I'm certainly sympathetic to right wing claims about personal responsibility. So much of the difficulties people have in this life are a product of their own bad choices. At least in America. You do have the opportunities here that people in most other countries don't get. So supposing you don't take advantage of those. Should others be obligated to bail you out?
Let's take an issue like pensions vs 401k plans. When 401k's were introduced right wingers loved them because they allow people more freedom. A pension is in effect a forced savings plan. Part of your compensation is saved on your behalf. With a 401k you can decide to save that money or not. Suppose you have a financial need in your younger years and you choose to forego savings for some period of time. A 401k allows you the freedom to make that choice. Also the pension funds are invested for you. You don't have the freedom to choose the investments you prefer. In a 401k you do.
Freedom is great. But sometimes the freedom of others affects you. You might not think that the bad choices of others in this sphere would matter to you. But it seems to me that there's a good chance they will.
What have people done with this freedom they now have to save for their own retirement? What they've done is failed to save. To me the paltry savings of Americans is shocking. According to one poll 36% of Americans don't contribute to a savings plan of any kind. 43% have less than $10K saved for retirement, including 29% of those over the age of 55.
And just anecdotal in my world it seems obvious that retirement for people near my age is going to be a catastrophe. I know people that have been laid off. Their savings, which in some cases was not huge to begin with, has taken a massive hit. When you have been forced to contribute to a pension it doesn't matter if you've peen laid off. You can't touch the pension money. People with 401k's can and do. And they of course must pay the corresponding tax penalties.
I hear this again and again. "We're not planning to retire." You can plan to work all you want. But this doesn't mean an employer plans to hire you. I happen to know a guy that recruits technical people, like engineers. He tells me straight out that age discrimination may be illegal, but it is an indisputable part of the corporate world. He can hardly place people in their upper 50's. It's not that elderly people are incapable of doing the job. It's more that elderly people are more expensive. They have health problems. Why hire a 55 year old when you can hire a 25 year old? So you can want to work all you want, but you can't count on working at a job that has any interest in providing health coverage.
Screw 'em, says the right winger. They made the choice to spend their savings or they failed to invest. That's their problem. Well, it may be yours. Again, take a look at what people have. People between the ages of 55 and 65 have an AVERAGE accumulated savings of $69K. And remember that averages are skewed by the few wealthy on the very upper echelons of society. The median (which is the value that reflects the amount at which there is as many above as below) will be lower than $69K, possibly much lower. You'd have to stretch $69K to even provide 2 years of retirement.
With an extremely paltry amount saved, do you not think there will be consequences for you even if you did save? We're talking not just about a LOT of people without adequate funds in their old age. We're talking about the VAST MAJORITY of people. You could have streets packed with elderly homeless people, all clamoring for jobs that offer no benefits, like at Wal-Mart. Whether you like it or not this extreme level of inequality is going to produce social upheaval. And if you've saved your whole life it may not matter. You'll lose much of what you've saved as society crumbles.
The plus side is that we do have Social Security. As I've mentioned before, as a savings plan it's not good. But thinking it through I think it's important to focus on the fact that this is not what it is intended to be. It is intended to prevent the many multitudes that have made those poor choices from starving at the very least. So that's our saving grace. If Republicans don't destroy it.
To me though this whole thing is a catastrophe. Today's elderly probably mostly have pensions. It's not terrible right now. But as the years pass and more and more retire that lack a pension we could start to see a lot more crushing poverty. That's bad for the poor and the rich.
A few quick responses:
ReplyDelete1. It's an unsubstantiated assumption that people would have had a larger savings plan had pensions still been the norm. Sure, on the one hand, you are forced to save more. But on the other hand, this raises costs, results in more layoffs, and means slower wage growth - along with other negative consequences. But even if you ignore these consequences, economists have done the numbers and they don't see this clear benefit you do. This is what Dartmouth economist Andrew Samwick wrote:
My colleague Jon Skinner and I made that comparison in an article in the American Economic Review. The result was that the projected distributions of retirement income were surprisingly similar under the old-style DB plans that were dominant in the 1980s and the 401(k) plans that supplanted them in the 1990s, assuming workers were covered by the same plan over a long career. (The comparison was better for 401(k) plans when workers switched jobs -- vested deferred benefits under DB plans are often quite low.)
And atleast with 401k's you have freedom.
2. You write: And remember that averages are skewed by the few wealthy on the very upper echelons of society. The median...will be lower than $69K, possibly much lower.
This is not necessarily true - the mean can be less than the median if the small numbers are alot smaller than the cluster and the gap is bigger than on the high end. Think of a scenario with a lot of new accounts - like a lot of young adults merely starting off, and that could skew your results in the opposite direction.
3. Lastly, not surprised at all that in your heart of hearts, you still support social-security even when you fully admit it's a shitty program. You can't even throw the right a bone, you are full on lefty.
It's an unsubstantiated assumption that people would have had a larger savings plan had pensions still been the norm.
ReplyDeleteI don't think it's really fair to say I'm assuming it. I did provide multiple links showing the inadequacy of retirement savings these days. That's not a comprehensive argument, but I'm not coming in to the discussion just starting with an assumption that retirement savings is inadequate. It just happens that the numbers I've seen recently seem to me to be alarmingly inadequate. Don't you think?
If that's not true then I will be relieved to know. Like I said, a poll showed that 36% of Americans don't contribute to a retirement savings plan at all. Your link says that's not really true. His evidence is a paper from 1996 that shows that very few people that have no other employee provided retirement plan fail to contribute to a 401k. That represents only 2-4% of the population. Man, that was a long time ago. A lot of employers have since phased out pension plans, including the company I started working for in 1997. They had a pension plan when I started but within a few years it was gone. He's basing his claim on 15 year old evidence. Look at the evidence from today. 36% doing nothing. Does that bode well?
And by the way Samwick wrote this article in March of this year. In March of this year he argues that very few people fail to contribute to retirement savings and his evidence is from 1996. He goes on to say that he and a colleague looked at it and found that the payout both for DB and 401k was similar. Neither of us can see his paper. Neither of us have read it. Always be wary of arguments based on evidence you haven't seen.
But notice this. He wrote this paper in 2004. The stock market had rebounded by then. What's happened since that might be relevant to the question of the adequacy of 401k plans? Only the most catastrophic economic downturn in the history of 401k's. Millions of unemployed people have since drained their 401k's. Those that have kept them have suffered major losses. That Samwick thinks this very outdated study is informative in light of 2008 seems a bit strange to me.
This is not necessarily true - the mean can be less than the median if the small numbers are alot smaller than the cluster and the gap is bigger than on the high end. Think of a scenario with a lot of new accounts - like a lot of young adults merely starting off, and that could skew your results in the opposite direction.
The median can be higher than the mean, but I think you have it backwards. You'd have to have very few new accounts with very little and a lot of accounts that had a lot of money (higher than average). So skewed to higher savings amounts. That's just the opposite of what we really have. We have tons of people with very little and very few people that have a lot, which means the median in this case will be a lot lower than the average. The distribution is skewed towards those with little.
Lastly, not surprised at all that in your heart of hearts, you still support social-security even when you fully admit it's a shitty program. You can't even throw the right a bone, you are full on lefty.
I know. It's terrible. But at least I'm still pro-life. For now.
That's just the opposite of what we really have. We have tons of people with very little and very few people that have a lot, which means the median in this case will be a lot lower than the average.
ReplyDeleteBut my point is to call this into question. I'm saying your median vs mean point doesn't necessarily prove this.
It may be true. I'd even go so far as to say it is probably likely true - on that we agree - my point here is that it isn't necessarily true based on what you quoted. You are going further than what the data states.
Regarding Pensions vs 401k's: Given that neither of us has seen the study, and it's really the only study I know of, I'd go with Samwick's view as my default. He found it relevant enough to requote it earlier this year.
But if you find something that provides more than mere anecdotal data, I'd be open to changing my mind.
It's mathematically possible for the median to exceed the mean. That's true. I've seen median vs mean for all age groups. The mean VASTLY exceeded the median. But I didn't find it for that specific age group so I kind of assumed it based on the overall.
ReplyDeleteBut if you find something that provides more than mere anecdotal data, I'd be open to changing my mind.
I already provided more than anecdotal data so I find this comment kind of strange.
But let's just notice first the evidence we do have. Samwick doesn't say the 401k is better. In 2004 he says the distributions are "surprisingly similar." Probably 401k's are worse but to him it appears to be close. That was in 2004. How close is it now? Probably a lot less close.
I also have linked many times to a report (and I'll do it again here) which shows 401k's as a whole produced a rate of return 1% lower than pensions. So you're getting like 6.6% out of pension plans and 5.6% out of 401k's. That's a huge difference, one that can make the difference after 30 years of work. This is a report from 2006. It's probably much worse now.
But or course you still need to make enough money above subsistence to have anything to save. And working class wages have been stagnant for the past 30 years.
ReplyDeleteJon writes: ut let's just notice first the evidence we do have. Samwick doesn't say the 401k is better.
ReplyDeleteSamwick writes:(The comparison was better for 401(k) plans when workers switched jobs -- vested deferred benefits under DB plans are often quite low.)
Sigh.