gotten as a widowed housewife. That doesn't mean she was poor she has about 30K income and no house payment or car payment, then sold her house so got about 1,200 a month on a contract and moved to my brother's house, gave him 1,500 for rent, food, utilities and even her cell phone and sold her car, cancelled her car insurance so she spend maybe 600 a month from her pension and interest income of 30K a year. She died with a half million dollar estate on 4K a year of SS.
It's hard to argue with someone drinking all that Kool-Aid, but the fact of the matter is that only about three states are fully funded. And as budgets tighten, taxpayers will be upset that public sector employees are making more in retirement then they are making working. This isn't a Wall Street issue. Look at what happened in Detroit. That's what's going to be happening at the state level. And the family making $40,000 a year in the private sector isn't going to be too happy about paying higher taxes so the retired public sector family can keep getting their $120,000 a year retirement. I saw a study about California firefighters. It takes 24 currently working firefighters to pay the retirement income of one firefighter. That is not sustainable. It's going to collapse at some point in time in every state. Alaska went from defined benefit to defined contribution. There are still plenty of applicants for every job posted by the State of Alaska. Defined benefit plans are going to be extinct. It's just a matter of time and time is running out.
The bolded is more than twice what a typical retirement is, even in California. Your exaggeration consists not in the figure itself, but in presenting it as if it were typical. And Detroit as an example? Another extreme case. Once you have a certain narrative in your own head, there are (unfortunately) a few outrageous examples out there which you can use to support the narrative.
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