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http://www.cnn.com/2012/05/08/opinion/walker-retirement/inde...

Recent research finds 401(k)-style defined contribution plans have lost their shine. IRAs and 401(k) plans lost a combined $2.8 trillion, or 47% of their value, between September 2007 and December 2008, the height of the economic recession.

Retirement experts find that these plans have numerous shortcomings, including high operation costs and low investment returns. The biggest problem with defined contribution plans is that alone they do not provide retirees with guaranteed retirement income.

If an employee doesn't make the right large contributions into the right investment mix at the right time, they are at high risk for poverty during retirement. This risk continues to spread as the job of planning and managing retirement savings continues to be transferred to workers who have to learn in their spare time to do what professional money managers are trained and paid to do full-time.
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If an employee doesn't make the right large contributions into the right investment mix at the right time, they are at high risk for poverty during retirement. This risk continues to spread as the job of planning and managing retirement savings continues to be transferred to workers who have to learn in their spare time to do what professional money managers are trained and paid to do full-time.



...but if the alternative is return to employer funded <defined benefit>--
ain't gonna happen



..now wondering how those pensions are *acutally* paid for
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I wouldn't put much confidence in such studies. Right after a major dip in the economy, you can come up with stats to support almost any position. The people who talk down 401k's and IRAs would like for you to pay a professional to manage your money.

People who expect to retire one day will have to depend on Social Security, pensions, or one form or another of their own savings or assets. We all hope that in spite of all the hard times at least some companies and some industries do OK. The game is to find those opportunities and pursue them.

Many of those who fail to save and invest will not be able to retire.
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The point of this propaganda is that the government should take over all responsibility for retirement benefits in the private sector. Instead of paying into 401Ks, employers and employees would give the money to the government for safekeeping and prudent investment, with guaranteed retirement income for life. This is as rediculous as it is just plain stupid.
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I don't think going back to defined benefit plans is a good alternative since it restricts your flexibility to move to other jobs. The defined contribution plan allows your retirement funds to move with you from job to job. The pension plan is like putting handcuffs on the employee.
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From the article:

The plan, based on a new retirement model created by New School economics professor Teresa Ghilarducci, would pool employee and employer contributions into a professionally managed, citywide retirement fund.

Not a bad alternative at all if it is:

1. an alternative and not mandatory
2. Has immediate vestment
3. transparent
4. regularly audited
5. Portable

Many 401ks are now offering targeted-date retirement funds so in that respect, employees can be a lot more lazy in selecting and managing their investments.

The lead paragraph of this story makes no sense to me:

She was always good about saving, but because of forced retirement at 62, the self-employed interpreter is now limited to a $500 monthly budget.

Who faces forced retirement at 52 as a self-employed interpreter????

Those few industries that have forced retirement are covered by government pensions so this story smacks as dishonest from the start.
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>> Those few industries that have forced retirement are covered by government pensions so this story smacks as dishonest from the start. <<

And did you notice the blurb about the author?

Yvonne Walker is president of the Service Employees International Union (SEIU) Local 1000, which represents 95,000 California state employees.

This is just another "pay more taxes to preserve my pension" ploy by the SEIU. They don't give a damn about whether the rest of us can retire or not. They'd prefer we *not* be able to so we can keep working and pay more and more taxes for their retirement that we'll never see ourselves.

Not to mention that we already have "portable pension plans" in the form of 401K/IRA plans with the **option** to convert to an SPIA upon retirement. Perhaps it's the "optional" part she doesn't like, along with the fact that she would have to take the risk of underperformance, not the employer or taxpayer.

#29
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She was always good about saving, but because of forced retirement at 62, the self-employed interpreter is now limited to a $500 monthly budget.

Who faces forced retirement at 52 as a self-employed interpreter????


It was 62 and if you have vision issues, it could happen.
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I don't think going back to defined benefit plans is a good alternative since it restricts your flexibility to move to other jobs.

good point..

never had a defined benefit so i didn't think of it that way
DID consider employer health ins. as silver-handcuffs.


The defined contribution plan allows your retirement funds to move with you from job to job. The pension plan is like putting handcuffs on the employee.

? isn't a 401(k) 'defined contrib'?
..... am i confused?
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Recent research finds 401(k)-style defined contribution plans have lost their shine. IRAs and 401(k) plans lost a combined $2.8 trillion, or 47% of their value, between September 2007 and December 2008, the height of the economic recession.

One thing that can happen during a recession or economic downturn is that some people take loans out from their 401(k). A 401(k) that had a pre-recession worth $100,000 may go down to a worth of only $50,000 if the 401(k) holder takes a $50,000 loan from it. The 401(k) has now lost 50% of its value.

culcha
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They note that the 401(k)'s lost around 47% of their value between 9/07 and 12/08. They do not note that most of that money has now been made up.

If people would not panic, they could make some money. Granted, I lost money during that time; but most of my investments were in dividend paying stocks. Some of the companies reduced their dividend by dollars, but the yield rate was still high. Therefore, I gathered quite a bit of additional stock during that time. Now, that the dividends are being increased, my holdings are worth quite a bit more now than between 9/07 and 12/08.

Donna
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? isn't a 401(k) 'defined contrib'?
..... am i confused?


Yes, 401(k) is a defined contribution plan.
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One thing that can happen during a recession or economic downturn is that some people take loans out from their 401(k). A 401(k) that had a pre-recession worth $100,000 may go down to a worth of only $50,000 if the 401(k) holder takes a $50,000 loan from it. The 401(k) has now lost 50% of its value.


another thing that can happen in a downturn is the market value can drop

so Mr Market might decrease your 100k to 70k,
and when/if you borrow 50k (selling near a low?) you're left with only 20k
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Defined benefit plans were only great if you made it to retirement age. I expected a nice pension even if I retired at 62 instead of 65. Instead my job disappeared when I was 52. That meant my pension benefit dropped 40% from what I expected. You don't make that up when you get a new job at that age. Fortunately I lived modestly and invested well most of my career so I'm okay.

I think the warning of this article is a lot of people don't do very well managing their own retirement savings. For them the social security backup is going to be pretty important. That's one reason I've opposed a switch to "private accounts". I won't be around in 2050 but I suspect with employers dropping pensions and politicians dismantling social security there will be a lot of impoverished senior citizens.

I'm not talking about Fools. The fact that you are here says you understand the problem and have or are getting the knowledge to take care of your own retirement. But I've worked with a lot college graduates who have no clue how to manage money or investments.
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It was 62 and if you have vision issues, it could happen.


Yes, that was a typo - but what does poor vision have to do with being a self-employed interpreter? If you work for a company large enough to provide a pension, then certainly that same company would be large enough to offer workers comp - and if your vision is so bad you cannot work, SS disability would likely be an option.
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I think the warning of this article is a lot of people don't do very well managing their own retirement savings.

And that speaks to the larger, more real problem - that we simply do a horrible job as a society in teaching our youth and young adults to manage their finances.

We spend a lot of time and money trying to treat the symptom and not the illness.
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Data mining by any other name gets one's fingers just as red. ;-)

Cheers!
Murph
Home Fool
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and if your vision is so bad you cannot work, SS disability would likely be an option.

Not to picked nits but "forced to retire" could cover disability and SS disability morphs into retirement at full retirement age. You can collect SS at 62 and at 60, if widowed.

So your issue was with her choice to be self-employed ?

I truly hate the threads that start with some article. I call them Ain't It Awful threads.

The bottom line on all of this is let people manage their own retirement or let the gov't. One side - people are too stupid to do it themselves/other side- I'm smart enough, let everyone else rot.
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But I've worked with a lot college graduates who have no clue how to manage money or investments.

Our son is getting ready to graduate from high school next month. Required courses for seniors are 1 semester of economics and 2 semesters of government. Government teacher is quite good and has covered a lot of theoretical and philosophical stuff very well. However, in neither class have they filled out 1040's or done basic budgets or calculated interest rates.

Son has loved the government class (we think he'd actually enjoy law if he decided to add something to physics), but primary thing he got from econ was never use credit cards and never borrow money!!!!! Fortunately he doesn't believe them.

Kathleen
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"The fault, dear Brutus, is not in our stars,
But in ourselves, that we are underlings."


Cassius, encouraging Brutus to kill Caesar.

Well, I am not advocating killing anybody, but the fact is that people should learn how to take charge of their plans and make the best of them. I discussed the retirement plan with my co-workers when I was working - or rather I tired to discuss the subject. Invariably the reply would be something like "I have not looked at it for so long I do not remember which funds I own". Rather pathetic. I remember calling to switch from one fund to another, and somebody overheard the call and accused me of speculation, as if all trading were speculation.

So far as the "financial professionals" are concerned, many of them spend more time selling their "services" than actually making money for their customers. Be careful if you pick one of them to manage your money.
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"The plan, based on a new retirement model created by New School economics professor Teresa Ghilarducci, would pool employee and employer contributions into a professionally managed, citywide retirement fund."

Why not make it a national plan and call it Social Security?

@What could be safer than government bonds?

@And how do you get Congress to keep its hands off the money?
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Why not make it a national plan and call it Social Security?

Why name it something that would come with so much baggage?

We could instead open up the THRIFT program to anyone as an alternative - but as with any investment, the larger it gets, the less likely it can find a place to invest additional dollars.

What could be safer than government bonds?

I would guess a lot of things if we are measuring based on the Sharpe ratio. I'd much rather own a 10 yr Ford bond than a 10 yr Treasury bond. Don't get me wrong, I REALLY like the idea of SS dollars being invested in USTs as a mandatory contribution with individual accounts but I'd rather give people more diversity with their elected contributions.

And how do you get Congress to keep its hands off the money?

Not a chance.
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What struck me from the article is that they talked about the 07-09 market crash...then ignored the 09-11 market recovery.

I got back everything I lost in the crash, and then some, by just "staying put". Assuming no more than a planned, conservative 4% annual withdrawl rate, maybe that rate would have raised up to 6% during the shortfall, but it wouldn't have decimated the account!

You never assume that either good times or bad times are permanent.

SG

"Don't Panic!"

_The Hitchikers' Guide To The Universe_
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I've worked with a lot college graduates who have no clue how to manage money or investments.


Sad.

I try to talk "finance" to my kids every once in awhile when we're driving somewhere and they're trapped in the car. That's the best time, I've found, to discuss anything with a teenager. Rip out the ear-buds and say "we're going to chat".

Topics this year have been:

What did my teacher mean when he said "The only way you'll ever retire is if you learn to invest and make money while you sleep".

What are stocks and bonds, and what's this "diversification" thing?

How do you make money from a rental property, and what's the downside?

When do you need to start saving for retirement? (16!). 8D
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One side - people are too stupid to do it themselves/other side-
I'm smart enough, let everyone else rot.


i wouldn't put it exactly that way ..

some are too stupid,
some not educated (everything i know about money i learned from my Mother AFTER i'd got past the "Mom & Dad don't know crap"-stage ...ie age 40-something)

some just aren't smart enough that they'll fall prey to unscrupulous 'Advisors'

are we supposed to let them rot?


(o ....and "i'm lucky enough ..."
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Retirement experts find that these plans have numerous shortcomings, including high operation costs and low investment returns.

What an absurd generalization!

Obviously, there is nothing wrong with IRA's or 401k's, per se. The problem has to do with who may be MANAGING the investments WITHIN the IRA or 401k!

Where else would you put money? CD's? Maybe some of your money, but all of it.

I've managed my own investments, mostly all individual equities within my IRA, for years, and I do pretty well. My only "fees" are to ME, plus the relatively low commissions I pay when I order a buy or sell of any equity.

Vermonter
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True. It's sad. People worry more about their golf swing than they do their retirement money!

You ask some people "What are you doing to save for retirement?"

Typically, they will say "Oh, it's going into my IRA." Or "my 401k". Or whatever.

Then ask them "What is it doing within there? I mean, how is it invested?"

Usually, you get a blank stare.

Sad.

Vermonter
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Perhaps it simply means that she got sick. That's "forced retirement," too.
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She was SELF-employed.
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She was SELF-employed.

And when has a self-employed person ever had access to a corporate pension?

Again, what relevance does her story have to this article?
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