Retirement Shock: Need to Find a Job After 40 Years at General Electric(wsj.com)
wsj.com
Retirement Shock: Need to Find a Job After 40 Years at General Electric
https://www.wsj.com/articles/retirement-shock-need-to-find-a-job-after-a-40-years-at-general-electric-1524418855
143 comments
I blame Corporations getting rid of Retirement Plans for the sake of profit.
My father's side grandfather had 2 retirement plans, 1) Navy Seals (12 years) 2) NYC Handy man (25 years)
My mom's side grandfather 1) Custodian in NYC 20 years + 2) Jazz Musician Union 10+ years.
They both were able to live a decent life after retirement and didn't work a single day afterwards. This will not happen for me. I also have a privatized plan for 15 years but my son had cancer for 5 years (Drained my retirement early) and we had 5 kids and chose to have my wife stay at home for about 7 years. Not very easy to save, heck I have no debit outside of mortgage and some student loans still. Zero credit card debit and no car payment. I know I am ahead of the curve but what about everyone else up to their necks in debit?
The system is broken and most people don't save enough and a few can't. https://www.bloomberg.com/view/articles/2017-01-03/the-401-k...
My father's side grandfather had 2 retirement plans, 1) Navy Seals (12 years) 2) NYC Handy man (25 years)
My mom's side grandfather 1) Custodian in NYC 20 years + 2) Jazz Musician Union 10+ years.
They both were able to live a decent life after retirement and didn't work a single day afterwards. This will not happen for me. I also have a privatized plan for 15 years but my son had cancer for 5 years (Drained my retirement early) and we had 5 kids and chose to have my wife stay at home for about 7 years. Not very easy to save, heck I have no debit outside of mortgage and some student loans still. Zero credit card debit and no car payment. I know I am ahead of the curve but what about everyone else up to their necks in debit?
The system is broken and most people don't save enough and a few can't. https://www.bloomberg.com/view/articles/2017-01-03/the-401-k...
> we had 5 kids and chose to have my wife stay at home for about 7 years
You and your wife chose to have five children, and chose for her to work as a childcare provider, which we know is a low-paid gig.
I'm very impressed that you managed to do that without going into debt, but I have little sympathy for other people who in similar situations find themselves struggling: the rest of us derive a smaller benefit from the continuation of your genetic legacy than you do, so it is appropriate that society should pay a smaller part of the cost of that lifestyle choice.
People who fall into similar situations without your foresight might struggle more, but so too do people who buy expensive cars they can't afford or pursue careers they enjoy instead of careers that pay well.
You and your wife chose to have five children, and chose for her to work as a childcare provider, which we know is a low-paid gig.
I'm very impressed that you managed to do that without going into debt, but I have little sympathy for other people who in similar situations find themselves struggling: the rest of us derive a smaller benefit from the continuation of your genetic legacy than you do, so it is appropriate that society should pay a smaller part of the cost of that lifestyle choice.
People who fall into similar situations without your foresight might struggle more, but so too do people who buy expensive cars they can't afford or pursue careers they enjoy instead of careers that pay well.
Don't forget that 1) the first world birth rate is below replacement, and 2) your retirement savings will be made worthless by inflation if there is no labor pool to support the economy when you are retired. Parent poster is arguably subsidising your retirement by putting in the work to raise the generation that will produce the goods and services you will wish to consume in your retirement.
I benefit just as much from parent's children (heh) as I would from yours, but less than I would from my own, because they'd entertain me.
Parent's enjoyment of those children is an appropriate benefit which both parent and parent's wife have purchased at the cost of parent's wife's career and their retirement savings.
Put another way, parent and I both receive an economic benefit, but parent receives an emotional benefit. You can argue that I should pay for the economic benefit I receive, but I do not think it appropriate that I should subsidize the price of his emotional benefit.
Parent's enjoyment of those children is an appropriate benefit which both parent and parent's wife have purchased at the cost of parent's wife's career and their retirement savings.
Put another way, parent and I both receive an economic benefit, but parent receives an emotional benefit. You can argue that I should pay for the economic benefit I receive, but I do not think it appropriate that I should subsidize the price of his emotional benefit.
Empirically, seeing that couples in general find child rearing too burdensome to maintain replacement rate, it seems that the current split is not the correct one.
That's only relevant if you restrict immigration from areas where growth is rapid to areas where the locals reproduce below replacement.
That there are willing young immigrants available is a historical accident. As countries develop economically their birth rates consistently drop, eventually to below the replacement rate, as can be seen in almost all first world countries. Taking first world countries as a closed system my argument applies. Allowing for immigration means the system now depends on a pool of readily available people who live in economic misery to supplement the first world population, which is not a particularly ethical arrangement.
Immigration is the answer. That's what's keeping quite a few developed countries in population increases even now. Yes, there are a lot of arguments about "who".
I went for replacement myself: 2 kids.
I went for replacement myself: 2 kids.
"hacker news becomes more interesting to people who want to have the sort of ideological conversations that eventually drown out the interesting stuff about tech and startups."
Unless you are the one starting said ideological conversations?
Unless you are the one starting said ideological conversations?
Your criticism is, on the surface of it, very relevant. The superficial hypocrisy of my earlier statement would really serve to hurt my credibility if this were a willfully polarized ideological bubble.
The difference is that an on-topic reply to an on-topic comment on an on-topic post diverges as part of an ultimately topical and natural progression, whereas starting with a polarized and ideological post that has little to do with technology, startups, or spontaneous cleverness only serves as an opportunity to reinforce the poster's ideological outlook as the new normal; that is, to move the Overton window.
I myself have been guilty of this. I told a friend of mine that I'd gotten some traction with a blog post about not getting hired by dropbox, and he asked me to share a really juvenile idea he'd had for protesting the TSA. I did it; the post was poorly received, and the community spanking was enough to remind me of what effective participation in a pseudonymous social news link aggregator looks like.
That being said, neither did I start this conversation, nor was it the sort of ideological shouting that drowns out the interesting stuff. The grandparent has a good anecdote about the poster's experience with retirement planning and raising a lot of children, and it makes a point with which I happen to disagree. I voiced my disagreement without attacking the comment or the person who made it.
Ultimately, I disagree both with your implied disagreement with my original point and with the validity of your rhetorical question, but I don't disagree with the topicality of your attack and therefore I don't think your comment deserves the downvote it has at present.
The difference is that an on-topic reply to an on-topic comment on an on-topic post diverges as part of an ultimately topical and natural progression, whereas starting with a polarized and ideological post that has little to do with technology, startups, or spontaneous cleverness only serves as an opportunity to reinforce the poster's ideological outlook as the new normal; that is, to move the Overton window.
I myself have been guilty of this. I told a friend of mine that I'd gotten some traction with a blog post about not getting hired by dropbox, and he asked me to share a really juvenile idea he'd had for protesting the TSA. I did it; the post was poorly received, and the community spanking was enough to remind me of what effective participation in a pseudonymous social news link aggregator looks like.
That being said, neither did I start this conversation, nor was it the sort of ideological shouting that drowns out the interesting stuff. The grandparent has a good anecdote about the poster's experience with retirement planning and raising a lot of children, and it makes a point with which I happen to disagree. I voiced my disagreement without attacking the comment or the person who made it.
Ultimately, I disagree both with your implied disagreement with my original point and with the validity of your rhetorical question, but I don't disagree with the topicality of your attack and therefore I don't think your comment deserves the downvote it has at present.
They're just taking a break from shitting on EBT recipients for buying Doritos.
Reasonably successful people having more children is a good thing, given the ever-growing pyramid-scheme nature of Social Security and other entitlements.
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> You and your wife chose to have five children, and chose for her to work as a childcare provider, which we know is a low-paid gig.
They didn't choose to have their saving set back by however long because their child got sick.
They didn't choose to have their saving set back by however long because their child got sick.
Parent poster here. I should have stated we took in 3 children in Foster Care (One was a kid at church that was abused and needed a home and from June to December we had three siblings)
So we certainly choose this for our lives and I am glad we did. Two of them graduated from college and one of them is serving in the Middle East in the National Guard.
So we certainly choose this for our lives and I am glad we did. Two of them graduated from college and one of them is serving in the Middle East in the National Guard.
Nobody chooses to get fired or to crash a motorcycle either. Children are very sympathetic and charismatic spokespeople for the type of help we can render one another, but choosing to create them does not and should not absolve one of responsibility or provide some free insurance against catastrophes.
Just realize that idiot that pays for a car he can't afford or spends time addicted to a game or a million other lifestyle traps modern corporations have armies of engineers, lawyers, marketing experts and others working tirelessly to ensnare are in fact what keep the economy running. And you and I employed.
It's not clear it would help you; a company could move part of your salary to a pension, but then your current life would be even more difficult.
Essentially what you're saying is that you'd like to get a raise (more pension without a loss of salary). Well, wouldn't we all!
Now for people who spend frivolously, forced savings might be helpful, but it's not clear to me why the companies should take that role; seems like a role for the State (and, in fact, that seems to be the rule in many countries, with mandatory pension plans).
Essentially what you're saying is that you'd like to get a raise (more pension without a loss of salary). Well, wouldn't we all!
Now for people who spend frivolously, forced savings might be helpful, but it's not clear to me why the companies should take that role; seems like a role for the State (and, in fact, that seems to be the rule in many countries, with mandatory pension plans).
Corporations have not gotten rid of retirement plans, they've gotten rid of unsustainable defined benefit retirement plans (pensions) in exchange for defined contribution retirement plans (401ks).
Pensions are cheaper than 401(k) accounts. I will say it again, this is simple actuarial math: Pensions are cheaper than 401(k)s.
Three reasons: 1. Some people will die before they collect, others will live far longer. With a pension the former subsidize the latter, and everyone who needs income gets it. In a 401(k) everyone has to save like they're going to live forever, or risk running out of money. If you keep your withdrawal rate at 4%, you probably could live forever, but that means you need 25 times your salary saved. Twenty five years salary! A pension does not need nearly the same level of assets.
2. A pension can ride out a "bad" market because some people are paying in while others are paying out. In a 401(k) if you retired in 2009, you took a lifetime hit, even with a balanced portfolio. And you can get hit by a bad market and a long life at the same time!
3. Individual investors are morons. They buy overpriced funds and do a lousy job managing them. I am a moron, but at least I know it and invest accordingly. Vanguard did a huge study of all their individual retirement accounts, and number of trades that produced the best return was: zero. Every trade you make (statistically) is buying high and selling low. Pension managers aren't perfect, but they pay attention to expenses and don't chase the latest hot stock. Therefore you need much less of a contribution to fund a pension.
It depends on how you assess these factors, but Joey Schmoe is going to have to save 15% or more of her salary to get the same retirement security as a pension contribution of 10%. A pension is only unaffordable if those contributions aren't made, and then a wave of retirements sets off an unsustainable withdrawal. But that's not a feature of defined benefit vs. defined contribution, rather it's governments who use shady accounting rather than making a small contribution annually.
When you add in the fact that almost everyone who contributes to 401(k)s is well-off (half the population doesn't even have access), it is hard to imagine a method that is less likely to lead to comfortable retirements.
2. A pension can ride out a "bad" market because some people are paying in while others are paying out. In a 401(k) if you retired in 2009, you took a lifetime hit, even with a balanced portfolio. And you can get hit by a bad market and a long life at the same time!
3. Individual investors are morons. They buy overpriced funds and do a lousy job managing them. I am a moron, but at least I know it and invest accordingly. Vanguard did a huge study of all their individual retirement accounts, and number of trades that produced the best return was: zero. Every trade you make (statistically) is buying high and selling low. Pension managers aren't perfect, but they pay attention to expenses and don't chase the latest hot stock. Therefore you need much less of a contribution to fund a pension.
It depends on how you assess these factors, but Joey Schmoe is going to have to save 15% or more of her salary to get the same retirement security as a pension contribution of 10%. A pension is only unaffordable if those contributions aren't made, and then a wave of retirements sets off an unsustainable withdrawal. But that's not a feature of defined benefit vs. defined contribution, rather it's governments who use shady accounting rather than making a small contribution annually.
When you add in the fact that almost everyone who contributes to 401(k)s is well-off (half the population doesn't even have access), it is hard to imagine a method that is less likely to lead to comfortable retirements.
Twenty five years retirement salary, not present salary. If you're retired it's extremely likely you have minimal expenses. Your house should be paid off. Your car, even if still financed is not going to have to commute you to work every day. Healthcare is covered by Medicare.
The maximum 401(k) contribution for 2018 is $18,500. It's gone up $500/yr pretty regularly, but even if you contribute that maximum (~$750 paycheck pre-tax so your take home goes down much less) without an employer match, you can retire on $40k/yr in 24 years. And that's at the conservative 4% figure you mentioned. That doesn't include employer match, which is free money that most people with 401(k) access have. That doesn't include supplemental Roth IRA savings (2018 max of $5,500/yr) which can give you more a favorable tax structure in retirement. And that doesn't include additional savings you can have in a regular brokerage account, on the same securities your 401(k) is on, just without the tax advantages.
The maximum 401(k) contribution for 2018 is $18,500. It's gone up $500/yr pretty regularly, but even if you contribute that maximum (~$750 paycheck pre-tax so your take home goes down much less) without an employer match, you can retire on $40k/yr in 24 years. And that's at the conservative 4% figure you mentioned. That doesn't include employer match, which is free money that most people with 401(k) access have. That doesn't include supplemental Roth IRA savings (2018 max of $5,500/yr) which can give you more a favorable tax structure in retirement. And that doesn't include additional savings you can have in a regular brokerage account, on the same securities your 401(k) is on, just without the tax advantages.
This is super interesting and something I've never thought about.
One other issue I have noticed with 401k's. Do 401k's exacerbate inter-generational income inequality? I know a number of people who are going to, in the next few decades, inherit very sizable 401k accounts. This is great, in that their parents were very frugal, saved well, and had comfortable retirements. But on the flip side, a pension would have died with that person, now there is this ongoing inter-generational transfer of wealth that otherwise wouldn't have occurred.
One other issue I have noticed with 401k's. Do 401k's exacerbate inter-generational income inequality? I know a number of people who are going to, in the next few decades, inherit very sizable 401k accounts. This is great, in that their parents were very frugal, saved well, and had comfortable retirements. But on the flip side, a pension would have died with that person, now there is this ongoing inter-generational transfer of wealth that otherwise wouldn't have occurred.
Inter-generational transfer of wealth is 100% a feature and not a bug. My money was earned through my work. I should be able to dictate to whom it goes when I die. It shouldn't be spread out to help pay for thousands of people I've never met.
That's the up side.
On the flipside, if the person who has a 401k finishes it, and has no more money they will then have to depend on their descendants for their livelihood.
Which can make the living standards of the descendant lower, because now they are taking care of their parent for the rest of their life. Which only gets more expensive the further they go (IE: Illnesses)
On the flipside, if the person who has a 401k finishes it, and has no more money they will then have to depend on their descendants for their livelihood.
Which can make the living standards of the descendant lower, because now they are taking care of their parent for the rest of their life. Which only gets more expensive the further they go (IE: Illnesses)
Considering something like 70% of rich families already spend away their inherited wealth by the second generation (and I think ~90% by third generation) this seems like a small issue to be concerned about...
Hmmm, interesting. Any citation for that number? I've heard numbers like that thrown around, but I don't know where they come from.
Apparently the numbers are from a wealth consultancy, so not exactly free of bias.
http://amp.timeinc.net/time/money/3925308/rich-families-lose...
>Indeed, 70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third, according to the Williams Group wealth consultancy.
I love this "factoid" though:
>“It takes the average recipient of an inheritance 19 days until they buy a new car.”
Anecdotally, I personally have two friends who got inhertences, both immediately spent it on cosmetic surgery.
http://amp.timeinc.net/time/money/3925308/rich-families-lose...
>Indeed, 70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third, according to the Williams Group wealth consultancy.
I love this "factoid" though:
>“It takes the average recipient of an inheritance 19 days until they buy a new car.”
Anecdotally, I personally have two friends who got inhertences, both immediately spent it on cosmetic surgery.
Well average life expectancy in 1978 was 69.6 years, average life expectancy in 2018 is 78.7 years. So the problem with pension obligations is people in general tend to live longer, and the people who live far longer are living longer and there's more of them. Not enough people die young to offset that cost methinks.
And if people are consistently drawing more than they're paying in it's not sustainable. Every solution to that problem has drawbacks. You increase the premiums and fewer people pay in. You lower the benefits and maybe fewer people pay in too. It becomes a hard sell either way.
Compared to a 401k, where the company contributes 3% of an employee's salary (or somesuch) a year as an incentive to participate and if the employee screws themselves, that's their problem. It sounds a bit more attractive I imagine than all the other burdens a company has maintaining a pension program. And being responsible for it and to the recipients in perpetuity...
And you couple that with, not every sort of job operated a pension program even at their heyday. Not having access to a 401k program in 2018 doesn't mean your job would have had a pension program in 1978 either...
And if people are consistently drawing more than they're paying in it's not sustainable. Every solution to that problem has drawbacks. You increase the premiums and fewer people pay in. You lower the benefits and maybe fewer people pay in too. It becomes a hard sell either way.
Compared to a 401k, where the company contributes 3% of an employee's salary (or somesuch) a year as an incentive to participate and if the employee screws themselves, that's their problem. It sounds a bit more attractive I imagine than all the other burdens a company has maintaining a pension program. And being responsible for it and to the recipients in perpetuity...
And you couple that with, not every sort of job operated a pension program even at their heyday. Not having access to a 401k program in 2018 doesn't mean your job would have had a pension program in 1978 either...
This ignores demographic bubbles, such as the boomers retiring right now. When there were a lot of them working, there were a lot paying into the pension (which pays current workers). When there are less of them working there is not enough workers to pay benefits.
If your argument is that people pay into their own retirement as an account, then current people don't get pensions, unless they paid in (which the first group at some point did not do, so back to start).
At some point people must pay in to start, and that group is completely susceptible to the same market failures as before - if the market tanks when a large cohort is about to retire, then there will not be enough to cover them. Tapping the value from those not yet retiring to pay for those retiring will mean there is not significantly less for those not yet retiring.
You also overplay the value needed in a 401k. No one plans to live forever, so planning for a decade or a few after retirement is fine, with an expectation that at some point you may have to live of SS alone. This works fine, and doesn't need a fear inducing 25x salary savings.
Finally, companies fail, and with them pension plans fail. People move jobs a lot, so these pensions need to be mobile. Many pension plans require a decent amount of time to even get one, so people failing to meet that lose value over and over. At least a 401k is their money.
Your solution does not make these problems go away.
A better solution is to have a national pension plan, where everyone pays in, and everyone get some benefits. But that's SS, which already exists. Instead of 401ks and company pensions (why do people tie retirement plans with employers anyways?) increase SS taxes and payments.
If your argument is that people pay into their own retirement as an account, then current people don't get pensions, unless they paid in (which the first group at some point did not do, so back to start).
At some point people must pay in to start, and that group is completely susceptible to the same market failures as before - if the market tanks when a large cohort is about to retire, then there will not be enough to cover them. Tapping the value from those not yet retiring to pay for those retiring will mean there is not significantly less for those not yet retiring.
You also overplay the value needed in a 401k. No one plans to live forever, so planning for a decade or a few after retirement is fine, with an expectation that at some point you may have to live of SS alone. This works fine, and doesn't need a fear inducing 25x salary savings.
Finally, companies fail, and with them pension plans fail. People move jobs a lot, so these pensions need to be mobile. Many pension plans require a decent amount of time to even get one, so people failing to meet that lose value over and over. At least a 401k is their money.
Your solution does not make these problems go away.
A better solution is to have a national pension plan, where everyone pays in, and everyone get some benefits. But that's SS, which already exists. Instead of 401ks and company pensions (why do people tie retirement plans with employers anyways?) increase SS taxes and payments.
The point about individuals needing to guard against the "worst case" of long life, vs an pension de-risking it via large numbers is very interesting, and it's not something I've thought about before.
But pensions seems so ripe for abuse. It's too easy to make optimistic and unkeepable promises about future compensation.
But pensions seems so ripe for abuse. It's too easy to make optimistic and unkeepable promises about future compensation.
Yes, it is easier to screw with a pension than a 401(k), for sure. Countries that have national pension schemes certainly have their share of problems. But the median 401(k) balance for a senior is $65K. That's maybe 2 years living expenses at a median wage of $35K. And half the population doesn't have one at all, so the typical person has saved about 1 year's salary. (I'm not using averages because they are so skewed by the rich people who sock away most of the money.) That typical person would almost certainly be much better off having even a corrupt, inadequate pension plan.
A quick calculation shows that you'd have to save roughly 2.5% of your salary during your working life, earning only 3% over inflation, to accumulate the median 401(k) balance.
A quick calculation shows that you'd have to save roughly 2.5% of your salary during your working life, earning only 3% over inflation, to accumulate the median 401(k) balance.
Individual investors are morons
Speaking of individuals,
4. Individual investors can't sue and otherwise police the companies they hold very effectively. A large fund is in a better position to prosecute fraud and that kind of thing.
Speaking of individuals,
4. Individual investors can't sue and otherwise police the companies they hold very effectively. A large fund is in a better position to prosecute fraud and that kind of thing.
No, corporations shifted the risk to their workers.
While I agree with you, I think it is important to note that defined benefit plans aren't INHERENTLY unsustainable. If you do the math right and are realistic, you can off them. You just can't underfund them or assume unrealistic stock market gains.
> You just can't underfund them or assume unrealistic stock market gains.
You're absolutely correct. You cannot do these things and have functional DB plans.
An issue arises when contemplating the incentives. Every person involved in the up-front planning for DB plans is incentivized to be wildly unrealistic about the future. It's not like anyone doing the negotiating will have any real consequences, so why not offer lower contributions to win your election / union approval / make quarterly numbers?
DC plans have the distinct benefit of helping incentives align. It puts the costs on the balance sheet in the short term, and accountability is much more immediate.
It's not a perfect compromise. For pretty much everyone, ideally run pensions are better. It's just that getting there has proven at best incredibly difficult and unreliable.
You're absolutely correct. You cannot do these things and have functional DB plans.
An issue arises when contemplating the incentives. Every person involved in the up-front planning for DB plans is incentivized to be wildly unrealistic about the future. It's not like anyone doing the negotiating will have any real consequences, so why not offer lower contributions to win your election / union approval / make quarterly numbers?
DC plans have the distinct benefit of helping incentives align. It puts the costs on the balance sheet in the short term, and accountability is much more immediate.
It's not a perfect compromise. For pretty much everyone, ideally run pensions are better. It's just that getting there has proven at best incredibly difficult and unreliable.
They're unsustainable because they require the ability to predict what will happen in the world 10,20,30+ years into the future, a feat that no one is capable of, hence the decline of defined benefit pensions. Except for those that can lean on taxpayers to make up for the miscalculations and erroneous assumptions.
If it was true that we can't predict the future well enough to provide a fixed income, then annuities wouldn't be a thing. We are certainly capable of predicting the future well enough to do it, the problem is that current management often has an incentive to be too optimistic about future returns when deciding how much to fund a pension. Annuity companies don't have those rose colored glasses, so they do a better job.
>> then annuities wouldn't be a thing.
Annuities are not pensions. They pay fixed amounts based on some interest rate. The difference is in the lifetime of the beneficiary. We all die eventually, normally befor hitting 100. Short of magic, that isn't going to change much.
The difference with a defined benefit retirement plan is that the cost of benefits can rise drastically. Look at the difference in the cost of health care today and in 1960.
Annuities are not pensions. They pay fixed amounts based on some interest rate. The difference is in the lifetime of the beneficiary. We all die eventually, normally befor hitting 100. Short of magic, that isn't going to change much.
The difference with a defined benefit retirement plan is that the cost of benefits can rise drastically. Look at the difference in the cost of health care today and in 1960.
There are also inflation adjusted annuities. If you think this through, I don’t think you will see a dramatic difference.
If no one can predict what will happen 10, 20, 30+ years in to the future, why is it okay when we're subjecting individuals' retirements to that same inability to predict the future?
Theoretically, so they have skin in the game and that would prevent the endemic fraud in taxpayer funded pensions like we have. Realistically, you should be cultivating social capital by way of raising a family or networking with useful people if you really want a secure future.
What does the math look like to you? I mean, back when I was a teenager I realized that this century is different, I shouldn't expect to do what my dad did and end up (albeit through a series of acquisitions / mergers) at the same company for 30-something years with a payout plan at the end. Sometime in 2012 I saw this article[0] which starts off:
"The average lifespan of a company listed in the S&P 500 index of leading US companies has decreased by more than 50 years in the last century, from 67 years in the 1920s to just 15 years today"
I doubt things look any rosier 6 years later. So what does the math look like when the firm lifespan of the most profitable companies is quite a bit less than the lifespan of someone's useful working period?
[0] https://www.bbc.com/news/business-16611040
"The average lifespan of a company listed in the S&P 500 index of leading US companies has decreased by more than 50 years in the last century, from 67 years in the 1920s to just 15 years today"
I doubt things look any rosier 6 years later. So what does the math look like when the firm lifespan of the most profitable companies is quite a bit less than the lifespan of someone's useful working period?
[0] https://www.bbc.com/news/business-16611040
It means we shouldn't tie retirements to the company you are working for.
Who is "we"? I'm curious how you propose to do the math right so that you, as an employer, can offer a plan that resembles a pension, and if it ends up being any different in practice than contributing to a 401k (which does transfer with jobs so is independent of your company).
'We' being society. I think we put too much responsibility onto companies, expecting them to provide health insurance and retirement benefits to employees. Both of those things should not be tied to your job.
...And then gradually reduced their employer contributions to said plans to a pittance, or even zero.
At that point, you might as well do your own thing with Vanguard or Fidelity. The net result is the company got rid of the retirement plan, and started reselling other companies' commercial retirement plan products to their employees.
At that point, you might as well do your own thing with Vanguard or Fidelity. The net result is the company got rid of the retirement plan, and started reselling other companies' commercial retirement plan products to their employees.
Even if your employer's contribution is zero there's significant tax benefits for contributing to a 401(k) vs "doing your own thing with Vanguard or Fidelity."
You can also "do your own thing with Vanguard or Fidelity" in an IRA, which has the tax benefits of a 401(k), however, the yearly contribution limits are unreasonably low, especially compared to a 401(k).
You can also "do your own thing with Vanguard or Fidelity" in an IRA, which has the tax benefits of a 401(k), however, the yearly contribution limits are unreasonably low, especially compared to a 401(k).
Conceptually, the company is no longer contributing anything towards employee retirement. They are a transparent entity, ticking off the minimum requirements to realize the benefits from section 401(k), and don't do anything beyond telling the payroll company to divert X amount from the employee's paycheck, managed by that company, to their retirement fund account, managed by yet another company.
If there is no employer contribution, you essentially already are doing your own thing, except with whomever your company picked to be the retirement benefits manager, instead of it being your own choice. So you create your own IRA at the company you pick, and roll over everything from your employer's 401(k) into it every time you switch jobs.
If there is no employer contribution, you essentially already are doing your own thing, except with whomever your company picked to be the retirement benefits manager, instead of it being your own choice. So you create your own IRA at the company you pick, and roll over everything from your employer's 401(k) into it every time you switch jobs.
Let me be clear: hallow retirement plans really grind my gears. So much so that I strongly believe they should be illegal, either offer a real retirement plan or don't offer one at all. Minimum employer contributions should absolutely be mandatory.
I also think that IRA and 401(k) contribution limits should be combined, so none of this "$5,500 IRA limit and $18,500 401(k) limit," it should be "$24,000 combined 401(k)/IRA limit."
I was just saying that if you are young and have $10,000 a year to save for retirement you are better off, from a tax perspective, saving $5,500 into an IRA and $4,500 in your hallow 401(k) rather than saving $5,500 into an IRA and $4,500 in your Fidelity brokerage account. That's it.
I also think that IRA and 401(k) contribution limits should be combined, so none of this "$5,500 IRA limit and $18,500 401(k) limit," it should be "$24,000 combined 401(k)/IRA limit."
I was just saying that if you are young and have $10,000 a year to save for retirement you are better off, from a tax perspective, saving $5,500 into an IRA and $4,500 in your hallow 401(k) rather than saving $5,500 into an IRA and $4,500 in your Fidelity brokerage account. That's it.
I think we're actually saying the same thing from two different directions.
My concern is that companies that offer a hollow 401(k) are actually getting some kind of kickback for forcing all of their employees to one company as their retirement benefits manager, or to a specific subset of portfolio options with that company, and the employees have no effective recourse, because of the separate contribution limits.
If the limits were combined, there would be no reason whatsoever to insert the no-contribution employer as middleman into retirement planning, or even to deposit more into the employer-sponsored plan than the maximum matching amount. Most of the companies are implicitly saying "you're on your own after you retire", but the law still says you have to invest through your employer to min/max your retirement plan. Given that many of them will dump employees long before retirement age anyway, it makes less and less sense for any retirement account to inexplicably have an employer's corporate logo pasted onto it.
My concern is that companies that offer a hollow 401(k) are actually getting some kind of kickback for forcing all of their employees to one company as their retirement benefits manager, or to a specific subset of portfolio options with that company, and the employees have no effective recourse, because of the separate contribution limits.
If the limits were combined, there would be no reason whatsoever to insert the no-contribution employer as middleman into retirement planning, or even to deposit more into the employer-sponsored plan than the maximum matching amount. Most of the companies are implicitly saying "you're on your own after you retire", but the law still says you have to invest through your employer to min/max your retirement plan. Given that many of them will dump employees long before retirement age anyway, it makes less and less sense for any retirement account to inexplicably have an employer's corporate logo pasted onto it.
I think you might be missing astura 's point: you are essentially doing your own thing, restricted to the investment choices your company made HOWEVER, the government gives you a tax break on it that is much bigger than the tax break they would offer if you just did an IRA at the company you picked.
I think it points out the dangers of government regulating too closely, but it IS a valid point.
I think it points out the dangers of government regulating too closely, but it IS a valid point.
Sure, but the fuller picture is more like this.
Nearly every major industrialized nation's infrastructure was bombed to hell after WW2, except America. To the victor went the spoils, and so our economy boomed to a much much greater degree than it would have otherwise.
This lasted for a generation or two, and certain aspects of that capitalist feeding frenzy were enshrined as cultural values.
The idea that there was a social contract between employers and employees, and that an average hard working American wouldn't be tossed out on the street if they got sick, would have a house to live in and would not have to toil in their old age, was baked into America. If you work hard and you're loyal, you'll be ok.
However, where that was seen as a Governmental function after the Great Depression, in the boom years after WW2, the economy was simply flooded with money.
When there's that much money and opportunity around, it's easy to start thinking that the Government was the problem. That the social contract would always remain, and that we could trust our bosses who we knew and worked with every day far more than some politically motivated government bureaucrat.
Corporations bought the politicians. Then the politicians passed laws to make the bribery legal. Then slowly those post WW2 culturally enshrined easy answers became law.
Now we have people seriously talking about "trickle down" economics as if it were a real thing. Because it was kinda like that in the 50's when we were the only major industrial powerhouse in the world.
Now we've privatized nearly our entire healthcare system, because in the 50's hell, going to the doctor was cheap and how could that be anyone's problem but yours?
And now we have no retirement plans other than "we will let you put some of your own money into the stock market tax free, but hey if the market tanks you're on your own bruh! (even though you had zippy control over that)"
Again, because maybe that would have made sense in the 50's and 60's, and god knows if anything might have seemed true in that era it must be the word of God himself.
The problem of course, is that now that the winning team picks the referees, there's pretty much no way out of this. The government SHOULD be providing healthcare, and decent retirement so that business doesn't have this burden.
But then it'd be too easy to start new businesses. The referees picked by the last winning team aren't too keen on that.
Nearly every major industrialized nation's infrastructure was bombed to hell after WW2, except America. To the victor went the spoils, and so our economy boomed to a much much greater degree than it would have otherwise.
This lasted for a generation or two, and certain aspects of that capitalist feeding frenzy were enshrined as cultural values.
The idea that there was a social contract between employers and employees, and that an average hard working American wouldn't be tossed out on the street if they got sick, would have a house to live in and would not have to toil in their old age, was baked into America. If you work hard and you're loyal, you'll be ok.
However, where that was seen as a Governmental function after the Great Depression, in the boom years after WW2, the economy was simply flooded with money.
When there's that much money and opportunity around, it's easy to start thinking that the Government was the problem. That the social contract would always remain, and that we could trust our bosses who we knew and worked with every day far more than some politically motivated government bureaucrat.
Corporations bought the politicians. Then the politicians passed laws to make the bribery legal. Then slowly those post WW2 culturally enshrined easy answers became law.
Now we have people seriously talking about "trickle down" economics as if it were a real thing. Because it was kinda like that in the 50's when we were the only major industrial powerhouse in the world.
Now we've privatized nearly our entire healthcare system, because in the 50's hell, going to the doctor was cheap and how could that be anyone's problem but yours?
And now we have no retirement plans other than "we will let you put some of your own money into the stock market tax free, but hey if the market tanks you're on your own bruh! (even though you had zippy control over that)"
Again, because maybe that would have made sense in the 50's and 60's, and god knows if anything might have seemed true in that era it must be the word of God himself.
The problem of course, is that now that the winning team picks the referees, there's pretty much no way out of this. The government SHOULD be providing healthcare, and decent retirement so that business doesn't have this burden.
But then it'd be too easy to start new businesses. The referees picked by the last winning team aren't too keen on that.
Thanks for the historical perspective. Now what about times before 1950's, when societies were typically /not/ flooded with money? You mention that "The government SHOULD be providing healthcare, and decent retirement". Was that the norm before 1950's anywhere? If yes, how did the math work out?
I believe longer lifespans coupled with generous safety net provided by the government is a historical anomaly, propped up due to the growth spurt that happened post great depression + ww2. Now that things are reverting back to historical norms, we should rethink the way society is structured.
I believe longer lifespans coupled with generous safety net provided by the government is a historical anomaly, propped up due to the growth spurt that happened post great depression + ww2. Now that things are reverting back to historical norms, we should rethink the way society is structured.
> Now what about times before 1950's, when societies were typically /not/ flooded with money?
Social welfare such as the old age pension and disability pensions were starting to be eased before that. In Britain and it's colonies it was just after the turn of the century. (Not idea re: the USA.) They were basic, but you wouldn't starve.
> Now that things are reverting back to historical norms, we should rethink the way society is structured.
Or should we fight against reverting to historical norms? I'm not so keen on seeing our quality of life and life expectancy decline.
Social welfare such as the old age pension and disability pensions were starting to be eased before that. In Britain and it's colonies it was just after the turn of the century. (Not idea re: the USA.) They were basic, but you wouldn't starve.
> Now that things are reverting back to historical norms, we should rethink the way society is structured.
Or should we fight against reverting to historical norms? I'm not so keen on seeing our quality of life and life expectancy decline.
Totally unrelated to the continually growing multiple of executive compensation over employees, I'm sure.
Were those retirement plans fully funded over their years of employment, or were they kicking the can down the road with "We'll make big retirement promises and in 30 years when the $XXX,XXX,XXX bill comes due it'll be someone else's problem"?
I once saw an interesting research report comparing publicly traded companies based on their outstanding pension / retirement plan debt. The investment thesis was essentially advocating for shorting the companies with the largest under-funding of said plans, based on the assumption that a company that didn't give a crap about its employees probably wouldn't stand the test of time.
Maybe said underfunded pension funds should buy large leveraged short positions in their parent companies and cash out after announcing an impending pension shortfall.
This probably violates a bunch of SEC regulations.
This probably violates a bunch of SEC regulations.
Retirement plans at the time of your grandfathers started in a good state: low unfunded liabilities, high population growth and lower life expectancy after retirement than today. Thus such plans were generous.
In fact, they now seem way too generous: paying such obligations accumulated large unfunded financial liabilities (6 trillion is an estimate I saw a few times), which shows them as unsustainable. This means that the pensions of your grandfathers paid a lot of money of your children, so their parents (us) struggle to fix this.
The solution is not more of the same defined benefit schemes to stick our children with still bigger bills. We must do something else (defined contribution? variable benefit?)
In fact, they now seem way too generous: paying such obligations accumulated large unfunded financial liabilities (6 trillion is an estimate I saw a few times), which shows them as unsustainable. This means that the pensions of your grandfathers paid a lot of money of your children, so their parents (us) struggle to fix this.
The solution is not more of the same defined benefit schemes to stick our children with still bigger bills. We must do something else (defined contribution? variable benefit?)
Fixed percent of company income put into a shared fund.
"for the sake of profit" [citation needed]
Maybe it was for the sake of actually being a going concern? I see no proof that this was ever sustainable (nor do I see proof that it absolutely wasn't, I'm just saying, what are the numbers involved?)
Was the model ever solvent? Or did your grandfathers benefit from the money being pumped into the system during their successors' years, successors who would never have that same benefit?
That said, the idea that you "don't have a choice" in saving for retirement (that is to say, perhaps a pension program that's less generous) has something going for it. There's a reason NFL players go bankrupt. None of us are particularly good at intuitively understanding future needs and planning for the future.
Maybe it was for the sake of actually being a going concern? I see no proof that this was ever sustainable (nor do I see proof that it absolutely wasn't, I'm just saying, what are the numbers involved?)
Was the model ever solvent? Or did your grandfathers benefit from the money being pumped into the system during their successors' years, successors who would never have that same benefit?
That said, the idea that you "don't have a choice" in saving for retirement (that is to say, perhaps a pension program that's less generous) has something going for it. There's a reason NFL players go bankrupt. None of us are particularly good at intuitively understanding future needs and planning for the future.
I have question regarding 'retirement plans' if you don't work for govt.
1. Do your retirement plans transfer between companies.
2. What happens to your retirement plan if the company goes down under.
1. Do your retirement plans transfer between companies.
2. What happens to your retirement plan if the company goes down under.
Assuming you're asking about traditional defined benefit pensions (as someone else answered for 401(k)s).
1. Not generally (ever?). This is one reason why traditional pensions are less attractive these days. Pensions were really a product of a world where someone worked for GM for their whole career or at least a long period of time. (Pensions tend to be constructed so that they rewarded long stints at one or two companies rather than short stints at a bunch of companies.)
2. It's probably safe. There's various legislation around private pensions and, at least as a last resort, the pension of a bankrupt company could be taken over by the Pension Benefit Guaranty Corp.
1. Not generally (ever?). This is one reason why traditional pensions are less attractive these days. Pensions were really a product of a world where someone worked for GM for their whole career or at least a long period of time. (Pensions tend to be constructed so that they rewarded long stints at one or two companies rather than short stints at a bunch of companies.)
2. It's probably safe. There's various legislation around private pensions and, at least as a last resort, the pension of a bankrupt company could be taken over by the Pension Benefit Guaranty Corp.
1. Retirement plans aren't tied to companies necessarily. Usually the company contributes money into a bank account, that you keep after you leave the company.
2. Doesn't really matter as long as the bank with the account is still around. Once you leave the company, they no longer contribute to your retirement account.
(I'm specifically talking about 401k retirement accounts.)
2. Doesn't really matter as long as the bank with the account is still around. Once you leave the company, they no longer contribute to your retirement account.
(I'm specifically talking about 401k retirement accounts.)
First off, you're mistaken. In general, baring disability, you don't collect a military retirement for under 20 years of service. You do get a TSP, but that's contributions made by the sailor, the Navy doesn't contribute to that.[1][2] Sounds like either your grandpa got military disability benefits, you misunderstood what a TSP was, or he might have even been lying to you.[3]
You choose to drain your retirement early, if you didn't have that option (in other words, your employer controlled your retirement instead of you) you wouldn't magically get extra money to pay for cancer treatments - your retirement portion of your salary would just be unavailable for you to use. Just because you didn't use your retirement account for its intended purpose, that doesn't mean that defined contribution retirement plans are "broken."
In general, its probably not a great idea to drain retirement accounts to pay for bills, as they have some protection from creditors... at least talk with a bankruptcy attorney beforehand. I would personally rather declare bankruptcy than drain my retirement accounts.
It might just be me but I'd prefer controlling my money over my employer doing so, my employer might not even be around in five years. You can't prevent your employer from "investing" your retirement fund into Bernie Madoff's pyramid scheme[4], but you can prevent yourself from doing that. In the past I've worked at places where I don't trust upper management to make the right financial decisions. I'm glad I have a 401(k) because I can collect significant tax benefits from maxing it out.
Your wife obviously isn't going to get a retirement saying home with the kids with or without employee controlled pension, so I don't understand what that complaint is about? Or how it relates to retirement accounts.
In my opinion, if your employer offers a 401(k) they should be legally required to a) be opt out rather than opt in and b) be legally required to contribute some amount. That would fix some issues with people not prioritizing saving for retirement, however, unless you make draining your retirement account illegal then you aren't going to prevent people from doing dumb stuff.[5]
[1] They have actually changed that recently, a few years ago they introduced a new defined TSP contribution option that you may opt into instead of the defined benefit option.
[2] Some exceptions apply for war vets living in poverty
[3] I'm so sorry to bring up that possibility, I don't want to be mean, but its a fact that most people who claim to be in the special forces are lying, its a common thing.
[4] The NY Mets lost a bunch of money in Bernie Madoff's pyramid scheme.
[5] Dumb stuff being the guy I know who cashed out his retirement account to buy furniture.
You choose to drain your retirement early, if you didn't have that option (in other words, your employer controlled your retirement instead of you) you wouldn't magically get extra money to pay for cancer treatments - your retirement portion of your salary would just be unavailable for you to use. Just because you didn't use your retirement account for its intended purpose, that doesn't mean that defined contribution retirement plans are "broken."
In general, its probably not a great idea to drain retirement accounts to pay for bills, as they have some protection from creditors... at least talk with a bankruptcy attorney beforehand. I would personally rather declare bankruptcy than drain my retirement accounts.
It might just be me but I'd prefer controlling my money over my employer doing so, my employer might not even be around in five years. You can't prevent your employer from "investing" your retirement fund into Bernie Madoff's pyramid scheme[4], but you can prevent yourself from doing that. In the past I've worked at places where I don't trust upper management to make the right financial decisions. I'm glad I have a 401(k) because I can collect significant tax benefits from maxing it out.
Your wife obviously isn't going to get a retirement saying home with the kids with or without employee controlled pension, so I don't understand what that complaint is about? Or how it relates to retirement accounts.
In my opinion, if your employer offers a 401(k) they should be legally required to a) be opt out rather than opt in and b) be legally required to contribute some amount. That would fix some issues with people not prioritizing saving for retirement, however, unless you make draining your retirement account illegal then you aren't going to prevent people from doing dumb stuff.[5]
[1] They have actually changed that recently, a few years ago they introduced a new defined TSP contribution option that you may opt into instead of the defined benefit option.
[2] Some exceptions apply for war vets living in poverty
[3] I'm so sorry to bring up that possibility, I don't want to be mean, but its a fact that most people who claim to be in the special forces are lying, its a common thing.
[4] The NY Mets lost a bunch of money in Bernie Madoff's pyramid scheme.
[5] Dumb stuff being the guy I know who cashed out his retirement account to buy furniture.
It is about choices. Having 5 kids was a choice.
I have to agree with you. I always took a very conservative approach and divested my company shares in order to diversify, even before I retired. In my case, the pain came not from stock losses, but from their gains. I "lost" so much by selling shares too soon. But now I am diversified and can survive a loss of my holding in my (former) companies shares (I still own some).
Decisions can only be judged in the context within which they were made.
Diversifying is a wise move for strongly mitigating downside risk.
One of the wisest and thoughtful people I know was a long-time and early employee at a major tech company. That friend did exactly the same thing, diversifying early. It is difficult to overstate how successful he has become in life; success need not be measured in dollars.
Diversifying is a wise move for strongly mitigating downside risk.
One of the wisest and thoughtful people I know was a long-time and early employee at a major tech company. That friend did exactly the same thing, diversifying early. It is difficult to overstate how successful he has become in life; success need not be measured in dollars.
Right? If we judge every decision by the actual results instead of the information we had at the time, everyone made a stupid decision by not buying a lottery ticket that had the correct numbers on them yesterday.
I feel like framing your first sentence and put it a place where I can see/show it everyday !
yours (and parent's) comments is why I like HN
The whole reason stocks where invented was so that you could spread the risk. Instead of owning 100% in one ship, you owned stock in many ships, so if one ship sank you didn't loose it all.
Huh? Stocks (shares) were invented to raise capital for businesses.
I think GP was talking about the historical (1600s) perspective, in which stock was literally created for both raising capital and reducing risk in maritime stuff (specifically East India company).
Yes, so that many people can invest in the business. And the investors invest in many businesses.
This looks like a failure with portfolio construction to me
I’m sure that’s a very useful piece of advice for a Worker for whom “construction” means, you know, actually making stuff, not financial trickery
I’m sure that’s a very useful piece of advice for a Worker for whom “construction” means, you know, actually making stuff, not financial trickery
I've always sold my company stocks soon as they were received. Then reinvested those funds in in either Vanguard index funds, or paying off school loans. Makes zero sense to tie up your entire income to one company. Your weekly paycheck, AND stocks are totally reliant on the same company performance.
this may be an unpopular opinion (especially if the stock is doing well) but I've also done the exact same thing (sell on vest + diversify).
It’s a conservative play but an understandable one for older employees: it’s usually too risky to both work at a company and hold its stock.
Diversify also means more than stocks and bonds... land, art, apartment buildings, laundromats, etc.
https://www.betterment.com/resources/should-i-own-stock-in-t...
Diversify also means more than stocks and bonds... land, art, apartment buildings, laundromats, etc.
https://www.betterment.com/resources/should-i-own-stock-in-t...
Same. It’s the reason I own a house now (cash for 30% down payment in overheated market), and retirement savings are also pretty healthy due to cashing out company stock as soon as it vests.
Also means I can walk any time I want, most I’d lose out on was next year’s RSUs.
Also means I can walk any time I want, most I’d lose out on was next year’s RSUs.
if you think your company will outperform in the short term you could set up a stop loss limit to allow only a certain percentage of loss in your company stock that way you are only exposed to upside
limits are usually a guarantee you will sell at the very bottom of a crash. There are much better ways to diversify.. such as what others said - sell on the day you vest and buy an index fund.
>> if you think your company will outperform in the short term...
I believe no one can reliable predict which way a stock is likely to go. If there is a way to predict, only a few people know, and that prediction is soon baked into the stock price.
I believe no one can reliable predict which way a stock is likely to go. If there is a way to predict, only a few people know, and that prediction is soon baked into the stock price.
[deleted]
Remember to set up auto-sale folks.
Your retirement returns will be less than selling at a lifetime high price of whoever you work for.
But you will not sell at the lifetime high price. Please don't forget to sell at all.
Your retirement returns will be less than selling at a lifetime high price of whoever you work for.
But you will not sell at the lifetime high price. Please don't forget to sell at all.
It took a lawsuit for my employer (Honeywell) to allow moving (out of Honeywell stock) of matched contributions. I still keep about 20% in company stock. It has done very well and pays a good dividend. To think that we were almost bought by GE years ago.
If you are a rank and file employee, I would suggest divesting entirely from your company's stock. From a risk perspective it's extremely dangerous as you are already dependent on your employer for your source of income. In the case that they do poorly you have the potential to lose both your income and your savings. Unless you have the ability to seriously affect the stock price, you are putting too many eggs into a single basket.
There's no need to divest entirely, assuming a reasonable portion (say, no more than 3-5%) of total holdings is in company stock. That said, I have heard someone in my company say they refuse to invest in tech stocks at all, because they're concerned about a sector-wide downturn taking out both their job and their investment gains. I think that's a bit of an extreme position, but I understand where it's coming from.
It seems extreme but if you don't have enough other savings to bridge 1-2 years of joblessness I think it's very reasonable. The tech sector might tank and come back but you need enough breath to wait for recovery.
Not sure that's universally a good idea. Rank-and-file may still have inside information that makes holding stock advantageous (obviously adhering to any applicable insider trading rules). If your skillset is highly portable, you can probably consider your income decoupled from your employer. Your equity with your employer could then be considered high-risk moonshot investment.
But I certainly agree that your core nest egg and growth investment be kept totally decoupled.
But I certainly agree that your core nest egg and growth investment be kept totally decoupled.
With matched contributions it's a hard choice. You are effectively buying stock at a huge discount, having up to say say 20% of your savings in the company stock is very likely to be a good idea. You just need to be selling it ASAP.
I don't consider 20% as having all the eggs in one basket. I sold it all at $80 years ago, thinking it was too high (it was at $20 when I started in mid 90's). I'd be up several $100k if I had not sold it.
>I still keep about 20% in company stock. It has done very well and pays a good dividend. To think that we were almost bought by GE years ago.
I'm curious why you keep so much in Honeywell stock? For a very long time GE was a great company to have that would routinely give nice returns and dividends, and then things went downhill. Layoffs happened, and those people were faced with much lower portfolio valuations if they were heavily weighted in the company they work for.
I'm curious why you keep so much in Honeywell stock? For a very long time GE was a great company to have that would routinely give nice returns and dividends, and then things went downhill. Layoffs happened, and those people were faced with much lower portfolio valuations if they were heavily weighted in the company they work for.
$2.3k/year in reinvested dividends.
$18.5k contribution + $10.5k employee match + $2.3k dividends. The dividends are like an additional 7% bump in contribution.
$18.5k contribution + $10.5k employee match + $2.3k dividends. The dividends are like an additional 7% bump in contribution.
I've never understood why people care so much about dividends. The stock price drops by the amount of the dividend on the ex-date, so a stock with dividends that are always reinvested is equivalent to a stock that never pays any dividends. (Unless you're holding it in a taxable account, in which case you have to pay taxes on the dividend and actually come out behind).
I like dividend stocks because it is automatically increasing my number of shares in a stock I like, and thereby 'bakes in' the gains. A stock that doesn't have dividends must be sold in order to reap profits, and as a novice investor I never know when to sell.
Or, at a minimum, at least don't get too greedy. I got (somewhat) lucky with the dot-com crash. My prior employer's stock (which I had been accumulating over a decade from a previous employer who got purchased) lost about 95% of its value. Fortunately, I had sold some and the stock did end up recovering a bit.
> He left GE with an annual pension of $85,000 and company stock valued at more than $280,000.
> Retirement looked pretty good until GE shares collapsed. His shares are now worth about $110,000, prompting a late-life job hunt.
I don't understand; it says he has an $85,000 pension. Isn't that more than enough to retire on? His stocks collapsed to about half their worth (roughly $110,000). This isn't exactly a crazy one off scenario; if you are invested in a single company and do not diversify, it's hard to place the blame on "others" and "complain" about having to find another job after keeping an almost six figure pension at the same time.
Is there a chance that GE could forfeit on their pension payout requirements if they lose more capital? Not sure how that works so forgive my ignorance.
> Retirement looked pretty good until GE shares collapsed. His shares are now worth about $110,000, prompting a late-life job hunt.
I don't understand; it says he has an $85,000 pension. Isn't that more than enough to retire on? His stocks collapsed to about half their worth (roughly $110,000). This isn't exactly a crazy one off scenario; if you are invested in a single company and do not diversify, it's hard to place the blame on "others" and "complain" about having to find another job after keeping an almost six figure pension at the same time.
Is there a chance that GE could forfeit on their pension payout requirements if they lose more capital? Not sure how that works so forgive my ignorance.
The pension is 70% funded, so he can only count on $59500/year actually being there. The likely scenario would be that all pensioners take the same percentage of haircut as the pension obligation is transferred to another company.
If he cashed out of GE and went into index funds, the stock portfolio would be conservatively worth another $3300 a year.
That's still $62800/year. If he owns his home, that amount can fund his retirement, until his first major medical expense.
If he cashed out of GE and went into index funds, the stock portfolio would be conservatively worth another $3300 a year.
That's still $62800/year. If he owns his home, that amount can fund his retirement, until his first major medical expense.
US pensions are a guaranteed benefit, insured by the US government. If GE defaults on the pension, the US government says they will step in as trustee and will pay him the full $85,000/year.
Ref: https://www.pbgc.gov/
Ref: https://www.pbgc.gov/
This isn't completely correct. The pension is insured but the maximum monthly benefit depends on a lot of factors. Zabroski is 61 and receives $7k per month, the PBGC won't pay that much unless GE's pension goes bankrupt when he is 67.
https://www.pbgc.gov/wr/benefits/guaranteed-benefits/maximum...
https://www.pbgc.gov/wr/benefits/guaranteed-benefits/maximum...
In the article it says he's still paying a mortgage and his wife is disabled. So I would imagine there are quite a few medical expenses on top of that.
Quote from the article:
> “Employees need to think very carefully about investing their own money beyond 10% in company stock,” said Corey Rosen, founder of the National Center for Employee Ownership, a nonprofit that works with companies. “If you are looking at retirement, then diversification is a good thing.”
The whole article seems to be "People trusted GE stock way too much; it went down and they lost massively". This is another reason to be informed and proactive about the basics of finances and where your money really is. Perhaps I sound too harsh, but I simply fail to understand how all these people thought that holding 6 figure amounts in a single stock was a good idea? I just do not get it... wouldn't any financial planner have recommended diversification?
> “Employees need to think very carefully about investing their own money beyond 10% in company stock,” said Corey Rosen, founder of the National Center for Employee Ownership, a nonprofit that works with companies. “If you are looking at retirement, then diversification is a good thing.”
The whole article seems to be "People trusted GE stock way too much; it went down and they lost massively". This is another reason to be informed and proactive about the basics of finances and where your money really is. Perhaps I sound too harsh, but I simply fail to understand how all these people thought that holding 6 figure amounts in a single stock was a good idea? I just do not get it... wouldn't any financial planner have recommended diversification?
It's worth remembering that once upon a time, at least, there was no such thing as index investing or even low cost investing. Trades & brokers were expensive, and shares were frequently literally pieces of paper. My father still has paper shares from that age. They live in a bank vault. Buying stock directly from your employer skipped the broker & Wall Street.
We all know picking stocks is perilous- but what do you if it's 1970, six years before VFINX was even created? You pick your own stocks, hire a broker, or buy expensive mutual funds. Don't feel like a good stock picker? The safe play, of course, is to buy big reputable companies with a long history of stable stock- see, GE.
Anyway, I just wanted to point out it was something of a different world back then. I think it wasn't even that long ago that you typically still had to buy whole shares of things. Which, as I'm sure you can imagine, is a big part of why DRIP is another recent phenomenon.
We all know picking stocks is perilous- but what do you if it's 1970, six years before VFINX was even created? You pick your own stocks, hire a broker, or buy expensive mutual funds. Don't feel like a good stock picker? The safe play, of course, is to buy big reputable companies with a long history of stable stock- see, GE.
Anyway, I just wanted to point out it was something of a different world back then. I think it wasn't even that long ago that you typically still had to buy whole shares of things. Which, as I'm sure you can imagine, is a big part of why DRIP is another recent phenomenon.
That's a great point and thanks for making it. Totally forgot that index funds and electronic trading are very recent phenomena.
> Perhaps I sound too harsh, but I simply fail to understand how all these people thought that holding 6 figure amounts in a single stock was a good idea?
Indeed. But yet people in this thread are advising moving it all to just a single index fund.
While index funds are somewhat diversified many suffer from over-investment into specific industries like tech. If the .COM bubble burst again tomorrow several of the most popular index funds with be hit hard...
For example, look at the popular Vanguard Total Stock Market Index Fund, 20% in Technology, and 20% in financial, but if you dig into the financial portfolio you'd realize that a pop in tech would also sink many of the investment companies in financial too.
I guess what I am saying is, an index fund is better than a single company holding, but it isn't a broadly diversified portfolio. If you want a diversified portfolio it will cost you, since many of the alternatives don't perform as well (e.g. international index funds, small-cap, etc).
Indeed. But yet people in this thread are advising moving it all to just a single index fund.
While index funds are somewhat diversified many suffer from over-investment into specific industries like tech. If the .COM bubble burst again tomorrow several of the most popular index funds with be hit hard...
For example, look at the popular Vanguard Total Stock Market Index Fund, 20% in Technology, and 20% in financial, but if you dig into the financial portfolio you'd realize that a pop in tech would also sink many of the investment companies in financial too.
I guess what I am saying is, an index fund is better than a single company holding, but it isn't a broadly diversified portfolio. If you want a diversified portfolio it will cost you, since many of the alternatives don't perform as well (e.g. international index funds, small-cap, etc).
That's why people close to retirement or who are in retirement need to change their asset allocation. Nobody is suggesting a retiree should hold 100% equities.
Enron should have taught people not to keep all their investments in employer stock. My question about this article is he has an $85,000 annual pension with $280k in stock that sank to $110k in value. At 4%, the $280k would return an additional $11,200 per year. That would be reduced to $4,400, a drop of less than 10% of his annual income. For this he has to find a job?
Pensions end up tied to the health of the company too. Though they have some protection in law, in practice there is still significant risk with company pensions. There are cases when pensions promised healthcare but cut back later:
"GE revised its GE Medicare Benefit Plans handbook in 2012, underscoring the right to 'terminate, amend or replace the programs or plans, in whole or in part (subject to applicable contractual requirements), at any time and for any reason,' according to records in a 2014 lawsuit by two former GE employees, alleging that GE violated an implied obligation to provide continued health-care coverage. The clause existed in all previous versions of the handbook as well, GE said."
http://www.thefiscaltimes.com/2015/08/04/GE-Saved-Billions-C...
All the more reason to diversify retirement funds which one has that option.
"GE revised its GE Medicare Benefit Plans handbook in 2012, underscoring the right to 'terminate, amend or replace the programs or plans, in whole or in part (subject to applicable contractual requirements), at any time and for any reason,' according to records in a 2014 lawsuit by two former GE employees, alleging that GE violated an implied obligation to provide continued health-care coverage. The clause existed in all previous versions of the handbook as well, GE said."
http://www.thefiscaltimes.com/2015/08/04/GE-Saved-Billions-C...
All the more reason to diversify retirement funds which one has that option.
Frontline did a nice story on this
https://www.pbs.org/wgbh/frontline/film/retirement-gamble/
https://www.pbs.org/wgbh/frontline/film/retirement-gamble/
Seems like an $85k/yr pension should be more than enough to retire on.
This is all smoke and no fire. The article's subject complains about his account value falling from $280k to $110k in value, meanwhile his pension has a net present value in the millions. I'm surprised this made it by the WSJ editors.
> I'm surprised this made it by the WSJ editors.
Why does that surprise you? Obviously the misleading and clickbaity headline will be chosen over the honest headline.
Why does that surprise you? Obviously the misleading and clickbaity headline will be chosen over the honest headline.
Roughly $140 billion in GE stock-market wealth was lost in the past year
And in 30 years it'll be worth $40k a year anyway.
No kidding, at a 4% safe withdrawal rate, that's the same as a $2+ million nest egg.
That said, I think he's concerned that, given GE's trajectory, the pension will evaporate. What then?
That said, I think he's concerned that, given GE's trajectory, the pension will evaporate. What then?
He might look into buying pension insurance.
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making the assumption the pension sticks around through the next recession..
look at those who had a GM pension...
look at those who had a GM pension...
Speaking from experience (father worked at GE for roughly the same time as this guy and is around his age), anyone who worked at GE for 40 years - even the lowliest hourly employee - should have a massive pension and/or retirement plan - and company health insurance to boot.
He didn't diversify. He definitely could have afforded to pay a money manager on a GE salary.
At least he has that fat $85k/yr pension!
He didn't diversify. He definitely could have afforded to pay a money manager on a GE salary.
At least he has that fat $85k/yr pension!
Don't bet it all on one horse if you can help it.
A lot of folks got screwed this way. Being a company lifer is risky.
Got a non paywall link?
This is cool, thanks for sharing this site (archive.is).
Does this work because your browser was logged into a paid WSJ account before you used archive.is to log the page? Or is it only because WSJ's paywall allows archiving sites to read full articles as a matter of policy?
Just curious to know how reliable this solution might be for other sites.
Does this work because your browser was logged into a paid WSJ account before you used archive.is to log the page? Or is it only because WSJ's paywall allows archiving sites to read full articles as a matter of policy?
Just curious to know how reliable this solution might be for other sites.
WSJ allows archiving sites to read full articles.
Google requires anything reachable via their search engine isn't behind a paywall. Paste the full URL into a google.com search and click the link. You'll bypass the paywall, because google is the referrer.
WSJ and other news sites go along with this because it's not worth it for them to be excluded from search indexes.
Google requires anything reachable via their search engine isn't behind a paywall. Paste the full URL into a google.com search and click the link. You'll bypass the paywall, because google is the referrer.
WSJ and other news sites go along with this because it's not worth it for them to be excluded from search indexes.
I have no WSJ account. The service apparently does, since I use it to get around their paywall pretty often
Open the "web" url in incognito, then click on the WSJ link from the search results
Search for the title on google.
The article is behind a paywall.
100% of the blame lies with Jack Welch and his short-term thinking, reckless cuts that hollowed out the company, well now those bills are due.
Did you know his own retirement package included lifetime usage of the corporate jets?
Did you know his own retirement package included lifetime usage of the corporate jets?
So Jeff Immelt and his 16 year reign is 0%? C'mon.
Welch was responsible for the culture change at GE, so yes. Immelt just continued what his master started
One easy improvement your this particular case would have been to roll some of the money from GE stocks into bonds and do a classic 60:40 split. If he really wanted to stick with that company, he could have even bought GE bonds since their default risk is reasonably low.