Jack Bogle Is Worried About U.S. Pensions

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CnC
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by CnC » Fri Dec 08, 2017 9:49 am

Thesaints wrote:
Thu Dec 07, 2017 3:53 pm
WhiteMaxima wrote:
Thu Dec 07, 2017 3:40 pm
Low interest is linked to low inflation. Pension won't adjust to inflation. So people would rather low inflation. Company would like high inflation cause pension liability is lower if the interest rate goes higher.
Low interest is actually linked to Federal Reserve's monetary policy, at least in the case at hand.

livesoft wrote:
Thu Dec 07, 2017 3:47 pm
I am not worried. Pensions are so old-fashioned. Folks with 401(k)s and 403(b)s and IRAs aren't spending them down anyways. Unlike pensions, their heirs will benefit and probably won't spend down the 401(k)s and 403(b)s and IRAs either. In a generation or two, no one will have to work anymore because of all the savings that their parents and grandparents passed down to them.

Furthermore, people can live on a lot less money if they really have to.
It will be interesting to see people applying the 4% rule when bonds yield is below 1% and stocks produce a 4% return.
Besides, personal retirement accounts in the US are notoriously underfunded, and not by a little, and only wealthy people can live on a lot less money.
Ahh so this time will be different? I always thought Jack Boggle said he couldn't predict the future. That's why he didn't pick stocks.

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munemaker
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by munemaker » Fri Dec 08, 2017 9:56 am

Thesaints wrote:
Thu Dec 07, 2017 6:06 pm
munemaker wrote:
Thu Dec 07, 2017 6:01 pm
No disrespect to Jack, but the "experts" have been predicting negative returns in bonds for the past 5 or 6 years and low stock returns for the last year or two. Hasn't happened as predicted. Sure, if you keep forecasting a poor returns, you will be correct eventually. Even a broken watch is right twice a day. "Nobody knows nuttin."
"experts" may have done what you describe. Real experts, no quotes, have been observing heightened correlation between stocks and bonds and saying that average future returns in the next 10 years or so will very likely be below the norm for both assets classes.
It has not happened yet, but the climber who has been warned about worsening weather conditions is subject to increased risk the higher he climbs while the sky is still blue.
Do you know anyone who has accurately predicted interest rates or markets in the past? I didn't think so. Stay the course. Steady as she goes.

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by steadyeddy » Fri Dec 08, 2017 10:02 am

livesoft wrote:
Thu Dec 07, 2017 3:47 pm
I am not worried. Pensions are so old-fashioned. Folks with 401(k)s and 403(b)s and IRAs aren't spending them down anyways. Unlike pensions, their heirs will benefit and probably won't spend down the 401(k)s and 403(b)s and IRAs either. In a generation or two, no one will have to work anymore because of all the savings that their parents and grandparents passed down to them.

Furthermore, people can live on a lot less money if they really have to.
Who provides goods and services to all the rich people in this scenario?

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JoMoney
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by JoMoney » Fri Dec 08, 2017 10:03 am

cfs wrote:
Thu Dec 07, 2017 4:21 pm
This is becoming routine, every week I see articles about John Bogle worrying about something.

Stop worrying, just visit the nearest Mexican restaurant and enjoy some hot menudo aka breakfast for champions.

Merry Christmas, and thanks for reading.
This is good advice... err eh delicious advice
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by CyclingDuo » Fri Dec 08, 2017 10:07 am

davidkw wrote:
Thu Dec 07, 2017 3:27 pm
Jack on pensions

Nice read in Bloomberg:
The founder of Vanguard Group thinks a conservative portfolio of bonds will only return about 3 percent a year over the next decade, and stocks won’t do much better, with a 4 percent annual gain over a similar period. This is “totally defeating” for pensions, which “are not going to be able to meet their 7.5 percent or 8 percent obligations,” Bogle said in a Bloomberg Radio interview that aired Thursday.
Don't most pensions use a 30 year annualized rate of return as a more significant measurement?

Annualized rate of return for our state the past 30 years has been 8.65%. No surprise that at the end of our fiscal year in June, the one year return was 11.7% which followed a year of only a 2.15% return. The newly adopted actuarial return assumption for our state was lowered to 7.0 percent from its previous 7.5% this year (which follows CalPERS who also had moved to that rate previously), and the required contribution rate was raised. At the end of 2016, CalPERS had a 10 year 5.1% annualized rate of return, our state had a 6.6% return for the same period.

I'm not sure where Bogle comes up with the comment that CalPERS, who voted to lower it to 7% over the next three years and raised contribution rates, is expecting more than 7% the next decade? Their graduated adjustment to reach the 7% is as follows:

FY 2017-2018: 7.375%
FY 2018-2019: 7.25%
FY 2019-2020: 7.00%

At least many of these large state pensions have been adjusting expectations lower and altering the contribution rates higher - both in the right direction IMO - if the lowered returns that Bogle is predicting for the next decade ring true. Time will tell if the adjustments to individual pension programs were enough to result in their 30 year - or even 30 to 50 year - significant measurement yardsticks, and meet their obligations.

I wonder how many pension plans are still operating under the assumption of 7.5% - 8% annualized rates of return expectations?

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by livesoft » Fri Dec 08, 2017 10:24 am

steadyeddy wrote:
Fri Dec 08, 2017 10:02 am
Who provides goods and services to all the rich people in this scenario?
That's a good point. I suppose we will have to import young people to do all that work at minimum wage.
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Thesaints » Fri Dec 08, 2017 10:35 am

randomguy wrote:
Thu Dec 07, 2017 10:33 pm
Thesaints wrote:
Thu Dec 07, 2017 7:00 pm
randomguy wrote:
Thu Dec 07, 2017 6:54 pm
Why? The 4% rule would work fine with those conditions and our current inflation situation.
No, it does not. It is simple algebra.

If the average return from bonds is less than 4%, one is forced to take on more stocks. If the average return of bonds is a lot less than 4% and that of stocks is not too much above that number, one is forced to take almost all stocks. Portfolio volatility increases radically and risk of negative sequence of returns goes along with it, pushing the chances of making it through 30/35/40 years down to a minimum.


...and right on cue: https://vanguardblog.com/2017/11/16/wha ... t-success/
You need ~1% real to get a 4% SWR. You can get that with a 50/50 (i.e. not some crazy risky portfolio) and you can get that with Jacks numbers. Heck you can buy TIPs today and get it.

Again go back and look at US history. We have had decades of 4% stock returns and the 4% rule held. One of them even had low bond yields if memory serves. You need decades with lower returns and for them to be followed up by some more bad years for things to break down. It can happen.
All my numbers are ex-inflation. The 4% rule is ex-inflation.

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by ImUrHuckleberry » Fri Dec 08, 2017 11:33 am

Fudgie wrote:
Fri Dec 08, 2017 9:21 am
anoop wrote:
Thu Dec 07, 2017 10:10 pm
technovelist wrote:
Thu Dec 07, 2017 10:01 pm
That's what I would do if I had no other choice. You can live pretty well on a modest Social Security check in a number of countries that are fairly friendly to Americans.
I think they will be forced to raise the age for receiving social security benefits to 70 or even 75--I just don't see any other choice there.

For those in their 40's now, I think it would be somewhat pollyannish to assume they will receive benefits similar to what are being given today. There will likely be a combination of raising the age AND lowering the benefit. And I'm not even sure what happens with medicare, but I assume it will also involve raising the age and increasing the contribution/copays.

The best course of action, IMO, is so plan to depend on one's own savings/resources as much as possible.
What we need is an opt-out provision. I know I have no desire to participate in the program. Those who wish to remain in the program can have their taxes increased to a level sufficient to pay for it.
I have no desire to participate in our war programs. Can I please opt out of paying for those?

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Engineer250 » Fri Dec 08, 2017 11:49 am

anoop wrote:
Thu Dec 07, 2017 10:10 pm
technovelist wrote:
Thu Dec 07, 2017 10:01 pm
That's what I would do if I had no other choice. You can live pretty well on a modest Social Security check in a number of countries that are fairly friendly to Americans.
I think they will be forced to raise the age for receiving social security benefits to 70 or even 75--I just don't see any other choice there.

For those in their 40's now, I think it would be somewhat pollyannish to assume they will receive benefits similar to what are being given today. There will likely be a combination of raising the age AND lowering the benefit. And I'm not even sure what happens with medicare, but I assume it will also involve raising the age and increasing the contribution/copays.

The best course of action, IMO, is so plan to depend on one's own savings/resources as much as possible.
I on the other hand have no problem paying into social security even though I suspect it won't be there or the benefits will be drastically reduced by the time I am old enough. Most folks my age (30s and younger) don't think it will be there for us. But I'm okay with paying taxes so that people (elderly in this case) aren't starving to death. I also pay property taxes that go to schools that because I won't have kids I'm paying for strangers to go to school. But that's okay with me too. I think there's a social benefit to kids being able to go to public school for free rather than roving the streets. Seems like if people don't see a personal benefit they aren't interested. I wonder if the charity dedication ever went away how much charity contributing would drop. People seem mostly interested in it as a tax dodge and don't want to give a penny more.
Where the tides of fortune take us, no man can know.

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by btenny » Fri Dec 08, 2017 11:59 am

My wife has two pensions. One is already in trouble and does not have enough money. She is going to vote soon on the plan going forward. She has to choose one of three options, keep the current payouts and run out in 2020ish and then get a reduced Pension Guarantee payout or reduce her pension right now a little or a lot to try to keep the fund afloat.
The retirees want like us the money promised while those still working and paying into the fund want a guarantee the pension will be there in 25 years. Plus returns are effecting this as well. So who knows how it will go. Thankfully we have enough without this pension.

I also have a pension that was converted to an annuity with Prudential. I have no idea if that money is safe or risky. Of more concern to me is our social security being cut in 5 years to pay the government bills with the huge debt being added for the tax cut.

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by garlandwhizzer » Fri Dec 08, 2017 12:20 pm

Jack estimates future bond returns at 3%, but the bond portfolio he chooses to produce a 3% expected return has a 50% weighting in long term corporate bonds and 50% in 10 year Treasuries (or TBM) which currently yield a bit less than 2.5%. The average of those two yields is about 3% and bond returns are very closely related to their yields. Vanguard's Long Term Corporate Investment Grade is currently yielding 3.5%, 4.0% for the Long Term Corporate Bond Index, but that nice yield brings with it significant default risk and very significant duration risk. Stretching for a 3% yield comes at the price of increased risk. Most of us prefer not take that level of risk in our bond portfolios which are our anchor in an equity storm. In other words most of us with safer more conservative bond choices, cannot expect a 3% return from the bond portion of our portfolios going forward.

I believe Jack is about right with his 4% estimated return for US equities going forward. Any way you cut it, retirement is going to be a difficult challenge for the vast majority of Americans most of whom are woefully unprepared financially for it. I suspect a majority of Americans live paycheck to paycheck with little in the way of investment assets. Serious societal challenges await us down the road from the conjunction of increased longevity, a retirement financial crisis, and, added to that, from the existing massive levels of personal and governmental debt that have been used for many years as the major fuel to push economic growth. At some point that debt has to be repaid, reducing disposable income. It is entirely possible that the real future situation will turn out to be even more grim that Jack's predictions.

Hopefully, the arithmetic will change and things will work out nicely just as they usually have done in the past in spite of dire warnings. However, it may not be wise to assume that the generous returns we've gotten used to in the current long bull market and in fact for multiple decades since the early 1980s are going to last forever. There are some clouds out there on the distant horizon.

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Fudgie
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Fudgie » Fri Dec 08, 2017 12:34 pm

:oops:
Last edited by Fudgie on Fri Jun 08, 2018 6:04 pm, edited 1 time in total.

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by nedsaid » Fri Dec 08, 2017 12:35 pm

garlandwhizzer wrote:
Fri Dec 08, 2017 12:20 pm
Jack estimates future bond returns at 3%, but the bond portfolio he chooses to produce a 3% expected return has a 50% weighting in long term corporate bonds and 50% in 10 year Treasuries (or TBM) which currently yield a bit less than 2.5%. The average of those two yields is about 3% and bond returns are very closely related to their yields. Vanguard's Long Term Corporate Investment Grade is currently yielding 3.5%, 4.0% for the Long Term Corporate Bond Index, but that nice yield brings with it significant default risk and very significant duration risk. Stretching for a 3% yield comes at the price of increased risk. Most of us prefer not take that level of risk in our bond portfolios which are our anchor in an equity storm. In other words most of us with safer more conservative bond choices, cannot expect a 3% return from the bond portion of our portfolios going forward.

Nedsaid: This shows that Jack Bogle cares about income. He is going more aggressive that what I would recommend for a bond portfolio, I prefer to stay in the Intermediate range from about 5-8 years or so with Investment Grade bonds. Of course with bonds, yield is the return but I can't help but kid the total return people that bond investors could "create their own dividend." I kiddingly tell them that we shouldn't care about yield as long as we can sell shares.

I believe Jack is about right with his 4% estimated return for US equities going forward. Any way you cut it, retirement is going to be a difficult challenge for the vast majority of Americans most of whom are woefully unprepared financially for it. I suspect a majority of Americans live paycheck to paycheck with little in the way of investment assets. Serious societal challenges await us down the road from the conjunction of increased longevity, a retirement financial crisis, and, added to that, from the existing massive levels of personal and governmental debt that have been used for many years as the major fuel to push economic growth. At some point that debt has to be repaid, reducing disposable income. It is entirely possible that the real future situation will turn out to be even more grim that Jack's predictions.

Nedsaid: My Great grandparents faced a "retirement crisis" on my Dad's side of the family. Grandfather's father showed up on my Grandparent's doorstep one day, after having taken the train across much of the country. Grandmother's mother also came after her husband died in his fifties from heart trouble. The great grandfather lived with them for eight years and the great grandmother lived with them over twenty years. That was just the way it was done in those days. My suspicion is that we really don't have a retirement crisis, the nation is trying to maintain too many households. We may be seeing a return to reality.

Hopefully, the arithmetic will change and things will work out nicely just as they usually have done in the past in spite of dire warnings. However, it may not be wise to assume that the generous returns we've gotten used to in the current long bull market and in fact for multiple decades since the early 1980s are going to last forever. There are some clouds out there on the distant horizon.

Nedsaid: This points to the importance of family. If families can stick together, a big if in some cases, families can get through about anything. The societal trend has gone away from families pooling their resources but my suspicion is that we may be going back to what our grandparents did. The moral of the story is be nice to your family, you might need their help some day.

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Chuck » Fri Dec 08, 2017 12:36 pm

Pensions should have invested in Bitcoin.

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by UpsetRaptor » Fri Dec 08, 2017 12:58 pm

Meh. There's been some 10-yr runs of negative returns in recent history (e.g. 2000 - 2010). If they survived that, why would we expect a major blowup on +3-4%?

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by 2015 » Fri Dec 08, 2017 1:17 pm

Thesaints wrote:
Thu Dec 07, 2017 6:06 pm
munemaker wrote:
Thu Dec 07, 2017 6:01 pm
No disrespect to Jack, but the "experts" have been predicting negative returns in bonds for the past 5 or 6 years and low stock returns for the last year or two. Hasn't happened as predicted. Sure, if you keep forecasting a poor returns, you will be correct eventually. Even a broken watch is right twice a day. "Nobody knows nuttin."
"experts" may have done what you describe. Real experts, no quotes, have been observing heightened correlation between stocks and bonds and saying that average future returns in the next 10 years or so will very likely be below the norm for both assets classes.
It has not happened yet, but the climber who has been warned about worsening weather conditions is subject to increased risk the higher he climbs while the sky is still blue.
Excellent example of rationalization for Appeal to Authority bias. What, exactly, is a "real" expert, either in quotes or without? Bogle's worry of the day is tantamount to non-actionable noise. See this:

http://www.collaborativefund.com/blog/h ... cial-news/
Bucket everything that catches your attention into a category of relevance. There’s a hierarchy of news and information that looks something like this:

Screen Shot 2017-12-05 at 10.06.33 AM.png

The takeaway here is that good, relevant content is extremely rare. You should have no tolerance for the lower half of categories in this chart, and asking yourself where something fits before reading it is vital. Giving yourself permission to move on quickly provides more time to find something relevant.
As I've stated repeatedly, reading outside the fields of finance, economics, and investing is most beneficial.
Read more than pure finance. Investor Patrick O’Shaughnessy has a book club. An email he sent to his readers a few years ago began: “Consistent with my belief that it is more productive to read around one’s field than in one’s field, there are no investing books on this list.”

This is so smart. Investing is not the study of finance. It’s the study of how humans behave with money. When you realize it’s the study of human behavior, you see that it incorporates the lessons and laws from all kinds of different fields. Psychology. Sociology. Statistics. Biology. History. Politics. Rule of thumb: If it looks into how people behave in groups and respond to incentives, it’ll teach you something about investing.

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Thesaints » Fri Dec 08, 2017 2:00 pm

The facts are there:
- Bonds yield are low.
- Stock valuations are high. Therefore the main driver of gains become earnings growth. I'll leave as a simple exercise for those interested to estimate how much earning growth is needed to make 10%/year.
It is as simple as that, not to mention that a large fraction of those retired in the past enjoyed income from pensions and that won't be there for future retirees. I invite those interested to reflect about the profound difference between receiving 2.5k every month, versus receiving 2.5k per month on average. What happens when that person needs the 2.5k ?

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by abuss368 » Fri Dec 08, 2017 3:08 pm

midareff wrote:
Fri Dec 08, 2017 9:34 am
abuss368 wrote:
Thu Dec 07, 2017 9:04 pm
The pension crisis has been below the surface for well over a decade. At some point this is going to bubble up.
Pensions are generally funded by portfolios of stocks, bonds and real estate. If you believe in reversion to the mean stocks and bonds are going to have significant headwinds going forward. Anyone remember the lost decade? Pension plans that have their payouts based on projected 7% to 8% annual gains will have significant issues, which may be even more individually significant when your personal capital has been exhausted.
Well said.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by 2015 » Fri Dec 08, 2017 4:02 pm

Thesaints wrote:
Fri Dec 08, 2017 2:00 pm
The facts are there:
- Bonds yield are low.
- Stock valuations are high. Therefore the main driver of gains become earnings growth. I'll leave as a simple exercise for those interested to estimate how much earning growth is needed to make 10%/year.
It is as simple as that, not to mention that a large fraction of those retired in the past enjoyed income from pensions and that won't be there for future retirees. I invite those interested to reflect about the profound difference between receiving 2.5k every month, versus receiving 2.5k per month on average. What happens when that person needs the 2.5k ?
It is not at all as "simple as that". The "facts" exist within a complex adaptive system and as such are not "facts" at all. Anything and everything within that system is not at all amenable to prediction. Among many other books outside the fields of investing, personal finance, and investing on complex adaptive systems, I recommend reading Against the Gods which deals with risk and probabilities in a number of areas, including investing.

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by randomguy » Fri Dec 08, 2017 4:09 pm

Thesaints wrote:
Fri Dec 08, 2017 10:35 am
randomguy wrote:
Thu Dec 07, 2017 10:33 pm
Thesaints wrote:
Thu Dec 07, 2017 7:00 pm
randomguy wrote:
Thu Dec 07, 2017 6:54 pm
Why? The 4% rule would work fine with those conditions and our current inflation situation.
No, it does not. It is simple algebra.

If the average return from bonds is less than 4%, one is forced to take on more stocks. If the average return of bonds is a lot less than 4% and that of stocks is not too much above that number, one is forced to take almost all stocks. Portfolio volatility increases radically and risk of negative sequence of returns goes along with it, pushing the chances of making it through 30/35/40 years down to a minimum.


...and right on cue: https://vanguardblog.com/2017/11/16/wha ... t-success/
You need ~1% real to get a 4% SWR. You can get that with a 50/50 (i.e. not some crazy risky portfolio) and you can get that with Jacks numbers. Heck you can buy TIPs today and get it.

Again go back and look at US history. We have had decades of 4% stock returns and the 4% rule held. One of them even had low bond yields if memory serves. You need decades with lower returns and for them to be followed up by some more bad years for things to break down. It can happen.
All my numbers are ex-inflation. The 4% rule is ex-inflation.
As are my calculations.

So what are your numbers and how long does the 4% rule last with them? And do you expect your numbers to be accurate for 10 years or 30 year.

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by moghopper » Fri Dec 08, 2017 4:15 pm

Thesaints wrote:
Thu Dec 07, 2017 6:06 pm
"experts" may have done what you describe. Real experts, no quotes, have been observing heightened correlation between stocks and bonds and saying that average future returns in the next 10 years or so will very likely be below the norm for both assets classes.
It has not happened yet, but the climber who has been warned about worsening weather conditions is subject to increased risk the higher he climbs while the sky is still blue.
I've been listening to the fake experts this whole time.

Thank God the real experts are finally here!

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Thesaints » Fri Dec 08, 2017 7:36 pm

moghopper wrote:
Fri Dec 08, 2017 4:15 pm
I've been listening to the fake experts this whole time.

Thank God the real experts are finally here!
It is a well known fact that individual investors' performance lags markets' performance and not by just a little. It is the documental evidence that the average individual investor is financially inept. This includes the advice he/she chooses to follow, naturally.

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Thesaints » Fri Dec 08, 2017 7:43 pm

randomguy wrote:
Fri Dec 08, 2017 4:09 pm
As are my calculations.

So what are your numbers and how long does the 4% rule last with them? And do you expect your numbers to be accurate for 10 years or 30 year.
I would double check your calculations. You wrote that with 1% real return a 4% withdrawal rate is safe. Either you are implying that it is 4% nominal and inflation is 3% (and who know when we will see a 3% inflation again!), or if it is 4% real your estimate is obviously wrong, since it would correspond to a yearly 3% capital reduction on average. it can last 33 years at best, but a few bad years will kill you a lot faster.
Remember that volatility of returns has always a negative impact on those living off a capital for the diametrically opposite reason that it is always a positive factor for those in the accumulation phase.

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by windrose » Fri Dec 08, 2017 9:52 pm

I am not really concerned, but for another reason entirely: I am an older gen X'er with a (frozen, underfunded) pension, and I used to worry about this when I was younger....but now I don't.

Why? Because my boomer co-workers aren't retiring....and they don't WANT to. They generally retire only when they are too sick to work anymore. I think our pension will be OK, because although they were eligible for full pension at 60, they aren't leaving, and have no plans to leave (no double dipping allowed, if you want the pension you have retire).

While this could be somewhat unique to my industry, just look at some of the ages at our highest levels of government. They have great pensions and I'm sure they have saved plenty of money. They aren't working because they have fears about running out of cash.

I have my own theory about the "whys" but have concluded that a large group of the boomer generation will die with their boots on, if they are able. And there is nothing wrong with that--knock yourselves out. I plan on taking the cash as early as possible!

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Re: Jack Bogle Is Worried About U.S. Pensions

Post by CULater » Sat Dec 09, 2017 3:45 pm

Those measly bond yields are going to look like manna from Heaven when stocks are returning -25% pretty soon. :annoyed
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Benton Bair » Sat Dec 09, 2017 4:45 pm

btenny wrote:
Fri Dec 08, 2017 11:59 am
My wife has two pensions. One is already in trouble and does not have enough money. She is going to vote soon on the plan going forward. She has to choose one of three options, keep the current payouts and run out in 2020ish and then get a reduced Pension Guarantee payout or reduce her pension right now a little or a lot to try to keep the fund afloat.
The retirees want like us the money promised while those still working and paying into the fund want a guarantee the pension will be there in 25 years. Plus returns are effecting this as well. So who knows how it will go. Thankfully we have enough without this pension.

I also have a pension that was converted to an annuity with Prudential. I have no idea if that money is safe or risky. Of more concern to me is our social security being cut in 5 years to pay the government bills with the huge debt being added for the tax cut.
Your insurance company providing the annuity is regulated by the state of New Jersey. I'd consider it bullet proof safe. It's required to set aside reserves based on lower interest rates.

In the absence of Congressional action Social Security won't need to scale back retirement benefits until 2034 based on the most recent projections. If politicians gather the courage to act soon minor adjustments can be made with much less blow back. If they don't act we can expect our monthly benefit to be reduced by about 23%. Imagine a direct deposit reduced to 77% and increased Medicare premiums will be subtracted from that. We will really be squeezed and maybe more means testing in addition. Oh, current proposals will replace cost of living with a formula that is less generous. Our only option we can control is save more.

Thesaints
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Thesaints » Sat Dec 09, 2017 6:05 pm

For some, perhaps many, it is not an option.

Grt2bOutdoors
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Grt2bOutdoors » Sat Dec 09, 2017 6:48 pm

This nation has overcome many a challenge since its founding in 1787. This will be no different, we will find a way.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Valuethinker
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Valuethinker » Sun Dec 10, 2017 8:33 am

Grt2bOutdoors wrote:
Sat Dec 09, 2017 6:48 pm
This nation has overcome many a challenge since its founding in 1787. This will be no different, we will find a way.
+1

Although the US has always been a young country. The demographic challenge of aging is hardly unique to the USA. In fact it faces all the developed nations at once, and the largest developing nation (China). The US is actually in a relatively good position-- albeit still one with its challenges.

Most of the increase in world population in the second half of the 21st century will come in Sub Saharan Africa + certain countries in the Middle East/ Central Asia. In a context of world population as a whole being static to falling.

There are things which could change that breezy forecast, but that's certainly the way things look.

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CyclingDuo
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by CyclingDuo » Sun Dec 10, 2017 8:55 am

Valuethinker wrote:
Sun Dec 10, 2017 8:33 am
Grt2bOutdoors wrote:
Sat Dec 09, 2017 6:48 pm
This nation has overcome many a challenge since its founding in 1787. This will be no different, we will find a way.
+1

Although the US has always been a young country. The demographic challenge of aging is hardly unique to the USA. In fact it faces all the developed nations at once, and the largest developing nation (China). The US is actually in a relatively good position-- albeit still one with its challenges.

Most of the increase in world population in the second half of the 21st century will come in Sub Saharan Africa + certain countries in the Middle East/ Central Asia. In a context of world population as a whole being static to falling.

There are things which could change that breezy forecast, but that's certainly the way things look.
1.5 Billion increase in the world's population since 2000. 43.5 Million increase in the US since 2000.

You can watch it all live here:

http://www.worldometers.info/world-population/

Caduceus
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Caduceus » Sun Dec 10, 2017 9:10 am

Yes, and this was something Warren Buffett observed two decades earlier. Lots of companies, including Blue Chips like General Electric, do not change their pension assumptions sufficiently even when long term bond yields change. So at one point, U.S. companies had pension assumptions of 6% even when long-term government bonds were yielding 8%. This was silly, because the entirety of the pension obligation could be defeased by purchasing those essentially risk-free bonds at 2% higher than the pension assumption.

Now, the opposite is true. Companies with huge pensions are still rolling on with the assumption that their investments will return 7% - 9%, even though the long-term bond yield is substantially below that. If only a third of the pension portfolio is invested in bonds with a yield to maturity of 4%, the equity component will have to return in excess of 10% to barely hit a total 8% return. And that's before the costs and fees of managing the pension.

In the decade to come, we will almost certainly see a hit to earnings for companies with significant pension liabilities.

moghopper
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by moghopper » Thu Dec 14, 2017 7:21 am

Thesaints wrote:
Fri Dec 08, 2017 7:36 pm
moghopper wrote:
Fri Dec 08, 2017 4:15 pm
I've been listening to the fake experts this whole time.

Thank God the real experts are finally here!
It is a well known fact that individual investors' performance lags markets' performance and not by just a little. It is the documental evidence that the average individual investor is financially inept. This includes the advice he/she chooses to follow, naturally.
You've successfully argued the wrong half of my statement. I have no doubt that the old experts are bad, just no faith in the new ones.

MrPotatoHead
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by MrPotatoHead » Thu Dec 14, 2017 6:29 pm

Thesaints wrote:
Thu Dec 07, 2017 3:53 pm
... and not by a little, and only wealthy people can live on a lot less money.
How do you define wealthy? And how are you defining live?

lakja
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by lakja » Thu Dec 14, 2017 6:41 pm

Thesaints wrote:
Thu Dec 07, 2017 3:53 pm
WhiteMaxima wrote:
Thu Dec 07, 2017 3:40 pm
Low interest is linked to low inflation. Pension won't adjust to inflation. So people would rather low inflation. Company would like high inflation cause pension liability is lower if the interest rate goes higher.
Low interest is actually linked to Federal Reserve's monetary policy, at least in the case at hand.
This is an interesting perspective. It’s inaccurate because the Fed policy has been very inflationary, just not effective. In fact, Vanguard’s been discussing technology as a key contributor of low inflation over the last few years despite the Fed’s attempts to maintain a 2% inflation target.

Thesaints
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by Thesaints » Thu Dec 14, 2017 6:45 pm

MrPotatoHead wrote:
Thu Dec 14, 2017 6:29 pm
How do you define wealthy? And how are you defining live?
Exactly! People in 10,000 B.C. still managed to live. Although we would say "survive" nowadays.
All depends on the minimal acceptable living standard we can agree upon.
Last edited by Thesaints on Thu Dec 14, 2017 6:48 pm, edited 1 time in total.

lakja
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Re: Jack Bogle Is Worried About U.S. Pensions

Post by lakja » Thu Dec 14, 2017 6:48 pm

Thesaints wrote:
Fri Dec 08, 2017 2:00 pm
What happens when that person needs the 2.5k ?
Easy, either they default or they do what most people would do and reduce spending.

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