Our Ridiculous Approach to Retirement

[Admiral Yi]

But bragging about our pension is the only benefit of being a public servant.

The downside to a defined benefit pension is that the benefits can be redefined relatively easily.

[DGuller]

The article though rings very true for my parents.  They don't have a ton in RRSPs (Canuck equivalent to 401(K)) because there have been withdrawls due to past bouts of unemployment.  My dad has worked very consistently, but newspapers are not a great industry to be in these days.  He's been under-employed the last 5 years as well - great skills, but few want to hire someone in their late 50s.

My dad is about the worst possible case.  He was educated as an economist, so he thinks he understands a lot.  Except he really doesn't when it comes to investments, which is the worst situation.  To compound that, he also lacks bullshit detector, and easily falls for pitches, which is also a bad situation when you have a habit of speaking with financial advisers at your local bank .  All these things considered, he got lucky to not get burned in the financial clusterfuck of late.

[Barrister]

But bragging about our pension is the only benefit of being a public servant.

The downside to a defined benefit pension is that the benefits can be redefined relatively easily.

I don't know about "easily", but it can happen, sure.

But there are risks in just about everything.  You run all kinds of investment risks with your RRSP - the company you invested in can go under, the companies you invest in can go under, you can have a currency crash.

I'm not certain that the risk that the GOA unilaterally reduces my pension down the road is any worse than those other risks.

[CountDeMoney]

I'm not certain that the risk that the GOA unilaterally reduces my pension down the road is any worse than those other risks.

I'm pretty such the Canucks have a lot more protections and mechanisms in place to prevent that sort of thing, as opposed to here, where they can destroy a pension program for fun and profit.

[Berkut]

I think the article is pretty much spot on, although not as much for the reasons he is stressing.

Nobody expects people to be able to manage their investments like an investment fund manager - that is why we have mutual funds. Isn't that the entire point of a mutual fund?

The problem is not that people do not manage their investments well, it is that people simply as a group do not invest enough of their income into retirement.

His "plan" to solve this sounds kind of nebulous. A what - federal level mandated retirement program? Don't we already have one of those, and the people running it consistently take all the money put into it and spend it immediately?

[dps]

I think the article is pretty much spot on, although not as much for the reasons he is stressing.

Nobody expects people to be able to manage their investments like an investment fund manager - that is why we have mutual funds. Isn't that the entire point of a mutual fund?

The problem is not that people do not manage their investments well, it is that people simply as a group do not invest enough of their income into retirement.

Yeah, generally speaking, the reason your IRA or 401K doesn't have enough in it for you to have a comfortable retirement on isn't because it was mis-managed and lost money, but because you simply didn't put enough in it for it to earn enough for you to retire on, even at a good rate of return.

[Admiral Yi]

I don't know about "easily", but it can happen, sure.

But there are risks in just about everything.  You run all kinds of investment risks with your RRSP - the company you invested in can go under, the companies you invest in can go under, you can have a currency crash.

I'm not certain that the risk that the GOA unilaterally reduces my pension down the road is any worse than those other risks.

I think one lesson that needs to be taken away from the recent spate of state and municipal bankruptcies and contract renegotiations is that just because you have a defined benefit pension does not mean you're immune from market downturns.  Your pension plan invests in financial assets just like the rest of us, and downturns create unfunded liabilities that either get filled by new revenue or by...cutting benefits.

In addition to which you're exposed to changes in taxpayer sentiment that have nothing to do with economic fundamentals.  My original point was that with a defined contribution pension you're not dependent on the good will of strangers in this way.

[Martinus]

I may be a luddite, but I don't trust any pension plans and just plan to save/invest enough of cash in bonds, foreign currency and real estate. Right now I'm paying off quite a hefty mortgage so that's also an investment and saving up the matching amount as the monthly mortgage payment, in deposits and the like. But then I will probably die of heart attack before I retire so I will start thinking about retirement if it looks like I live long enough.

[Admiral Yi]

I think the article is pretty much spot on, although not as much for the reasons he is stressing.

Nobody expects people to be able to manage their investments like an investment fund manager - that is why we have mutual funds. Isn't that the entire point of a mutual fund?

The problem is not that people do not manage their investments well, it is that people simply as a group do not invest enough of their income into retirement.

Agreed.

I think one concrete step that would be very helpful is to publicize the "rule of 20."  Whatever savings you have when you retire, divide that by 20, and that's how much you can spend each year.

[DGuller]

Nobody expects people to be able to manage their investments like an investment fund manager - that is why we have mutual funds. Isn't that the entire point of a mutual fund?

Mutual funds don't make things that easy.  You've got dozens to choose from, how do you evaluate the options and choose?  How do you balance your choices?  You can still fuck up pretty badly here.  Sure, you can search for advice, and you'll find it.  Lots and lots of it.  And we know how good financial advice is on average.

[Admiral Yi]

Mutual funds don't make things that easy.  You've got dozens to choose from, how do you evaluate the options and choose?  How do you balance your choices?  You can still fuck up pretty badly here.  Sure, you can search for advice, and you'll find it.  Lots and lots of it.  And we know how good financial advice is on average.

How exactly can you fuck up pretty badly investing in mutual funds through your 401k?

[DGuller]

Yeah, generally speaking, the reason your IRA or 401K doesn't have enough in it for you to have a comfortable retirement on isn't because it was mis-managed and lost money, but because you simply didn't put enough in it for it to earn enough for you to retire on, even at a good rate of return.

It's easy to be paralyzed by lack of knowledge.

[Barrister]

I don't know about "easily", but it can happen, sure.

But there are risks in just about everything.  You run all kinds of investment risks with your RRSP - the company you invested in can go under, the companies you invest in can go under, you can have a currency crash.

I'm not certain that the risk that the GOA unilaterally reduces my pension down the road is any worse than those other risks.

I think one lesson that needs to be taken away from the recent spate of state and municipal bankruptcies and contract renegotiations is that just because you have a defined benefit pension does not mean you're immune from market downturns.  Your pension plan invests in financial assets just like the rest of us, and downturns create unfunded liabilities that either get filled by new revenue or by...cutting benefits.

In addition to which you're exposed to changes in taxpayer sentiment that have nothing to do with economic fundamentals.  My original point was that with a defined contribution pension you're not dependent on the good will of strangers in this way.

I freely admitted that was true.  Howeevr the state of finances of the province of Alberta are miles away better than probably most jurisdictions on the planet.

I just questioned whether that risk was any greater than the risks you run saving on your own.  Short of burying gold in the back yard you are still dependent on the good will (or at least not the active malice) of a whole series of strangers.

[DGuller]

Mutual funds don't make things that easy.  You've got dozens to choose from, how do you evaluate the options and choose?  How do you balance your choices?  You can still fuck up pretty badly here.  Sure, you can search for advice, and you'll find it.  Lots and lots of it.  And we know how good financial advice is on average.

How exactly can you fuck up pretty badly investing in mutual funds through your 401k?

Invest it all in REITs or Foreign Market funds (and choose the funds that skim 2-3% in fees)?  Try to time the market by shifting in and out of equity positions?  Keep a huge chunk of it in your company stock?

[Barrister]

I'm not certain that the risk that the GOA unilaterally reduces my pension down the road is any worse than those other risks.

I'm pretty such the Canucks have a lot more protections and mechanisms in place to prevent that sort of thing, as opposed to here, where they can destroy a pension program for fun and profit.

Well... mine is a government pension.  There are protections in place to protect my pension - put in place by that same government.

If the government did want to destroy my pension, they are the ones who could change those same rules.