IBM freezes pension, switches to 401(k)

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Some figures

Pension returns benefit of roughly 1.5% of each year'salary payable in average of 20 years.

say you average 100,000 to make the math easy.

1,500 accumulated per year means at retirement you would get a 30,000 a year return.

At 4% you would need 750,000 nut to back that benefit up.

In 20 years, with a high 10% return, which doubles investment every 10 years, you have 1 piece that doubles twice, 1 piece that doubles once, and 1 piece that doesn't double. So 4x + 2x + 1x = 750,000 or 107,000 per piece. So you need to save 15,000 per year.

In 20 years, with a low 4% return, which doubles investment every 18 years, you have 1 piece that doubles once and 1 piece that doesn't double. So 2x + 1x = 750,000 or 250,000 per piece. So you need to save about 32,000 per year.

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Biggest problems I see.
1) The "grasshoppers" are going to do better than the "ants". The government will give all the pitiful old broke people who partied hard and lived their lives in debt benefits vs letting them starve. Meanwhile, everyone who saved hard will be punished with reduced or eliminated benefits.

a) lower SS if you have money. If your investment income is 31k, they take away 10k of your SS benefits AND tax you on the 31k income.

b) higher tax rates so you get stung for 50% tax taking money out of your 401k's (if you think this is plausible look at converting your 401k/ira to a roth while rates are low at 28%).

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Pensions are a good benefit when the people on average die young. Then you do not have to save as much for them- you set aside 350k per person, one dies at 66 and the other lives til 101- you profit enormously on them. Problem is now, everyone is living to 80. As you can see above- your company needs to save 15k per year just for a basic pension.

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I'm saving- hard. And I may leave the states when I retire unless they make it impossible (which they may).
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Also- we can't afford to keep everyone alive. We have a fixed budget that is being treated as a flexible budget.

We can't afford to keep the entire country alive an extra year if it costs 10 million dollars per person for that year.

Posted by: maxo_z   Posted on: 01/06/06 You are currently: a Guest | Members login | Terms of Use

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