Re:More money than anyone imagined: an explanation for why t...
by wahern on Friday July 26, 2019 @09:45PM
(#20539866)
You hear about pension failures but you rarely hear about the retirement failures of 401(k)s because it's a distributed problem. There were plenty of these stories during the Great Recession, but you mostly heard about pension crises even though pensions by their nature are designed to and in fact did weather the storm much better.
Plus, as you point out pensions are insured by the PBGC, primarily funded by premiums paid by pensions. Where's the insurance for your 401(k)? There are a lot of problems with the PBGC, some of which relate to the Republican strategy since the 1970s of killing the system of private employee pensions through neglect, but it's still there.
There are many problems with pensions we could identify, but these are fixable problems using the type of technocratic, regulatory work we know how to do well and are still perfectly capable of doing, even in our bitterly divisive society. And in any event the system doesn't need to be perfect, just better than the alternative. Leaving everybody to fend for themselves isn't an actual alternative--it's an ideological position that denies that a problem exists instead of addressing it.
A 401(k) may be the best choice for you, but the social problem we face isn't figuring out how to maximize nradov's retirement wealth, it's how to maximize population wide outcomes.
As I said, annuities are one of the best vehicles for a secure retirement. It's becoming increasingly common for people to invest in variable annuities through their 401(k)s, but these aren't the same thing. For one thing they don't offer the same security as a fixed annuity. For another their payouts will be lower because healthier, long-lived people will self-select into annuities while other people will live shorter, harsher lives than they otherwise would have. It's a collective action problem--everybody is worse off.
Much like with health insurance, in the aggregate and over time (everybody is an outlying insurance risk at some point) people are better off purchasing insurance and annuities through group plans. Well, that's exactly what a pension is--a group fixed annuity!
To be clear, my point is that pensions are misrepresented; that they're not only useful but desirable. What I'm not saying that we should only have pensions or that 401(k) and other investment schemes don't have a place--they're just a very poor mechanism to provide minimum retirement security at scale as compared to defined-benefit schemes.
Plus, as you point out pensions are insured by the PBGC, primarily funded by premiums paid by pensions. Where's the insurance for your 401(k)? There are a lot of problems with the PBGC, some of which relate to the Republican strategy since the 1970s of killing the system of private employee pensions through neglect, but it's still there.
There are many problems with pensions we could identify, but these are fixable problems using the type of technocratic, regulatory work we know how to do well and are still perfectly capable of doing, even in our bitterly divisive society. And in any event the system doesn't need to be perfect, just better than the alternative. Leaving everybody to fend for themselves isn't an actual alternative--it's an ideological position that denies that a problem exists instead of addressing it.
A 401(k) may be the best choice for you, but the social problem we face isn't figuring out how to maximize nradov's retirement wealth, it's how to maximize population wide outcomes.
As I said, annuities are one of the best vehicles for a secure retirement. It's becoming increasingly common for people to invest in variable annuities through their 401(k)s, but these aren't the same thing. For one thing they don't offer the same security as a fixed annuity. For another their payouts will be lower because healthier, long-lived people will self-select into annuities while other people will live shorter, harsher lives than they otherwise would have. It's a collective action problem--everybody is worse off.
Much like with health insurance, in the aggregate and over time (everybody is an outlying insurance risk at some point) people are better off purchasing insurance and annuities through group plans. Well, that's exactly what a pension is--a group fixed annuity!
To be clear, my point is that pensions are misrepresented; that they're not only useful but desirable. What I'm not saying that we should only have pensions or that 401(k) and other investment schemes don't have a place--they're just a very poor mechanism to provide minimum retirement security at scale as compared to defined-benefit schemes.