Can pension funds fund 90$ pensions?

L

lizmerrill

I need some verification:
here is the problem, I have a friend who started to work for LA county in jul 1982 when the $spx was at 107 and he retired in april of 2000 when the index was at 1452.
the gain on initial capital invested from jul 82 to apr 2000 was 1257%.
the average annual roi was 69% per year. (12.57/18).
Now correct me if I am off here.
average annual gain of 69% per year or if you were perfectly compounding your average annual gains the gain on initial investment from 1982 to 2000 would be 1.69^18=12646, or 12646x$2000=25292437 dollars, providing you reinvest your gains every year and you bail out in apr 2000, correct?
Based on this, is it possible for pension funds to just invest in the broad market indexes, eg sp500 over the long haul and compound their gains every year, and then over a 20 year span, to have enough increase on capital and recommitted capital from income so that a pensioneer can retire with 90% of his current salary, and have enough vested to last 30 years into old age?
My guess is it sounds easy, but extremely hard to implement, due to human nature's frailities, right?
 
that's precisely why markets are keep going up today.cause whole entire world is turning around those numbers. not single WS industry or sector,but literally whole entire world. and that's they will keep printing\kicking the can until the very end. unless(like i said some time ago)some s** of epic proportions hit's US. this is why i'm not into japan scenario anymore(for some time). cause US can't "afford" 10-15 years of down market and housing or any natural market adjustments . no matter what-they will continue pushing the markets up. no bear. not allowed. period.
not sure where we are heading or how it's going to end,but it is what it is. every single day-flat open,0.3-0.5% up.


big.chart
 
Where on earth did you get the idea that the annual ROI is 69%?

PV (1+I)^18 = FV

Now, solve for I. You're going to get a very different number than 69%.
 
Quote from lizmerrill:

Based on this, is it possible for pension funds to just invest in the broad market indexes, eg sp500 over the long haul and compound their gains every year, and then over a 20 year span, to have enough increase on capital and recommitted capital from income so that a pensioneer can retire with 90% of his current salary, and have enough vested to last 30 years into old age?
My guess is it sounds easy, but extremely hard to implement, due to human nature's frailities, right?
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I'm going to leave aside your math errors, since others have already pointed out your mistake. But on this point: how do you think pension funds are run? This is exactly what they do - they invest the cash and hope to make enough to pay the pensions. The problem is that the 'required return' they use to project their future asset is mostly dictated by political needs, rather than market reality.
 
Quote from Bob111:

that's precisely why markets are keep going up today.cause whole entire world is turning around those numbers. not single WS industry or sector,but literally whole entire world. and that's they will keep printing\kicking the can until the very end. unless(like i said some time ago)some s** of epic proportions hit's US. this is why i'm not into japan scenario anymore(for some time). cause US can't "afford" 10-15 years of down market and housing or any natural market adjustments . no matter what-they will continue pushing the markets up. no bear. not allowed. period.
not sure where we are heading or how it's going to end,but it is what it is. every single day-flat open,0.3-0.5% up.
More...

brent is $117. bring it to $150 and it's really doesn't matter how expensive are stocks or what's going on with housing

and bonds are another part of the story

stocks are good headliner but there are other important things than enriching public stocks insiders
 
I feel sorry for all those people that the " American Dream " didn't work out for them. They have had pretty crappy lives stacking shelves, working at Big Macs etc. being paid peanuts.
Now come pension time the rich are hogging most of the money, as if they even need it.
Surely enough is enough and the elderly should be able to eat reasonably and turn the heating on in winter etc. Maybe have the grandchildren round for thanksgiving.
How to achieve this without bankrupting the US economy or even costing the economy one measly penny is to have money paid into a central pension fund at a small % of any salaries over a threshold level per year.

And paid out equally for the over 65s. The rich would still be rich and the poor would have something to look forward to in their old age.

The right wing meanies will object as usual !!
 
Quote from Humpy:

Now come pension time the rich are hogging most of the money, as if they even need it.
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How does the rich *hog* all the pension money? Pensions are defined benefit plans, mostly used by public sector workers and unions.
 
Quote from CT10Gov:

How does the rich *hog* all the pension money? Pensions are defined benefit plans, mostly used by public sector workers and unions.
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The ones who had large salaries get bigger pensions i.e. income related here in the UK. I suppose much the same in the US ?
Small income equals small pension.
 
Quote from Humpy:

The ones who had large salaries get bigger pensions i.e. income related here in the UK. I suppose much the same in the US ?
Small income equals small pension.
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You must have a low bar for considering people rich. People who retire with an $70k-$80k a year pension aren't rich in my eyes. Now if some government admin assistant was pulling down a $million plus a year pension then I would see your point.

To the original poster, pensions work in almost the exact opposite way that you described. They are not a sure fire investment model, but rather in fact a sure fire model to fail. Funds are expected to achieve a set return that is typically not realistic just to keep solvent. On top of that it is pretty common for the pension fund provider (either government or corporate entity) to routinely stop providing contributions to the fund which creates even greater funding shortfalls.
 
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