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The Predictable Surprise: The Unraveling of the U.S. Retirement System
Social Security is in jeopardy, private pension systems have fallen apart, and workers are trying to save on their own for retirement with the stock market in the worst shape since the Great Depression. In The Predictable Surprise, Sylvester J. Schieber shows that forewarnings of the coming retirement crisis have been apparent for decades, but we have never mustered the political will to address the problem. This book explains how we have gotten into the retirement predicament and where we can go from here. Schieber, a renowned authority on this topic, provides a compact, insightful history of Social Security, pension plans, and other retirement options, highlighting both their original justifications and the point when things began to go wrong. He brings his discussion right up to the present morass and concludes with suggestions as to how we can reform our retirement system. Our situation is not hopeless, Schieber concludes, if we take on some of these issues and resolve them. If we do not, we will severely jeopardize the prosperity of younger generations.
480 pages, Hardcover
First published January 3, 2012
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Displaying 1 - 4 of 4 reviews
August 20, 2021
I read about SS, but returning to read the sections on public pensions.
Economists have questioned the way public plans measure their liabilities, casting doubt on their estimates of the obligations lying in wait for governments— and, by implication, taxpayers— to pay.
And there have been abuses. For example, a retiring chief of a fire department shared by two towns in Northern California. The fire chief in Orinda and Moraga had been making $186,000 per year when he retired in January 2009. Three days before announcing his retirement, the department’s trustees allowed him to “sell” unused vacation days and holidays and treat it as salary for his final year of service, thus boosting his annual pension to $ 241,000. Adding insult to injury, the 50-year-old retiree was hired back as a consultant at a rate of $ 175,400 per year to help find his replacement.
I have a long-time friend, a geophysicist who worked for the state of California, who did something similar. His final year salary spiked. He proceeded to retire on a Friday and returned Monday as a "consultant." He calls himself a fiscal conservative, but apparently that does not apply to his own efforts to bilk tax payers. The cost of income-spiking in public pensions in California alone is estimated to cost taxpayers several million a year.
As bad as these exorbitant benefits are, the bigger public pension problem is the cost and funding of public-sector plans and the fiscal threats to other government activities that many of these plans pose.
My wife worked as director of private equity for a major private university for 20 years and has served on the investment boards of several non-profits. One of her tasks on these boards is to determine an equitable and realistic annual payout to retired employees. One day she threw down the WSJ in disgust and said: "I can't believe it!" Major public pensions in CA were promising a 15% annual return on their investments. Half of that would be amazing in the current economy. They are either fools or liars. Either way, beneficiaries and taxpayers are in trouble.
My wife and I married young. We went about our fiscal management and investments under the assumption that SS could be bankrupt by the time we qualified. In a slightly different vein, our son is doing a stint as a public school teacher. When he pivots elsewhere, we are advising him to cash out his pension benefits and invest them elsewhere.
FDR did not agree with the SS structure we have now. From the book....
When FDR proposed Social Security in 1935, he envisioned a contributory pension plan. Workers' payroll taxes ("contributions") would be saved and used to pay their retirement benefits. Initially, before workers had time to pay into the system, there would be temporary subsidies. But Roosevelt rejected Social Security as a "pay-as-you-go" system that channeled the taxes of today's workers to pay today's retirees. That, he believed, would saddle future generations with huge debts — or higher taxes — as the number of retirees expanded.
Discovering that the original draft wasn't a contributory pension, Roosevelt ordered it rewritten and complained to Frances Perkins, his labor secretary: "This is the same old dole under another name. It is almost dishonest to build up an accumulated deficit for the Congress ... to meet."
But Roosevelt's vision didn’t prevail. In the 1940s and early 1950s, Congress gradually switched Social Security to a pay-as-you-go system. Interestingly, a coalition of liberals and conservatives pushed the change. Liberals wanted higher benefits, which — with few retirees then — existing taxes could support. Conservatives disliked the huge surpluses the government would accumulate under a contributory plan. [...]
Economists have questioned the way public plans measure their liabilities, casting doubt on their estimates of the obligations lying in wait for governments— and, by implication, taxpayers— to pay.
And there have been abuses. For example, a retiring chief of a fire department shared by two towns in Northern California. The fire chief in Orinda and Moraga had been making $186,000 per year when he retired in January 2009. Three days before announcing his retirement, the department’s trustees allowed him to “sell” unused vacation days and holidays and treat it as salary for his final year of service, thus boosting his annual pension to $ 241,000. Adding insult to injury, the 50-year-old retiree was hired back as a consultant at a rate of $ 175,400 per year to help find his replacement.
I have a long-time friend, a geophysicist who worked for the state of California, who did something similar. His final year salary spiked. He proceeded to retire on a Friday and returned Monday as a "consultant." He calls himself a fiscal conservative, but apparently that does not apply to his own efforts to bilk tax payers. The cost of income-spiking in public pensions in California alone is estimated to cost taxpayers several million a year.
As bad as these exorbitant benefits are, the bigger public pension problem is the cost and funding of public-sector plans and the fiscal threats to other government activities that many of these plans pose.
My wife worked as director of private equity for a major private university for 20 years and has served on the investment boards of several non-profits. One of her tasks on these boards is to determine an equitable and realistic annual payout to retired employees. One day she threw down the WSJ in disgust and said: "I can't believe it!" Major public pensions in CA were promising a 15% annual return on their investments. Half of that would be amazing in the current economy. They are either fools or liars. Either way, beneficiaries and taxpayers are in trouble.
My wife and I married young. We went about our fiscal management and investments under the assumption that SS could be bankrupt by the time we qualified. In a slightly different vein, our son is doing a stint as a public school teacher. When he pivots elsewhere, we are advising him to cash out his pension benefits and invest them elsewhere.
FDR did not agree with the SS structure we have now. From the book....
When FDR proposed Social Security in 1935, he envisioned a contributory pension plan. Workers' payroll taxes ("contributions") would be saved and used to pay their retirement benefits. Initially, before workers had time to pay into the system, there would be temporary subsidies. But Roosevelt rejected Social Security as a "pay-as-you-go" system that channeled the taxes of today's workers to pay today's retirees. That, he believed, would saddle future generations with huge debts — or higher taxes — as the number of retirees expanded.
Discovering that the original draft wasn't a contributory pension, Roosevelt ordered it rewritten and complained to Frances Perkins, his labor secretary: "This is the same old dole under another name. It is almost dishonest to build up an accumulated deficit for the Congress ... to meet."
But Roosevelt's vision didn’t prevail. In the 1940s and early 1950s, Congress gradually switched Social Security to a pay-as-you-go system. Interestingly, a coalition of liberals and conservatives pushed the change. Liberals wanted higher benefits, which — with few retirees then — existing taxes could support. Conservatives disliked the huge surpluses the government would accumulate under a contributory plan. [...]
June 13, 2014
This densely packed book is not your standard summer reading, so be prepared. It is, however, a well considered work on how we got here in the retirement world. A lot of time is focused on Social Security, but a considerable amount of information is provided about defined benefit plans, defined contribution plans, and some of the "predictable surprises" which led to their rise or decline. It also seems surprisingly nonpartisan, and the author acknowledges his own biases when presenting material. I'd recommend this book.
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March 11, 2013331.25209 S332 2012
March 31, 2013
Got boring.
Displaying 1 - 4 of 4 reviews