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Old 03-24-2015, 11:38 AM   #100
Flash Walken
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Originally Posted by Slava View Post
^ I think you're missing a couple key points though. First while people had defined benefit plans they also worked until 65, often with few job changes, and were dying withing a decade of retirement. Today workers are much more mobile which means they aren't contributing to plans for the same length of time (a generalization to be sure). The other issue though is life expectancy. People are living much longer, and they're also retiring earlier. If you want to retire at 55, and live until 95, you're talking about working for about 35 years (from 20-55) and then supporting yourself for 75. Its crazy.

I would also point out that not too many generations ago people didn't retire. So the pendulum swung to the point where many people retired, and maybe now its swinging back towards less people retiring. That is partially by need, and partially by choice as more and more clients I see are working longer on a reduced basis because they still love certain aspects and want something to do.
Life Expectancy hasn't increased that much.

Life expectancy now is only a couple/few years older than it was in the 90s. The difference between life expectancy in the 1970s and today is about 10 years.

The real problems lies in the 30 percent wage decrease the labour force has seen since the mid 1980s.

There is simply too little money coming in to these earners to expect them to save adequately for retirement.

Regarding Phanuthier's post:

401ks, stock options etc weren't a big component of retirement plans because prior to the 1990s, the stock market wasn't something the average person participated in, largely because of it's volatility. This boomer generation that is now retiring was one of the first and largest groups to start to use those sorts of investments as a means for retirement, but it's proven to be a failure. Once executive pay began to be linked to corporate profitability, stock options began to be used as a tax free method of compensating executives in the states, and this quickly transitioned to Canada as well.

In order to increase the value of those stock options, employees were encouraged to invest in the company as well.

This article is from 2001, 20 years after the first 401 k.

Quote:
There was also a push for more "portability," where workers could take their retirement money with them. Part of the reason for this was that companies restructured and some older employees lost their jobs. A growing number of people in the work force also started changing jobs more frequently.

Today, the 401(k) has become one of the most advantageous savings tools available, offering benefits for both employer and employee. But there's still room for improvement, experts said.

Savings advocates, for instance, have been pushing for higher contribution levels. Congress is likely consider a bill that would raise the cap on participant contributions to $15,000 a year from $10,500, and would provide a "catch-up" provision for workers 50 and older to save an extra $5,000 a year.

And the 401(k) structure still is evolving to match demand for greater flexibility.

A worker's investment choices, for instance, are likely to move in one of two directions, said Cerulli Associates managing director Peter Starr. They might mirror an employer's institutional pension funds, which are both less costly for participants and are more closely monitored.

Or, he said, they may become more retail-centric, meaning employees would direct all of their 401(k) money into a retail brokerage account, opening up a participant's investment universe.
At the time, it was sold as if employees were freely switching jobs and abandoning employers/pensions. The 401 k was designed to be there even if the employee changed jobs.

However, the reality of the situation is that people were more frequently being 'restructured' out of their jobs and those pensions were extremely costly components of personnel management. If you left it up to the employee though, you could lay off and terminate small or large portions of your workforce without the same financial cost.

Either way, you can't discount for the impact of a 30% reduction in spending power has on a population during the course of their working lives. Whatever your investment plan, an extra 30% of income goes a long way to making it easier to save money.

It's impossible to save for retirement when living paycheck to paycheck, and more than half of the country is in that situation.

Last edited by Flash Walken; 03-24-2015 at 12:05 PM.
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