Are you anywhere near your benchmark retirement savings goals?

[EconDiva]

The nebulous picture starts to look a little bit better if we add back in common assumptions, at least I hope so.

I have a difficult time rationalizing all of it. This model requires that you stuff away a significant portion of your salary for a future promise of return that rides on the backs of corporations AND politicians AND good health.

And, we have to realize that the majority of Americans can't actually make this model work. The notion of an employee-funded retirement that is backed by a market of speculation is pretty ridiculous. Especially considering the shift of burden to the employee in this model AND considering wages have stagnated and buying power is so diminished.

I'll step off my soap box now.

RE: the bolded-truest words I've heard in a long time.

[Weird Tolkienish Figure]

RE: the bolded-truest words I've heard in a long time.

Yeah but, as opposed to what? Even cold hard cash can be eaten away by inflation. I prefer putting it in the hands of the individual. If you like safety, there are safe funds like bonds and money market accounts.

[ua_guy]

Yeah but, as opposed to what? Even cold hard cash can be eaten away by inflation. I prefer putting it in the hands of the individual. If you like safety, there are safe funds like bonds and money market accounts.

As opposed to a company-sponsored employee retirement program. My father and many people in my family from that generation retired with company-funded pensions. The idea was that if you were giving the best part of your life to a company, that there would be something for you at the end to provide for you and yours, provided you worked hard, earned your keep, and did things in the company's best interest.

Now, companies see providing a 3% match to an employee-funded 401k/retirement program as an "exceptional benefit". It's a marginal benefit, better than nothing, but that about all we can expect from most companies these days. Very very very few companies provide pensions anymore. The employee bears all the risk, does all the planning, saves all the money. There are benefits to "the new way", but my assessment is that it's nowhere near as good as it once was for the majority of career-lifers.

[Weird Tolkienish Figure]

As opposed to a company-sponsored employee retirement program. My father and many people in my family from that generation retired with company-funded pensions. The idea was that if you were giving the best part of your life to a company, that there would be something for you at the end to provide for you and yours, provided you worked hard, earned your keep, and did things in the company's best interest.

Now, companies see providing a 3% match to an employee-funded 401k/retirement program as an "exceptional benefit". It's a marginal benefit, better than nothing, but that about all we can expect from most companies these days. Very very very few companies provide pensions anymore. The employee bears all the risk, does all the planning, saves all the money. There are benefits to "the new way", but my assessment is that it's nowhere near as good as it once was for the majority of career-lifers.

It would be nice to have a company sponsored program but the truth is that these plans are very costly to companies in the long term for employees that don't even work there anymore. The old model was formulated in the days where you only lived a few years years out of retirement. Plus you would have to spend your entire life at one single company. Those plans simply weren't sustainable. Nowadays would you expect the company you worked for for a few years before you retire to continue to support you if you lived 20 or so years out of retirement?

Not to mention the fact that many of those older plans are just as funded by "market of speculation" just as 401k's are nowadays, which is why they are called "pension funds".

Vesting seems to be different for different 401'k, but when I worked at a college I had to work a lot longer to be vested in their pension plan than in their 401k.

Edit: On a whim, I just called the college I worked for (and left in 2008) to find out if I was ever vested in a pension. Good news, turns out I am.

[ua_guy]

It would be nice to have a company sponsored program but the truth is that these plans are very costly to companies in the long term for employees that don't even work there anymore. The old model was formulated in the days where you only lived a few years years out of retirement. Plus you would have to spend your entire life at one single company. Those plans simply weren't sustainable. Nowadays would you expect the company you worked for for a few years before you retire to continue to support you if you lived 20 or so years out of retirement?

Not to mention the fact that many of those older plans are just as funded by "market of speculation" just as 401k's are nowadays, which is why they are called "pension funds".

Vesting seems to be different for different 401'k, but when I worked at a college I had to work a lot longer to be vested in their pension plan than in their 401k.

The whole point of vesting is to encourage long-term career stability within the same company. That's why pensions take longer to vest, and they payout is often based on years of service. They aren't always enough to fully support retirement, but they definitely helped.

And, the whole point of a pension is to provide an income for when one is no longer working, so yes, they do cost companies money after the employee no longer works there (that seems obvious?). A lot of pensions are poorly managed, so that's why you saw companies like General Motors crippling under the weight of their pension liabilities. But if you look at companies like BNSF, well, they are doing quite well.

It just seems rigged that wage growth has been mostly flat for a very long time, meanwhile while not only paying employees less relative to rising expenses, a majority of companies have now shed liability for retirement as well. If there was ever a reason to escape working for a private corporation, this would be mine.

[Weird Tolkienish Figure]

It just seems rigged that wage growth has been mostly flat for a very long time, meanwhile while not only paying employees less relative to rising expenses, a majority of companies have now shed liability for retirement as well.

I've always felt that this flat wage growth was more a function of inflation more than anything else. In the latter 1990's we had a stronger dollar policy and wages actually rose during that time.

If there was ever a reason to escape working for a private corporation, this would be mine.

You work for whomever you want. Freedom. Personally, my salary doubled when I moved from working for a college to working for a private company. However now that I found out about the pension, that puts some other aspects into perspective.

[bigdaddybus]

As opposed to a company-sponsored employee retirement program. My father and many people in my family from that generation retired with company-funded pensions. The idea was that if you were giving the best part of your life to a company, that there would be something for you at the end to provide for you and yours, provided you worked hard, earned your keep, and did things in the company's best interest.

Now, companies see providing a 3% match to an employee-funded 401k/retirement program as an "exceptional benefit". It's a marginal benefit, better than nothing, but that about all we can expect from most companies these days. Very very very few companies provide pensions anymore. The employee bears all the risk, does all the planning, saves all the money. There are benefits to "the new way", but my assessment is that it's nowhere near as good as it once was for the majority of career-lifers.

agreed

I work for a company in the Fortune 30 that has offered both pension and 401K for the 15 years I have been here. Its odd when talking with family/friends about benifits being one of the 10% that still have pensions. Almost always someone says "I'm sure that will be cut" or "its just a matter of time"

The main reason my company says they keep the pension program is to retain talent. My company is not really know for "top pay" and I was warned when I started. I was told "You dont really start making real money until you've been here over 5 years" and I tend to agree with that.
- If I retire with 30 years here my pension will be 47% of the average of my highest five years salary (its no teachers 100% pension, but it is 100% funded and held by an Employee Association vs the company for liability reasons and I feel secure it will be there)
- People I work with sometimes refer to the pension/benifits as the golden handcuffs. You hear of others getting higher salaries, stock options, etc. and you can't help but wonder if the grass is greener elsewhere.....but we dont have alot of people leaving.
- The company contributes/matches up to $1200 a year to my 401K as well. Not a huge amount, but a nice perk to go along with the pension.

Its over simplified, but I look at my parents and inlaws as far as pensions vs not having one.

Both my parents retired with pensions.
My wifes parents divorced years ago and he gave up everything except his pension. She lived a grander lifestyle for the next 15 years.
He's been retired (for 10 yrs)
She is still working.

[feh]

As opposed to a company-sponsored employee retirement program.

Of course, pension plans invest their funds in capital markets also.

[ua_guy]

Of course, pension plans invest their funds in capital markets also.

They do. But pensions are paid by the employer. It allows employees to diversify their risk. They can have an employer-paid retirement nest egg, and they are also welcome to go the market themselves and invest.

Point is, today is different where the employee bears 100% of the risk and is responsible for darn near 100% of the legwork in saving money.

[feh]

They do. But pensions are paid by the employer. It allows employees to diversify their risk. They can have an employer-paid retirement nest egg, and they are also welcome to go the market themselves and invest.

Point is, today is different where the employee bears 100% of the risk and is responsible for darn near 100% of the legwork in saving money.

The point I was making is that retirement investments are dependent upon market performance, whether it's a pension or a 401K/IRA.

[bigdaddybus]

The point I was making is that retirement investments are dependent upon market performance, whether it's a pension or a 401K/IRA.

True, but with a pension (at least mine) when the market underperforms my company makes up for the loss each year from company funds. Not sure how all pensions work, but with my employer they always keep the pension funded at 100%. Which makes there pension far less risky than market performance, but my pension benift isnt going to grow tremendously in a bull market either like a 401K would. I see benifits of both
My brother in law is a fire fighter and his pension is funded around 55%, and it varies by year (The highest I could find recorded for it was around 61%. That would scare me.

[autoxer]

As opposed to a company-sponsored employee retirement program. My father and many people in my family from that generation retired with company-funded pensions. The idea was that if you were giving the best part of your life to a company, that there would be something for you at the end to provide for you and yours, provided you worked hard, earned your keep, and did things in the company's best interest.

Now, companies see providing a 3% match to an employee-funded 401k/retirement program as an "exceptional benefit". It's a marginal benefit, better than nothing, but that about all we can expect from most companies these days. Very very very few companies provide pensions anymore. The employee bears all the risk, does all the planning, saves all the money. There are benefits to "the new way", but my assessment is that it's nowhere near as good as it once was for the majority of career-lifers.

I don't see why the companies should be expected to bear the risk of future investments to provide retirement income. They are already bearing many different risks just by being in business. The legacy costs of pensions can have crippling effects on the ability for a company to be competitive. It's easy to promise some level of income in the future, but not so easy to project that impact 30 or 40 years into the future.

It's even worse for government employees, the local city government is allowed to over promise the benefits and put minimal contributions into an underfunded pension. Eventually the house of cards is going to fall. The politicians aren't exactly qualified to provide this future benefit any more than the private companies are.

[corn18]

If I had to choose a 401k or a pension, I think I would have to analyze the pension before I decided.

If it's a military pension, I'd take that every day and twice on Sunday over a 401k. I have a military pension and it is very good. Inflation adjusted. Covers me and my wife for life. And I would bet a dime on a donut that the U.S. public will not go after veteran pensions. At my current age, it's about the same as having $1M in the bank but I don't have to worry about withdrawals or return on investment. Very comforting.

If I were working for a company that offered a pension, I would take it. And fully fund a 401k if I could. And an IRA. And then keep an eye on the pension fund to make sure it remains healthy.

Seems many of the state and local pensions are underfunded by a LOT (some as high as 65% underfunded). That would make me nervous. State and Local governments can't print money like the federal gov't can so they must either increase revenue (taxes), get a better rate of return or reduce the liability (reduce your pension benefits).

Corporate pensions seem to fair better as they are regulated by law and corporation must fund them fully and can't just cancel them, even under bankruptcy. In 2008, when the market crashed and recession set in, pensions quickly became underfunded and the parent companies had to dump a boatload of cash into them and/or write down profits to cover the liability. But they must cover them or the pension owners will sue them and win. And even in bankruptcy, you will not lose all of your pension benefits. So, corporate pension plans are probably safer than public pension plans.

Anyway, pensions are good to have. But back them up with more.

Tom

[corn18]

I don't see why the companies should be expected to bear the risk of future investments to provide retirement income. They are already bearing many different risks just by being in business. The legacy costs of pensions can have crippling effects on the ability for a company to be competitive. It's easy to promise some level of income in the future, but not so easy to project that impact 30 or 40 years into the future.

Pensions are / were offered to attract and retain high quality employees. If a company can get the right employees without a pension, or 401k, or 401k match, or long term disability, or any other benefit, then they won't offer it.

[Nika]

At age 35, you should have saved an amount equal to your annual salary.
At age 45, you should have saved three times your annual salary.
At 55, you should have five times your salary.
When you retire at age 67, you should have eight times your annual pay.

So if you are 35, have 1x your salary saved, and you made extra 15K that year, than you are suddenly 15K behind.
And as you are getting raises or earn more money, the older you get the more behind it makes you in this fine theory.