Why Should Retirees Receive Pensions and Consider Living in Florida?

[chound]

Who started the pension system and why should people get money even when they are doing no work/retired?

 

[russ_watters]

Who started the pension system and why should people get money even when they are doing no work/retired?

I don't know where it came from, but a pension is a form of deferred compensation. You aren't getting paid for nothing, you are getting paid late for work you did when you were young.

 

[Art]

Who started the pension system and why should people get money even when they are doing no work/retired?

Although military pensions date back further the first state provided old age pensions were introduced for the first time in Britain in the 1908 budget of Herbert Asquith's government after some years of debate. The first payments of between 1s and 5s (at that time there were 20 shillings in £1) were made on the 2nd Jan 1909 to all citizens over 70 years of age.
The reason for their introduction was to alleviate extreme poverty. In order to finance the scheme for future generations a compulsary national insurance contribution scheme was introduced whereby a % of each worker's salary was stopped at source from both employer and employee for investment in the pension scheme.

 

[BobG]

Who started the pension system and why should people get money even when they are doing no work/retired?

Like Russ said, pensions are deferred compensation. If people were able to manage their own money effectively, they would have been better off being paid that money while they were working. Seeing as how it's hard to maintain discipline when the car breaks down, the plumbing breaks, or some other crisis hits, most workers felt they were better off with enforced savings and their return being paid out as a pension - or at least they believed in their unions which got the pensions.

Considering the pension bailouts of some large companies, like United Airlines, I'm not sure the workers could have done much worse managing their own money.

 

[Pengwuino]

Like Russ said, pensions are deferred compensation. If people were able to manage their own money effectively, they would have been better off being paid that money while they were working. Seeing as how it's hard to maintain discipline when the car breaks down, the plumbing breaks, or some other crisis hits, most workers felt they were better off with enforced savings and their return being paid out as a pension - or at least they believed in their unions which got the pensions.

Considering the pension bailouts of some large companies, like United Airlines, I'm not sure the workers could have done much worse managing their own money.

Ha, most peopel can't maintain the discipline an hour after htey wake up :D.

 

[SOS2008]

Like Russ said, pensions are deferred compensation. If people were able to manage their own money effectively, they would have been better off being paid that money while they were working. Seeing as how it's hard to maintain discipline when the car breaks down, the plumbing breaks, or some other crisis hits, most workers felt they were better off with enforced savings and their return being paid out as a pension - or at least they believed in their unions which got the pensions.

Considering the pension bailouts of some large companies, like United Airlines, I'm not sure the workers could have done much worse managing their own money.

I was watching Jack Nicolson as Jimmy Hoffa this weekend (speaking of things that happen to pension plans).

I am curious what other PF members think about government employees who are able to retire within 20 years (they don't have to wait until a certain age, e.g., 65) who are guaranteed a pension, compliments of the tax payers--unlike other Americans.

 

[TheStatutoryApe]

I was watching Jack Nicolson as Jimmy Hoffa this weekend (speaking of things that happen to pension plans).

I am curious what other PF members think about government employees who are able to retire within 20 years (they don't have to wait until a certain age, e.g., 65) who are guaranteed a pension, compliments of the tax payers--unlike other Americans.

Personally I'm all for people who hold certain types of jobs receiving more benefits than others unfortunately the ones I favor tend not to receive that much in the way of benefits. Teachers for example are quite important to our society and they provide a service that isn't exactly "marketable".
I have similar ideas about people in the medical field. Doctors definitely get paid pretty well for the most part but that's because they charge a great deal. If they didn't have to pay so much for their schooling then perhaps it wouldn't be necessary to charge so much. The idea of changing medicine over to a more socialist structure financially speaking probably has quite a few problems that would need to be dealt with though and I really haven't a clue how that would work out.

 

[SOS2008]

Personally I'm all for people who hold certain types of jobs receiving more benefits than others unfortunately the ones I favor tend not to receive that much in the way of benefits. Teachers for example are quite important to our society and they provide a service that isn't exactly "marketable".
I have similar ideas about people in the medical field. Doctors definitely get paid pretty well for the most part but that's because they charge a great deal. If they didn't have to pay so much for their schooling then perhaps it wouldn't be necessary to charge so much. The idea of changing medicine over to a more socialist structure financially speaking probably has quite a few problems that would need to be dealt with though and I really haven't a clue how that would work out.

Yes, I agree about the type of government job, for example ones in which life is risked (high-stress), like law enforcement. But others, such as postal worker, etc., I don't feel early retirement is justified.

 

[TheStatutoryApe]

Yes, I agree about the type of government job, for example ones in which life is risked (high-stress), like law enforcement. But others, such as postal worker, etc., I don't feel early retirement is justified.

Law enforcement is another good example. They do get some pretty decent benefits for the most part. That might be dependent on who they work for though I suppose.
I understand what you mean about Postal Service jobs. There is a difference in that it's federal though. Police have to depend on the capacity of the city to pay them and give them benefits which won't be on par with the fed.

 

[Pengwuino]

I am curious what other PF members think about government employees who are able to retire within 20 years (they don't have to wait until a certain age, e.g., 65) who are guaranteed a pension, compliments of the tax payers--unlike other Americans.

Oh god yes. Both my parents are/were government workers. My mother retired after i think only 15 years and gets like 90% pension and my dad has been worken for about 20 and he's shooten for 100% pension (100% of highest year's salary for yearly retirement payments) and retiring at like 55. They'll be the first ones to tell you that government retirement absolutely sucks the government's revenue like crazy (at least here in California for county and state employees)

 

[BobG]

I was watching Jack Nicolson as Jimmy Hoffa this weekend (speaking of things that happen to pension plans).

I am curious what other PF members think about government employees who are able to retire within 20 years (they don't have to wait until a certain age, e.g., 65) who are guaranteed a pension, compliments of the tax payers--unlike other Americans.

Being a military retiree, I'm a little biased. I'd say it's a great idea.

Military retirement isn't nearly as generous as California's. You get 50% of base pay. Since a lot of active duty military pay are tax free allowances (housing allowance, food allowance), that winds up being roughly around a third of your military pay.

Still, since you're still young enough to get a higher paying job than you had in the military, that winds up being money to invest for retirement rather money you have to live on.

Provided, of course, you had a job in the military that actually had a civilian counterpart. There are some who actually need that money to supplement the pay from their jobs, and then it doesn't stack up to quite so generous a retirement plan.

But then again, the ones in the more technical fields gave up more by staying for 20 than the ones who wouldn't have found a better job in the civilian world, anyway.

 

[SOS2008]

Being a military retiree, I'm a little biased. I'd say it's a great idea.

Military retirement isn't nearly as generous as California's. You get 50% of base pay. Since a lot of active duty military pay are tax free allowances (housing allowance, food allowance), that winds up being roughly around a third of your military pay.

Still, since you're still young enough to get a higher paying job than you had in the military, that winds up being money to invest for retirement rather money you have to live on.

Provided, of course, you had a job in the military that actually had a civilian counterpart. There are some who actually need that money to supplement the pay from their jobs, and then it doesn't stack up to quite so generous a retirement plan.

But then again, the ones in the more technical fields gave up more by staying for 20 than the ones who wouldn't have found a better job in the civilian world, anyway.

Like law enforcement, military service is one in which individuals put their lives at risk for society, so I see this differently.

It is all the other government employees, such as postal workers or what have you that are able to retire early (in their 50s) with guaranteed pensions, while other Americans have no such luxury. This is what I question, especially in view of current debate about Social Security, and assuming it continues, the age continues to be increased.

 

[Art]

Like law enforcement, military service is one in which individuals put their lives at risk for society, so I see this differently.

But if the militery were really committed to their job then they wouldn't survive to get a pension. They'd have died heroically in battle - Like John Wayne always did. jk

 

[Informal Logic]

An interesting article on this topic today:

"Big pension plans fall further behind"
By Albert B. Crenshaw
Washington Post
Updated: 12:48 a.m. ET June 7, 2005

Although the financial markets have been on the upswing recently from their post-boom low, many of the nation's private pension plans have been sinking deeper into the hole...

The 1,108 weakest pension plans...were short by an aggregate $353.7 billion at the end of last year...

The quest took on new urgency in recent month because of the declining financial health of the PBGC, which is itself underfunded by some $23.3 billion, and questions about the future of the Social Security system, which is the sole source of retirement income for about 20 percent of the nation's elderly.

"The level of underfunding in worker pension plans today is the consequence of outdated laws that present a danger to workers, retirees, and taxpayers," Boehner said yesterday. "Without fundamental reform, more companies will default on their worker pension plans, increasing the likelihood of a multibillion-dollar taxpayer bailout, and more companies will stop providing defined benefit pension plans to their workers altogether."

The number of traditional pensions has fallen from more than 100,000 to about 31,000 over the past two decades. ...a growing number of workers and families now have only retirement savings plans, such as 401(k)s, and other savings for retirement.

In a 401(k) plan, there is no promised benefit; whatever is in the account at retirement is what the retiree gets.

http://www.msnbc.msn.com/id/8124321/

Here is an idea. Not only can Americans transition from guaranteed pension plans to 401(k) with no promised benefit, but they also can transition from guaranteed Social Security to private retirement accounts with no promised benefits. Oh wait, I think that idea has already been proposed.

 

[Pengwuino]

Here is an idea. Not only can Americans transition from guaranteed pension plans to 401(k) with no promised benefit, but they also can transition from guaranteed Social Security to private retirement accounts with no promised benefits. Oh wait, I think that idea has already been proposed.

No promised benefits indeed. Oddly enough however, the most successful state (government) pension funds rely on stock market investments...

Guess what people don't know won't hurt them... until there retired...

 

[Informal Logic]

No promised benefits indeed. Oddly enough however, the most successful state (government) pension funds rely on stock market investments...

Guess what people don't know won't hurt them... until there retired...

Correct about pension plans and the stock market. I was joking, but then it is not a joke that Americans are losing guaranteed benefits, one of which may be Social Security.

 

[BobG]

An interesting article on this topic today:

"Big pension plans fall further behind"
By Albert B. Crenshaw
Washington Post
Updated: 12:48 a.m. ET June 7, 2005

http://www.msnbc.msn.com/id/8124321/

Here is an idea. Not only can Americans transition from guaranteed pension plans to 401(k) with no promised benefit, but they also can transition from guaranteed Social Security to private retirement accounts with no promised benefits. Oh wait, I think that idea has already been proposed.

Why do you say Social Security benefits are guaranteed? Benefits paid depend on what taxpayers want the government to pay out. With the baby boom retiring, taxpayers will pay some pretty high taxes if they want the government to keep benefits as they are.

Fortunately, the government has been collecting a surplus to help cushion the impact of having to pay out a rapidly increasing amount of money. Of course, like some private companies, they have 'borrowed' that money to meet operating costs. They'll pay it back as needed through the taxes the government collects. Eventually, taxpayers will decide they won't accept any higher tax rates and only politicians willing to cut benefits deeper than their opponent will get elected.

Guaranteed private company plans rely on the solvency of a single company - if it goes belly up, so does your retirement. And I think quite a few company executives are cursing their predecessors - it looked so good to a company's bottom line when they were paying low wages today in return for high benefits that most likely would be paid by some other executive years later. The 'guarantee' comes from the PBGC and was paid for by insurance premiums paid to the PBGC by the companies. The PBGC never pays out full benefits for the retirements it picks up. Its principle aim is to make sure retirees get at least a portion of their promised retirement. As you noted, even with only insuring a portion of promised retirements, the PBGC looks like it is having trouble meeting the obligations it had to pick up.

With 401(k)'s, IRA's, etc, the return isn't guaranteed, either. The stock market experiences quite a few short term swings and one that occurs during retirement can be pretty painful - sure, it will swing back up, but retirees were spending a bigger percentage of their retirement savings than they planned on during the down swing. But, when you consider your money is invested over a 20 year period, short term swings don't have much affect on accumulating that money in the first place. Even with ill timed down swings in the market during retirement, the overwhelming likelihood is that your own retirement plan will pay off better than Social Security.

In general, I think a government guarantee is safer than a private company's guaranteed pension plan, but there are no absolute guarantees. You cover as many bases as possible (not bank on only one source for retirement income) and hope for the best.

 

[loseyourname]

I've always made a habit of spending my excess money on friends and acquaintances of mine. That way, when I'm broke, there are a lot of people out there that owe me. Silly anecdotes aside, your best bet, aside from loan-sharking, is probably government bonds that take at least 15 years to mature. If you have the means, however, the smartest thing long-term is to spend whatever money you don't need buying up property. My dad bought a house a little above his means back in '89 and it's appreciated by almost $400,000 since then. Even though the high mortgage payments meant he didn't have a ton of spending money, when he sells the house in a year or two when my little sister graduates from high school, he'll have supplemented his income by an average of about $30,000 a year over the last 15 years, which isn't bad for someone making $60,000 a year.

 

[Pengwuino]

Why do you say Social Security benefits are guaranteed? Benefits paid depend on what taxpayers want the government to pay out. With the baby boom retiring, taxpayers will pay some pretty high taxes if they want the government to keep benefits as they are.

It really should be a guarantee... anything your forced to pay into by law should mean a guarantee... IMHO of course

 

[SOS2008]

I've always made a habit of spending my excess money on friends and acquaintances of mine. That way, when I'm broke, there are a lot of people out there that owe me. Silly anecdotes aside, your best bet, aside from loan-sharking, is probably government bonds that take at least 15 years to mature. If you have the means, however, the smartest thing long-term is to spend whatever money you don't need buying up property. My dad bought a house a little above his means back in '89 and it's appreciated by almost $400,000 since then. Even though the high mortgage payments meant he didn't have a ton of spending money, when he sells the house in a year or two when my little sister graduates from high school, he'll have supplemented his income by an average of about $30,000 a year over the last 15 years, which isn't bad for someone making $60,000 a year.

So true about investment alternatives to the stock market. The large pension plans/401(k) accounts (individuals grouped together) can't move quickly, and if/when there is a movement it causes a ripple that can be negative. The best way for individuals to make money in the stock market is to be a day trader, but most people can't or aren't comfortable with doing this.

How private accounts would work versus Social Security was brought up some time ago in an earlier thread. It seems the private accounts would be managed the same as pension plans/401(k) as a group with poor/risky returns -- otherwise the alternative would be for individuals to manage their own accounts like day traders. Details about private accounts have never been made clear, which is probably why most Americans have not been comfortable with Bush's proposal.

What ever is done, I agree with the comment that most people don't have the discipline to save on their own, so mandatory withholding/investment of some kind is needed. I've said it before that the so-called "trust fund' should be separate and off-limits to government "borrowing" and should be interest bearing per guaranteed instruments, such as bonds etc. I agree with the Dems that SS could be made solvent by removing Bush's tax cuts for the wealthy, keeping the inheritance (death) tax in place, indexing based on income (not prices), and IMO to stop deficit spending on very expensive military invasions like the war in Iraq. An increase in taxes and/or cuts in benefits are not necessary.

 

[Art]

The best way for individuals to make money in the stock market is to be a day trader, but most people can't or aren't comfortable with doing this.

I have to contradict you as it is actually dangerous to suggest people should do this. The vast majority of day traders end up losing every penny within 18 months. By far and away the best way for less experienced people to invest in the stock market is to buy into index tracker stocks such as ticker SPY which tracks the S&P index.
If you take any consecutive 10 year period in the last 100 years you will find the average return per annum for the major indexes is 14%, compounded over time this gives a fantastic return.
For anyone interested in getting involved in stocks and shares here is a link to an excellent site which advises on the do's and don'ts. http://www.fool.com/

 

[SOS2008]

I have to contradict you as it is actually dangerous to suggest people should do this. The vast majority of day traders end up losing every penny within 18 months. By far and away the best way for less experienced people to invest in the stock market is to buy into index tracker stocks such as ticker SPY which tracks the S&P index.
If you take any consecutive 10 year period in the last 100 years you will find the average return per annum for the major indexes is 14%, compounded over time this gives a fantastic return.
For anyone interested in getting involved in stocks and shares here is a link to an excellent site which advises on the do's and don'ts. http://www.fool.com/

You are correct about the traditional definition of day trading. I was thinking of systems such as ticker SPY, as I assume this is what people are doing now (for the reasons you mention).

 

[Art]

You are correct about the traditional definition of day trading. I was thinking of systems such as ticker SPY, as I assume this is what people are doing now (for the reasons you mention).

This is very different to day trading which is still very popular with high risk investors/gamblers. Day trading as the name suggests is where you gamble on the up or down movement of a stock in a single day.
To invest in the index or indeed in shares in general you need to be able to commit to leave your investment untouched for at least 5 years for a near certain guarantee of profits. As I stated in my earlier post 10 years is better. But the good news is start young enough and allow all that compound interest to grow and you will end up rich.

 

[loseyourname]

We had a day-trading project in my junior-year high school math class. I won the project and managed to make $15,000 in one week with an initial $1,000 investment. My strategy was to buy only shares that were valued at 1/16 of a cent per share. Since this was the lowest possible price, and most were new startups, I figured the most likely thing that would happen is that they would double in price and go up to 1/8 of a cent per share. Perhaps they would even triple. As soon as they did, I cashed out and re-invested in a company that was selling at 1/16 of a cent. I figured that none of these companies would ever go out of business so quickly that they never showed any growth at all. I turned out to be right. Gambling with fake money allows one to take these risks.

 

[Art]

We had a day-trading project in my junior-year high school math class. I won the project and managed to make $15,000 in one week with an initial $1,000 investment. My strategy was to buy only shares that were valued at 1/16 of a cent per share. Since this was the lowest possible price, and most were new startups, I figured the most likely thing that would happen is that they would double in price and go up to 1/8 of a cent per share. Perhaps they would even triple. As soon as they did, I cashed out and re-invested in a company that was selling at 1/16 of a cent. I figured that none of these companies would ever go out of business so quickly that they never showed any growth at all. I turned out to be right. Gambling with fake money allows one to take these risks.

I don't know what conditions you set up for this project but If you had actually been trying to trade shares for real you would have brokers fees for each transaction and more importantly the liquidity of these shares would be very low. This means you may see a price quoted but that doesn't mean you will actually find a buyer at that price or indeed at any price.

 

[loseyourname]

I don't know what conditions you set up for this project but If you had actually been trying to trade shares for real you would have brokers fees for each transaction and more importantly the liquidity of these shares would be very low. This means you may see a price quoted but that doesn't mean you will actually find a buyer at that price or indeed at any price.

We did have fees, but I know what you mean about the buyers. In our hypothetical project, we could sell the shares whenever we wanted at the newspaper price that day and there would always be buyers at that price - something that isn't terribly realistic when you're trying to sell 50,000 shares of some startup locksmith company buried in the Nasdaq that no one has ever heard of. I believe the broker's fee that we used was a flat $20 per transaction. I minimized my own by investing all of my money into a single company each time, so that I could move all of my assets in one transaction. I've never traded in a real market, so I don't know how close to reality the broker's fees were. It wasn't the most realistic project, but it does make me wish the real stock market operated like our hypothetical one. The first method I devised to manipulate it for my purposes actually worked. That would never happen in the real world.

 

[SOS2008]

This is very different to day trading which is still very popular with high risk investors/gamblers. Day trading as the name suggests is where you gamble on the up or down movement of a stock in a single day.
To invest in the index or indeed in shares in general you need to be able to commit to leave your investment untouched for at least 5 years for a near certain guarantee of profits. As I stated in my earlier post 10 years is better. But the good news is start young enough and allow all that compound interest to grow and you will end up rich.

Then I have misunderstood you. The system I am familiar with (locally) utilizes software to automatically track various indexes, however it is something one does on a daily basis. I haven't had time to check out the link you provided yet.

Back to the topic -- The bottom line is finding ways people can live in their old age "with dignity." A big concern in my mind is energy. How many times do you hear about elderly people having the heat turned off because they can't pay the utility bill. Energy may become so expensive, what will people do?

 

[loseyourname]

Back to the topic -- The bottom line is finding ways people can live in their old age "with dignity." A big concern in my mind is energy. How many times do you hear about elderly people having the heat turned off because they can't pay the utility bill. Energy may become so expensive, what will people do?

Spend your retirement in Florida, where you don't need artificial heat. I'm only half-joking.

 

[Art]

Then I have misunderstood you. The system I am familiar with (locally) utilizes software to automatically track various indexes, however it is something one does on a daily basis. I haven't had time to check out the link you provided yet.

Back to the topic -- The bottom line is finding ways people can live in their old age "with dignity." A big concern in my mind is energy. How many times do you hear about elderly people having the heat turned off because they can't pay the utility bill. Energy may become so expensive, what will people do?

It was on topic; invest $5000 now, wait 30 years and at 14% compound int. you'll have $255,000 to pay your bills with. If you're dead set on making that $1,000,000 wait 40 years.

 

[SOS2008]

Spend your retirement in Florida, where you don't need artificial heat. I'm only half-joking.

It'll be under water by then. Of course I already live where many people retire, and here the utility bill is still a problem, except in the summer instead.

It was on topic; invest $5000 now, wait 30 years and at 14% compound int. you'll have $255,000 to pay your bills with. If you're dead set on making that $1,000,000 wait 40 years.

Or maybe I can just marry a rich man, who perhaps has done just that?

So I'll take it we agree that privatization of SS would just create more of the same problems associated with the stock market? And per Pengwuino's post, when people pay into systems, especially mandatory withholdings such as SS, these should be guaranteed?