by: elizabeth

comment by
badged comment

So a "fixed payment annuity" is effectively an agreement between you and whoever manages the annuity. The agreement says that if you make payments over the allotted time, when the annuity reaches maturity, the manager will pay you back. What's typical (what my pension looks like) is you work for a certain amount of time to be vested, then you contribute the requisite number of hours or days or years of employment, then when you've reached that number (and usually a prequalifying age), the annuity manager lets you flip the switch from "putting in" to "taking out" which you typically do until you die.

My grandfather was a regional president of the AFL. He was a tool and die machinist, and then he was a union foreman. His pension kicked in at 65 and provided him with something like 75% of his salary until he died, and then it was supposed to provide his wife with 50% of his salary until she died. I think his other choice was 100% until he died, and then 25% to his wife until she died. That pension was written in the '40s, kicked in in the late '60s, and paid him until the early '90s.

It's not atypical for the money that you get out of a pension will be more than the money you put into a pension. This shortfall is covered by the fact that the pension manager has your money now to pay you later so they can invest it, earn interest, make stock splits, etc etc etc. In other words, they're taking on the risk but also capturing any gains above and beyond what's necessary to pay out the pensions of the accounts under management.

Now take me - I've been in my union since 2008. I got enough union work to start earning healthcare and start vesting in 2013. At the end of this year, I'll be eligible to actually get money out of my pension when I retire - but I'm a six figure guy and as it sits, I think my pension payout when I reach retirement age will be like $137 a month. Now - if I keep mixing high-budget full-pop network shows under my union contract for the next seventeen years, my payout will reach.... drumroll please... $837 a month.

Now granted: That's nice money. But I earn more than that in a day every time I work on a holiday and once I retire, i won't be. And a lot of the reason is that the pension managers can't guarantee they'll make killer gains to cover the shortfall.

A lot of the reason is medical plans. See, retirement and medical benefits are often mixed together and when the 'boomers were getting their rippin' pension and health plans set up in the late '60s/ early '70s...

...they weren't expecting to spend a factor of ten what they were currently spending.

I've got great health insurance. It's good enough that I leave my family for three months a year to keep it. And COBRA on it is like $1800 a month. That's for three young, healthy people. Now - I got a buddy whose wife is currently dealing with early-onset Alzheimer's. I have another friend who has been dealing with skin cancer. And I have another friend who regularly tears himself up falling off of horses. And the medical plan pays out for all that.

Combine that with the fact that it's gotten harder and harder to make the kind of gains that pension plans are used to.

twenty fucking percent. And since like 2011 the interbank rate in the US has been close enough to zero that it might as well be nothing. The rest of the world? Something like 2/3rds of the world's currency was under negative interest rates for the past three years. And if your pension plan was set up on the assumption that it could make an easy 10% a year because it always had forever and ever amen, you have a massive pension shortfall.

So that's pensions. You put a set amount of money in, you eventually take a set amount of money out, and the pension manager covers the shortfall by profiting off your contributions. Great to be a pension manager if that's easy, shitty to be a pension manager if it's hard, used to be easy, is now hard. Pension shortfalls 101.

401(k)s? Those are just bank accounts. They're bank accounts with special tax status but they're just bank accounts. You put money in, your employer matches it, and you play the ponies. You get to see every month (or every second, depending on how interested you are) just how your 401(k) is doing and you get to rebalance it, reallocate it, contribute to it, draw it down, use it as collateral, tap into it under penalty, all that fun shit entirely on your own. If you don't have enough money in your 401(k) when it's time to retire, that shit's all on you - you should have saved more. You should have invested more wisely. Your employer has fuckall to do with it - it's their pension fund but it's your 401(k).

If your pension is with CalPERS, you're fucked because they ran out of money. If your 401(k) was with Enron, you were fucked because you folded your retirement plan into a house of cards.. If you were a public worker, you had no choice other than what CalPERS invested in. If you worked for Enron you had all the choice in the world - but it seemed like the smart thing was to invest in your employer.

Ironically enough, Steve Bannon blames the latter for his worldview.