Saturday, December 24, 2005


I don't have time right now to give this the full treatment, but it is truly a weird world that we have become. Once upon a time good jobs came with good pensions. Some of those pensions you couldn't start receiving until 65 or similar, some of those pensions you could start receiving if you left after having X years on the job. This was pretty normal stuff. Then for various reasons (some good, some bad) we moved away from defined benefit to defined contribution 401(k) type plans where instead of promising you a nice pension they promised to put some % of your income in an investment account, or employee match, or sometimes nothing at all on the employer's end. 401(k) laws don't let you take out the money "early" without large penalties, but imagine if they did.

I plugged some quick numbers into a quick retirement calculator, imagining a person working from 18 to 55, starting salary $22,000, annual raise of 3.5%, modest expectations of investment returns. Assuming life expectancy of 75 (guaranteed income for 20 years after retiring at 55), the employer would have to contribute about 15% of salary (or 10% them, 5% you) over your employment tenure to allow you to retire at half salary at 55 until you die at 75.

It just isn't that generous a benefit, but we've been programmed to perceive defined benefit plans as a "gift" from companies, when all they're really doing is throwing money into a big investment fund year after year (at least, they're supposed to) and then paying off their employees from it. It doesn't cost employers that much to provide that level of retirement benefits.

And, that of course leaves aside the fact that for years many unions have been trading salary increases for better retirement benefits. So, turning around after the fact and being shocked at how "generous" those retirement benefits are is ridiculous.