[quote=UCGal]Pensions have problems – but so do 401ks. That was why I entered this thread – to point out the riskiness of putting your entire retirement plan in the stock market. [/quote]
Of course it’s risky to put 100% of your 401k into the market. I don’t think anyone is suggesting that. However, if you don’t do that, then your return will be less, which means you have to save even more per year during the working year or live with less during the retired years. Also, if you want to stick with majority safe investment during the retired years (CD), you’re being screwed right now with the interest rate at around 1%.
The riskiness of the 401k is not a problem. It’s only a “problem” if you’re depended on its “average return” to hit your number, in order to retire. If you’re conservative in your investment, it’s quite hard to be able to have early retirement in the private sector, unless you make well above $100k/year. That’s no so if you’re in the public sector and have a pension.
I’ve ran the numbers several times in the other thread, showing what the equivalent 401k + SS would have to be, in order to match just your average pension. It’s quite hard for a single person making ~$40k/year today to amass ~$800k in 401k. But, that’s how much he/she would have to amass to match the average public pension payout of ~$3k/month. That’s also assume you have to die after 30 years of retirement. If you happen to live longer, there’s a huge risk of not having enough money beyond 30 years if you have the 401k, but if you have a pension, you’re sitting pretty and your life style won’t need to change one bit. With so much risk in the market and the 401k system, you’d expect the value should be that much larger to compensate for those risks. Which means, the number would need to be >$800k to compensate.
