Dow 30,000
- Thread starter RonBurgundy
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You can't ever get your 401k money without a tax hit, it is a deferred tax plan regardless of timing. The only thing that changes at retirement age is the 10% early withdrawl penalty goes away.
If you don't like that deal, nothing is stopping you from placing your cash in an after tax account so you can cash in those gains today. Of course you are going to have a lot less to invest in the first place because you are going to have to pay income tax on that money before you can invest it.
https://www.pbgc.gov/sites/default/files/pbgc-annual-report-2018.pdf
"Absent changes in law, the Multiemployer Program is likely to run out of money by
the end of FY 2025." Annual Report 2018, p. 12
Pensions (and their guarantors) fail less gracefully than a defined-contribution plan. Yes, you can lose your shirt in the market if it goes down 50%, but unless we end up in some sort of Mad Max situation and civilization as we know it ends, something is still going to be there. Pensions can just evaporate entirely and do. See my family's Enron experience.
Things that often "cannot" fail often do. Those are oftentimes the source of the largest economic calamities any of us are going to face in our lifetimes.
Where is the upside risk, though? You do not ride a hot market with a defined-benefit plan the same way you can with a defined-contribution plan.
There are plan administrators who increase benefits with market and asset performance, but those same plan administrators would be awful plan administrators if they did not decrease benefits with poor market and asset performance on the flip side. So you are either stuck without the upside risk or you have a plan that behaves much more like a 401(k) anyways.
This is generally true, but it is not like a defined-benefit plan is without risk for the individual. They just tend to have a more "catastrophic" risk profile -- bad things are less likely to happen, but terrible things (even if unlikely) can happen, too, if the whole fund, union, or company behind it goes away (and even PBGC or the taxpayer behind them). Like I said, Enron, and the state of most public and private pensions out there (thought perhaps not yours, and good for your plan and you specifically) are not exactly in the most rosy shape right now.
Any well-diversified portfolio should do this. Any well-structured risk profile should, as well, like a target date fund with a 401(k) moving you into safe bonds when you approach retirement.
https://www.pewtrusts.org/en/resear...t-practices-and--performance-2016-data-update
Pensions have become much more aggressive about accessing high-fee, high-risk, high-reward investment options in the past few decades compared to days of yore...
"In a bid to boost investment returns and diversify portfolios, plans in recent decades have shifted away from low-risk, fixed-income vehicles in favor of stocks and alternatives such as private equity, hedge funds, real estate, and commodities. In 2016, half of plan assets were invested in equities, a quarter in alternative investments, and another quarter in bonds and cash."
https://www.pewtrusts.org/en/resear...t-practices-and--performance-2016-data-update
Compare to the 1950s...
I would like to see some source about pensions having lower fees compared to your dirty cheap index fund that anybody can get, especially in 2019, not 1960.
Such as? As others have pointed out, financial products have "democratized" significantly in the past few decades, and a pension fund acting like an aggressive institutional investor kind of cuts against your point about them having lower fees.
I cannot touch my 401(k) or my wife's 403(b) either.
I suppose you will try to say that a pension is "extra compensation" that you receive "for free" beyond your salary, but such an assertion is bogus. Labor and employers negotiate against each other, either individually or collectively, on total compensation packages, not just wages and salaries. Both sides are smart to look at the total package.
This is completely true, and I agree with you this will be yet another great big issue in an ocean of red ink that we have about to hit us as a society at many levels.
I do not want to make things political in here, but I see that situation and...
-- fear we are going to bail out those who never saved with the money of those who did, and that kind of moral hazard is never a good idea to me
-- just when we should be cutting back and trying to improve our fiscal standing, it seems the political mood is that of a drunken sailor on shore leave
The ultimate crisis is a run on U.S. debt and a loss of reserve currency status for the dollar. We increase our risk of such an apocalyptic event every day with these actions.
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https://www.google.com/url?sa=i&sou...aw2OsWvTfkX0NYxxrlaluCPS&ust=1563023077208445
This is a few years ago, but this notes 13% of companies require the match to be in company stock. And then of course your option to move out of the stock will vary. So the vast majority of people are not tied to company stock in their match.
fear we are going to bail out those who never saved with the money of those who did, and that kind of moral hazard is never a good idea to me
Another reference to the Great Retirement Bailout of 2040!
Excellent!
Another reference to the Great Retirement Bailout of 2040!
Excellent!
https://www.pbgc.gov/sites/default/files/pbgc-annual-report-2018.pdf
"Absent changes in law, the Multiemployer Program is likely to run out of money by
the end of FY 2025." Annual Report 2018, p. 12
Pensions (and their guarantors) fail less gracefully than a defined-contribution plan. Yes, you can lose your shirt in the market if it goes down 50%, but unless we end up in some sort of Mad Max situation and civilization as we know it ends, something is still going to be there. Pensions can just evaporate entirely and do. See my family's Enron experience.
Things that often "cannot" fail often do. Those are oftentimes the source of the largest economic calamities any of us are going to face in our lifetimes.
Where is the upside risk, though? You do not ride a hot market with a defined-benefit plan the same way you can with a defined-contribution plan.
There are plan administrators who increase benefits with market and asset performance, but those same plan administrators would be awful plan administrators if they did not decrease benefits with poor market and asset performance on the flip side. So you are either stuck without the upside risk or you have a plan that behaves much more like a 401(k) anyways.
This is generally true, but it is not like a defined-benefit plan is without risk for the individual. They just tend to have a more "catastrophic" risk profile -- bad things are less likely to happen, but terrible things (even if unlikely) can happen, too, if the whole fund, union, or company behind it goes away (and even PBGC or the taxpayer behind them). Like I said, Enron, and the state of most public and private pensions out there (thought perhaps not yours, and good for your plan and you specifically) are not exactly in the most rosy shape right now.
Any well-diversified portfolio should do this. Any well-structured risk profile should, as well, like a target date fund with a 401(k) moving you into safe bonds when you approach retirement.
https://www.pewtrusts.org/en/resear...t-practices-and--performance-2016-data-update
Pensions have become much more aggressive about accessing high-fee, high-risk, high-reward investment options in the past few decades compared to days of yore...
"In a bid to boost investment returns and diversify portfolios, plans in recent decades have shifted away from low-risk, fixed-income vehicles in favor of stocks and alternatives such as private equity, hedge funds, real estate, and commodities. In 2016, half of plan assets were invested in equities, a quarter in alternative investments, and another quarter in bonds and cash."
https://www.pewtrusts.org/en/resear...t-practices-and--performance-2016-data-update
Compare to the 1950s...
I would like to see some source about pensions having lower fees compared to your dirty cheap index fund that anybody can get, especially in 2019, not 1960.
Such as? As others have pointed out, financial products have "democratized" significantly in the past few decades, and a pension fund acting like an aggressive institutional investor kind of cuts against your point about them having lower fees.
I cannot touch my 401(k) or my wife's 403(b) either.
I suppose you will try to say that a pension is "extra compensation" that you receive "for free" beyond your salary, but such an assertion is bogus. Labor and employers negotiate against each other, either individually or collectively, on total compensation packages, not just wages and salaries. Both sides are smart to look at the total package.
This is completely true, and I agree with you this will be yet another great big issue in an ocean of red ink that we have about to hit us as a society at many levels.
I do not want to make things political in here, but I see that situation and...
-- fear we are going to bail out those who never saved with the money of those who did, and that kind of moral hazard is never a good idea to me
-- just when we should be cutting back and trying to improve our fiscal standing, it seems the political mood is that of a drunken sailor on shore leave
The ultimate crisis is a run on U.S. debt and a loss of reserve currency status for the dollar. We increase our risk of such an apocalyptic event every day with these actions.
1. You contradicted yourself talking about the low cost of index funds but then discussing the importance of diversification to hedge against out living one's retirement.
2. There is no individual plan which hedges against out living ones retirement funds unless there's enough money saved so the principle is untouched.
3. 401k's can be borrowed against.
4. Pension funds are also monitored by the PBGC for being overfunded
In years the plan outperformed expectations, we had a choice where to put the funds.
One year we had a choice between raising the value of pension credits for upcoming years, prior years for current workers, or for prior years for current pensioners.
We voted to raise the value of pension credits for then current retirees.
5. Your graphs/links discuss public pensions, not private pension funds.
If we use Social Security as a harbinger of all this, more like 2031-2032...
On the basis of the analysis described in The 2018 Long-Term Budget Outlook, which incorporates the assumption that current law generally does not change, the Congressional Budget Office projects that those trust funds combined would be exhausted in calendar year 2031, requiring the amounts scheduled to be paid in 2032 to be reduced by 26 percent.
https://www.cbo.gov/publication/54868
Ignoring known, long-term problems because they seem infinitely far in the future is terrible planning, especially when they are really not that far away nowadays.
#1 -- What is more diversified than an index fund? There are plenty of low-cost options for switching into low-risk assets later in life, too, like say this one...
https://money.usnews.com/funds/mutu...anguard-intermediate-term-tax-exempt-fd/vwitx
#2 -- This one is true. There is a definite advantage there, assuming the fund lives forever.
#3 -- Yes, they can, any you can cash them out early for some massive tax penalties, too. But you can just treat them like a pension and never touch them, too.
#4 -- You seem to be avoiding the issue that PBGC says it is going broke in 2025.
#5 -- Do you think private pensions have been less aggressive about shifting into high-fee, highly-managed funds over the past 40 years like private pensions have?
Either they were there the whole time (and just did a good job of hiding the fees... the pensions' fees might not be high, but Wall Street's fees embedded in there still were...) or they just moved into it relatively recently, which ends you up in the same place.
That's why anyone in a 401k (or other similar instrument) should be avoiding taking any company stock if that is an option. If it isn't they should be unloading any accumulated company stock as soon as the fund rules allow. The last thing any John or Jane Doe needs is their company going under taking their job and their entire retirement savings with it. I have never understood any employee voluntarily buying hugely into their company with anything but fun money. There is too much at stake.
You are also forgetting the 10% penalty for taking out the money if you are younger than 59.5 years of age. You can forgo the penalty if you leave work at age 55, but only take money out that you put into the 401K from that place of employment. So you 10% early withdraw and pay taxes on the money at the current rate instead of deferring them down the road.
The wealthy guy can just sell his stock, pay no penalty and 15% capital gains if you owned the stock for more than 1 year.
https://www.thebalance.com/what-is-the-rule-of-55-2894280
Just have to pick your spots with company stock in a k plan. I wouldn’t be putting anything in to a company stock now but back in 08-10 I was pumping money in to it. The beauty of most k plans is you can change your allocation as much as you want and company stock doesn’t usually have any transfer restrictions associated with it.
Hopefully you aren't talking about IPERS. Becuase 40%+ of their asset allocation is in equities
https://www.ipers.org/about-us/investments/fund-performance
Equities are the fastest growing allocation in PPF's across the globe (Source: State Street - 2.5 trillion in assets under managment)
https://www.ssga.com/investment-topics/asset-allocation/2018/inst-how-do-ppfs-invest.pdf
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The point was made above (and hello again, @Althetuna) that such research is only describing public pension funds, not private ones, which is a fair one.
I just imagine private ones are doing basically the same thing.
The world where it was playing dice in Las Vegas on equities on one side versus staid, conservative pension funds investing in municipal bonds on the other... well, not anymore. The options have kind of converged on each other.
I wonder how many people on pensions who HATE hedge funds know that 10%-20% of their retirement funds are going to those type of advisors
Private funds go way deeper into alternatives and the securitized market. Stuff like CLO's, CMBS, and Private ABS deals
Good thing my money is with Axe Capital. Bobby is crushing it this year.
There are ways around paying penalties on early withdrawn 401k funds if you retire early.
I re-read my email today and think it came off a little "elitist".
I could quibble on why people live pay-check to pay-check but I can't quibble that I've had many more financial opportunities generally being one of the "haves".... I try and remind others to have a little perspective and I failed at that miserably...
