There are a lot of things I wouldn’t like about the '50s and '60s but strictly speaking about lifestyle and economics:
I have a family of 4 and my house not counting the garage and basement is just over 1000 sq ft and to me it is huge. I have a decent sized yard and a deck. I’m not a big stuff person and I hate cleaning (or outsourcing basic household tasks, also don’t like too much traffic from the outside). So it’s good enough for me.
I have a 1 income household but it is not ideal and a constant source of friction and anxiety. We can technically “get by” but I hate it. FWIW, my wife was the one who did not want to work and that was a source of our first and early fights and we should have never stayed together. I only say this to point out that I am NOT the “I am a man and my wife should stay home and cook and clean” dude. Later, somehow it was my fault and I was “controlling” when I simply pointed out that changing her entire philosophies and way of life on whims was not really healthy for our family, but I’m over it.
Anyway, I am envious of people who can pretty much take a 2 (or more!) income household for granted. Where I live, a couple both working a pretty much entry level labor job could easily make 6 figures and here that goes a long way. So, there is an element of “want” versus need for that. It’s pretty hard to find people content with a small home, one used car, no vacations, etc. It can be done though.
Also, shoutout to the healthcare system, where over 25% of my gross income goes.
I think using just working-hours income would lead to a big oversight in differences between generations, notably, pensions / retirement plans. My dad got a full pension from his govt job and luckily got to keep it when they removed for new employees.
Pensions have been largely replaced with 401(k) savings in the US, This is not a bad thing. Pensions often lock employees into staying with an employer when it would otherwise be in your best interests to leave. Pensions also carry considerable risk if the company hits hard times or has under-funded their pension system.
There are a lot of people stuck in jobs they hate because they need the pension. And in today’s gig employment world, contractors and gig workers can contribute to 401(k) retirement, but would never qualify for a pension.
How much does the average person have to contribute to a 401 in order to reach the equivalent of a 100% salary pension? that would have to be deducted from wages to make a proper comparison.
The increased potential for flexibility and universal access provided by individual retirement savings accounts does represent an improvement, but I think Sam’s being way too cavalier in assuming that the general shift from pensions to individual accounts is all upside and no downside.
The Pew definition in the post you replied to doesn’t use just working-hours income. It uses whatever is included in the Census/BLS CPS ASEC, which I don’t have on hand (or what all those letters stand for.) I recall it does leave room to quibble, just not about that particular restriction.
I agree- I found a calculator online that said I would need 1.6 million in cash to buy an annuity that would give me the same income starting at 58 as my pension. There is no way any of my coworkers would have been able to put away even half of that money in a 401K - and we definitely couldn’t be sure that we would never lose any of the money in a 401K.
Who gets a 100% pension? Never heard of that. The best pensions in Canada are government pensions and they pay 60-70% of your salary. I have a defined benefit pension, and it pays me about 25% of my highest salary. If I had stayed long enough to max it out, it would have been about 35%. With no Cola, which really hurts with inflation being where it is.
My pension cost me 6% of my salary, with an employer match. If I had taken that money and invested it in a retirement fund each year, at 5% interest I would have had $901,000. At 10%, 1.92 million.
A 900,000 annuity would allow me to withdraw $5500 per month for 20 years at 5% interest. WAY more than I’m getting from my pension.
Of course, that assumes getting 5% over inflation for your investment. That used to be easy enough. I’m not sure it will be again, not for a long time. Especially not for conservative retirement investment.
Every pension is different - my government pension cost me 3% for the first 14 years and then the law changed to say we only had to contribute for the first 10 years, so I stopped paying in. The pension I receive is not at all based on my contributions- it’s a percentage based on my average salary for the last three years which is unrelated to the contributions I made in my first 14 ( or 10) years. There isn’t any employer match. The employers have to contribute enough to pay the benefits but the employer contribution depends more on how the investments are doing- if they are doing well, the employers contribute less or nothing that year.
I contributed less than 50,000 to this pension and receive a little over $6000/month starting when I was 58 and continuing until I die. Unless my husband survives me - in which case it pays until he goes.
I couldn’t have managed that putting 6% in for my entire working life , which is far more than double what I actually contributed. And like I said, there wasn’t really an employer match so it’s not like I could assume that my employer would match what I put in a deferred compensation account. There’s a reason my first government employer tried to push people towards contributing toward the deferred comp rather than Social Security and the pension. And the reason is that SS plus pension costs the employer more.
But there’s no COLA on the annuity withdrawals either, right? And as you say, there is absolutely zero guarantee that you can count on a 5% growth rate for all or most of a 20-year period.
(And didn’t you say that you retired shortly after 55 or thereabouts? Would you really be okay with planning to run out of retirement benefits before you hit 80?)
I mean, even with those caveats, you’re right that the retirement-account option (if the numbers worked out like you hoped) is more lucrative for someone with an income as high as yours than the defined-benefit pension option. But as my above-linked cite notes, that’s not the case for the majority of income earners.
Generally speaking, the wealthy are always going to do better from individual investments than from broad-based defined-benefit payment systems. But that doesn’t make it necessarily the smartest choice for the non-wealthy, who have a lot less total capital to play the markets with.