Finance, Boats, Retirement how do you decide?

[BruceK]

Does USA have Franking Credits accompanying share/stock dividends?

A dividend payment can come with a Franking Credit where the company has paid tax on its earnings. The rationale is tax has been paid and shouldn`t have to be paid twice. It`s not without controversy but has been around a long while.
As well the Franking Credit operating as credit against tax liability,it is regarded as income to be included as such, it can be as much as 40% of the dividend it accompanies.
If tax payable after assessment is less than the total of Franking Credits, which are notionally held as such by the ATO tax office, ATO pays you the balance.

 

[FWT]

Does USA have Franking Credits accompanying share/stock dividends?

A dividend payment can come with a Franking Credit where the company has paid tax on its earnings. The rationale is tax has been paid and shouldn`t have to be paid twice. It`s not without controversy but has been around a long while.
As well the Franking Credit operating as credit against tax liability,it is regarded as income to be included as such, it can be as much as 40% of the dividend it accompanies.
If tax payable after assessment is less than the total of Franking Credits, which are notionally held as such by the ATO tax office, ATO pays you the balance.

Nope

 

[FWT]

Excellent explanation. Bond funds have been called equity investments in fixed income. Even one person said masquerading. Defeat the whole purpose of bond investing. On the other hand, we bought municipal bonds in 2012 with 5% interest rates. Since they're tax free that's the equivalent of 7.9% fixed income.

Now they are the ultimate buy and hold investment. Unfortunately though current yields are more in the area of 2-2.5%. In fact, I saw trades on one 2030 bond at $129. More typical right now is around $115. Still tempting, but not what we have them for.

Thanks

I suspect we both do something the same, but different. I like to hold things up to the light, and spin it and turn it, and look at it from different angles.

One thing I do is a calculation of yield on COST for dividend paying stocks. The utility you bought some years back will have likely appreciated, and hiked its dividend too. The yield on cost can be pretty sporty. That isn't a calculation I ever see made in the popular press / analyst reports.

You obviously have all the professional advice needed. But FYI the C Corp I run makes dividends a treat. 50% tax free treatment of dividends inside a C Corp. The downside is cap gains are treated as ordinary income. If you are into buy and hold forever, the gains cost give-up may be less important than getting the tax treatment on dividends. If you are trading stuff out, the reverse may be true. The advantage / disadvantage is heavily dependent on style and habits.

In the company I no longer buy muni's just because the dividend growth in stocks has outrun the tax advantage derived from the stock dividend impact. In other words, we pay no / little tax so why fool with muni's?

It takes time to get there. As I think Twain once said, compound interest is the 9th wonder of the world.

 

[FWT]

Does USA have Franking Credits accompanying share/stock dividends?

A dividend payment can come with a Franking Credit where the company has paid tax on its earnings. The rationale is tax has been paid and shouldn`t have to be paid twice. It`s not without controversy but has been around a long while.
As well the Franking Credit operating as credit against tax liability,it is regarded as income to be included as such, it can be as much as 40% of the dividend it accompanies.
If tax payable after assessment is less than the total of Franking Credits, which are notionally held as such by the ATO tax office, ATO pays you the balance.

I was quick. I'll go further.

The US has double taxation. First, the company makes money and pays taxes on what it makes. Then a portion of what is left over after taxes is paid in dividends in whatever amount a Board of Directors deems wise. So then the dividends flow down to you, the shareholder, and you are taxed. So the business activity that created the income is taxed, and then the leftovers flowiing to you are taxed again.

Fair? Sensible? Hell no. But its not about that. Its about raising tax revenue for the govt to spend.

Which is precisely why US Corps have responded as they have, and instead of paying dividends they are increasingly buying back their stock, driving up the price. Which is a tax free benefit to the shareholder so long as they don't sell. And when they do sell it is taxed at a cap gains rate that is lower than the ordinary income rate we pay on dividends. By a lot. Which is why there is increasing pressure for somehow getting benefit to the govt for that, so that the govt gets more benefit and the public less.

Which by the way also creates seasonality to stock gains. Companies cannot do buy-backs for something like a month before and two weeks after earnings announcements. Don't quote me on the timeframes, but that's approximately right. So a big part of the pause in market movement coming into earnings season is simply the absence in the market of the biggest buyers of stocks, which is the company's themselves.

 

[FWT]

When power of attorney is granted it’s for a specific transaction or event. Like you I don’t give anyone including family a standing power of attorney. Hence unlike the individuals you mentioned my exposure is minimal. I’ve granted such task specific powers to attorneys as well as him from time to time. In his case as regards net worth I’m probably in his lower 5%. His exposure if he misused such a task specific grant his is significant . Our relationship is decades old so mutual trust remains.

Kudos

Never, ever, ever, ever grant power of attorney to anyone. Other than for a specific transaction as you cite. Or a spouse in case of a medical emergency, and the like.

Never a kid. Never ever ever ever a hired advisor.

Damned near every reg on finances has made life worse for everyone. But the sole one good one I can think of has been regarding elder abuse. Folks here cannot possibly fathom how often older folks are taken advantage of by kids, grandkids, "trusted" friends. Cleaned out.

Trust no one, other than spouse. Period. Not lawyers. Not accountants. If you handle things poorly as you age, so be it. Its cheaper than having it all stolen in short order.

 

[BruceK]

A cashed up company here may make a "Capital Return", generally not taxable. Or it may invite shareholders to tender shares for a "buy back", although the price paid is less than market the benefit is a reduced capital gains component. Those who don`t take part benefit because there are then less shares in existence, raising the backing value of those not "bought back".
It seems our "Franking Credit' system may not exist elsewhere, I`m not sure. Part of the Australian political scene strongly opposes Franking Credits, but a campaign at the last election proposing abolition was unsuccessful and may not be repeated.

 

[BandB]

I was quick. I'll go further.

The US has double taxation. First, the company makes money and pays taxes on what it makes. Then a portion of what is left over after taxes is paid in dividends in whatever amount a Board of Directors deems wise. So then the dividends flow down to you, the shareholder, and you are taxed. So the business activity that created the income is taxed, and then the leftovers flowiing to you are taxed again.

Fair? Sensible? Hell no. But its not about that. Its about raising tax revenue for the govt to spend.

Nearly all countries have the same double taxation. However, nearly all countries have flow through or pass through entities or disregarded entities, such as S Corporations, Private Companies, LLC's, or other partnership forms. Of course this is available to closely held private companies but not to public or widely held. Each country slightly different too. Once knew an owner converting everything worldwide to passthrough and one giant S Corporation owner. He almost overlooked one share of stock he'd given to someone in Germany so the company in Germany had some German ownership. Only problem is that would have made it impossible to be disregarded and flow up to the S Corporation in the US as you can't have any foreign owners.

And while talking double taxation, think of triple as that same income can be taxed again by Estate taxes.

 

[FWT]

Nearly all countries have the same double taxation. However, nearly all countries have flow through or pass through entities or disregarded entities, such as S Corporations, Private Companies, LLC's, or other partnership forms. Of course this is available to closely held private companies but not to public or widely held. Each country slightly different too. Once knew an owner converting everything worldwide to passthrough and one giant S Corporation owner. He almost overlooked one share of stock he'd given to someone in Germany so the company in Germany had some German ownership. Only problem is that would have made it impossible to be disregarded and flow up to the S Corporation in the US as you can't have any foreign owners.

And while talking double taxation, think of triple as that same income can be taxed again by Estate taxes.

Gawd

Thankfully I gave up things international in the 80's. The layers of complexity one has to deal with just explode.

 

[Seevee]

I fully understand what worked for you and can agree with most of it. However, I would never give an advisor power of attorney. Not going to happen under any conditions for me. While the arrangement with him may be working well for you, the arrangement you have is absolutely the type arrangement that athletes and celebrities have been devastated by.

I would advise you to regularly change forensic accountants so fresh eyes are examining.

TOTALLY agree. No way anyone that I don't personally know will have access to dollars. Advise, sure, but that's it.

 

[Seevee]

While a lot of this financial stuff is personal, some times we get ideas on how to pay for our boating.

I'm still with the "cash for toys" philosophy. And invest in other things that bring in the income to operate the toys. There's a safety factor that's nice with free and clear toys.

I'm not a stock guy, no publicly traded stuff, no brokers and third parties involved. Just do real estate and related stuff (leases, mortgages, etc.). For "me" that works out much better without the risk of the stock moving the wrong way. The big advantage of real estate is that it's pretty much a one man operation and one can leverage into lots of property, with little cash. And the rents will pay the mortgage, produce a profit and eventually give you a free and clear house.

 

[Bacchus]

Just joining in here and have read some but not nearly all preceding comments but I think I've seen them all before and there really aren't many different ones just repeats of a couple different philosophies.
I have been a DIY investor and been a balanced type of investor over my working career... not overly aggressive or conservative. Portfolio is almost exclusively mutual funds & ETFs. Have done reasonably well and now retired and have my portfolio with a local advisor that does it all including taxes. I dont require "permission" but do review trades and ask questions when it is something we haven't discussed.
I have been in the "cash for toys" group for as long as I remember. I understand the comparison and argument that if you can make more investing borrow vs paying cash. My rationale is as follows....
Many that cite the tax advantage of boat / 2nd home forget to include the tax on their investment earnings, which frequently makes the difference much smaller.
Some borrowers compare interest rate to high earning assets, others will use an avg but think recent years and tend to forget the bad years.
My thinking is you are comparing a guaranteed rate (interest) to a variable / riskier rate (investment). While my portfolio is balanced it's a blend of more aggressive / less aggressive / stable value type assets. My boat & loan may not be around for 20 years so I am not comfortable comparing to longer term averages and in short term the guaranteed or even high probability rate is lower than some avg. So I compare loan rate to my "stable" or fixed income portion of the portfolio not the high earning, high variability, higher risk stuff.
When I compare loan interest to guaranteed/ high probability earning rates the difference is small(er) and I think the "certainty" of cash for toys is reassuring and let's me sleep better.
I wonder how many in the borrow camp have all their investments in the highest return (usually highest variability / risk) category. Doesn't the same argument hold here?... if you can earn more (on avg) isn't that where you should invest. (Everything)? If not... why not... it seems like a similar argument.
I'm not trying to convince anyone to change their perspective but rather to offer up a different perspective that those on the fence might welcome.
I have and can cite multiple friends that are very smart that have borrowed where attractive to maximize earnings. One is a boater and has considered getting out of boating but couldn't as they were upside down and couldn't afford to quit. By the way they were in the same situation with their RV... couldn't afford to sell it. Currently still working at 73 as he can't afford to retire!

 

[Hippocampus]

Think underlying this conversation is the profound income inequality that has evolved in recent years. Once again it’s expensive to be poor. Think there’s three groups as concerns boating
Those who could not afford to buy a boat without a loan.
Those who could pay cash but it would be a significant burden and impact their other discretionary spending.
Those for whom boat purchase has no meaningful impact on reserves for discretionary spending or estate planning.
Think decisions about procuring a boat loan, who does the maintenance, purchase price, and even investment strategies reflect that stratification. In business you can always get a loan if you don’t need it. In the current world the old saws my dad taught me are increasingly true.
Make money from other peoples labor.
Money makes money. If you get money use it to make more. That’s the easiest money you’ll make.
Given your risk tolerance is a reflection of your net worth. ( If I lost $1m it would be meaningful. For a billionaire not so much) think this impacts investment strategies.
Believe we’re at a point where capital not labor controls all aspects of our lives. Be it the nature of work, politics, the justice system, education, healthcare or any other aspect. The voices here reflect that stratification.

 

[FWT]

The conversation has been dominated by how to invest the money.

Since few have retirement pensions these days, apart from social security, sufficient to cover living expenses, covering some level of living expenses from spending investment returns and capital from savings is a fact of life for most people.

Even if one has pensions, the question of taking the annuity or lump sum often comes into play and making this a key issue.

How much is SAFE to spend is a question personal finance specialists ponder for which there is no absolute answer. How much, without taking excessive risk in running out of money?

The issue is compounded by differences in:

* Age. The younger you are, the more years you have to account for. The older you are, the fewer years the money needs to last.

* Life expectancy. Does family history and any personal health battles suggest many years to come, or fewer?

* Time. Live and plan for a long enough time horizon the odds grow to near certainty one will experience a severe drawdown in investment balances, and this is true of both stocks and bonds as well as real estate.

* Plan B. What flexibility do you have to simply reduce spending from investment returns and balances during periods of poor investment performance, to avoid spending down capital when investment values are low?

* Unexpected expenses. The big thing out of the blue. Medical or otherwise.

In any case, the less you spend the more you have later. But you saved for the purpose of retirement, and unless you have a life goal of leaving a big chunk to heirs, enjoying too much or too little have their own problems.

No wonder there is poor conventional wisdom on this topic. Circumstances are so varied.

 

[FWT]

Market conditions.

Many think in terms of the market being either up or down.

But also ponder the case of the 1970's. That was a devastating period for many. The market spent a decade going dead sideways, with high inflation eating everyone alive from the growth in the cost of living.

It was the extended timeframe of poor real returns that was so painful.

Never say never again.

 

[tiltrider1]

Some posts back I pointed out that I am in the camp of pay cash for your toys. Yet, I found my self deciding to finance a boat. At that specific time and for the next 5 years it made sense, for me and the position my investments were in. I also pointed out that I now find my world has changed and I am in the process of eliminating all debt.

My point was there is no one correct answer for everyone.

Conventional wisdom says if you don’t use a 401k program you won’t save for retirement. This is true for most folks. Some of us see 401k’s as a ball and chain on our investment abilities. Most of the world wishes they could do what I can do but they can’t. I wish I could do what Jeff Bezos does.

 

[bowball]

Some of us see 401k’s as a ball and chain on our investment abilities.

I don’t understand. In what way?

 

[BandB]

So I guess I'm sort of asking: How do you approach your overall finances with regards to owning or even living on a boat and make sure you're not going to far? or not far enough (and end up annoyed because you didn't buy a comfortable enough home)? Stuff like that. Any advice appreciated.

Going back for a moment to the OP. We've gotten off into all our investment strategies, but back to your basic question, you and your partner must do what allows you to be comfortable. If it doesn't feel right, it probably isn't right for you.

I think one key is you don't make these decisions quickly or in a vacuum. You start thinking of them well ahead and you look at the numbers and you note the changes in your situation along the way. For instance, just in the last couple of years, your savings likely grew but so did the price of the boat, so you may reconsider what boat or decide savings grew enough to cover. Similarly, a rental or purchase home down the road has likely jumped in cost. You reevaluate for that.

You consider all the possible market shifts and health obstacles and also whether you and your family will enjoy as much as you think or thought. However, if any part of your plan really makes you uncomfortable, then reevaluate that aspect.

You're surrounded here, as in life, by people with far more and far less than you might have. Don't allow either to influence you too greatly. Don't pursue the dreams of others, just the life that works for you. Carefully think about alternatives. I know one couple that had plans for a larger boat and then suddenly it hit them that much of what they wanted to see could be done in a far more lavish motor home and they could rent boats around the country, maybe own one in their small home base. To them the simpler motor home life offset any desire they had for the water.

Discuss the perfect retirement with others, not just with boaters. We have close friends (and employees) who we recruited from our former home area in NC and their original thought was at retirement to go back to NC. They both grew up in the country on their parents acreage with cows, horses, pigs, and dogs. They enjoy boating but not like we do. Oh see them at work where they run our salons and you'd think city girls all the way. They just love South Florida so much they can never see leaving. They had a small home, fully paid for that was like the neighborhood doll house after all they'd done. Two black labs. Now, in South Florida there is an area called Southwest Ranches. Ranches not the size of Texas or NC, but horse lovers. They found an older home on acreage and more acreage beside it. They reevaluated their plans. The took on debt they never planned on. It means working longer than they ever would have had to but if they can go home each day to their "ranch" all is good. Alice is 50 and Rachel is 42. They decided they would rehab the house themselves with a little help. They have four horses of their own and board and keep 6 for others. They love their jobs and have found a perfect life for themselves. They get a total of 45 and 40 days of Personal Time Off in a year. They've taught the two 7 year olds in our family to ride, one who still prefers boating but one who loves time there with the horses even more and got her own black lab for Christmas. Alice and Rachel are at home covered with mud, grooming horses, tumbling with their dogs, hammering as they add a porch to their home, covered with paint. They love things we would hate doing, other than we love riding their horses. And, yes, they do have a Plan B. As they set down with us to talk about their plans, they knew I'd ask that. While prices may change, their property has at this point appreciated 60% in value between property prices in the area and the work they've done on it. Yes, two beautiful hairdressers supreme even built a stable/barn themselves. I've known them the longest of any two people in my life as started getting my hair done by Alice when we were both 25 and haven't been to anyone but her or Rachel since. I remember when Rachel was hired about three years later and Alice her mentor so Rachel at the adjacent booth. And I remember when we invited them to dinner about 20 years ago and they were shocked we'd figured out their relationship wasn't platonic.

The point is that Alice and Rachel have found the life and retirement plan for themselves. We also love they've taught Aurora and Juliet not just to love the horses and dogs, but what is involved taking care of them and grooming and even shoveling and sweeping the stables. When they go ride, they also do that part.

Boating is our love but not our only one and you need to balance all in your life and plan what works for you. Then don't be ashamed ever to change that plan if you feel the desire.

 

[tiltrider1]

I don’t understand. In what way?

Most 401k's will not let you self direct your money. You are also limited to intuitional investments. Yes, there are ways to take loans against 401k's but the time it takes to get authorizations can cause you to miss opportunities.

 

[bowball]

Most 401k's will not let you self direct your money. You are also limited to intuitional investments. Yes, there are ways to take loans against 401k's but the time it takes to get authorizations can cause you to miss opportunities.

Yes, I believe that’s true when you are working for a company that has a 401k. I hadn’t thought about that actually! When you retire you can rollover into an IRA (or a Roth unless the tax code changed this year) and invest in public securities.
As someone self employed, I have a self directed 401k and self directed Roth’s where I can invest in private companies etc too. But that’s complicated and fee laden to set up.

So I believe you are correct in general, which you appropriately noted. I also believe that the investment choices for most of these corporate 401ks will hold enough good find alternatives to definitely be valuable to fund, especially if there is a corporate match.

 

[backinblue]

Market conditions.

Many think in terms of the market being either up or down.

But also ponder the case of the 1970's. That was a devastating period for many. The market spent a decade going dead sideways, with high inflation eating everyone alive from the growth in the cost of living.

It was the extended timeframe of poor real returns that was so painful.

Never say never again.

I was too young to be investing during the 70's but looking at historical data, the market was up 7 years and down 3. I don't see the devasting extended timeframe (decade?) you are talking about. However, if you were putting money into a 401K at that time, down years are a good thing. You are buying when stocks are cheap and it increases the compunding effect in future years. If you needed to withdraw funds to pay for living expenses during the down years, then yes it would be devastating.

 

[klee wyck]

Here is a bit of a minority report:
I did not spend my entire career thinking about and sheparding money in order to do the same thing in retirement. It is a hard habit to break, but I am going to try!!
The smartest people in the world, who think about this full time every day all year, beat the market average about 1/5 of the time. Every dog has his day, but no dog beats the market consistently. Ever.
Set it and forget it.
I have more important things to think about now.....!

 

[backinblue]

Agreed Klee. Here's the secret though. You don't need to beat the market. If you can equal the market or even less, you are still likely to be in good shape over time. Don't want to think about it? Buy an S&P 500 index fund and forget it. Fees are practically zero and you will do as good or better than most professional investors.

 

[Bacchus]

Here is a bit of a minority report:
I did not spend my entire career thinking about and sheparding money in order to do the same thing in retirement. It is a hard habit to break, but I am going to try!!
The smartest people in the world, who think about this full time every day all year, beat the market average about 1/5 of the time. Every dog has his day, but no dog beats the market consistently. Ever.
Set it and forget it.
I have more important things to think about now.....!

I cant find fault with that philosophy.
What many fail to realize the 1st key to a successful portfolio is to choose the appropriate MIX of assets. The choice of individual holdings can be argued is secondary to mix. A others have pointed out a simple index fund or a couple of those reflecting a selected portfolio mix can do very well and can be easily adjusted over time as your comfort with risk / return changes.

 

[BandB]

I was too young to be investing during the 70's but looking at historical data, the market was up 7 years and down 3. I don't see the devasting extended timeframe (decade?) you are talking about. However, if you were putting money into a 401K at that time, down years are a good thing. You are buying when stocks are cheap and it increases the compunding effect in future years. If you needed to withdraw funds to pay for living expenses during the down years, then yes it would be devastating.

Look at inflation adjusted. The DJIA average lost 50% when adjusted for inflation during the 70's. It was 1987 before it reached previous levels. Here's a tool to look at inflation adjusted.

https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

Many of us haven't lived during such times. We think current rates are high and they are compared to recent years. However, 1974, 1979, 1980 and 1981 were all over 10%. Every year from 1973-1982 was over 5%.

 

[backinblue]

Look at inflation adjusted. The DJIA average lost 50% when adjusted for inflation during the 70's. It was 1987 before it reached previous levels. Here's a tool to look at inflation adjusted.

https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

Many of us haven't lived during such times. We think current rates are high and they are compared to recent years. However, 1974, 1979, 1980 and 1981 were all over 10%. Every year from 1973-1982 was over 5%.

Like I said, it's only devastating if you were withdrawing during that time. if you were adding to your 401K, it made you a lot of money in the future. Speaking of rates, when I bought a condo and got my first mortgage in my early 20's, I'm pretty sure rates were in the teens and that was normal at the time. I still have a mortgage today, but it's at 3% so it doesn't make sense to pay it off.

 

[FWT]

Look at inflation adjusted. The DJIA average lost 50% when adjusted for inflation during the 70's. It was 1987 before it reached previous levels. Here's a tool to look at inflation adjusted.

https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

Many of us haven't lived during such times. We think current rates are high and they are compared to recent years. However, 1974, 1979, 1980 and 1981 were all over 10%. Every year from 1973-1982 was over 5%.

Bingo

Edited to add:

B&B posted the inflation adjusted. Here it is in raw numbers. Drawn in log scale for clarity (a vertical inch at low numbers is the same percentage move at high numbers).

http://https://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=Index&symb=djia&time=20&startdate=1%2F4%2F1999&enddate=12%2F17%2F2013&freq=4&compidx=aaaaa%3A0&comptemptext=&comp=none&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=128&style=320&size=4&x=51&y=17&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=9

I am not talking at all about being 20 and investing during that period. I am making the point of how one might be impacted if such conditions returned while we are in retirement.

Maybe its one of those things you have to have lived through to appreciate. The 70's began with Nixon and Watergate. Which gave way to Jerry Ford whose proposal in a major TV speech about the bad economy was that everyone needed to wear a lapel button that said Whip Inflation Now. I was a lot younger, but even I sat there dumbstruck in a WTF sort of way. Ford was a one-termer as a result and in came Carter, who didn't do any better. Regan made Carter a one-termer over the economy plus Iran. It was into the Regan term a bit before things righted and the markets headed north.

I came of age during that period, finishing school and college and finding a job in a market where jobs were scarce. It leaves scars, like the depression era veterans.

 

[bowball]

Look at inflation adjusted. The DJIA average lost 50% when adjusted for inflation during the 70's. It was 1987 before it reached previous levels. Here's a tool to look at inflation adjusted.

https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

Many of us haven't lived during such times. We think current rates are high and they are compared to recent years. However, 1974, 1979, 1980 and 1981 were all over 10%. Every year from 1973-1982 was over 5%.

True. But nice returns buying 30 year treasury bonds at 12 - 14% yields with an amazing decades run of declining yields. Asset class matters.

 

[BandB]

Most 401k's will not let you self direct your money. You are also limited to intuitional investments. .

There are three types of 401K setups. Most small businesses use bundled,, which typically limits investments to one mutual fund family. Unbundled allows the selection of multiple fund families as does Alliance where services are provided by one family but they allow you to invest in some other alliance funds.

Some plans do allow a certain percentage of funds to be invested in 401K brokerage accounts and in individual stocks. We do not do so and I'll explain why.

401-K's are an essential part of our employees' futures and the thought of them not being prepared scares us. We do provide alternative fund families and we limit percentages in any single fund. However, by necessity, all advice must come from third parties, not us as the employer. Seeing the possibility of one losing a substantial part of their savings on a bad stock selection is something we don't want. If they want to invest in stocks we recommend doing it outside their 401K.

One other misconception I'd like to address. We hear so often that young people aren't thinking of their future or retirement. I wasn't thinking much about retirement at 21. However, I did see the matching money from my employer up to a certain level and I wasn't about to miss out on that. We have a generous match and, as a result, over 97% of our employees contribute to their 401-K and our workforce averages quite young. Now, if we didn't match, I know the percentage would be much smaller.

 

[FWT]

401-K's are an essential part of our employees' futures and the thought of them not being prepared scares us.

I flat love that thinking.

My company still provides an old fashioned defined benefit pension plan.

Pretty much every other company has killed those off. My reasoning to keep it going is identical to yours.

Pension plans are a real bear to manage in every sense. The admin burden is substantial. The GAAP accounting impacts have amazing complexity. It requires expensive outside consultants. It is quite expensive. Quite. I keep it going anyway.

 

[BandB]

I flat love that thinking.

My company still provides an old fashioned defined benefit pension plan.

Pretty much every other company has killed those off. My reasoning to keep it going is identical to yours.

Pension plans are a real bear to manage in every sense. The admin burden is substantial. The GAAP accounting impacts have amazing complexity. It requires expensive outside consultants. It is quite expensive. Quite. I keep it going anyway.

Yes, my employer had one and I was involved heavily in the decision to terminate our plan. That was very expensive and involved. The defined benefit plans made a lot of sense in a period where people stayed with their employer for their career.

We terminated for three reasons.
1-The administrative and financial reporting burden. Out income could vary by millions due to plan performance.
2-Lack of portability and the fact of how many employees who would never receive anything or would receive relatively little. One benefit some believed in was it helped to keep employees. I felt we needed better reasons for them to stay than just holding a huge financial penalty over their heads.
3-Lack of perceived value by new hires. They didn't feel like they owned the funds so not like they were really getting a benefit. They were asking for 401-K's.

There was a huge cost to the change but turned out to be worth it.

I also was once involved in removing a large group of employees from a Union Defined Benefit Plan. In that case, we started their 401-K's with contributions equal to all they were leaving in the union plan. It was a horrible plan that none of them were likely to ever get anything from. The union plan was costing us 9% of wages. At 4.5% in the 401-K we saved and employees benefited.

Now, in your situation, the defined benefit plan may be very good and beneficial to your employees. I just don't generally find them to be so in today's world.