Mandatory pension funds: What are your thoughts?

ironsurfer10 said:Is there any way I can jump in on this?

Ronald Allen said:@Edgar

That's me. Honestly, my big question is... who's gonna fund my retirement down the road if the ratio actually hits 0:20? Like, really? And once we finally agree on what even goes into calculating a pension, I think I’d be better off just putting money into life insurance—God forbid, but you know—so at least in 20 years I have some guaranteed cash. The 401(k) feels way too risky for that kind of long-term play, especially since there's zero guarantee for these funds. If the whole thing collapses, everything just goes up in smoke!

Ronald Allen said:@Edgar

That's me. Honestly, my big question is... who's gonna fund my retirement down the road if the ratio actually hits 0:20? Like, really? And once we finally agree on what even goes into calculating a pension, I think I’d be better off just putting money into life insurance—God forbid, but you know—so at least in 20 years I have some guaranteed cash. The 401(k) feels way too risky for that kind of long-term play, especially since there's zero guarantee for these funds. If the whole thing collapses, everything just goes up in smoke!

ironsurfer10 said:As for Social Security, I'm not entirely sure, but it would probably be covered by the government through special funds, just like Edgar mentioned, though I can't say for certain...🤷

Regarding the comparison between life insurance and a 401(k), it really comes down to what you're actually aiming for—do you want a lump sum payout plus returns, or are you looking to secure a monthly annuity once you hit 50 or 60? Personally, I don't think a 401(k) is inherently risky; in fact, it might actually be less risky than life insurance. Your assets are protected through multiple layers: by the fund itself, the custodian bank, the regulatory agencies, and ultimately, federal oversight. Even if the investment firm managing your 401(k) were to go under, your money wouldn't get swallowed up in bankruptcy proceedings because it's held separately by the custodian bank.

ironsurfer10 said:There is a calculator on the Vanguard website to estimate your 401(k) payouts, but honestly, I don't think it's very accurate.
As far as inflation goes, you're absolutely right; there isn't any clause or guarantee that protects the funds in your account from being eroded by rising costs.

Mark Sullivan62 said:Look, if you were working back before the modern systems were fully established, you were essentially putting away 20%—not 15%—to support the current generation, all based on the assumption that someone would eventually do the exact same thing for you.

But nowadays, instead of that 20% going toward others, you’re only putting 15% toward them while keeping 5% for yourself, all under the shaky assumption that someday, nobody will be pulling anything out of their paycheck to cover your retirement.

The reality is that nobody is going to step in and fund your retirement for you—you're on your own. That's why the math works out to a 20% advantage for you in my specific example.

The bottom line is that you have the CIA, private savings, and various insurance options available, and you absolutely ought to be using them to carve out some kind of nest egg, because if you rely solely on this secondary tier system, you’re going to end up starving.

Ronald Allen said:So that's the catch!?!? But my funds and cost of living are supposedly guaranteed, right...? Or am I missing some kind of restriction somewhere... 🤷
But what if the custodian bank goes under??? I know there’s basically some level of insurance for almost all investments here in the States (though I guess that doesn't count mutual funds or whatever...) but isn't the whole point that if these options fail one by one, you just end up broke in your 401(k)? Because that's voluntary savings, right? It's not like, I don't know, something mandated by the government like Social Security... 🤷

Ronald Allen said:I’ve been officially employed since January 1st, 2002. So, let me get this straight... basically, what you're saying is that one day, when I finally retire, those severance payouts at the end of my career will go exclusively to me? Is that how I'm reading this...?
Look, it’s obvious to me that if we just rely on Social Security, our retirement income is going to be absolute garbage... but is it actually smarter to put money into life insurance or a 401(k)? Kokoshka claims the 401(k) offers multi-layered security, but honestly, I’m pretty skeptical. I mean, the government is already screwed anyway, and who knows if we’ll even make it to 50? I do know you can start pulling from a 401(k) after age 50, which sounds pretty decent since you can grab the cash whenever you need it...

Mark Sullivan62 said:What makes you think it's inaccurate?

Ronald Allen said:I’ve been officially employed since January 1st, 2002. So, let me get this straight... basically, what you're saying is that one day, when I finally retire, those severance payouts at the end of my career will go exclusively to me? Is that how I'm reading this...?
Look, it’s obvious to me that if we just rely on Social Security, our retirement income is going to be absolute garbage... but is it actually smarter to put money into life insurance or a 401(k)? Kokoshka claims the 401(k) offers multi-layered security, but honestly, I’m pretty skeptical. I mean, the government is already screwed anyway, and who knows if we’ll even make it to 50? I do know you can start pulling from a 401(k) after age 50, which sounds pretty decent since you can grab the cash whenever you need it...

ironsurfer10 said:Look, I work in the pension industry, so I know I’m being a bit biased when weighing these two options against each other. I don't know the exact amount of insured funds being funneled into life insurance policies, but I do know that the assets within a 401(k) are fully protected. You can keep contributing for as long as you want; you gain access to those retirement funds once you hit 50, though there are several different payout models to choose from—you can't just take the whole lump sum at once.

ironsurfer10 said:Well, it just doesn't seem to add up to me. Based on what I'm seeing, it feels illogical that someone with my gross salary $2667 would end up with a Social Security payout of roughly $500 by age 65, assuming all other factors remain constant. There are several different ways these payouts can be calculated, and they didn't specify which model they used for this estimate. On top of that, the projected primary Social Security benefits don't look right to me either...

Here is the link if you want to take a look yourselves...

Mark Sullivan62 said:I’m sorry, but how exactly are those assets "insured"?

A fund is just a fund. It grows its own wealth—and yours by extension—either through new deposits or through the returns on the securities it invests in.

The problem is, those returns can absolutely go negative.

Just look at the performance of some major mutual funds back during the 2008 crash:

Raiffeisen Bank -2.68
AZ profit -2.10
State Farm -1.84
AZ benefit 1 -0.29 Chase Expert -2.50 Chase protect 0.02 -0.29
Chase Expert -2.50
Chase protect 0.02

So, go ahead, explain to me how my money is supposedly insured, and exactly what amount we're talking about here.

All I see here is red...

Mark Sullivan62 said:Kimberly Nguyen, I think you’ve got your wires a little crossed here.

The returns listed above actually date all the way back to January 1st, 2008, not just since last year.

Actually, if you look at how things have shifted in the interim, those figures have basically doubled, which puts the current R&D performance at -5.46% when you track it from the start of 2008.

Which essentially means the current value of an R&D unit is sitting right where it was back in March 2007.

And honestly, it makes me wonder—suppose we fast-forward to 2038 and the unit value is still stuck at those March 2007 levels.

Who is actually on the hook to cover that gap, how much are they paying, and what should that amount even look like by 2038?

I just don't get how you can work for some pension fund and sit there claiming these assets are fully secured when they clearly aren't.

Mark Sullivan62 said:Kimberly Nguyen, I think you’ve got your wires a little crossed here.

The returns listed above actually date all the way back to January 1st, 2008, not just since last year.

Actually, if you look at how things have shifted in the interim, those figures have basically doubled, which puts the current R&D performance at -5.46% when you track it from the start of 2008.

Which essentially means the current value of an R&D unit is sitting right where it was back in March 2007.

And honestly, it makes me wonder—suppose we fast-forward to 2038 and the unit value is still stuck at those March 2007 levels.

Who is actually on the hook to cover that gap, how much are they paying, and what should that amount even look like by 2038?

I just don't get how you can work for some pension fund and sit there claiming these assets are fully secured when they clearly aren't.