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June 21, 2013 at 11:52 AM in reply to: Another excellent Economist Mag article on the terrible state pension issues #763120June 17, 2013 at 2:16 PM in reply to: Another excellent Economist Mag article on the terrible state pension issues #762895
davelj
Participant[quote=CA renter]
1. Costs have already been cut. Employees will be making up the shortfall as well, and they’ve already been paying more into their retirement systems over the past few years. Gov. Brown’s reforms significantly increased the amount some employees will pay, while others have already increased the amounts via contract negotiations over the past few years.
2. The way these costs work, the taxpayers may or may not be spending any additional amounts. If pension contribution costs increase, it’s going to fall on the employees, too. If the employer’s side goes up, they might offset those costs with pay or other benefit reductions. [/quote]
This is quite misleading. Yes, employees are paying “more” towards their retirements relative to the past, but… so long as the assumed rate of return on plan assets is higher than the achieved rate of return on plan assets, the employer (the taxpayers) is ultimately getting screwed. This is an axiomatic mathematical certainty. The ultimate shortfall will be covered disproportionately by the employer (taxpayers) in this case.
[quote=CA renter]
3. The “fairy tale” expected return is the same return rate quoted by almost every single financial advisor out there when they tell you how much you can earn on your money. Historically speaking (and I do understand the danger in that), the current return assumptions are low.
[/quote]You’re smoking crack if you think that the current return assumptions are too low. Everyone on Planet Earth that doesn’t have an agenda knows that the likelihood of a typical pension plan generating a 7.5% annualized future rate of return is not materially different from zero. However, there are LOTS of folks who benefit from perpetuating this fantasy, including: (1) union members and their representatives on the pension boards (see above), (2) politicians (who benefit by kicking the can down the road), (3) consultants and asset managers (who won’t be hired unless they perpetuate the lie… because their competitors surely will!), etc. etc.
Every sentient being who understands return math – including Grantham, Bogle, Buffett, Soros, etc etc… that is anyone without a dog in the fight – knows that the assumptions are ridiculous. My favorite quote on this is from Mayor Bloomberg (from last year):
“The [New York City] actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent,” Mr. Bloomberg said during a trip to Albany in late February. “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.”
Participant[quote=UCGal]
FWIW – she’s not a push-over, tramp, or someone who slept around. In the 20 years I’ve known this friend, she’s never had a boyfriend. And this was her one “serious” relationship. She’s a good, church going, woman. Not a tramp. The guy’s lines were very smooth.
[/quote]I know this wasn’t the point of your post, but… it should be blindingly obvious that “good” and “church going” have absolutely nothing to do with each other. Going to church is a social hobby, not unlike hunting or gambling in terms of the percentage of participants that are “good” or “bad.”
“Tramp” – like “slut” – is a pejorative term used by certain men to keep “their” women from expressing their sexuality and, likewise, by uptight women to label other women who might be a threat to their domestic tranquility. Which is why there’s no real comparable term for men who engage in the same activities – it’s acceptable. I thought Piggington, of all places, had crawled out of the previous century.
Anyhow, I doubt there’s much correlation between “church going” and having babies out of wedlock. Some of the highest rates of church attendance are in rural areas and inner cities… where there are also high rates of out of wedlock births.
Just sayin’…
ParticipantThis guy is the archetypal Pied Piper leading us toward Idiocracy (http://en.wikipedia.org/wiki/Idiocracy). Anyone having children today should realize what kind of society they’re tossing their kids into. Personally I find the whole situation sad, on the one hand, and yet enormously entertaining on the other (as I’m not going to produce any humans to leave behind).
ParticipantThere have been a handful of murders of Americans in Baja over the last several years (google “american murders baja”). Here’s a link that discusses three over the course of a few months in 2011.
(You’ll notice, however, that one was likely a case of mistaken identity, another involved a fight, and the other outside the Caliente casino near the border – someone probably shot their mouth off to the wrong person.)
This is an example of a really bad situation:
http://www.utsandiego.com/news/2011/oct/24/two-in-custody-in-ensenada-slaying-of-us-citizen/
American retiree who put his trust in the wrong folks and they killed him.All of these are anecdotal, however. The fact is that there are very few examples of Americans being targeted for kidnapping or death in Baja, particularly as a percentage of the Americans that either live or vacation there. Folks that don’t do stupid things very rarely end up with problems down there. There will always be examples of just plain bad luck or stupidity leading to problems – no matter where you live. 99.9% of the time if you mind your own business and use common sense your worst experience as an American is going to be getting a trumped up speeding ticket from the policia.
The good news is that we hear about these incidents in Mexico when they involve US citizens. If you’re Mexican… it often doesn’t even make the news because it’s so common (or involves bad elements).
An anecdote from a different angle. My insurance agent lives in TJ and is pretty well off – her three kids attend the parochial school on Coronado (I can’t recall the name) and she and her husband own a house on Coronado. I asked her why she lives in TJ instead of Coronado and she said, “San Diego’s boring. We come here on the weekends sometimes and the kids attend school here but we prefer Tijuana.” Different strokes for different folks.
Participant[quote=moneymaker]I was at some ones house a couple of weeks ago when the misses gets a phone call and starts freaking out. Evidently her god son (who was kidnapped in TJ 2 weeks earlier) was found dead. Now I didn’t know this guy but she said he lived here in the USA and had just gotten a job right before going down there. Sometimes life sucks![/quote]
This would be a pretty big news story. Even if the family kept quiet during the kidnapping (by order of the kidnappers), the actual murder of a SD resident in TJ would be front-page news. And there would be virtually no way to hide it. Any further information?
ParticipantMan, I’ve been a lazy Pigg… first post in four months…
While I think the danger for Americans in Mexico (to specify one country) is over-hyped (as another poster pointed out, most of the murders in Mexico are drug related… although certainly not all of them), it certainly is not as safe as life in most of the US. I do, however, think that we’re going to see a huge number of Americans retiring abroad over the next couple of decades as a result of relative costs.
A few examples.
I was in Panama on business recently but had a couple of days to check out the canal and some of Panama City’s neighborhoods. Lots of expats of all stripes in Panama. There’s a lot of money in Panama, particularly banking-related as it’s a huge offshore banking center. Inexpensive real estate, fully dollarized economy, low crime, great healthcare. Panama City is as modern as any large US metro. You can buy a 3 bed/2 bath 1500 square foot condo in a nice building (less than 10 years old) with a fantastic view for ~$225K. Generally, the cost of living is probably 60% of San Diego’s for a retiree. I distinguish between retirees and “others” because if you move there with a family, for example, you’re probably going to be paying for private school and other stuff retirees can avoid. The biggest drawback is the weather – it’s hotter than balls… and humid. But if you’re a retiree and don’t need to wear a suit anymore… Panama City’s pretty nice. And I think that view is spreading.
La Paz, Mexico. Northeast of Cabo on the Sea of Cortez. Safest municipality in Mexico – very low crime rate, virtually no cartel influence. Hot, desert-like weather much of the year, very little rain. Inexpensive, probably a little cheaper than Panama City (although not nearly as cosmopolitan). You can buy a very nice house or condo for precious little money. Cheap direct flights on Volaris to Tijuana, LA and several other US cities. I’ve vacationed there a few times and love it. If time permitted I could spend half of my year there and be pretty happy.
Closer to the border – and I’ve mentioned this before – Las Playas is very livable. (Las Playas is the section of Tijuana on the Pacific that abuts the border – you pass it on the way to Rosarito if you use the Scenic Route.) Very little crime and all of the modern conveniences without the hassles of Tijuana proper. Lots of expats there. Nice housing, restaurants, etc. Also very inexpensive.
Would I live in any of these places with kids? Nope. But as a singleton with a lot of work/travel flexibility or a retiree? I’d seriously consider it.
ParticipantI don’t think I’m going out on a limb in predicting that regardless of what prices Blackstone pays for the real estate that goes into its funds… Blackstone will do VERY well for Blackstone. Blackstone’s fund investors… probably not so much.
Caveat emptor.
Participant[quote=davelj][quote=davelj]
[quote=urbanrealtor]
3: The mean rate (taken over the course of the year) for closings in downtown is about 75/month.
The instantaneous rate of change on this is highly correlated to season (about 50 per october to march and about 100 per month april to september) but it works out the same. About 900 per year. Currently, there is about 400 active for sale in 92101 with roughly translates to about 5 months of inventory.
In a distress-heavy area, that is an impressive mean closing speed.
There are currently about 139 pendings listed in 92101. That means there are approximately 3 units for every one buyer as of today.
If you ask Jim Klinge about this, he will probably tell you that this is a healthy ratio with a just a hint of tilting toward a seller’s market.
[/quote]I just wonder how much inventory is *really* out there. Again, I think most of the specuvestors are gone or will be gone by year’s end (2011). Now we’re seeing some unemployment-related foreclosures and short sales, but those are slowing down. So, my REAL question is how many new, unoccupied, un-owned units are sitting in downtown’s inventory. For example, how many units in Bayside have been purchased (to use just one example)? I wouldn’t be surprised if there are 1,000 new units sitting in inventory downtown. Having said that… I just don’t know. I’m pretty sure that I can get my hands on that data soon, though. But if you know these actual numbers, by all means… inquiring minds and all. I’d love to be wrong about this.[/quote]
urbanrealtor might be right about downtown. Here are the numbers I just got from a research firm (they don’t have an agenda, but it doesn’t mean their numbers are correct).
There are ~10,300 condo units downtown. There are currently ~325 resale units for sale. There are ~245 new developer units for sale (far fewer than I thought). There are ~75 units sold/month, so that’s about 7.5 months of inventory.
On the one hand there have got to be a lot of underwater borrowers in downtown (still), so that’s inventory-in-waiting. On the other hand, there have been a sh*tpile of foreclosures over the last several years so the weakest hands are out of the market. In addition, zero new units have hit the market for almost a year-and-a-half. And we won’t see any new units for at least 2.5 – 3 years (that’s at least a year before anyone breaks ground plus 1.5 – 2 years to completion). So… supply and demand are rapidly coming into equilibrium downtown… which is what happens when building grinds to a complete halt.
Anecdotally, where my building is concerned, we had about 25 units for sale at one time, mostly bank-owned. Now we’re down to six units for sale. Almost 40% of the units have changed hands over the last three years. Anyhow, just a datapoint.
The only current building downtown relates to (1) the new library, (2) expansion of SD City College, and (3) two subsidized apartment buildings. That’s it.
So, I have to agree with urbanrealtor – it doesn’t look too bad downtown from a supply-demand perspective, which surprises me.[/quote]
With almost two years of additional hindsight (since this thread got started) it turns out that urbanrealtor was right. Downtown is back into balance and arguably now favors sellers/landlords. I thought it would take a bit longer, but happy to be wrong.
There’s precious little inventory, and foreclosures are few and far between. Anecdotally, prices and rents in my building are up about 10%-15% from the trough. I believe there are three units for sale – down from 20+ at the trough.
Vantage Point is essentially fully leased up as is a newly-constructed building nearby. So, the rental inventory is tight.
There are now plans for additional condos on the table (at last) but it will likely be 2-3 years before those units are available. There is also a plan for another huge apartment building just east of Symphony Towers – ~800 units. Again, that’s 2-3 years from these units coming online.
So, long story short: it appears the worst is behind for downtown for this particular cycle… although I’m sure we’ll wash and repeat over the next decade; it’s human nature.
Participant[quote=dumbrenter]Can we use the HSA across the border?
I guess the answer is a No, but cannot help asking.[/quote]No idea.
Participant[quote=zzz]Davelj…..Curious, how would you handle something life threatening but chronic, like cancer, yet not terminal (don’t qualify for Medicare) and requiring continuous treatment and even frequent hospitalizations…so proximity of care is important? I think you could burn through the 100k pretty quickly in the US with certain cancer treatments.
My concern with not having US insurance has less to do with typical things – IE a routine doctors visit as I wouldn’t have a problem paying 200-300 out of pocket for a visit, but more to do with if they discover something that requires ongoing treatment.
Have you looked at Anthem plans? I don’t know how young you are, but I took on an Anthem policy last year for a few months in between Cobra and the next job. In my mid 30s so I was paying like $80/month for a high deductible plan ( I think it was $8500). I’m considering going back to that as I’m on the better half’s crappy work plan insurance right now and paying $60/week for access to HMO insurance. I basically don’t use it at all.[/quote]
If that were to arise I would just use my Mexican insurance in Mexico… and go to TJ for treatments. I wouldn’t bother with the US system at all. (Also, my Mexican insurer wouldn’t pay for US treatment unless it was an imminently life threatening situation.) The proximity isn’t an issue for me, personally, as the hospital is a 5-minute drive from the border.
I think I actually had Anthem insurance several years back for a couple of years. What I recall is that the premium skyrocketed after the first year or two, then I moved to Assurance and the same thing happened – I locked in a reasonable rate for a couple of years and then they doubled it on my upon renewal. Then I just said, “This thing’s broken – I’m through.”
Normally, when someone says, “It’s not about the money; it’s the principle of the thing,” it’s actually about the money. In my case, the money’s not a big issue – the whole thing just began to irk me. It’s just all so nonsensical that I couldn’t allow myself to participate anymore. Now, if in 20 years we’ve moved to a more rational system then I’ll be happy to return… but I’d bet against that.
Participant[quote=dumbrenter]ok, I’m just about done with the medical system here.
In my case it is not the cost of care, but the paperwork and nickel & dime game between the doctor’s office and the HDHP provider. I wish I could just walk in, get care, pay for it and move on with my life.
Davelj, have you had to use the mexican insurance since you got it? Can we just pay cash for medical services in mexico? Are there any such providers in San Diego? Thanks.[/quote]
I have not had to use my insurance which shouldn’t be surprising as there’s a $6,000 deductible. As inexpensive as things are in Mexico it would take something pretty major to work through the deductible. It’s really just a catastrophic policy.
My primary physician works out of Hospital Angeles (http://www.angeleshealth.com/doctors). I’ve been down there three times in maybe 18 months for minor issues (bursitis in my elbow, removing a lipoma cyst on my back, and a standard check-up). I pay cash each time. Removal of the cyst and the check-up were ~$100 each. The bursitis required some fluid examinations and an x-ray – I think I paid $225 total. The appointments were handled the same day in two instances, the next day for the other. I’ve had nothing but positive experiences.
One thing to consider, however, is the border wait returning to the US. If you’re crossing at the wrong time on the wrong day you can be in line for up to 2 hours, although a normal wait is more like 45 minutes (I walk). I’ve got a Sentri pass, so I get through in 10 minutes even if the standard line is very long. So, if you go down this path I’d recommend getting a Sentri pass (which, unfortunately, takes about 4-5 months to obtain) – just makes everything easier.
Regarding San Diego, I’m sure there are cash providers. I’m also sure that they’re unbelievably expensive – regardless of payment method. Our system is irretrievably f*cked, in my view.
Again, I’ve had nothing but good experiences in Mexico. Best of luck!
Participant[quote=CA renter]
But you’re assuming that the actuaries don’t understand the issues with the assumed rate of return. They DO understand, and so does everyone else involved. [/quote]
The actuaries completely understand the issue. As do most of the pension trustees. I never claimed otherwise. But you’re ignoring the “kick-the-can-down-the-road” element of this. As I explained, the union reps want to keep the assumed rate of return high for the reasons I mentioned. The politicians want to keep the rate high for a completely different reason: they don’t want to be blamed for, in effect, raising taxes by voting in favor of using a lower rate. In most cases, once you eliminate the union reps, the politicians, and the folks who one day want to run for some office… you don’t have many trustees left. Ultimately, however, it’s the taxpayer that will foot the bill for this circle jerk… eventually.
[quote=CA renter]
You’re claiming that nothing will be done about the shortfalls until the last second; I’m claiming that they will increase contribution rates (and lower assumed rate of return — as they’ve done at least twice in the past couple of years) before that day arrives. I’m saying that the “guarantee” will be on the contribution side, and you’re saying it will be on the benefit side. We won’t really know until we get there.[/quote]
No, I didn’t say that nothing would be done “until the last second.” You put those words into my mouth. What’s happening is that the reality is VERY slowly seeping into the rate of return assumptions. But it will be years before the rate is anything close to justifiable. I’d say that 6%-6.5% is the VERY highest rate that’s not laughable. Well, to use SD County as an example, every 10 bps decline in the assumed rate of return requires ~8-10 million more in annual contributions from the taxpayers (“employer,” in your parlance). So, given the internal trustee dynamics, it’s going to be quite some time before that assumed rate of return gets to a reasonable level. And all the while, the ultimate bill to the taxpayers, as compared to the employees, will be rising.
[quote=CA renter]
Also, regarding the return assumptions, the pension funds have certainly shown that actual historical return rates are very much in line with, or higher than, assumed return rates. I’m sure you and I both recognize that we are in a different investment environment than what we’ve had over the past 50+ years, but their numbers are reasonable based on historical returns. [/quote]Yes, while you can eat historical returns today, future meals require future returns… which are going to be much lower than historical returns.
[quote=CA renter]
Even so, they have been steadily reducing their return assumptions, and I am pretty confident that they are willing to do so even more going forward…
[/quote]
Spoken like someone who’s never served on a pension board. You’re smoking crack. Lowering assumed return assumptions is like pulling teeth – everyone involved does so after much kicking and screaming. Basically, the trustees have to be shown that their assumptions are completely indefensible before they act on this issue.
[quote=CA renter]
As for not having a choice WRT paying taxes, I’ve made the point before that there are many cities and states (or countries) that have much lower taxes. If one felt strongly enough about it, they could move to one of these places to avoid paying certain taxes (or all taxes, if one is so inclined). [/quote]No doubt. Wasn’t my point. My point was that whatever taxes are levied by the municipality you live in are not optional. Going to WalMart is.
Participant[quote=CA renter]And, since we’re on the topic of government guarantees, would you also favor getting the government out of guaranteeing loans and investments of all kinds? No “loss-sharing” agreements, no guarantees for student loans, GSE loans, FHA loans, government bonds, etc.? What about FDIC? Surely, some people benefit far more than others because of these guarantees. If we’re going to lose the guarantees for people who actually do the work of the government, should we not also lose the guarantees for those who don’t work for these benefits?[/quote]
Yes to all but government bonds and the FDIC. Recall that the FDIC is funded by the banks themselves. If you’d like to remove the Treasury’s theoretical back-stop of the FDIC, I’d be fine with that.
Participant[quote=CA renter]
I didn’t word that correctly. What I meant is that they fund a portion of the **contributions** which are made well in advance of a person’s retirement. They do not directly fund the **benefits.** [/quote]
The contributions go into investments which later turn into… benefits. So, there’s really no difference between “employer contributions” and “future benefits.” You can word it however you’d like but those contributions ultimately turn into… benefits. I think what you’re trying to say is that the contributions don’t fund CURRENT benefits, but rather are invested to fund FUTURE benefits. But no matter how you want to torture the prose the taxpayers are still funding a portion of the benefits.
[quote=CA renter]
IOW, there are many people out there (the majority, from what I can tell) who think that the employer writes the benefit checks every month. That is absolutely not the case. [/quote]You’re right on this. It’s not like Social Security which is more of a pay-as-you go system.
[quote=CA renter]
The benefits are paid from the pension funds which are funded primarily by investment returns, then employer contributions, then employee contributions…in declining order. [/quote]That’s correct.
[quote=CA renter]
Now, the employee and employer contribution amounts will be the same. That also means that if the return assumptions turn out to be wrong, the **employees** will be carrying half of the burden of the unfunded liabilities. Nobody is talking about this.[/quote]This is incorrect. In fact, so long as the assumed rate of return is greater than the actual rate of return on a public pension fund, the TAXPAYERS will ultimately bear a larger share of the pension liability even if the current “split” is equal on paper. This is a simple actuarial fact. Because the taxpayer must ultimately make up any shortfall, it’s in the employees’ best interests to keep the assumed rate of return higher which keeps their contribution lower (than it otherwise would be)… once the assumed rate of return is shown to be fantasy – say, in a decade or whenever – the taxpayers will have to fund the shortfall. This is one of the insidious outcomes of using a fantastical assumed rate of return and why every union rep on a pension board fights to keep it as high as possible (because they know it benefits the members in the long term at the expense of the taxpayers).
[quote=CA renter]
BTW, the government agency is *funded* by the taxpayers/consumers of public goods and services; the taxpayers are not the employers of public workers any more than I am the employer of Walmart employees if I shop there. [/quote]
You don’t have a choice as to paying your taxes; you do have a choice as to whether you shop at WalMart. So, yes, you’re not the employer in either case, but… when your tax dollars fund the municipality and the municipality is the “employer” I’d say there’s a pretty direct link between the taxpayer and the employees, much more than in the case of your WalMart shopping.
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