

Public Pensions Have Assumed Rates of Return That Should Concern Everyone - jonathanwerbell
http://www.nytimes.com/2012/05/28/nyregion/fragile-calculus-in-plans-to-fix-pension-systems.html

======
throwaway1979
It's about time this issue was discussed! In the last few years, even getting
a 5% return has been a daunting task.

I'm conflicted how to think about this issue. On the one hand, seeing defined
benefit pension plans for govt workers seemed unfair (given I don't have one
of these in the private sector). On the other hand, I know I can probably
never retire on my defined contribution pension plan (in the private sector).

Can GenY ever retire in the traditional sense? The best I've read on this
topic is Tim Ferris who says "traditional" retirement is no longer an
attainable dream (he calls this the deferred life plan) ... rather people
should work towards many periods of mini retirement during their lives. I
don't know how I feel about this because I know in tech, my employability will
go downhill post 35-40 :(

------
bunderbunder
Stories like this or the debate over social security suggest to me that the
basic idea behind defined-benefit pension plans is fundamentally brittle. All
of the variables feeding into a pension fund's balance sheet - market
fluctuations, new contributions, the duration over which an individual will
ultimately receive payments, etc - are fundamentally unpredictable. I'm not
sure what kind of machine it would take to take all those inputs and output a
reliable stream of fixed-size payments, but I suspect that magic would be a
key component.

Maybe it was easier during the period where pensions became so popular in the
US. Fluctuations presumably aren't so problematic when the upticks greatly
outweigh the downticks, the 5-10 year trend always has a positive slope, and
you aren't getting ready to have 1/5 of your workforce hit retirement age all
at the same time.

------
lusr
> While Americans are typically earning less than 1 percent interest on their
> savings accounts

> If somebody offers you a guaranteed 7 percent on your money for the rest of
> your life, you take it and just make sure the guy’s name is not Madoff.”

It's funny seeing this. I get 5.15% p.a. on my 24 hour notice money market
deposit account at my local bank
([http://www.nedbank.co.za/website/content/interrestrates/loca...](http://www.nedbank.co.za/website/content/interrestrates/local.asp)).
High interest rates are one thing I enjoy about living in South Africa.

~~~
jonp
Although you also "enjoy" inflation of over 6% pa. In both the US and SA
returns are lagging behind inflation by around 1% pa.

~~~
lusr
That's deceptive. Inflation over which goods? As an upper-middle class income
generator, inflation doesn't affect me in the same proportion as it does the
lower income class, for instance.

