Quote:
Originally Posted by opendoor
You're basically just agreeing with GGG; people could have a similar pension-like experience, but they don't like the downsides of it (having to divert that much money, risk of early death and not being able to pass it on, etc.).
As for employer contributions, yeah, that helps. But a decent chunk of the contributions are also going to fund prior underfunding, so the contributor isn't necessarily benefiting from that directly. Whereas if you save your own money, it's yours.
Just to put some numbers to this, if a 25 year old making $55K in 1993 started contributing 11% of their gross salary and continued that through their career up to now when they're making $100K, they would have about $1.1M if they had invested in a 70/30 mix of Large Cap US and US Bonds. So without a dollar of employer contributions, they could buy an annuity that covered about 50% of their working salary and still have $150K left over to get them to when they can collect OAS and CPP, which would bring them up to the 65-70% range.
And that's not just an artifact of the 2009-2020 bull market; if you backtest that same portfolio with the same assumptions (with the salary/contributions reduced commensurately by the inflation rate) in the 1973-2003 or 1983-2013 periods, you end up in about the same place.
|
Of course I'm basically agreeing because it's math!
But you can't just discount a 10% match either. That's a significant amount of money, and to just think that people are going to be able to save that is questionable at best.
And yeah, there are solutions. It's what I do for a living, so I'm not suggesting that this can't be done. I'm just presenting the rationale for why people aren't likely going that route on their own. Annuities are just not that palatable once you have built up those savings.
I question people at 25 making $55k in 1993, but it's not a big deal. I think that almost regardless of the income a 25 year old makes, the odds of them being willing and able to save 20% of that is pretty unlikely. Saving 10% is a goal for most people, but saving 20% is a stretch to say the least.