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June 5, 2012 at 10:35 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745060June 3, 2012 at 2:05 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744883
SK in CV
Participant[quote=AN][quote=CA renter]
The retirees earning $100,000 are an incredibly small portion of those receiving benefits from the govt pension programs. Like I’ve said many times before, the MSM (propaganda machine for the PTB) always uses the outliers to rile up the ignorant masses.[/quote]
So, what would be a large portion of pension receiver then? Show me the number, we’ll run the comparison, and lets see if it still make sense. I’ve shown that for a $50k pension, that’s equivalent to ~$2M in the 401k if you down consider NPV and probably around mid $1M when calculating NPV. How many people making
~$80k/year can amass $1-2M in their 401k.[/quote]Why on earth would you not consider net present value. Is $50K 30 years from now the same as $50K today?
June 2, 2012 at 6:50 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744854Participant[quote=no_such_reality]
In hindsight treasuries where a good deal from 1995-2000. The 30 year was 6-8%. Today, not so much, 2.5%. Inflation will be harsh at the end of the 30 year term. And comparitively, the Dow is up somewhere between 10% and 250% depending on when in 1990-2000 you would have bought.[/quote]Intermediate and long term bonds have turned out to be a great investment for 30 years. I just looked to see if I could find any average annual return numbers and couldn’t find any that go back that far, but I suspect that a bucket of bonds over the last 30 years probably have had an average net yield of somewhere close to 10%.
That bull market is probably close to over. But it’s demise has been predicted for 20 years.
June 1, 2012 at 10:33 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744744Participant[quote=harvey][quote=SK in CV]I won’t avoid the question. It’s an easy one. The employer contracted for the liability, so assumes the risk. Exactly as with defined benefits in private industry.[/quote]
No, not exactly the same. Private pensions do not have the built-in taxpayer bailouts. If the State of California could declare bankruptcy, then they would be the same.
The problem with using euphemisms like “employer” is that it masks actual relationship, which is between the taxpayer and the employee.[/quote]
Yes they do, it’s called the PBGC.
June 1, 2012 at 5:49 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744714Participant[quote=AN][quote=SK in CV]
The assertion (I believe) was that a $100K pension was the equivilent to a $3Million 401K. It simply isn’t. Nothing about annual raises. Nothing about inflation. With a 401K you have unlimited flexibility. Skip withdrawals entirely until you’re 70. Even after that, minimum distributions are pretty small. 100% of any remaining balance can be left to an heir, with a pension you can’t do that. (Possibly a lower survivor annuity.)[/quote] You’re assuming those in the public sector have no saving and their only source of money saved for retirement is the pension. These flexibility also apply to the money public employee save. If anything, they have much more flexibility. Since they can just spend their pension money for retirement and the money they’ve been saving since they start working can grow until that die without ever being touch. That would be a huge chunk of money if they let it grow for 60+ years. We all know time is compound interest best friend. Especially when it money is allow to grow without being withdrawn.[/quote]I’m not assuming anything other than the facts presented. Pension v. 401K. Both private and public retirees could have other assets or no other assets. There’s really no question that the 401K provides greater flexibility. The pensioner can’t decide to skip distributions for a year, or reduce distributions in order to reduce taxes.
[quote=AN][quote=SK in CV]The only way to compare is doing a NPV analysis. That, of course, ignores the possibility of a premature death, in which case the value goes way down. So even using a 40 year life is probably overstating the requirement. 30 is probably more reasonable for retiring at 55.[/quote]
NPV is not the only way to compare. But lets take the NPV number. $100k pension growing at 2.5%, the NPV would be ~$2.4M. That’s still a huge chunk of money. Assuming you’re in the private sector, to amass $2.4M by the time you’re 55 and you start working at 22. You’d have to save on average of $72k/year for 33 years if you have no growth. But, I’m sure you’ll say, but you have to take growth into consideration. So, I use 8% growth, which is definitely on the high side. You’d still have to save $15k/year, every year for 33 years to amass $2.4M nest egg. How many 22-30 year old do you know that save $15k/year every year since they get out of college at 22?[/quote]Most of this doesn’t matter. I was only comparing pension v. 401K at retirement age. How it happened is incidental. I’m not sure what the 2.5% growth is you’re referring to. SD cops pension COLA’s are capped at 2%. And their average pensions are under $65K
[quote=AN][quote=SK in CV]So at 55 years old, if someone is going to offer you either a $100K a year or $3 million in a 401K, which one are you going to take?[/quote]I’d take $100k a year in a heart beat. But these pension are not just $100k/year, it’s $100k/year + yearly increases of 2.5%-3.5%. I’d take that in a heart beat.
All of these calculation is assuming you’d die after 30 years. The pension looks even more lucrative if life expectancy get to 40 years. With the advancement of medicine in the last 30 years, I expect that in 30 years from now, 100 years old will be the new 70.[/quote]
As I said, the COLA’s aren’t 2.5-3.5%, they’re capped at 2%. And the assumption was not death after 30 years, at 4% it lasts over 38 years. And you overestimate life expectancies. 80 may be the new 70, but 100 certainly won’t be.
If you win the lotto, are you going to take the annual payout or the lump sum?
Participant[quote=enron_by_the_sea][quote=AN]
Burn baby burn…. We still have almost 2 months to go to. If Europe explode, man, this thing might go down to single digit.[/quote]Jerry Brown should be truly worried. He is counting on $1.5B revenue from FB IPO assuming $35 price …
That article really doesn’t make a lot of sense. I read weeks ago about this, and the forecast was 2.1 billion over the 2012 and 2013 fiscal years. Only $500 million of that was for the current year, all related to the IPO. Declining value after the IPO doesn’t adversely affect that.
The subsequent $1.65 billion assumed the stock went to $45/share, and the revenue would be next fiscal year.
Either way, it isn’t going to happen.
http://www.reuters.com/article/2012/05/15/us-economy-california-facebook-idUSBRE84E1B720120515
May 31, 2012 at 10:27 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744702Participant[quote=sdrealtor] When you are retired you dont earn an income anymore so you either generate income from your assets or you spend down your assets. Nothing is scarier to a retire than spending down their assets.[/quote]
It’s mostly just semantic, but I’m going to take exception to this. I understand the concept, but you can’t spend income. You can only spend assets. And unless assets are primarily invested in non-liquid investments like gold, raw land, or real estate, actual cash flow in the form of dividends or interest is incidental. Marketable securities can easily be converted to cash. So growth is as important as cash flow, since either can provide cash for withdrawal. Either way, a retiree is always spending down their assets. That’s the only thing they can spend.
May 31, 2012 at 8:58 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744692Participant[quote=harvey]
The issue is: Who bears the risk?And every single person on this site that has ever defended public-sector pensions simply avoids that question completely.
[/quote]
I won’t avoid the question. It’s an easy one. The employer contracted for the liability, so assumes the risk. Exactly as with defined benefits in private industry.
I get it. You think that’s wrong. But it’s been that way for scores of years. And worked quite well for scores of years, particularly in years with outstanding investment returns requiring little, or in some cases, no contributions. I don’t remember a lot of complaints then that retirees were stealing money from the taxpayers.
May 31, 2012 at 6:53 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744685Participant[quote=harvey][quote=SK in CV]S&P compound annual growth rate of more than 7.5% going backwards from 2011, for any period more than 16 years.[/quote]
Jan 4, 1993 – Jan 5, 2009
4.9%
http://finance.yahoo.com/echarts?s=^GSPC+Interactive#symbol=^gspc;range=19930104,20090102;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
Didn’t take long to find that one. I’m sure there are a few other examples.
We all understand the model. We all understand the historical averages and trends.
We also should understand (we are Piggs, after all) that there are no long-term absolutes.
sdr pointed out that all it takes is a few exceptions and the whole thing breaks down.
Defined benefit plans rely on long-term absolutes. If they actually depended solely upon market returns then they might actually be feasible. But they depend on much more. They depend on managers and bureaucrats not making a single mistake for decades. That’s never going to happen.
Have you heard of the Black Swan? The book sucked, but the concept is undeniably true.[/quote]
You didnt actually find anything that refutes what I said. I said going backwards from 2011.
But obviously there are no absolutes. Which is why i reduced it to a 4% return.
May 31, 2012 at 6:30 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744682Participant[quote=AN][quote=SK in CV]So what you’re showing there is if the annual pension payments are invested every year for 30 years it will be worth that much? That’s not the same as retiring with a $3 million 401K.
For it to be equivilent to a $3 million 401K, you have to start with $3 million and reduce it every year by the $100K and add investment income. I don’t have to do the calculation. I know that 7.5% annual investment return will yield $225K a year without ever reducing principle.
But I did the calc. $1,250,000 with annual withdrawals of $100K on the first day of the year, 7.5% earnings will last for more than 40 years.[/quote]
I see you’re adding in the anual investment return for the 401k side. I didn’t do that. If you add in investment return, then you’re adding risk. BTW, where can I invest that guarantee 7.5% for 30 years? I S&P didn’t do that between 1950-1980. It’s definitely below its 2000 value. Will we cross the 2000 value in nominal term any time soon? I have no idea. This is why I assume 0% investment return. There are so many variables. If you retired in 2000 and you put your money in index S&P, you lost money in nominal term over the last 12 years. I haven’t even counted inflation or the expected 7.5% return.[/quote]The assertion (I believe) was that a $100K pension was the equivilent to a $3Million 401K. It simply isn’t. Nothing about annual raises. Nothing about inflation. With a 401K you have unlimited flexibility. Skip withdrawals entirely until you’re 70. Even after that, minimum distributions are pretty small. 100% of any remaining balance can be left to an heir, with a pension you can’t do that. (Possibly a lower survivor annuity.)
The only way to compare is doing a NPV analysis. That, of course, ignores the possibility of a premature death, in which case the value goes way down. So even using a 40 year life is probably overstating the requirement. 30 is probably more reasonable for retiring at 55.
S&P compound annual growth rate of more than 7.5% going backwards from 2011, for any period more than 16 years.
Using 4%, you could get annual payments of $100K a year for 38 years with $2.4 million, assuming the first payment was at the beginning of the first year. (Monthly payments would probably come close to extending that life to 40 years.)
So at 55 years old, if someone is going to offer you either a $100K a year or $3 million in a 401K, which one are you going to take?
May 31, 2012 at 5:53 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744677Participant[quote=AN][quote=SK in CV]I presume you think this somehow shows that a $100K pension is like a $3 Million 401K? It doesn’t.[/quote]
Based on the excel sheet I showed, assuming you live for 30 years, $100k pension at the start would be equivalent to $4.39M 401k if you stop investing and deplete it by death after 30 years. If you keep on investing, then you run into the risk of the $4.39M losing value but the flip side of that is you would make money if the market goes up. This is assuming 2.5% yearly pension payout increase. The number would be higher if you assume 3.5%.Now, my math might be wrong. If it is, feel free to post your own excel data and show me where I made the mistake. I’ll gladly admit my mistake. Plainly saying “it doesn’t” won’t cut it. Just like the phrase you see at the bottom of this page “In God We Trust. Everyone Else Bring Data.”.[/quote]
So what you’re showing there is if the annual pension payments are invested every year for 30 years it will be worth that much? That’s not the same as retiring with a $3 million 401K.
For it to be equivilent to a $3 million 401K, you have to start with $3 million and reduce it every year by the $100K and add investment income. I don’t have to do the calculation. I know that 7.5% annual investment return will yield $225K a year without ever reducing principle.
But I did the calc. $1,250,000 with annual withdrawals of $100K on the first day of the year, 7.5% earnings will last for more than 40 years.
May 31, 2012 at 5:23 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744666Participant[quote=AN][quote=SK in CV][quote=no_such_reality]The facts will set us free.
Government retirees are the 1%.
People need the numbers shoved in their face. Those retirement benefits are like a private person having $3,000,000 in their 401K.[/quote]
You can repeat that as often as you like. But no, they’re not like having $3 million in their 401K’s.[/quote]
The following math is using 2.5% yearly growth.
[img_assist|nid=16263|title=|desc=|link=node|align=left|width=400|height=392][/quote]I presume you think this somehow shows that a $100K pension is like a $3 Million 401K? It doesn’t.
May 31, 2012 at 5:08 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744664Participant[quote=harvey][quote=SK in CV] There is no guaranteed investment return for most government pensions. There is a guaranteed benefit.[/quote]
And there is difference? (Don’t bother to go into semantics, we all know there isn’t.) [/quote]
Tremendous difference, whether you understand that difference or not.
[quote=harvey][quote=SK in CV]And they have worked fine.[/quote]
And Ponzi schemes work fine for a little while. Defined benefit plans are not sustainable, history has proven that. Even if fraud is the cause of failure, it doesn’t matter. Failure is failure, and you can never have a system that guarantees there will be no fraud, or investment downturns, or any other unfortunate event in a 60 year time span.
There is no evidence that any pension plan has ever worked for more than a generation, maybe two, at most. Just because something almost worked for a little while doesn’t prove it to be a solid, sustainable plan.[/quote]
No, they’re nothing like ponzi schemes. Again, just because you don’t understand them, doesn’t mean they dont work. The GM pension plan would have worked fine if GM hadn’t raided it. (It was their medical benefits plan that killed them)
May 31, 2012 at 4:41 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744659Participant[quote=harvey][quote=SK in CV]I note nobody has actually answered my question of whether everyone should be forced to […][/quote]
Because it’s a question with an implied assumption that is completely bogus. Nobody in any profession is being forced to work. Since when is there a law preventing cops, or any profession from quitting at any age?
[quote]What you’re arguing is that no employees should ever have defined benefit plans.[/quote]
No he’s not. He’s arguing that nobody should receive taxpayer-guaranteed investment returns.
Nevertheless, your misrepresentation of his words is not a bad idea.
[/quote]
Item 1. See the last sentence of the original post.
Item 2. There is no guaranteed investment return for most government pensions. There is a guaranteed benefit.
And they have worked fine. When reasonable earnings assumptions are made. They worked fine across the country for the 20 years before the recent crash, when states and municipalities often got away with zero funding. And continued to use unrealistic investment return assumptions. They worked fine in priviate industry, until they got raided by sponsors.
May 31, 2012 at 4:31 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #744657Participant[quote=no_such_reality]The facts will set us free.
Government retirees are the 1%.
People need the numbers shoved in their face. Those retirement benefits are like a private person having $3,000,000 in their 401K.[/quote]
You can repeat that as often as you like. But no, they’re not like having $3 million in their 401K’s.
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