Baby boomers outliving their 401(k)s

Investment Analysis Clubs Macro Economic Trends and Risks
1

Many younger baby boomers may outlive their 401(k) savings, new research finds. Here’s why
https://www.cnbc.com/2022/06/19/401k-plans-may-not-last-long…

Years ago Vanguard Chairman Jack Bogle pointed out that the average investor lost about 60% of the value of his/her account to fees, expenses and trading costs over their lifetime. If more people listened, they wouldn’t be having these problems with running out of money.

http://johncbogle.com/wordpress/wp-content/uploads/2010/04/F…

It’s all about the “skim”, baby.

intercst

5 Likes
2

What is the most important word in the article?

" may"

Which basically indicates that the article is simply “click bait”.

Howie52
People decide what they save and how much they spend.
The government decides what minimum amounts people can withdraw from 401(k)s.
But people again decide if they choose to save funds outside of 401(k)s.

4 Likes
3

Howie analyzes,

What is the most important word in the article?

" may"

Which basically indicates that the article is simply “click bait”.

Thank you for that incisive and incredibly well-reasoned commentary.

If you read the article, you would have learned that the dramatic decline of defined-defined pension plans over the past 40 years has been a “loser” for all but the top 10% of income earners. People managing an IRA or 401k tend to pay much higher fees than a corporate managed, defined benefit plan due to economies of scale. Compound that difference over a 40 or 50 year investing lifetime and you’ve lost quite a bit of your retirement savings – like half of it.

Wall Street and the insurance industry has a vested interest in people not understanding arithmetic.

intercst

12 Likes
4

" the dramatic decline of defined-defined pension plans over the past 40 years has been a “loser” for all but the top 10% of income earners. People managing an IRA or 401k tend to pay much higher fees than a corporate managed, defined benefit plan due to economies of scale. Compound that difference over a 40 or 50 year investing lifetime and you’ve lost quite a bit of your retirement savings – like half of it."

Problems with pensions created the 401(k)- pension guarantees limited to pennies on the dollar,
and short term employment resulting in workers failing to be covered by company pensions were
two of the major problems. Insurance features are not the greatest investment - but many folks
are more risk adverse - and are willing to pay the price for what is marketed as a less risky
investment approach.

But the article adds nothing that has not been talked over for decades.

So, sorry - click bait is what it remains.

Howie52

1 Like
5

Years ago Vanguard Chairman Jack Bogle pointed out that the average investor lost about 60% of the value of his/her account to fees, expenses and trading costs over their lifetime.

Years ago I opened my first brokerage account (Dean Witter Reynolds). Trades were $100 and the spread was a minimum of $0.12, while today they are $0 and $0.01

DB2

3 Likes
6

*** some people *** retired with decent pensions…

“By 1970, 26.3 million private sector workers (45 percent of all private sector employees) were covered by some kind of pension plan”

In addition, federal workers and state/local workers often qualified for pensions…

but…

A good percentage did not qualify the minimum 10 years of employment to get a pension. If you worked at several companies during your career, you might get 3 small pensions…or one or two.
They did not transfer to another company.

Now…most of these pensions were also based on years of service. You got the bare minimum at 10 years, but got a bit more for each year you worked.

My dad worked for Ma Bell…for 44 years. Good pension program. Of course, he was ‘locked in’ to employment with them for life - both good and bad for some. He went out on medical disability at age 60 with 44 years of service. Yes, he started work in 1932 at age 16 after graduating high school. They counted 2 years of active duty in that total. He received 44% of his ‘best years earnings’ for a nice retirement package. Add in SS and it covered the bills, plus he got subsidized health care (they paid for part B supplement through their own program).

Uncle Bill put in 47 years with Bell South…lived to 94 to enjoy it.

Aunt Ann had 40 years with AT&T…

Uncle George had 40+ years with NY TEL…

But that was then. MA Bell doesn’t have pensions but 401Ks…

Did I mention a lot of pension plans went bust when companies went bust? Tell me about GM and their subsidiaries? Some subsidiaries got the ax both ways. No job, no pensions. GM workers didn’t do that well.

Now me? Worked 3 years first employer before being laid off in 1971. Worked 13 years second employer and actually got and still get tiny non-inflation adjusted pension from that. Worked 17 years another company. They had pension plan but it went away for most when they started 401K and I got some ‘pension credits’ in that account.

Now…most people don’t have lifetime employment. Work 9 years for a company and no pension even 50 years ago. Now? You’ll have at least 3 jobs in your life - maybe 6 or 8?

Even the military makes it hard to get the 20 years of service for ‘retirement’. Lots are laid off after 15 or 18 or 19 years to save money! or sent on the fifth tour of duty in the middle east. And sixth till they break.

At least with 401Ks, you can leave a job and take it with you. Most places have five year vesting so you get the company match.

t

1 Like
7

Trades were $100 and the spread was a minimum of $0.12, while today they are $0 and $0.01

Bogle may have been talking about personal accounts, but maybe he was also thinking about basic investment fund costs at the time? Bogle initiated some of the lowest cost funds in the business. The Vanguard site still touts that “the average Vanguard mutual fund expense ratio is 82% less than the industry average.”

https://investor.vanguard.com/investment-products/mutual-fun…

Pete

8

DrBob2 writes,

<<Years ago Vanguard Chairman Jack Bogle pointed out that the average investor lost about 60% of the value of his/her account to fees, expenses and trading costs over their lifetime.>>

Years ago I opened my first brokerage account (Dean Witter Reynolds). Trades were $100 and the spread was a minimum of $0.12, while today they are $0 and $0.01

Wall Street is making money today with “payment for order flow” and front-running retail investor trades. If a service you receive is “free”, you are likely the “product” being sold.

Bogle was talking about mutual fund expense ratios and 401(k) administration fees. Few of us had 401(k) plans with the 3 basis point expense ratio of the Federal Gov’t employee Thrift Savings Plan. (Exxon’s was close.)

Wall Street’s business model is founded on taking 2% per year in fees, expenses and costs from the average customer. For every investor in a low-fee index fund, they need to sell a 3% wrap account or a high commission annuity to somebody to make up the difference.

intercst

1 Like
9

Wall Street and the insurance industry has a vested interest in people not understanding arithmetic.

It is sort of karma…these were all those people who made fun of those that did like math…as they said “why learn this, when are we ever going to use it?”

Mike

10

What is the most important word in the article?

" may"

Which basically indicates that the article is simply “click bait”.

Let me fix that for you

Which basically indicates that the article may simply be “click bait”.
We won’t know until most boomers are dead. :slight_smile:

Mike

11

“Wall Street is making money today with “payment for order flow” and front-running retail investor trades. If a service you receive is “free”, you are likely the “product” being sold.”

I remember when up front trade fees went to $0 per trade, got into a “discussion” with a coworker about it. I told him that just because they are not charging you a fee that you can see doesn’t
mean they’re not charging you a fee, lol, he didn’t agree with that. Asked him to make a wager that
the public brokerage company’s revenues don’t go down, even though they’ve “given up” all of those
transactions costs, but he wouldn’t go for it.

It did eliminate a step in tracking cost basis on the annual income tax return chore, though.
And we are definitely not getting gouged as bad as in the '80’s and 90’s when I was learning the ropes.

1 Like
12

the dramatic decline of defined-defined pension plans over the past 40 years has been a “loser” for all but the top 10% of income earners.

That would ONLY apply if the trend of 40+ years ago remained. Back then, a large majority of people remained at a company working for long periods of time, 10, 15, 20, 30+ years was very common. So their defined benefit pension would grow with their years of service until it provided a very respectable monthly annuity payment (the “defined benefit”) upon retirement.

But it does NOT apply anymore today when the median time spent at a company is about 4 years. And for younger folks (under 35), the median time spent at a company is less than 3 years. That would mean that the vast majority of people never even vest into their defined benefit pension (usually it takes 5 years service, sometimes more), and when they leave their job after 4.1 years, they would receive a [smallish] check that can be rolled over into an IRA.

So, at least for people with a little saving discipline who contribute to their 401k, they may net net be better off with the current regimen rather than the old defined benefit regimen.

1 Like
13

But it does NOT apply anymore today when the median time spent at a company is about 4 years. And for younger folks (under 35), the median time spent at a company is less than 3 years.

And why do people change jobs so often now? Because the “JCs” cut their pay and benefits to nothing? Because the “JCs” treat them like disposable meat?

Flashback time: my grandfather worked a lot of places over the decades, from the Bremerton Navy Yard, during WWI, to spinning wrenches in a Ford dealership, spinning wrenches for an independent garage, spinning wrenches in an Essex dealership. The Essex dealership paid piecework, at a poverty rate. He couldn’t wait to get out of there. He finally landed a job in a union truck line. The Teamsters run the pension and retiree medical plans themselves, so, even though he switched truck lines once or twice, he kept those Teamster retirement benefits. What precipitated his retirement at 62 was the truck line pressuring him to be shop foreman, which would mean being management, and walking away from the Teamster benefits he had been working for for over 20 years.

So, is the more mobile workforce due to management taking all the benefits away, so there is nothing to bind an employee to a particular company?

That little truck line granddad worked for is long gone, don’t recall if it went toes up or was bought. Didn’t matter to him, as the Teamsters paid his benefits for 30+ years, from his retirement to death.

Steve

4 Likes
14

And why do people change jobs so often now? Because the “JCs” cut their pay and benefits to nothing? Because the “JCs” treat them like disposable meat?

So, is the more mobile workforce due to management taking all the benefits away, so there is nothing to bind an employee to a particular company?

I think this is definitely part of it. Certainly not being “stuck” at a company because you’re vested in the pension and need 20+ years for a decent pension payout contributes to it. BUT, I also think that people want to be more mobile jobwise nowadays. A lot of people are always looking around for a better job, not just low-level jobs, but also higher-level ones, like software engineer with high wages.

He finally landed a job in a union truck line. The Teamsters run the pension and retiree medical plans themselves, so, even though he switched truck lines once or twice, he kept those Teamster retirement benefits.

My grandfather was also a union man for decades. And his union also managed their own pensions and benefits. But he wasn’t so lucky, the union (one of the NYC garment unions) stole all the pension money, literally ALL of it. The union leaders and accountant and even some bookkeepers ended up in prison, but nothing was ever recovered.

2 Likes
15

But he wasn’t so lucky, the union (one of the NYC garment unions) stole all the pension money, literally ALL of it.

Enron pressured it’s employees to put all their 401k in Enron stock. Those people lost their savings. Color Tile invested all it’s employee’s 401k money in Color Tile paper. Color Tile went BK and everyone lost everything.

Steve

3 Likes
16

Thank you for recommending this post to our Best of feature.

…

My grandfather was also a union man for decades. And his union also managed their own pensions and benefits. But he wasn’t so lucky, the union (one of the NYC garment unions) stole all the pension money, literally ALL of it. The union leaders and accountant and even some bookkeepers ended up in prison, but nothing was ever recovered.

I grew up in a company town in Northern Ontario. Left home a couple days before I turned 17 on the train to Toronto to join the army. The pulp mill was owned by American Can. They sold it some years after I left. The new company that bought it went bankrupt.

All four of my pensions are indexed and paid on time monthly by the federal government and a generous healthcare plan that goes with it.

My eldest sister (West Coast) often says “You Escaped”.

Tim

OT - Not sure if it is still true but my US military co-workers in Germany didn’t pay into their pension plan … it was “A gift of Congress”. It sounded great until one of them drove into a tree in his village after a evening in the Gasthaus three months before he was due to start collecting it. He was tossed from the military (three months short of his 20 years) and got nothing.

17

…my US military co-workers in Germany didn’t pay into their pension plan … it was “A gift of Congress”.

Outside of a union contract, Shinyland courts have held that company paid retirement benefits are a “gift”, subject to withdrawal at the convenience of the “JCs”. According to the court, 20-30 years of your life spent working for a company, does not count as “consideration”, so the promises management makes in the employee handbook are not a binding contract.

Steve

3 Likes
18

I grew up in a company town in Northern Ontario. Left home a couple days before I turned 17 on the train to Toronto to join the army. The pulp mill was owned by American Can. They sold it some years after I left. The new company that bought it went bankrupt.

All four of my pensions are indexed and paid on time monthly by the federal government and a generous healthcare plan that goes with it.

After a number of pension funds went bust due to mismanagement or malfeasance, the USA also setup a guarantee organization in the late 60s or maybe 70s. It’s called PBGC and it’ll take over (up to a certain extent) payments when a pension fund can’t cover its payments anymore. I’m not sure if it covers union pensions though.

1 Like
19

After a number of pension funds went bust due to mismanagement or malfeasance, the USA also setup a guarantee organization in the late 60s or maybe 70s. It’s called PBGC and it’ll take over (up to a certain extent) payments when a pension fund can’t cover its payments anymore. I’m not sure if it covers union pensions though.

iirc, the PBGC only backs defined benefit plans, which are pretty much extinct outside of union shops and civil service. Because the “JCs” have been so successful at suppressing unions like the Teamsters, the pension funds has been in dire circumstances. There was a push to pass a law allowing the Teamsters to cut pension benefits to keep the plan solvent.

Ah, new news on the Teamsters pension plan.

Feds Must Face Constitutional Suit Over Teamsters Pension Cuts
April 11, 2022,

United Parcel Service Inc. retirees who sued the federal government over a 2014 pension law that authorized 29% cuts to their benefits advanced their lawsuit alleging an unconstitutional governmental taking of property, according to a U.S. Court of Federal Claims ruling.

https://news.bloomberglaw.com/daily-labor-report/feds-must-f…

While a huge increase in premiums charged to companies is keeping the PBGC single company fund afloat, in the face of companies using BK as a business plan to dump defined benefit plans, the multi-employer plans are still in trouble.

PBGC: Single-Employer Program Continues to Improve; Multiemployer Insolvency Delayed

https://www.napa-net.org/news-info/daily-news/pbgc-single-em…

Speaking of military pensions, I have been hearing a drumbeat, for decades, to outlaw “double dipping”, when someone earns a military pension for 20-30 years of service, then earns another pension in civil service or the private sector.

Steve

1 Like
20

Speaking of military pensions, I have been hearing a drumbeat, for decades, to outlaw “double dipping”, when someone earns a military pension for 20-30 years of service, then earns another pension in civil service or the private sector.

Steve

How about 27 years military pension followed by 10 years working as a Senior Analyst Programmer at the NATO AWACs base in Geilenkirchen Germany? Unfortunately wife wanted to go home so I left at 10 years less a day and took the tax free payout rather than get the second pension from NATO.

Tim