What's the actual difference between these two, from the investment standpoint?
Pensions are funded by current workers; private retirement firms by market investments. Downturns in the economy thus can wipe out private accounts. Given the instabilities in and of the market (which I'll address soon, I hope) the retirement of millions is in immediate jeopardy.
Remember, Social Security was first implemented as a way to feed and house the millions who lost their retirement savings in the Great Depression's market crash.
First, why is that a given.
The Frontline piece addresses that. Simply put, 401(k) plans were never designed to provide retirement income.
How does it affect the employee when it's the same amount of money in their account?
Management seems to be the key. Despite the fact that private funds are indeed managed professionally, the pension plans actually deliver more money to their recipients. The Nebraska study found this pretty conclusive.
A recent book (among others) gives a hint as to why money is lost in private accounts. Markets are uncertain, meaning they cannot be known. Neoclassical economists equate "uncertainty" with "risk," which actually can be (statistically) inferred and reasonably modeled. For example, though you could not predict not any given coin toss outcome, determining how many times out of 100 someone got heads would be easy within a reasonable margin.
Coin tosses, though, are risk; what stock will fall and how much? That's uncertainty. The two are not the same.
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Date: 22/3/12 04:47 (UTC)Pensions are funded by current workers; private retirement firms by market investments. Downturns in the economy thus can wipe out private accounts. Given the instabilities in and of the market (which I'll address soon, I hope) the retirement of millions is in immediate jeopardy.
Remember, Social Security was first implemented as a way to feed and house the millions who lost their retirement savings in the Great Depression's market crash.
First, why is that a given.
The Frontline piece addresses that. Simply put, 401(k) plans were never designed to provide retirement income.
How does it affect the employee when it's the same amount of money in their account?
Management seems to be the key. Despite the fact that private funds are indeed managed professionally, the pension plans actually deliver more money to their recipients. The Nebraska study found this pretty conclusive.
A recent book (among others) gives a hint as to why money is lost in private accounts. Markets are uncertain, meaning they cannot be known. Neoclassical economists equate "uncertainty" with "risk," which actually can be (statistically) inferred and reasonably modeled. For example, though you could not predict not any given coin toss outcome, determining how many times out of 100 someone got heads would be easy within a reasonable margin.
Coin tosses, though, are risk; what stock will fall and how much? That's uncertainty. The two are not the same.