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Sunday, October 30, 2005

The Problem with Pensions

This article is interesting, although it misses a crucial point: as people live longer, they will outlive their companies. It is quite likely that GM, Ford, and IBM won't be around in 20 years, at least as independent companies, and virtually all job growth in the past decades has been at relatively young small to medium-sized businesses. Therefore, company-centered pension plans of the traditional variety are doomed.

For my part, as a Silicon Valley software engineer, my retirement strategy is simple: save as much money as I possibly can, whether in IRAs, Roth IRAs 401Ks, or taxable accounts. Other than a couple of big outfits I worked at early in my career, I've spent most of my working life in startups or as an independent consultant - as has everyone in my circle of friends. As an aside, my strategy is to fund a 401K to the tax-deductible limit, set up my wife's self-employed 401K similarly funded to the tax-deductible limit, and fund Roth IRAs.

Given that I've seen numerous companies come and go, it's hard for me to feel outrage at the loss of what the Chinese would call an iron rice bowl. Anger at fat-cat executives or whatever, while seemingly satisfying, is misplaced - and given the collosal amounts of money involved, impoverishing every one of them won't help much. Also, if anger at executives is called for, it is in agreeing to big pensions when negotiating with unions instead of higher salaries that could provide money to save for retirement.

I'm not sure how to solve the problem; maybe in addition to the self-managed 401K approach, workers could set up pension-management companies that they take from employer to employer, and their employer at the moment - and the employee - could jointly fund the plan, with the split based on negotiation.

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