A bill in California would create a private investment fund for workers that would provide annuity income. The plan is as follows: "Eligible employees would have 3 percent of pay deducted from their paychecks, unless they opted out. The employee contributions would be pooled and conservatively managed by professional investment managers chosen by the state through a bid process. That could include private firms and the California Public Employees’ Retirement System, the big public pension manager. The program would be overseen by a board of public and private sector leaders, appointed by the governor and the Legislature. One of the advantages of the plan is that pooled contributions and professional management would reduce administrative costs and investing mistakes, which would boost returns beyond what most 401(k) investors achieve on their own." (see link)
What about Social Security? These private pensions would augment social security pension benefits. What is meant by retirement will change in the next couple of decades. Notice that the Social Security system is not in trouble today. Unlike the federal government, the fund has a surplus which has been built over the past 3 decades, largely through increased taxes, to help fund baby boomer retirements. The surplus isn't big enough to fully fund retirements. (see link).
As with most public policy questions, there are no easy answers. Should California lead the way to the creation of yet one more pension plan? Trillions of retirement-oriented investment dollars have been "lost" since the financial crash of 2008. Who should make up this loss? What should happen to the baby boomers?
Unexpected things happen. Unfortunately with the financial crisis, a lot of plans that people had for their lives have now changed. It's sad, but people have to be flexible and willing to adjust. Although we moved away from it recently, it was not uncommon for multiple generations to live under the same roof. A lot of stories I am reading say that this is starting to be the case again and children and grandparents are moving back in with the middle generation because it is cost effective.
ReplyDeleteWhat California is suggesting is a good idea. With a big pool of money, people can see returns on their investment that would not be possible on their own. However, there are risks involved with this type of investment and people should know that they can not rely on this fund to take care of them. In addition people need to make their own plans for retirement. No one ever said life was going to be easy, we have to pick ourselves up and try try again.
I agree with what Travis said about multiple generations ending up back under the same roof. This is very common in other societies but would be a cost effective solution for many Americans. The middle generations who are currently working in their prime years can take on the role of paying the bills and the older generation can help provide child care for their grandchildren, the younger generation. I think many people don't feel financially independent unless their finances have nothing to do with their families. Which makes me question why so many people would rather have strangers raise their children than the children's grandparents? I understand that this is not and cannot be the case with all families however, Americans need to look to the traditional roles that all family members are playing in eastern countries as examples, not as regression.
ReplyDeleteAs these articles make clear, retirement savings are a complicated issue, and a dire one as well. There are many facets to this problem, as there are many elements to a successful retirement portfolio. It is significant that, as the first article mentioned, 60% of Americans are going to be financially prepared for retirement when they reach 65, but only about 15-25% of Americans are wholly unprepared. I think that one of the most logical answers to the retirement problem is raising the retirement age - since the design of social security in the 30s, average life expectancy past 65 years has gone from about 0 for men and 5 for women, to 15 for men and 20 for women. As a result, people are spending many times more time as beneficiaries of the system than was intended. The other side of this equation is that by working for a few more years, individuals will pay for a greater portion of the services they use.
ReplyDeletePerhaps coupled with this raise in the final retirement age, I would also like to see the growth of encore careers. People voluntarily moving to a part time work schedule, possibly in a less grueling career. Late life second careers could fulfill the dual objectives of allowing people to save longer before beginning to tap those savings, and to increase their leisure as the toils of their original career become too great for them. In order for this program to be successful though, both adults and employers would need to undertake a paradigm shift, and see these lesser jobs not as demotions, but as opportunities to do something fresh, and contribute to the economy differently in later life. Finally, many individuals may find these secondary careers to be fulfilling activities, and some individuals may decide to never fully retire.