Monday, May 02, 2011

where to for now - retirement benefits

Instead of blogging about problems in the world I though I should also focus on how can we get out of it.

I have just read this article that on average a career as a California prison guard is better then going to Harvard and getting a degree. The main benefits of a California prison guard are a starting salary between 45 and 60 thousand dollars and then can make one hundred twenty thousand dollars in overtime and bonuses. They also get seven weeks of vacation in which 5 weeks are paid.  But the condition that made me write this post is that Prison guards can retire at the age of 55 and earn 85% of their final year's salary for the rest of their lives. They also continue to receive medical benefits.

What does it say about a society where the prison guards have better benefits then getting a college degree in one of the most prestigious colleges in the world.

Where to for now, first the most money should be going to the people that increase the economy in real terms or ones that make quality of living for current inhabitants better. What is destroying a lot of businesses and state governments is retirement benefits. The retirement benefit that you will get a significant percentage of you salary paid to you after retirement.

This concept of large retirement benefits as not being sustainable can be best understood after watching this youtube clip. The clip explain's how simple growth of 7% means that after 10/12 years you will need the total amount of all proceeding costs to pay for it, then after another 10/12 years the amount needed matches all preceding costs to pay for it. So you really doubling you costs every 10 to 12 years. This is not sustainable as the major cost in most businesses is human resources.

Once retirement benefits have become unsustainable the company will go broke or have to renege on the pension plans. If its a state government then its nearly impossible to renegotiate teachers, policemen and state services pensions without having a significant political backlash so they are screwed.

Really the only way to save state governments and large US businesses with significant pension plans is to  to debase the dollar. So that pension's and the salary in which pension's are calculate no longer have the same negative affect in their costs.

What has also made things worse is in trying to have sustainable pension has created this huge pension funds that worry more about getting bigger returns than actually increasing economic activity. Example in Fiji the national "pension fund" invest in real properties and activities that create business and was a real help to the economy in Fiji before the coup. In US a significant portion of pension funds invest in stock market and financial instruments, so besides not being sustainable the pension funds are actually assisting in the decline of peoples economy in which pension is supposed to look after.

The problem is the people making the decisions for retirement packages know that they wont be held accountable when the issues we are currently facing occur. The reason being is the majority of the decisions are based on next business cycle instead of thinking long term

I personally believe that once you retire you, are left with whatever savings that you have made up to that date. Government can give limited pensions for people in need. Reality is if you don't have have enough money you don't retire. We go back to communities looking after each other instead of expecting government to do it. Also funds that you have saved for retirement work in your local community instead of helping overseas companies create products that are competing with your community.

The biggest challenge in all this is people's perceptions have to change they have to understand that benefits that occurred before is not sustainable and they will have to contribute to society when they reach retirement age. We also need to go back to concept of respecting elders and looking after each other


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