The Benefits Trap

[midwayer]

As employers abandon ever-more-costly traditional retirement plans, the burden is falling on individuals and taxpayers

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Workers bear the brunt of it. Bill Luoma, head of the Mahoning Valley Steelworkers Retirees Council, which counts bankrupt LTV retirees among its members, says that with their health insurance gone, many have stopped visiting doctors other than for emergencies. For companies struggling to compete in the global economy, carrying those burdens themselves is like strapping on a 200-pound weight to run a 40-yard dash. But to shed them is to leave decades of workers devastated. In the end, someone will have to pay. The only question is who.

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http://biz.yahoo.com/bizwk/040709/b3892001mz001_1.html

[izzie]

1. Very depressing for all.

My father and 2 uncles always said you must save for your retirement and not count on any one else. They all lived very well in their retirement as that is what they did. They did make very good incomes and each saved not under 10 percent of it from the start of their working time. All were really Republicans and Conservatives in every thing. Looks to me that Wall Street is the ones that will make out. It was also true with these men that did so well in their retirement that they came through the depression and saw things different than we do to day.Like war was a waste, you only spent money you have etc.

[SheilaT]

3. So did your father and uncles

not have social security? Not have some kind of pension plan? How fascinating! Who exactly did they work for, and in what time frame?

Or did they do well because they were in jobs that had generous retirement plans, plus they also saved?

[amazona]

6. if I saved 10 percent of my income every year...

...it would take me 10 years to save for just one year of retirement. (I'm ignoring the interest income but also ignoring the effects of inflation.) This would be for 10 years at my normal cost of living. However, the average nursing home cost is now $60,000 according to my yesterday's newspaper -- in other words, more than I could ever dream of making in one year even at my top earning capacity. I don't see where any amount of do-able saving/investing would ever be enough to provide for retirement unless they plan to free Dr. K and kill us all off at age 70.

Saving/investing is great to be sure you will have extras in life and in retirement but it can't take the place of Social Security and pension plans.

[Frodo]

8. The error in your theory is "compound interest".

"I'm ignoring the interest income but also ignoring the effects of inflation."

That's the error in the calculation right there. They simply aren't a wash. Yes, if your investment strategy is sticking the money in a savings account, saving 10% of your income is just not going to do you any good. But average investment returns exceed inflation by a few percent... and those few percent over a long enough time make a HUGE difference.

If you start saving in your early working years (in a tax-deferred plan) and set aside 10% of your income, you will actually find that your 401(k) will more than "take the place" of Social Security and a pension. This assumes your investments average the market return of the last 50 years and inflation is around what it has been over the same period. ADD Social Security and a pension to that mix and you retire quite comfortably, likely quite a bit more comfortably than when you were working.

The key to the math is time.

If you are currently in your mid 40's and haven't saved up anything substantial for retirement, you're right. There's almost nothing you can do to replace a lost pension or to match Social Security.


Now, when you talk about the cost of nursing homes? You are completely correct. No combination of SS,pension, and personal savings seems to make them look "affordable". There needs to be a better plan there.


Try playing around with the following calculator:

http://www.smartmoney.com/retirement/401k/index.cfm?story=planner

If you start at age twenty with an income of $25,000 and your only raises equal inflation (so you basically earn this salary for your whole working life). Then you set aside 10% of your salary into a 401(k) until you retire at age 65 and assume an average return of 8% and average inflation of 3%. Take into account no additional savings and no pension fund... and you have about $1.5Million - and can retire on your full (inflation adjusted $25,000) salary and it will last until you are in your mid 90's.

Add either social security (which at that salary level replaces about 45% of your income) OR a pension if your company still has one (would probably equal less than 30% of final salary) and you can retire at well above your life-long standard of living. Add them both and you're sitting pretty.

The critical factor is "time". Start the identical savings plan at age 45 and you will save a "whopping" 150K and your retirement savings will last from the day you retire until about age 72 even WITH social security.

[teryang]

2. The piss poor policy and planning trap

This article is so biased in its pro-corporate management, health care and insurance status quo position.

I now have the same benefits from the same managed care organization that I had at a previous job. Only now the same benefits are $431 a month less. Why? Because the government entity I work for has leverage over these theives. My former private employer was at their mercy.

There is no trillion dollar deficit at social security. Corporate greed is the issue. Profits for them, cuts for the workers. When they are flush with huge profits, they make no provision for future employee obligations, they just line their pockets. Where do people think 200 million dollar CEO employment packages come from?

We need a public health care system and they should keep their hands off social security.

[shrike]

4. My husband has a great retirement

Thanks to a union that did what it was supposed to. The former union president -- a Mao Communist -- fought successfully to put pension funds in an account that the company couldn't touch. He showed a lot of foresight; there were scandals years later as local companies raided their employees' pension funds.

[Nikia]

5. He have an old guy at our factory who lost his

He worked at one factory his whole life and got benefits as promised when he retired. Five years later the factory closed and the retirement fund dried up to pay for debts the company owed, Now he's working where I do at a lower wage job.

[pwrwagn]

7. Let's look at it rationally...

Social Security is a congressional vote away from non-existence.

I hope you understand this. You OWN no part of it. Benefits are voted upon, the rules by which it operates are subject to change or even it's abolition at the whim of congress.

Seriously, nobody is proposing to do that, but the future is unwritten. Let's imagine some world-wide financial collapse... SS will be gone, just like that.

IF you want a good retirement, you need to OWN your own assets. That's just common sense. Pensions you don't own, SS you don't own, and so on.

So, save money, accumulate something of value. If it means you drive an older car, live in a smaller house, or do without something, ten you need to make that decision.

[shrike]

9. Um, I've been paying into social security since the day I started working

I damn well better "own" some part of it.

[Frodo]

10. That's a nice wish. But that's all that it is.

There is no "account" in your name with money sitting in it. There is no gurantee that you will even get your "deposits" back.

You "own" it in the sense that you have one vote out of a hundred million and won't vote for the guy who will take it away from you.

But you don't "own" a penny of it. If you save on your own and fund a comfortable retirement, they could decide tomorrow to "means test" Social Security and give you nothing because you don't "need" it.

[shrike]

11. Don't mean it's right

And if you asked most Americans, they'd agree with me.

[Frodo]

12. As do I.

I separate reality from wishful thinking is all.

Social Security was sold to us as an account that our contributions go into to fund our retirement. But they long ago spent the money as if it was any other taxes. That's how people (of both parties) get elected... they promise to give us things. Our party pays for things we need (healthcare, or school lunches, or whatever) presuming we fit into the "right" categories... the other guys give us cash payments (presuming we fit the "right" categories).

Nobody gets elected on preserving our REAL interests.

"As long as the plebes can vote themselves bread and circuses"... etc etc.