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Investing/Strategies / Retirement Investing
|Subject: Re: What is the "safe saving" rate for||Date: 3/5/2012 8:03 PM|
|Author: BruceCM||Number: 70282 of 81984|
How many defined benefit plans are underfunded?
The only safe approach is to save like crazy -- early and often. You can retire early if you happen to do most of your saving during a period of good investment returns.
How much financial self-abuse must one undergo to save like crazy? How much of life's best experiences must be foregone in the interest of saving when this kind of aggressive saving is not necessary? And then if that person dies prematurely and never uses his/her large savings cache?
With DB Plans, there are multiple actuarial factors that affect pension capital that would not relate to an individual, such as changes in mortality tables, forfeitures, PBGC insurance (which has jumped substantially over the past few years)...but what makes pensions the most different from most savers is the way pensions are funded. Every plan I've ever seen used the acrrued benefit method, which is a kind of pay-as-you-go method that is relatively cheap in the years of a young workforce, but gets progressively more expensive each year as the workforce ages. This is the primary reason many government and private pensions today are underfunded.
Individuals tend to save using more of the 'projected benefit' or roughly a level payment method. This has the effect of frontloading some of the future savings need through long compounding periods. This is why many (but certainly not all) 401(k), profit sharing, IRA and other retirement savings accounts have returned to near or above their 2006 levels, while so many pensions are lagging.
Saving for retirement should be a household 'expense' within the household budget, just like any other expense. If you use the actuarial 'level payment' or perhaps more accurately, the 'serial payment' method of saving (which almost everyone does), and recalculate at least annually, while using proper asset allocation and rebalancing in their savings accounts, you can hit your capital need or hit very close to it by the time you reach retirement. This way, one is not undersaving nor oversaving.
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