23 May 15
Would you choose to invest in this retirement account?
You invest 15k a year every year until the age of 67.
If you die the company keeps all of your money. You can never cash out the account. You can never borrow against the account. Your 'investment' takes the form of simply giving the money to the company.
What do you get?
The company promises to pay you 2.5k a month every month for as long as you live after reaching the age of 67. The company reserves the right to change this amount up or down at any time.
23 May 15
If you started paying in at 30 it would take you 18.5 years to get back what you invested. You will break even when you are about 87.
If you start at 20 it will take 24 years. In this case you'd be 92.
Pretty grim considering that when I turn 46 my average life expectancy will be 82.
23 May 15
Originally posted by EladarPresumably, money is losing value due to inflation for the duration of this plan.
Would you choose to invest in this retirement account?
You invest 15k a year every year until the age of 67.
If you die the company keeps all of your money. You can never cash out the account. You can never borrow against the account. Your 'investment' takes the form of simply giving the money to the company.
What do you get?
The company promis ...[text shortened]... ing the age of 67. The company reserves the right to change this amount up or down at any time.
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23 May 15
Originally posted by EladarStructurally the plan you describe is how the traditional corporate pension system works (... or worked. Do they exist now?) The total employee costs include a monthly bite for the eventual pension. The extra amount for the pension could have been paid to the employee. The tightly defined payout commitment is a little strict, since there can an adjustment schedule for early and late starting of benefits. The rather loose ability of the company to change the payout amount is a little overstated, as companies are subject to market pressure. This is especially true where there are union contracts, where such changes usually apply only to new employees.
If you started paying in at 30 it would take you 18.5 years to get back what you invested. You will break even when you are about 87.
If you start at 20 it will take 24 years. In this case you'd be 92.
Pretty grim considering that when I turn 46 my average life expectancy will be 82.
The structure could also be applied by a private individual to his own retirement investment planning. Can you more profitably apply 15 K per year to other investments on your own or with a financial adviser? That way the accumulated capital would be mostly yours.
24 May 15
Originally posted by EladarIf your calculations are correct, then it is a bad investment. Especially taking into consideration inflation and potential interest on alternative investments.
If you started paying in at 30 it would take you 18.5 years to get back what you invested. You will break even when you are about 87.
If you start at 20 it will take 24 years. In this case you'd be 92.
Pretty grim considering that when I turn 46 my average life expectancy will be 82.
What happens if you change employer? I certainly do not expect to stick with the same employer until retirement, and may possibly even move to another country, so such a plan is definitely not a good idea for me.
25 May 15
Originally posted by twhiteheadIt's not quite as bad as I described because part of that tax also goes to Medicare. I just thought about that not long ago. In any case what I described is a pretty accurate description of using the US Social Security system as a form of investment for retirement.
If your calculations are correct, then it is a bad investment. Especially taking into consideration inflation and potential interest on alternative investments.
What happens if you change employer? I certainly do not expect to stick with the same employer until retirement, and may possibly even move to another country, so such a plan is definitely not a good idea for me.
FICA tax is just that, at tax. If a person understands investments at all, then that person would never look to invest in the Social Security system.
As a tax, the FICA tax is a very regressive tax because lower wage earners pay in a greater percentage of their income than high wage earners.
26 May 15
Originally posted by EladarI haven't looked ahead in the thread. You are describing Social Security.
Would you choose to invest in this retirement account?
You invest 15k a year every year until the age of 67.
If you die the company keeps all of your money. You can never cash out the account. You can never borrow against the account. Your 'investment' takes the form of simply giving the money to the company.
What do you get?
The company promis ...[text shortened]... ing the age of 67. The company reserves the right to change this amount up or down at any time.
26 May 15
Originally posted by EladarAs a tax, the FICA tax is a very regressive tax because lower wage earners pay in a greater percentage of their income than high wage earners.
It's not quite as bad as I described because part of that tax also goes to Medicare. I just thought about that not long ago. In any case what I described is a pretty accurate description of using the US Social Security system as a form of investment for retirement.
FICA tax is just that, at tax. If a person understands investments at all, then that perso ...[text shortened]... x because lower wage earners pay in a greater percentage of their income than high wage earners.
As an investment it is quite a bit worse than you describe, because the benefits tables don't give proportionately more to those who pay in large amounts over long time periods.
Even the Medicare portion pays only 80% of hospital expenses. I pay BC a big premium to take care of most of the rest. Social Security is nothing other than a Ponzi scheme.