People can but will they? From what I've seen, no they won't. This is how you get an aged / aging population that has not saved enough, but often cannot work (e.g., because of health reasons). Then you have a sizeable demographic that's stuck eating proverbial cat food.
Further, even when people do save, they put money into absolute non-sense things either because they think they can beat the market (spoiler: 99.99% of us can't [1]) or because they don't know what to invest in and may not have the time to learn.
Forced savings [1] is a good thing for the general population.
Of course you are different, and don't suffer from cognitive/behaviour biases, so you'll do better than average and beat the market.
[1] https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
The situation has changed with the advent of near zero cost index funds and target date retirement funds.
There is no reason for pension fund managers to exist when they have been automated.
Again, this assumes that people will actually invest. Which plenty of people do not do. For a large portion of they never bother setting anything up.
As someone who participates in /r/PersonalFinanceCanada a lot, the number of posts that say something like "my parents are 60 and have nothing saved" is quite tragic. There are books written on folks who have only started late in the game:
* https://www.moneysense.ca/save/retirement/procrastinating-on...
The problem is not technical in nature on the products one should buy, but behaviour on actually buying anything (even if it's a shitty mutual fund with a MER of 2%). Getting people saving something, anything is the problem.
Forced savings are a good thing for a very, very large portion of the population.
California does have a "strongly encouraged" saving program that is mandatory for all employers with five or more employees to offer[0]. It is similar to the MyRA program that Obama implemented but was left to fade away for partisan reasons.
It takes an illness and a lifetime of making less than the average wage, to condemn a person to poverty after retirement.
Pensions are essential all around the developed world. They are not "stupid", they are one of the pillars of elderly protection.
Otherwise, as evidenced by basically every data point, politicians will promise the DB pensions, then not fund them, then lay the costs on future generations.
Or you look at demographics ahead of time and have the political will to switch away from a pay-as-you-go system. Like Canada did with its CPP in the 1990s:
* https://en.wikipedia.org/wiki/Canada_Pension_Plan#1996_refor...
Every three years the CPP is independently audited to make sure it is solvent 75 years out given certain assumptions:
* https://www.cppinvestments.com/the-fund/our-performance/actu...
And that includes audits from foreign auditors/actuaries that don't have a dog in the fight:
* https://www.osfi-bsif.gc.ca/Eng/oca-bac/ipr-rip/Pages/gad30....
> no city, county, or state should be in the business of promising things that far into the future.
Health care workers in the province of Ontario would disagree:
But at the end of the day, what are they doing different that a target date fund from Vanguard/Schwab/Fidelity is not? Except the latter avoids agency risk and is super cheap.
There's no guarantee that pensions will perform well of course (see Alberta). But as someone who spends a decent amount of time in /r/PersonalFinanceCanada, the random person on the street probably does worse.
> But at the end of the day, what are they doing different that a target date fund from Vanguard/Schwab/Fidelity is not?
1. Forced savings taken off their pay cheques no matter what, which solves a huge behaviour issue.
2. Run by folks who are better audited than individuals are personally, so results are readily available, and can be easily criticized for non-performance.
2. It is already very easy to write software that compares performance to an index.
Regardless, if the purpose of a DB pension fund is to protect people from their own proclivities, then a federal pay as you go system works better (cheaper, less agency risk). If the purpose is to supplement the amounts from the federal system, then a personal account at a brokerage invested in a low cost index works better.
I am not even sure why Canada invests its pension funds in the private markets. Canada can always issue new Canadian dollars anytime it needs to pay the benefits it has promised if tax receipts are insufficient. If anything, this leads to another perverse incentive of Canada’s government wanting to bail out businesses it has invested in.
Surely just because you don’t work for Ontario doesn’t mean you shouldn’t be allowed a pension. Same in, same out should be the principle.
2. The listed pension funds are not for working specifically for the government, but are for more publicly focused aspects (health care, education). But there are other options, like folks who work in (e.g.) the food industry (supermarkets):
* http://ccwipp.ca/index.php/en/
Construction:
And even general solutions:
That said, the public sector pension (OPTrust) set up a system where Ontario charities / non-profits can join their general pool not too long ago:
* https://pensionpulse.blogspot.com/2018/09/ontarios-new-non-p...
* https://www.optrust.com/AboutOPTrust/News/Nonprofits-Enroll-...
* https://theonn.ca/our-work/our-people/decent-work/pension/
BC is looking at pensions for gig workers:
* https://www.benefitscanada.com/benefits/health-benefits/b-c-...
Otherwise seems rather sensible.
Scale helps a lot because you tend to get closer to average returns and closer to the statistical distribution of payout timelines.
CPP was never meant to be a 100% program.
It would be "stupid" to not pay pensions, unless you don't see the risks in leaving a whole generation in their elderly years with no income whatsoever. Most evident of all, it would be a deadly blow agains the economy itself, especially in developed countries with aging populations.
It is inevitable that the longer people live during their non working years and the more top heavy the population pyramid becomes, that there will be less for future generations’ during their younger years.
At least in the US, there seems to be more than enough money to keep several branches going. The military just got $20 billion extra this year. Foreign aid is around $45 billion a year.
It's not that there isn't enough tax money.
At a national level that is probably okay, at a municipal level it means that people that leave a city get services that they don't pay for, and future residents pay for services they didn't benefit from. It's a terrible alignment.
Would creating a national pension system work better?
Note the "paid for" in "paid for in the future".
California is 2nd to Hawaii in home prices and more importantly, payment to income ratio
https://www.fool.com/the-ascent/research/average-house-price...
California has the 2nd lowest percentage of home ownership, and is among the highest decline in home ownership over the past 15 years.
https://ipropertymanagement.com/research/homeownership-rate-...
It’s pretty common to hear about police officers and firefighters supposedly working >80 hr/week for extended periods. I’m not saying it’s impossible for that to happen naturally, but I think it is greatly incentivized by pension calculations. The OT pay itself being time fraud isn’t a huge deal in the grand scheme of things, but the fact the taxpayer has to pay it over and over again over potentially decades really makes it consequential and something we need to disincentivize (note I’m NOT suggesting we even get rid of OT. Just remove it from pension calculations).
Another controversial statement: a lot of public jobs in CA pay a lot of money. I don’t think they necessarily need to have their pay cut but you could probably reduce the pension to like 40-50% of max income. Someone making $120k/yr has plenty of money to make other retirement contributions and still live well off an extra $50k+/yr. Healthy pensions are good to avoid destitution but $100k/yr pernsion is a lot of money…
Otherwise it’s great as long as stocks always go up.
Not weighting your investments towards bonds as you get closer to retirement is solely on the individual.
> These investors are told to never sell even in a crash
Realizing losses on money you don't need for 20 years is an incredible stupid thing to do. The instruction here is almost always correct.
The school district has to pay now rather than pay later (not only the employer contribution, but salary is generally higher to make up for the lack of a juicy pension). The 401K is also persistent (you don't need to work X amount of years at the school district for it to stick), and if you die early, your heirs inherit it rather than it just going poof. It isn't an obvious win for the school district...and it does keep them more honest in that they can't pretend their investment returns will be higher than they actually are.
A bit more than 5%, but exactly (about $30k/year to fully fund a 401k from employee and employer side, sans whatever the employee contribution was before).
Basically, a pension is an understanding that you accept lower pay during your career in exchange for a guaranteed annuity in retirement, but the workers have by and large completely broken their side of the tacit agreement.
Why would anyone trust a good politician to nominate a good pension fund board member to hire good investment firms to make good investments when you can cut all that agency risk out and just stick your money in VOO and VCSH or a target date retirement fund at Vanguard/Fidelity/Schwab?
A pension fund of one or two is very risky and so you need to take a lower withdrawal rate, especially if you find yourself starting your withdrawal in times of very high valuations.
In this scheme, earlier generations of California teachers will make out great. Latter generations of California teachers will suffer. The typical result of DB pension schemes.
Then the state is stuck picking up the bill for homelessness and healthcare and crime.
Looking at the exploding sovereign debt around the world, this seems to be true on the governmental level as well. At least if we speak about "own" money instead of "owed" money.
The EU has basically given up on Maastricht stability criteria for the euro by now. "No more than 60 per cent of GDP in debt" is about as reachable as the Moon for most members.