Posted on 02/01/2009 2:02:08 AM PST by Libloather
Teresa Ghilarducci: The 401(k) Retirement System Has Failed
January 30, 2009 03:51 PM ET | Emily Brandon
**SNIP**
Under Ghilarducci's plan, outlined in her book When I'm Sixty-Four: The Plot Against Pensions and the Plan to Save Them, all workers who don't have a traditional pension would be required to contribute 2.5 percent of their income to a government account with a 2.5 percent employer match. A 3 percent return above inflation would be guaranteed by the government. U.S. News asked Ghilarducci about her controversial retirement plans. Excerpts:
**SNIP**
How will GRAs fix the retirement system?
After 30 years of experience with voluntary participation in the 401(k) system, in my opinion, it has failed. The only retirement system that all people have is Social Security and Social Security isn’t enough. We need a universal supplement to Social security so that everyone can retire. Personal savings and employer pensions were supposed to fill in that role. I expect that the government will spend a considerable about of time figuring out a way to have a supplement to Social Security. It might not be my plan, which is mandatory and pays for the subsidy by scaling back the 401(k) system. I see a more gradual introduction of a GRA.
Is a 3 percent interest rate above inflation enough to get people to a secure retirement?
Barely. It is the minimum that the government can guarantee and itself not run the risk of not being able to pay it. If you save 5 percent of your earnings, it is enough to get middle-income workers 70 percent of their preretirement earnings in retirement. Without that supplemental guarantee, they are getting about 40 percent from the Social Security system.
(Excerpt) Read more at usnews.com ...
I’ll take a shot at this one. Disclaimer: My late father was retired government and my mother still lives off the pension. My sister, brother, sister-in-law and brother-in-law are retired schooteachers or government employees and draw government checks.
The issue is that those of us who have to provide for our own old age via savings or pensions resent government retirement plans in which the beneficiaries put little or no of their own money into. Lifetime medical care. Inflation adjusted pensions paid for by taxpayers.
And we have to worry that social security, into which we paid for many years could on a whim be jerked out from under us. And we have to sweat the details on 401ks, hoping we’ve made the correct investment decisions. Money that WE put into the plan, sometimes with a little help from our employers.
Meanwhile government retirees blissfully never miss a lick, protected by armies of government employee unions who swarm at a moments notice to threaten congressmen and legislators if the nest is threatened.
I understand that frustration for sure, but I also know that they work for significantly less money than the rest of American Workers. Most work for 40,000 dollars a year if they are lucky. Plus the government pensions have changed significantly since the late 80’s. For example, if you started working in 1989, you only receive one percent per year towards your retirement check. What I mean is that if you work 25 years, you will receive 25 percent of your final pay check for life. It used to be 2 percent so if you completed 25 years of servive you received 50 percent for life. However they also put money into Thrift Savings which is sorta a 401K. Also they pay for medical costs now more than ever. It really is not as great as it sounds anymore. I really don’t think any job is great anymore come to think of it....lol.
...another reason why the socialists are so eager to disarm us...
I’ll just pull all mine out, take the penalty and reinvest.”
As will everyone else, collapsing the markets for people like us and giving parasites like George Soros unprecedented buying opportunities.
I’m seriously considering cancelling my monthly contribution to my 401K until we are out of the woods on this one. Use the money not contributed to by gold and ammo....
The best response to Dr. Ghilarducci would be to propose that the existing Social Security be converted to her GRA system. That would instantly shift SS to a fully funded basis (we’d have to finance the transition) with universal participation and a government guaranteed minimum benefit greatly exceeding what current SS can provide.
“I understand that frustration for sure, but I also know that they work for significantly less money than the rest of American Workers. “
Not so sure about that one. I saw a report recently (apologies for no citation) that showed avg govt. e/ee comp + benies on par w/ private sector comp/benies. The problem that a lot of private sector people have with this is that, in most cases, the government jobs are essentially “entitlements” to which the public employees are guaranteed.
Meanwhile, the private sector is watching an ever increasing portion of thier income stolen by government in the form of higher taxes that are being used to hire more government workers or pay the lavish benefits (current and retirement) for this over-bloated bureaucracy. The private secors is getting laid-off in droves while the federal govt is adding to its payroll.
My brother-in-law is a govt employee (civillian, military engineer) who makes over $90K per year and has somewhere in the neighborhood of 6 weeks paid vacation time, huge health benefits and still gets to log overtime despite his base salary. He also gets to participate in the government version of the 401K retirement plan (the ones the politicians designed for themselves...) which includes a huge matching percentage by Uncle Sam. His job is about as cushy as they get.
That said, as compared to the private sector, federal pay scales are compressed at the top. The feds pay well at the worker bee and middle managment levels but poorly for senior management. The tradeoff for managers, of course, is job security. This contributes to a very insular institutional culture, as most government managers are promoted from within. At senior levels they are pretty sharp people but they are products of the system and resistant to change.
You are correct that the federal pension system has been reformed. Older workers retiring today are still retiring on the old system, but since the mid 80's new hires have been in the new system, which pays a basic pension of 1% of the average of your high three years of salary. If your final three years averaged $100,000 (which a GS 12 can earn today) and you have 30 years service, your basic pension would be $30,000. That is supplemented by the thrift savings plan, which operates like a 401(k).
Many state and local pension systems are unreformed and are still way out of line with private sector norms.
>>I understand that frustration for sure, but I also know that they work for significantly less money than the rest of American Workers.
While there is no doubt that this was once the case, it is no longer a given.
“I am in the military and see many civilians work very hard for the government.”
I was in the military, and even worked for a time as a DoD civilian. What you see civilians is not work, with probably 90% of the folks you observe. The contractors do the vast majority of the work.
Yes, everyone claims they are part of the 10%, and they’ll even get indignant thinking that normal travel or hardship was somehow extraordinary and they deserve to be compensated in an extraordinary way because of it.
It’s typical delusional bureaucrat thinking.
May as well buy chickens. At least you can trade eggs for goods and services. And become a leisurely dillitante on the side and supplement your income by raiding federal armories and hijacking tractor-trailers carrying smokes, salt and foie gras.
Smuggling and counseling on tax avoidance by any means will become the hottest career opportunities under nobama.
It’s just absolutely killing the government that there is so much money sitting out there in 401(k) accounts that they can’t get their hands on. The government looks at all money as theirs. Well guess what? I worked for it, it’s mine and you can’t have it.
He also said that stocks do not always come out ahead, and that if he had done this when he was a young man, he would have lost a lot more money.
Grandpa died some years ago, but I wonder what he would have thought about things today.
Since when are IRA's a "Ponzi scheme". Certainly, Social Security is, but IRA's are real money, invested in real companies.
“The good news is that few will likely read what she has to say, given that USN&WR is just about finished.”
Too late, she has her hooks into the Omama administration and knowledge among we peasants is not a prerequisite for the socialization of American.
I just received my USN&WR in the mail today. It appears it will be published monthly instead of weekly.
I grew up with that magazine-it was the Fox News of its day-fair and balanced especially when compared to Time and Newsweek. But after the death of it founder, David Lawrence, it slowly changed over time.
By "overall performance", I mean something like "if a retiree had started investing in a 401K at the max rate at the inception of the program, what would his holdings be worth today".
A shorter version of what killed 401(k)s is socialism. Consider the anti-drug commercial about nobody dreams of growing up to be a junkie, well, socialism turns everyone into a junkie.
You can’t invest in a government run industry, you already are with your taxes. Which begs the argument of why pay taxes? In a government planed economy, how many different kinds of washers are needed, two, a big one and a little one. One person could make all the washers needed and you wouldn’t need to make another planning decision.
Out of curiosity, is 3% above inflation inflationary?
1. Borrow 30 trillion dollars from our future.
2. Send each voter 60 or younger $200,000 if they agree to give up ALL forms of public assistance, including social security, Medicare, prescription drug, welfare, etc for the rest of their lives.
3. Whatever percentage of those accepting this offer is, the entire government workforce charged with delivering these "benefits" is fired. If any of them are any good, the private sector will take them in.
4. Eliminate corporate taxes entirely.
5. Install a national retail sales tax of 10%
6. Return all power originally vested to the states back to the states and get the feds out of the business of controlling everything under the sun. This will reduce the federal workforce even more.
7. Get out of the way as the private sector begins to grow itself out of our current national debt, which under this proposal would actually SHRINK from 57 trillion dollars to 44 trillion dollars.
Do you have any data to back up this claim; because the latest I read was the government wages are 60% higher than their private sector counterparts. And that was not counting benefits.
That fact seems to be in line with the wage disparity I see between public and private sector jobs I see in the want-ads.
I'm not sure. It may depend on the income involved. But - they would still have 100% of the money, gaining interest, if all of the loot was placed in a money market fund instead of stocks or mutual funds. Not everyone lost their shirts.
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