Saturday, October 10, 2009

Pension Plans, Pension Saving

Now a short side trip into the land of retirement pensions.

Time Magazine has a new article out about how 401(k) Plans aren't all they're cracked up to be:

The ugly truth ... is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves. In the past two years, that has become all too clear. From the end of 2007 to the end of March 2009, the average 401(k) balance fell 31%, according to Fidelity. The accounts have rebounded, along with the rest of the market, but that's little help for those who retired — or were forced to — during the recession. In a system in which one year's gains build on the next, the disaster of 2008 will dent retirement savings long after the recession ends ....

I'm not as down on 401(k) Pensions Savings Plans as TIME-Warner is, although I concede that if you think a 401(k) and Social Security are going to be all you'll need for a comfortable, secure retirement, you're kidding yourself.

Animation artists who manage to work twenty or thirty years in the Motion Picture Industry Pension Plan and tuck away money in a 401(k) are going to be in relatively good shape when they hit sixty-five and their high earning years have drifted astern.

They'll end up with three Pension accounts plus Social Security. That won't land them at parity with their industry salary, but they'll (hopefully) be at the 60% mark. Of course, my advice is monotonously the same, year in and year out: Put as much loot away as you can, as early as you can. Diversify. And try like hell not to touch your core retirement stuff, because you don't know what the morrow brings.

Plan for the Best and expect the Worst.


Anonymous said...

Whose ideas were 401(K)s and IRAs anyway? When and why did they become the alternative to and the only way to go instead of the company pension plans? Who thinks up these things? Like the phone company breakup. Was GTE the only company insisting on breaking up AT&T? I wonder.
But the sun still comes up tomorrow....

bARE-eYED sUN said...

quite good advice, this post.

thank you.


Anonymous said...

401k is the epitome of 'give the people control over their own money b/c they know best' philosophy. the problem is, the 'control' one is given isn't control as much as it is a set of limited standardized pathways artificially constructed by banking interests to give you the illusion that you are the one making the decisions. as an individual investor, you have no chance against the macro economics of inflation and global flows of money. there is no way for the individual, unless very wealthy, to hedge against constant inflation while paying out percentages in every other aspect of daily life, including taxes, cost of living, dwindling social services, and downward trends of traditional social retirement entitlements.

Steve Hulett said...

As TIME says, 401(k)s ended up being one of the great scams of the era.

401(k)s aren't bad in and of themselves, but since they've pretty much replaced traditional pension plans, they've been a net negative for most people.

Anonymous said...

So we(the union) stick with it for pension back-up-- even if it's no good?

Kevin Koch said...

As a personal investment device, one that allows you to shield a significant portion of your income from taxes, it's a great addition to your two union pension plans.

401(k)s are only a negative in comparison to the pension plans that they replaced for many people. Folks working at union studios have something very, very few people anywhere have -- a 401(k) on top of a traditional retirement plan (the Defined Benefit Plan) and the Individual Account Plan.

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