Public Pensions Have Assumed Rates of Return That Should Concern Everyone

It's about time this issue was discussed! In the last few years, even getting a 5% return has been a daunting task.

I'm conflicted how to think about this issue. On the one hand, seeing defined benefit pension plans for govt workers seemed unfair (given I don't have one of these in the private sector). On the other hand, I know I can probably never retire on my defined contribution pension plan (in the private sector).

Can GenY ever retire in the traditional sense? The best I've read on this topic is Tim Ferris who says "traditional" retirement is no longer an attainable dream (he calls this the deferred life plan) ... rather people should work towards many periods of mini retirement during their lives. I don't know how I feel about this because I know in tech, my employability will go downhill post 35-40 :(

Stories like this or the debate over social security suggest to me that the basic idea behind defined-benefit pension plans is fundamentally brittle. All of the variables feeding into a pension fund's balance sheet - market fluctuations, new contributions, the duration over which an individual will ultimately receive payments, etc - are fundamentally unpredictable. I'm not sure what kind of machine it would take to take all those inputs and output a reliable stream of fixed-size payments, but I suspect that magic would be a key component.

Maybe it was easier during the period where pensions became so popular in the US. Fluctuations presumably aren't so problematic when the upticks greatly outweigh the downticks, the 5-10 year trend always has a positive slope, and you aren't getting ready to have 1/5 of your workforce hit retirement age all at the same time.

> While Americans are typically earning less than 1 percent interest on their savings accounts

> 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.”

It's funny seeing this. I get 5.15% p.a. on my 24 hour notice money market deposit account at my local bank (http://www.nedbank.co.za/website/content/interrestrates/loca...). High interest rates are one thing I enjoy about living in South Africa.