Gov't considering forcing public to buy annuities.

http://jessescrossroadscafe.blogspot.com/2010/01/us-government-is-eyeing-your-401ks-and.html

As a rule of thumb, the worst possible time to convert lump sum savings into a fixed income annuity would be when interest rates are historically low.

Although products may vary, this is roughly equivalent to buying long term bonds at a time when interest rates are likely to increase, substantially reducing your principal in real terms, and eroding your fixed returns through inflation.

For some reason the Obama Administration is promoting the idea now that there should be some encouragement for Americans to start converting their 401K's and IRA's into annuities, to provide themselves with lifetime income.

The effort is being spear-headed by Mark Iwry of the Treasury and Phyllis Borzi of the Department of Labor. Here is a paper written on the subject by Mark Iwry when he was at the Brookings Institution.

The essence of this paper is that distributions from IRA's and 401K's would automatically be rolled into an annuity providing a monthly income by default.

This concept is known on the Street as the handling fees for meager returns pork barrel pigfest. The Fed likes it because they will undoubtedly get a two year rolling chunk of the people's retirement cash to play with.

Perhaps just rolling those 401K's and IRA's into Social Security or the Long Bond would be what they have in mind. Somehow the panacea of TIPS with inflation defined by the government sounds probable. The drawback perhaps is that this would not generate the highest recurring fees for Wall Street and the FIRE sector, which have to be eyeing that 'cash on the sidelines' hungrily.

How about Patriot Bonds that are fully invested in Mortgage Debt formerly owned by the Fed, with some tranches of Commercial Real Estate to add some zest to the recipe? The Treasury can give this option a small tax break, which can be largely consumed by Wall Street fees and mispricing of risk returns.

And I thought that Greenspan's advice for homeowners to step into ARMs into the knee of the housing bubble was foul.

please explain the justification for the word force in your headline. neither of these articles either use that term or imply it in any way. and by the way, what does this have to do with real estate?

http://www.brookings.edu/~/media/Files/rc/papers/2008/06_annuities_gale/06_annuities_gale.pdf
Specifically, we propose that a substantial portion of assets in 401(k) and other similar plans be automatically directed (defaulted) into a two-year trial income product when retirees take distributions from their plan, unless they affirmatively choose not to participate.
Retirees would receive twenty-four consecutive monthly payments from the automatic
trial income plan. At the end of the trial period, retirees may elect an alternative distribution option or, if they do nothing, be defaulted into a permanent income distribution
plan. Employers and plan sponsors would be encouraged to offer the trial income plan and would have discretion over some of its structure and implementation. By making the proposal voluntary, we allow opting out by anyone who is not interested in purchasing guaranteed lifetime income. Several important questions would have to be resolved before this strategy could be implemented. The aim of this paper is to map out the first of several steps toward increasing the use of income products in 401(k)-type plans, with the ultimate goal of enabling improved retirement outcomes for workers.

"unless they affirmatively choose not to participate"

So this is "forced", as in paying taxes?

"By making the proposal voluntary" means that it's forced? and ...suddenly the brookings institute is the government?

i strongly object to your endless exaggerations and downright mistruths as well as the fact that none of this has anything to do with real estate.

columbiacounty complaining about exaggerations and mistruths- priceless irony.

I like Riversider's posts.

"what does this have to do with real estate? " Interstate Commerce

The American worker was sold down the river during the Reagan years when companies took the old-fashioned defined benefit pension plan away from the "regular" workers (but quietly kept these pensions in place for senior executives), and instead sold them on the snake oil that is the 401(k). Crunch the numbers: 30 years ago, a line worker retiring from his job that paid him the national median salary could retire with a benefit that regardless of what was going on down on Wall Street, consistently paid him, on average, about half of his salary upon retirement until the day he died (and often, until the day his WIFE died). Adjusted for inflation today, if a $50K/year worker wanted that kind of benefit upon retirement, he'd need to have a MILLION DOLLARS invested, a figure that is statistically impossible. Just look at the numbers in this article: the average 401(k) balance is less than $50,000! Upon retirement, that will carry you two years at best ... then what? Die? No. The answer lies not in government, but in WE the PEOPLE. It's up to us to reclaim the old-fashioned defined benefit pension plan that our grandfathers enjoyed, vis-a-vis the UNION PENSION.

Agree that the 401(k) can be a scam but as far as grandfather's union pension, think them thare days are over, esply with globalization.

Saw an interesting thing on tv: US company moved to Mexico to lower costs. Now company is leaving Mexico & moving to China to lower costs. Mexican workers feel betrayed. Down the line, company will probly fire all Chinese workers & just use robots. Eventually, company will probly junk robots & just use nanochips. Paradigm keeps shifting. Where does it end, what can be done?

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/07/AR2009010701387.html
http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/Almost-half-of-top-unions-have-underfunded-pension-plans--47162127.html

As opposed to an underfunded pension plan? I prefer the personal responsibility and control.

And underfunded pension plans are not just the result of poor market returns, they are also caused by companies making overly-rosy investment return assumptions.

I do agree with Dwell's comment that 401k's can be a scam. When the costs are high or employees wind up with company stock the risk and return can stink.

"as far as grandfather's union pension, think them thare days are over, esply with globalization."

"And underfunded pension plans are not just the result of poor market returns, they are also caused by companies making overly-rosy investment return assumptions."

*****

Not true at all, as those of us who are vested in union pensions can firmly attest.

i'm still trying to understand the genesis of the headline of this thread. where is the forced coming from?

Matt, companies just can't afford those pensions. Stick to that, and watch even more jobs be lost to China and other low-cost countries. That money has to come from somewhere, and companies don't have it. As for government unions, those pension costs are one of the biggest reasons state and local governments have major budget holes.

401(k)s work on the premise of individual responsibility. If you save responsibly, have company matching and invest responsibly, you can build a nice nest egg for retirement, and not overly burden the costs of labor.

But Matt, the trend is going against union pensions. Sure, it's great if you have it now, but, they are becoming less & less common. I don't want to open a cana worms, but, how can companies give workers 'traditional' union pensions (which may extend for the the life of the surviving spouse) & still compete with low wage/ low living standard emerging nations/economies? This is why today, we rarely find items 'made in the usa'. Nothing new about this & this trend will only accelerate.

"Matt, companies just can't afford those pensions. Stick to that, and watch even more jobs be lost to China and other low-cost countries. That money has to come from somewhere, and companies don't have it."

If they have the money to pay their CEOs literally tens of millions of dollars, they have the money to kick a couple million in annually to fund the union pension.

"If you save responsibly, have company matching and invest responsibly, you can build a nice nest egg for retirement, and not overly burden the costs of labor."

No you can't. For most workers, it's statistically impossible to save enough money to have a 401(k) be your sole source of income in your retirement.

"But Matt, the trend is going against union pensions. Sure, it's great if you have it now, but, they are becoming less & less common. I don't want to open a cana worms, but, how can companies give workers 'traditional' union pensions (which may extend for the the life of the surviving spouse) & still compete with low wage/ low living standard emerging nations/economies? This is why today, we rarely find items 'made in the usa'. Nothing new about this & this trend will only accelerate."

That's why there needs to be a global union movement.

how is it your sole source of income? what about social security?

"what about social security?"

What about it?

If we're talking about "individual responsibility", we're not supposed to rely on Social Security, no?

And it's supposed to be bankrupt before the Generation Xers retire, anyway.

An argument could be made that social security was desgined to encouraged older workers to retire enabling companies to hire younger workers.

"That's why there needs to be a global union movement. "

Ya can't unionize robots

Matt, you are being awfully naive. A "couple million" to fund a pension would not be nearly enough to fund lifetime pensions for all of a big company's retirees. CEO bonuses are high on a dollar basis, but relatively low as a percentage when compared to overall employee pensions costs. What you are proposing just does not work. Period.