[vkou]

Pensions have two other, incredibly important benefits.

1. They mitigate risk, by pooling it, because some participants die sooner than others, and stop receiving benefits. This helps fund the few people who happen to live longer than expected.

2. They mitigate risk, because they mitigate inflation, because they are, in part, funded by current contributions. The value of money drops as time goes on. If you retired 15 years ago, it is less risky to be receiving 10% of a salary today, then it is to have saved up that 10% 15 years ago.

Obviously, a mismanaged pension, that relies on incredibly optimistic rates of return, is going to have you taking a haircut. Even so, having a pension, in addition to your personal retirement savings is a way to mitigate your financial risk.

[lotsofpulp]

This is obsoleted nowadays by index funds. You can do the same thing your pension fund does with a 0.04% expense ratio and no agency risk of the pension fund board members being corrupt and "investing" the money for their own benefit.

[vkou]

You did not address either point.

An index fund doesn't mitigate the risk of living until you're 92, when life expectancy tables say that you should have died at 84.

Group funds pool this risk. Because when life expectancy is 84, for every person that lives to 92, eight people die at 83.

Outliving your savings is a catastrophic event in your old age. Group funds act as insurance for this catastrophe.

[lotsofpulp]

Weird, was comment edited? I thought I had responded to a comment about pensions providing diversification. Although I find point # 2 about inflation is mitigated by investing in equity index funds, as I believe the government will prop up equity values as long as it can. And if it can't, then the country has bigger problems to worry about.

Anyway, the best thing to mitigate risk of living until 92 and running out of funds is raising kids with the right values or another form of support network. I wouldn't trust any counterparty enough to pay me back decades in the future. Worst comes worst, have some form of suicide accessible.

[vkou]

> Weird, was comment edited?

Yes, I removed part of it, because the arguments about point #2 are, in my opinion, more nuanced than "low cost index funds solve all our problems". There's advantages and disadvantages to non-fully-funded pensions, because of the time value of money, and it depends on the economic climate in which it operates, and on the worker pool that participates. It can work just fine on a national level, but is a mistake for smaller pensions.

> Anyway, the best thing to mitigate risk of living until 92 and running out of funds is raising kids with the right values or another form of support network.

So, you'd burden your retirement-age children with supporting you in your old age? That's going to do great for their own retirements...

The point is that the money is there - but instead of pooling risk between people who can afford it (Other people in your pension cohort, who die earlier), you pool it with people who can't (your aging children), with a backup plan of suicide.

... Or we could just mitigate the risk, with a more diverse pool. With a group fund.

You don't self-insure your car[1], you don't self-insure your house, and you don't self-insure your health. That's because the costs of statistically unlikely events are catastrophic in all three of those cases. Don't self-insure your retirement.

[1] I actually do self-insure my car, but that's because it's worth less than what I make in a paycheque. I don't self-insure liability insurance, though, and I wouldn't want to, even if I could.

[lotsofpulp]

I self insure my car and my house. I have spare versions of both. I don't self insure my health since I'm not that rich yet. I would self insure myself for liability if I was rich enough to have a staff of lawyers, especially since auto insurance liability only goes so far anyway. Or maybe not if they say it's too complicated, but I can't afford that right now anyway so it's a moot point.

Good point about being 92 and having children who are also retirement age. But in my family right now, we have 3 great-great grandparents in 90s being supported by grand children and great grandchildren. It really depends what kind of family you have, and perhaps it's simply not realistic for many, and I'm just super lucky to be in one.

However, I have seen nursing home care and other non family provided care for super old people, and I would rather kill myself if I had to depend on that (I support assisted suicide). I also don't plan on keeping myself alive to get into a state where I have to depend on someone else for basic needs, but who knows, talk is cheap. I haven't seen what kind of care tens of millions of dollars or more can buy at that age, and maybe it's worth it then, but I almost feel like you can't pay someone enough to take care of you the way family would.

>... Or we could just mitigate the risk, with a more diverse pool. With a group fund.

If this is the goal, then isn't the whole country the best pool? AKA Social Security?

[vkou]

> I self insure my car and my house.

You have liability insurance for anyone you may hurt with your car. It's a low probability, catastrophic life event, that makes more sense to insure, than to save for. Yes, liability insurance only goes so far in truly catastrophic events, and yes, you can do things with lawyers, but insurance covers most of the serious unlikely problems you may have.

> I have spare versions of both.

Self-insuring a house by owning a second one is not a good plan for the overwhelming majority of human beings.

> However, I have seen nursing home care and other non family provided care for super old people, and I would rather kill myself if I had to depend on that (I support assisted suicide).

Okay - that's an entirely other story. When I am talking about support, I am talking about truly basic life needs. Food, shelter, transportation. None of these are prohibitively expensive, when you have a small income.

A pension can't really afford intensive-end-of-life care, or long-term medium-intensity care. Hardly any kind of savings that you can scrape together can.

> If this is the goal, then isn't the whole country the best pool? AKA Social Security?

Yes, social security is a pension program. I wish I could invest more than 5% of my retirement savings into it, for the reasons I outlined above.

[wmf]

Yeah, just staying in index funds until you die is risky. A more standard strategy would be to invest in index funds until you retire, then switch to an annuity that pays you for life. This has the same pooling of risk as a pension.