# Pensions - maybe I'm just ignorant **URL:** \ **Category:** In My Humble Opinion\ **Created:** [October 16, 2018, 2:59pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033 "2018-10-16T14:59:17Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![jasg](https://avatars.discourse-cdn.com/v4/letter/j/f0a364/32.png) [@jasg](https://boards.straightdope.com/u/jasg)\ **Post date:** [October 16, 2018, 10:51pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/21 "2018-10-16T22:51:27Z")
> [@Algher](#): > > Pensions also suffer from changing health demographics. People keep on living longer. > > Looking at a quick Google check > > 1963 - life expectancy was 69.92 > 1970: 70.81 > 1980: 73.66 > 1990: 75.22 > 2000: 76.64 > 2010: 78.54 > 2015: 78.74 > > Adding years makes the math used when first offering the pension problematic. Over time, as companies radically change (or go under), you can see the pensions hit hard. Are those figures for life expectancy at birth or at age 65? ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [October 16, 2018, 11:07pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/22 "2018-10-16T23:07:47Z")
Perhaps it’s most relevant to look at life expectancy at the start of your working life? I found this for U.S. white males / females, life expectancy at age 20: 1900: 62.2 / 63.8 1930: 66.0 / 68.5 1960: 70.3 / 76.3 1990: 74.0 / 80.3 2011: 77.2 / 81.8 Life expectancy at age 60 is in there too if you want to look at that. Since 1960 it has increased from +16 to +21 for men, from +20 to +25 for women. > **[Life Expectancy by Age, 1850–2011](https://www.infoplease.com/us/health-statistics/life-expectancy-age-1850-2011)** > > The expectation of life at a specified age is the average number of years that members of a hypothetical group of people of the same age would continue to live if they were subject throughout the remainder of their lives to the same mortality rate. ---
**Author:** ![Hari\_Seldon](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hari_seldon/32/5173_2.png) [@Hari\_Seldon](https://boards.straightdope.com/u/Hari_Seldon)\ **Post date:** [October 16, 2018, 11:10pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/23 "2018-10-16T23:10:45Z")
My employer had a defined contribution plan. I retired on the last day of 1999 near the top of the market and my plan had nearly $1 million. Then it was converted to an annuity at a very favorable rate (which was going be reduced significantly on Jan. 1) which was the main reason I took early retirement (although, it was also clear that the change was announced six months in advance to encourage people like me to retire early–63 in my case). Since then, my employer has taken a bath on my annuity because interest is so low. And because I have probably lived longer than their old annuity tables would have predicted. But that is their problem. A couple years ago, they decided to get out of the annuity business. You take your money and do with it what you will. Incidentally, the funds were managed very well. I had the choice of 25/75, 50/50, 75/25 split between stocks and bonds. I chose 50/50, in part because that came with a minimum guaranteed pension, but a colleague who chose 25/75 did quite a bit better. ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [October 16, 2018, 11:14pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/24 "2018-10-16T23:14:54Z")
The life expectancy increases are a modest percentage of your total lifespan, but a significant percentage of your expected period of retirement. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [October 16, 2018, 11:16pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/25 "2018-10-16T23:16:37Z")
> [@Colibri](#): > > In the more traditional pensions, you didn’t need to pay into it. The employer paid all contributions. In others, both the employer and employee pay in. The money is invested, usually in very safe funds, to generate the money paid in retirement. Safe hands, in the sense of professional money managers, but not necessarily as investments. As **leahcim** notes professional money managers are used, and you don’t need them if you are just buying T-bills. State pension funds, especially for California, have a lot of influence. . ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [October 16, 2018, 11:20pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/26 "2018-10-16T23:20:56Z")
A big negative of pensions is that they discourage job-hopping. They were good for when people often worked for one company most of their lives, like the Bell System or IBM. But given long vesting times, people who moved wound up losing most of their pension years, and 401-Ks whiich vest immediately or very quickly are much better for them. ---
**Author:** ![Kimera757](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kimera757/32/3765_2.png) [@Kimera757](https://boards.straightdope.com/u/Kimera757)\ **Post date:** [October 17, 2018, 12:31am UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/27 "2018-10-17T00:31:39Z")
> [@StraightTalk](#): > > I’m not sure I understand how anyone thinks pensions make sense and are sustainable. As I understand it, pensions basically pay retired employees forever (until they die). Is this right? > > How can this work? How does a company have enough money to do this? Pay current employees as well as retired employees. Pensions aren’t free. They are part of compensation. Where I work, about 8% of my gross pay goes toward pensions, and my employer contributes some extra as well. They budget for this. Pensions create a lump or pot of money (in the UK, these are literally called “pension pots”). This money is invested, so it (usually) grows over time. At a certain point, the employee retires, at which point they get their own (invested) money back, plus whatever the employer put in. But they don’t get it all. The usually get a low rate. Pensions may be well-invested, but they don’t have to pay out a huge amount. If I took that 8%, plus employer contribution, and invested it myself, I would **probably** end up with a larger “pension pot” (which, if distributed as an inflation-adjusted annuity, withdrawn at the “safe rate” of 4% per year, pay more than what I can expect from my pension) but note I said **probably**. My employer would use a less risky strategy, with (likely) lower gains but (likely) not losing money. There’s also some benefit to pooling money from multiple employees that I don’t “get”, and my phantom pension plan obviously could not take advantage of this. The money can continue to be invested even after the pensioner has retired, and hopefully grow at a faster rate than it is used. Even if it doesn’t grow faster, the employer’s insurance people can estimate how long the average employee lives, so they can ensure there’s enough money in the pot to take that into account. Some retirees will die earlier, and some later, but if the average is accurate they shouldn’t run out of money. Pensions fall apart when they are “unfunded” (in other words, you don’t pay pensioners their own money, but with money from current employees, who will live off money from future employees in the future). That’s risky, and to make matters worse we have an aging population, so in the future there were be more retirees compared to employees than there are now. ---
**Author:** ![Mean\_Mr.Mustard](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mean_mr.mustard/32/3865_2.png) [@Mean\_Mr.Mustard](https://boards.straightdope.com/u/Mean_Mr.Mustard)\ **Post date:** [October 17, 2018, 1:18am UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/28 "2018-10-17T01:18:58Z")
Is there any sort of guarantee with a traditional pension? Suppose it is poorly managed, and, come retirement, there is very little left to go around. Does the employer have any obligation to fulfill the terms? mmm ---
**Author:** ![ITR\_champion](https://avatars.discourse-cdn.com/v4/letter/i/c67d28/32.png) [@ITR\_champion](https://boards.straightdope.com/u/ITR_champion)\ **Post date:** [October 17, 2018, 1:27am UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/29 "2018-10-17T01:27:45Z")
> [@](#): > > Is there any sort of guarantee with a traditional pension? Suppose it is poorly managed, and, come retirement, there is very little left to go around. Does the employer have any obligation to fulfill the terms? It’s a complicated matter that depends on who the employer is. Generally, if the employer goes bankrupt, then there are a bunch of creditors who will not be paid all of the money that they are owed. Employees with guaranteed pensions are among the creditors. The bankrupt employer has some amount of net worth that is less than the total needed. The creditors squabble in court and all try to get as much of the remaining money as they can. ---
**Author:** ![kenobi\_65](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kenobi_65/32/13178_2.png) [@kenobi\_65](https://boards.straightdope.com/u/kenobi_65)\ **Post date:** [October 17, 2018, 1:28am UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/30 "2018-10-17T01:28:47Z")
> [@Mean\_Mr.Mustard](#): > > Is there any sort of guarantee with a traditional pension? Suppose it is poorly managed, and, come retirement, there is very little left to go around. Does the employer have any obligation to fulfill the terms? If a pension plan in the US fails, there’s apparently a good chance that the pensioners are covered by the [Pension Benefit Guaranty Corporation](https://www.pbgc.gov/), which is a federal agency created to cover just this sort of thing. ---
**Author:** ![MandaJo](https://avatars.discourse-cdn.com/v4/letter/m/ac91a4/32.png) [@MandaJo](https://boards.straightdope.com/u/MandaJo)\ **Post date:** [October 17, 2018, 11:15am UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/31 "2018-10-17T11:15:32Z")
It’s worth noting that public sector employee pensions are often instead of, not in addition to, social security. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [October 17, 2018, 3:20pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/32 "2018-10-17T15:20:21Z")
> [@Voyager](#): > > A big negative of pensions is that they discourage job-hopping. They were good for when people often worked for one company most of their lives, like the Bell System or IBM. But given long vesting times, people who moved wound up losing most of their pension years, and 401-Ks whiich vest immediately or very quickly are much better for them. That’s totally dependent on your point of view. If you’re a company looking to hire and retain workers for long periods, a pension is a positive thing- it provides another incentive to stay where they are. One thing a lot of people aren’t mentioning is that a lot of pensions are in lieu of Social Security. For example, the Texas teacher retirement system has the teachers pay into it instead of SS, so they don’t get SS, but do get a better pension & medical insurance, etc… Same thing for a lot of municipal/state pension plans. Clearly your best bet, if you can swing it, would be to work somewhere that you can both pay into your pension in lieu of SS, as well as pay into a 401k or something. That way, you sort of hedge your bets either way- economic downturns won’t entirely wreck your retirement like it could for a 401k, and if the pension has trouble, you aren’t entirely reliant on it either. ---
**Author:** ![2ManyTacos](https://avatars.discourse-cdn.com/v4/letter/2/3da27b/32.png) [@2ManyTacos](https://boards.straightdope.com/u/2ManyTacos)\ **Post date:** [October 17, 2018, 5:29pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/33 "2018-10-17T17:29:53Z")
Traditional pensions are nearly gone from the private sector, though some big name financial institutions (JP Morgan Chase, Bank of America, Navy Federal Credit Union, etc.) with a lot of capital still tend to offer them. That said, such pensions are also still available in the private sector if a person happens to work for a union shop. I personally am vested in one (which presently guarantees me about $110/month in retirement), but the rules for accruing more income are quite convoluted and the pension is only worth something substantial if somebody accrues 20-30 years worth of benefit credits. I’ll admit that even what little I have earned makes me happy to have, but it comes at the cost of not being given a 401(k) match. So it’s a trade-off. Ideally, somebody would work for a business that offers a traditional pension, a 401(k) company match, and Social Security eligibility. That trifecta is exceedingly hard to come by nowadays. ---
**Author:** ![kenobi\_65](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kenobi_65/32/13178_2.png) [@kenobi\_65](https://boards.straightdope.com/u/kenobi_65)\ **Post date:** [October 17, 2018, 6:25pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/34 "2018-10-17T18:25:37Z")
> [@2ManyTacos](#): > > Traditional pensions are nearly gone from the private sector Even when I started working, in 1989, they were already becoming scarce in corporate America (probably save for union shops, as you note), in favor of 401(k)s and the like. In my career, I’ve now worked for eight different private companies (six of them in the Fortune 500), and none of them offered pensions to salaried employees. I’m not sure that I know anyone who has a pension (or is working at a place that will be giving them a pension), except for people who’ve been working in the public sector, particularly teachers. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [October 17, 2018, 7:30pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/35 "2018-10-17T19:30:06Z")
> [@leahcim](#): > > By that reasoning, all retirement saving is impossible. You mean you have to accumulate a big pile of money and live on that until you die? How can that work? How do you have enough money to do this? > [@Riemann](#): > > Do you accept that it’s possible for someone to save money during their working life in order to live in retirement? A pension scheme is simply a formalization of that process. It is \*possible \*but it’s a drain on cash. Direct response to the OP, sometimes they are \*not \*sustainable. The USPS is in trouble because they [underfunded their pension obligations](https://www.gao.gov/highrisk/restructuring_postal/why_did_study). Even though they make an operating profit, they are taking a loss because of the pension burden. [General Motors](https://seekingalpha.com/article/3976982-general-motors-pension-problem) has a similar problem. ---
**Author:** ![kenobi\_65](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kenobi_65/32/13178_2.png) [@kenobi\_65](https://boards.straightdope.com/u/kenobi_65)\ **Post date:** [October 17, 2018, 8:06pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/36 "2018-10-17T20:06:12Z")
> [@CookingWithGas](#): > > The USPS is in trouble because they [underfunded their pension obligations](https://www.gao.gov/highrisk/restructuring_postal/why_did_study). Even though they make an operating profit, they are taking a loss because of the pension burden. True, but apparently not the entire story. As I understand it, the USPS pension situation is entirely the result of a change which Congress made to the rules regarding the USPS pension plan in 2006, obligating the USPS to “pre-fund” their retirees’ medical liabilities going out to the year 2056. My understanding is that no other public or private organization which has a pension plan is forced to meet such a requirement. Further complicating things is that the USPS can’t make any changes to their pricing structures without Congressional approval. ---
**Author:** ![kenobi\_65](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kenobi_65/32/13178_2.png) [@kenobi\_65](https://boards.straightdope.com/u/kenobi_65)\ **Post date:** [October 17, 2018, 8:22pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/37 "2018-10-17T20:22:07Z")
Forgot to add to the post: a Bloomberg article explaining the USPS situation: [Bloomberg - Are you a robot?](https://www.bloomberg.com/view/articles/2018-04-04/congress-not-amazon-messed-up-the-u-s-postal-service) ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [October 18, 2018, 12:46am UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/38 "2018-10-18T00:46:27Z")
> [@kenobi\_65](#): > > True, but apparently not the entire story. > > As I understand it, the USPS pension situation is entirely the result of a change which Congress made to the rules regarding the USPS pension plan in 2006, obligating the USPS to “pre-fund” their retirees’ medical liabilities going out to the year 2056. My understanding is that no other public or private organization which has a pension plan is forced to meet such a requirement. > > Further complicating things is that the USPS can’t make any changes to their pricing structures without Congressional approval. Yes, that’s true, it’s not because of mismanagement of the pension fund. ---
**Author:** ![Quimby](https://avatars.discourse-cdn.com/v4/letter/q/22d042/32.png) [@Quimby](https://boards.straightdope.com/u/Quimby)\ **Post date:** [October 18, 2018, 2:07pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/39 "2018-10-18T14:07:55Z")
The USPS Pension problem is a problem of design not a ding on pensions. The GOP congress in the 90s forced the USPS to pre fund their pension for the next 70 years. That is completely unreasonable and was done to make the USPS lose money so they could then kill it. If they had a more reasonable and realistic burden they would be doing fine. > [@MandaJo](#): > > It’s worth noting that public sector employee pensions are often instead of, not in addition to, social security. What? I have several friends and family members that work in the public sector and this isn’t true for any of them or anyone I have ever heard of. Maybe their pension effects the amount of their benefit, don’t know, but I never heard of anyone having to give up SS to get their pension. ---
**Author:** ![Snnipe\_70E](https://avatars.discourse-cdn.com/v4/letter/s/b5a626/32.png) [@Snnipe\_70E](https://boards.straightdope.com/u/Snnipe_70E)\ **Post date:** [October 18, 2018, 4:21pm UTC](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033/40 "2018-10-18T16:21:26Z")
> [@Algher](#): > > Pensions also suffer from changing health demographics. People keep on living longer. > > Looking at a quick Google check > > 1963 - life expectancy was 69.92 > 1970: 70.81 > 1980: 73.66 > 1990: 75.22 > 2000: 76.64 > 2010: 78.54 > 2015: 78.74 > > Adding years makes the math used when first offering the pension problematic. Over time, as companies radically change (or go under), you can see the pensions hit hard. > > United changed the rules when they went through bankruptcy, leaving a lot of retirees hanging. [https://www.nytimes.com/2005/05/11/business/united-air-wins-right-to-default-on-its-employee-pension-plans.html](https://www.nytimes.com/2005/05/11/business/united-air-wins-right-to-default-on-its-employee-pension-plans.html) Many company pension funds are under funded. The government does not monitor company funds that at 50% for more funded. Multi employer funds (union) have to stay above 90% funded, but can not be over 100% funded. United’s fund was only around 50% funded and when United declared bankruptcy the unfunded amount was wiped off the books. This meant the fund had to cut the benefits. [Previous page](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033.md?page=1) [Next page](https://boards.straightdope.com/t/pensions-maybe-im-just-ignorant/823033.md?page=3)