Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: chowder who wrote (22671)	1/6/2005 11:24:21 PM
From: bull_derrick	Respond to of 23153

My company went from a pension program to a 401K about 10 years ago. They froze the old pension program, computed actuarially what everyone's net present value was, and cashed us all out. I was allowed to roll it over into an IRA. It was a paltry 11K. Although it was better than nothing, I've got 23 years of service at the company now and would have had a much better annuity upon retirement with a conventional pension plan than with a 401K. Why? Because the people who died early or left the pool before being vested resulted in better returns for those who had longevity. This is the issue that is not talked about with Bush's proposal. The reality is that while stock market returns will be superior to T-bill rates, the real wealth building to the Social Security pool is the fact that many people contribute for years, croak at 60, and don't draw back anything from the pool. If SS were 100% defined like an IRA, and I realize that Bush isn't proposing this extreme, most retirees payouts would be less because they'd only see the returns of their own investments, not augmented by people who die early. If you compute what the average retiree draws in their first 5 years of retirement (65-70), my guess is that would exceed what they contributed for 30-40 years. After all, how much was the max. social security payment in 1961? The reason the fund is not tapped out is because millions of people in the 1960's, 70's, 80's, etc, contributed funds but died before receiving anything. In a fully defined social security plan, if it were to go to 100%, I would presume the heirs of the premature dead person make out better because a fund is left behind. The average person would have 2-3 years of living wages to live on upon retirement, no more. The practical political solution is to tinker with the COLA formula so that entitlements 20-30 years out are much less but don't affect current retirees so much, extend out the retirement age, which they've already done, and continue to raise the maximum amount of FICA which they continue to do. Personally, I cannot see why Bush would choose to squander his political capital on a restructure that's only going to affect 1-2% of the FICA payments and only for younger people. The effect of that program will be very limited, the political discourse is going to be loud, and in the end it's a poorly designed idea, actuarially.