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Saturday, July 18, 2009
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34 comments:
Responding to comments from yesterday
Mike,
First, I happen to know quite a bit about PBGC. Most ppl whose pension plans are taken over by the PBGC are doing just fine. Now, if your pension plan is extremely generous and allows for early retirement benefits [read: airlines, auto and steel industry], then you may lose a portion of your benefit.
That is a lot of subjective words. Are most people "fine" after the PBGC? You may think people are "fine" when they receive 70-80% of the pension they were supposed to but I do not think that is "fine."
What is an "extremely generous" pension plan? What percentage of companies do not have "extremely generous" pension plans? I suspect you might be referring to 95% of pensioners.
Second: regarding the FDIC. The reason Bair is predicting more bank failures is because there will actually be more failures.
I agree. The odds are there will be many more bank failures. But contrarian was arguing the FDIC would not be able to handle it and cited Bair's speech. I was just saying that Bair's speech was meant to ensure Congress stays abreast of the problem, not that the FDIC cannot handle it.
contrarian,
tbw,
So, if I understand you correctly, you're saying a 401(k) plan that has collapsed 95% and is only worth a few hundred dollars is "a million times better than a bankrupt pension plan."
Is that what you are saying? :-)
Well if the market collapses 95% then the pensions would have all gone bankrupt. On the other hand, with a 401k you can invest in very conservative investments and all of your 401k holdings can be outside of equities. So you would definitely be better off in that scenario. Of course, the scenario you describe will not happen.
ps to the pension discussion: A lot of employees who have defined benefit plans work for or worked for state governments, state-assisted public universities, etc. Many if not all of these are NOT covered by the PBGC so these employees do not have the PBGC safety net, and some states are now discussing cutting even VESTED benefits to which employees as well as employers contributed over many years (because of investment losses and the perceived inability of taxpayers to make up the losses).
On a lighter note - anyone going to any good open houses this weekend?
Mike PBGC works tolerably well if you are already retired. Compare 2 people each making 81K,
not bad, one is 66 and working at a company with a
66% pension plan. Man B is 55 and working at the same payscale.
The company declares bankruptcy closes the pension plan, keeps running in CH 11.
Man A opts to retire and PBGC pays him the
maximum 4500/month plan benefit.
He probably loses his health care benefits
but he has medicare so he shouldn't be homeless.
Man B looks and gets a letter from PBGC, that says
"we will pay you $2,025/month after you opt to retire, wether that is 59 or 72, we suggest you revise your lifeplan"..
man B now has 10 years to save up to
produce an additional 2,000/month income.
Say both men have an expected actuarial life of 86.
Man A will get 20 years or 240 months or about 1 million in plan benefit.
Man B will get 240 months at 2025 or 500K.
So Man B must save about 50K/year in the next ten years to make up the loss.
The numbers become psycho if you expect both people to live to 92.
I don't know what Mike is thinking, but PBGC is not very much help to a lot of people.
It gets worse if you assume Man A has 200,000
in savings and Man B has 100,000 in savings.
Man A can spend his savings down at about a 1000
per month (BBallpark) and maintain about 5500/month lifestyle. Decent home, decent meals, some travel, etc..
Man B is trying to already save 1,000/month while
waiting to retire, and is looking at exhausting his savings at age 76 and then his lifestyle gets halved.
at the oldest point in his life.
Wow.
Sorry mike, PBGC is better then a swift kick in the balls, but it's a delayed kick in the balls nonetheless.
gte-
Your numbers looked good other than two things. First you are not counting the tax benefit of having a mortgage. You added in all of the taxes pmi and maintenance. If you add all of these you need to take off the tax benefit which is a another couple hundred dollars a month. Also you said they will have $170 leftover after saving 10%. That isn't great, but its not that tight, because it is additional saving on top of already saving 10%. Also not every couple with 65K of income has a $250 of student loans. I know a lot of couples that make that much that never went to college. If you get rid of the loans than there is even more money left.
Either way it is not super cushy but can be done.
I was at a bank recently, and noticed an advertisement for "summer vacation loans."
No joke...
I can hardly think of a surer sign that the public, and the financial industry have not yet learned the lessons of the bubble.
There has been some progress, savings rates are up, a handful of reporters have written articles about "consumers" rediscovering coupons... but how much has really changed, and will it last?
I don't believe we will be done with this until the American public undergoes a fundamental shift in the way it views money and spending.
housebuyer,
i disagree b/c gte's numbers were just the absolute basics. Maybe the numbers would work if the theoretical couple never got their teeth cleaned, had doc visit copayments, needed work done on their car, bought a birthday gift, needed house repairs, bought last minute air fare for grandma's funeral, etc etc etc. This couple would be in credit card debt after a year. Also no allowance for daycare expenses, which most young working couples need to account for after a few years. Its just too tight.
The bubble is back on.
somebody bought this place in february
http://franklymls.com/FX7083112
for 169 and then put in about 30K in
improvements and wants to sell it for 299.
Some Specuvestor was trying to sell it in 08
for the mid 300's then it appears to have gone to for sale at 170, which was a good price, and
now they expect top dog?
property Ladder? Flip this House?
Flipping out?
http://franklymls.com/AR7092933
i looked at it, it appears to have structural flaws.
the porch is sagging. plus 2 front doors freaks people out.
Ace: yes, you are right. Gov't-sponsored pension plans are not insured by PBGC. Many of these plans are very generous too. I understand that the rationale behind this (back in 1974) was that gov'ts have taxing authority. So, gov'ts have a choice: lower benefits or generate more money to pay for the benefits.
TBW: "extremely generous" is defined as something as you and I will probably never see. Retire with full pension benefits at 50 or 55, e.g., "30 & out." It's a thing of the past. Also, pension plans that provide 70-90% of pre-retirement income is also something considered "extremely generous."
copy/pasted from previous thread (with some edits):
Pat: sorry, your beef is with the bankrupt company, not PBGC. PBGC insures the benefit you've earned until the plan terminates. So, in your example, Man B stops earning a benefit when the COMPANY terminates its pension plan in bankruptcy. What you really seem to be upset about is the fact that companies can terminate their plan before Man B has earned his full benefit (i.e., age 65). That's not PBGC's fault ... call your congressman, silly. PBGC is an insurer of last resort ... millions of ppl depend on the agency and MOST (I believe its over 80%) of them receive what they have earned when PBGC takes it over.
PBGC is like an insurance company (like an insurance comp. that is forced to insure moral hazard, to be more accurate). It isn't a welfare program designed to balance the needs of what Man A has saved vs. what Man B has saved. It insures what you've earned until the pension terminates, period. Judge it against what it is, not what you hope it to be, which is apparently a superhero providing benefits when your company decides it can't or won't.
Contrarian: some of your predictions may well prove true one day.
Hi folks. I posted some reviews of open houses in Montgomery Co. MD at
http://marylandbubblefallout.blogspot.com/
Mike, thanks. PBGC was initiated by ERISA and state plans are generally exempt from many ERISA provisions.
Mike
slice it how you like, for people who are
working away their whole life with one set
of assumptions, and then they one day
find those assumptions shattered,
it is upon the ashes of their dreams that revolutions
are started.
PBGC provides something, if you are already
retired, but, for those working in the twilight of their careers, if can be a cruel joke.
All those Enron workers, who discovered the GOP had let top management drain the pension plans and then let the company go bankrupt?
I'm surprised they haven't marched to houston and burned the homes of ken lay's wife, skilling, fastow, etc..
MT, I enjoyed your reviews of the open houses. Here are a couple of thoughts about one of your comments:
"I headed down to 20910 and stopped by Brunett Ave. This house was very nice. The kitchen was renovated, with those tall kind of cabinets which are of no use to me because I'm short. Oddly, the appliances were old, but if I were interested in that house I probably wouldn't let that stop me. I just wonder why they didn't spring for new appliances."
The rationale for the tall cabinets is that they make the best use of space. You put the stuff you rarely use (turkey roasting pan, for example) on the high shelves and the everyday stuff on the lower shelves. The idea is that it's not too much of a pain to get out the step stool a couple of times a year. I would love to have a kitchen with these (and more space) rather than have to go to the basement (which I now have to do).
Re: appliances, they were better made (and more expensive in real terms) 10 years ago or more. And, appliances replaced just before a sale don't generate a 100% return (like many improvements). Some people like stainless but some don't, so the owner who bought new appliances could make a mistake and pick something that the would-be buyer doesn't like and won't pay for. Finally, it's very easy to replace appliances (as opposed to kitchen cabinets, for example). You go pick out what you want and they deliver and install it a few days later and you're done!
My guess is that the current appliances are probably working well and the owners figured why not leave them there and let the buyers replace them if they want?
Thanks for the feedback, Ace. You're absolutely right on both counts. The tall cabinets do make good use of space. My husband and I just have an ongoing thing because he is very tall, and does all the cooking. I'm short-ish and I do the cleaning. Sometimes there is a disconnect between kitchen stuff that he likes and kitchen stuff that I like. At one point, I asked him if he was consciously trying to never buy a piece of equipment that would fit in the dishwasher! He also gets annoyed at the way I put things away. What looks optimal at 5"4' doesn't look great at 6'4", even with the help of a step-stool.
I agree about the appliances too, and we'd probably be happy with what was there. I particularly liked the layout of the kitchen which was not too open. The advice that realtors would give USED to be that you would lose money doing anything but basic repair -- let the new buyers pick the countertop.
Right now we have a repartment with all of the granite, stainless, yadda yadda. We often say how glad we are not to own this stuff because it is so cheap and fragile. They definitely do not make appliances like they used to.
BTW: ceramic tile is not a great idea when you cook with cast iron pans and other bulky equpment, we managed to fracture one of the tiles.
Region to pitch for money to fight foreclosures
The Washington region is joining together to ask for stimulus money for neighborhoods that are being pummeled by foreclosures.
The Metropolitan Washington Council of Governments and six jurisdictions are applying for funds through the federal stimulus package’s Neighborhood Stabilization Program to be used throughout the region. The group has targeted 60 areas that would benefit from the grants.
“We have tried to target neighborhoods within jurisdictions that are good places where” there is a need for the funds, said Paul DesJardin, director of community planning and services for the Council of Governments. He said many areas were improving, but specific sections were still struggling. For example, 121 vacant properties are in one census tract in the 20110 ZIP code of Manassas and 343 in a tract in the 22191 ZIP code in Woodbridge, according to an analysis of the targeted areas.
Prince William County, Alexandria, Bowie, Fairfax County, Gaithersburg and Prince George’s County have joined together to apply for a portion of the $2 billion available. The minimum grant request has to be at least $5 million and must return at least 100 abandoned or foreclosed homes to productive use or limit their drain on the stability of the surrounding neighborhood. The consortium asked for $39.4 million.
The $5 million threshold makes it more difficult for individual jurisdictions to apply for funding, said Elijah Johnson, director of Prince William County’s Department of Housing and Community Development. He added that one of the main goals of the program was to get people into homes.
Midyear foreclosure statistics were mixed for the participating counties. Foreclosure filings in Fairfax, Loudoun County, Manassas and Prince William all dropped from the first half of 2008, while foreclosures in Montgomery County, Prince George’s, Alexandria and Arlington County rose, according to RealtyTrac.
“Unemployment-related foreclosures account for much of this increased activity, and the high number of borrowers who find themselves owing more on their mortgages than their homes are now worth represent a potentially significant future risk,” said James J. Saccacio, chief executive of RealtyTrac.
http://www.washingtonexaminer.com/local/Region-to-pitch-for-money-to-fight-foreclosures--51145372.html
@housebuyer,
I pulled the 1600-1700 mortgage payment off of bankrate . . . which as far as I know and can tell is just the mortgage (since insurance, taxes, etc. vary from location to location and I don't think they have all that info. in their system). I didn't specifically call out the I,T, b/c from the numbers I have run in general what you get in tax "savings" just about equals what taxes and insurance, etc. would be. Or in other words, the tax savings roughly equals the added costs associated w/ owning a house in addition to the mortgage. I therefore generally compare or use the direct mortgage payment.
About the schooling . . . ummm, I'm not sure where you went to school, but both my wife and I went to a very decent public university and came out w/ 20k in school debt each (very, very reasonable--- actually prob. cheap), that's 5k a year in debt for schooling . . . . that IMO is pretty cheap. We also both graduated and consolidated at extremely cheap rates, my <2.75, her's <3 . . . plus are loans are for 20 years vs. 10 years . . . and after that our loans are STILL more than 250 a month!
So if 250 is expensive for school loans, I'd really like to know where and how much is cheap! From my experience (not saying you can't do it, it will just be a lot harder), if you went to local community college the chances that you will be able to make significantly more than 65k is really hampered.
Buying on what your "expected" income will be is also a fools game. You have to deal w/ the here and now and not the well I'll get a promotion in 6 months a year, etc so I'll buy a big house now. Ummm, sure we'll prob. all eventually have made a million in our lifetimes so we should just buy a mansion now . . .right?
I'm speaking from experience here, I started out 4 years ago at roughly that salary. Before I knew any better I thought about buying and somewhere in that pricerange. I started taking a look and the #s and thought this is insane. So I rented and continue to rent for about 45% of that and saved the rest. After 4 years of saving and saving I could prob. buy a place outright in 90% of the country and I could put down at least 50% on a place I would want here. This hasn't been through stock market games, etc. . .. just plain old fashioned saving.
Tell me that I could have done that in 4 years buying a 250k place on 65k.
The objective is to get OUT of debt and to OWN your place outright, not to be a debt-slave for the rest of your life!
Just a quick (unrelated) question. I moved to NoVA recently from MD. While I had heard of the personal property tax (car tax), I assumed that either the DMV would collect it or that I would be billed by the city. Now I'm looking something up on my city's website and happen to come across a page on the personal property tax. Apparently I'm supposed to report it to the city within a certain time and get a decal. I'm past that time by just under 2 months! Will I get into some kind of trouble for this? Also, is this a "tax return" that I have to file annually in addition to my regular state income tax return?
@housebuyer,
I will concede that for a single person, student loans might not be quite so high . . . but I always try and overbudget a little bit b/c you just never know in life . . .
One thing I have found out is that in general most people are extremely poor w/ finances . . . I'm not sure why, but they can't balance a checkbook, can't determine their monthly expenses, have a very difficult time figuring out how much and when they can or should buy something. It is actually quite disturbing to see so many people this way, and we are talking the dregs of society either, some very powerful people, many people in gov. finance, etc can't do the simple things such as control their own budget . . . . I personally think a lot of it comes down to self-discipline. In our society today, there is no reward for self-discipline and responsibility and it has slipped by the wayside, so it really is no wonder why the majority of people's finances are so messed up. ///rant off.
So sure . . . someone could afford a 250k loan on 65k . . . but whether they really should for their long-term financial well-being is another question entirely. Just b/c you can, doesn't mean you should.
Mike,
TBW: "extremely generous" is defined as something as you and I will probably never see. Retire with full pension benefits at 50 or 55, e.g., "30 & out." It's a thing of the past. Also, pension plans that provide 70-90% of pre-retirement income is also something considered "extremely generous."
As I suspected. That's pretty much all pensions that existed during that time period. So I was right that most people take a hit when their pension plan is taken over by the PBGC. What you are defining as "extremely generous" was pretty much par for the course for most of these companies.
Jeff,
Odd that the DMV rep did not alert you to the need to get a county decal when you got VA plates. But I guess they just assume you know that. I'd just go and get the decal. They mail you the car tax amount each year (with a new decal unless I suppose you were someone who had a history of not paying on time). There's nothing complicated to fill out. They use the standardized value for your car make/model and year.
Leroy,
Just because the bank has a sign for summer vacation loans does not mean people are taking them. I am feeling more optimistic. I head a radio ad today where the mayor of Ocean City, MD practically begged for people to come visit. He then recited all the free things one could do at Ocean City.
I may have been too young last time it happened (if it ever did) to remember it, but I cannot remember any other summer where there were radio ads and tv ads begging you to come and talking about free things to do and the deals you could find. I have certainly always heard beach ads but usually just a jingle.
MT, Thanks. Isn't it odd that, years ago, cars were constantly breaking down (planned obsolescence, Fix Or Repair Daily (FORD), etc.) and now their quality has improved, but appliances are getting worse and worse. Apparently, none of these appliance CEOs do any housework or have to take time off work to meet the repairpersons, or worry about appliances breaking down just before or during visits from friends or family.
tbw, Jeff
Shi#@$@#%t. I've lived here a year now, and didn't know this. I also assumed that like every other freaking state it would be done at the DMV. What's with the freaking you must be pyschic to live here BS! Grrrrr. Is this an Arlington only thing or FFX county, too?
I've paid such a tax in 4 states and it's always been simply mailed to you when it's due. WTF?
Sigh.
Jeff, are you in Arlington? If so, once you have reported that your car is in Arlington, they will automatically send you the renewals each year. However, you have to remember to get your car inspected (my car shop fortunately caught my almost expired sticker). Arl/VA are very confusing because there are so many different permits etc. to remember and so many different timetables.
In Arl, you have to:
--pay property tax on your house
--pay car tax on your car and get renewal sticker for your tags
--get your car inspected and replace the decal on the front windshield
--register for parking decal for your rear left bumper and obtain passes for your guests (small fee now for these)
--one more sticker for the front windshield - what am I forgetting?
I think Alexandria City's system is pretty similar but I don't know about Fairfax County.
I live in Manassas. I called the city and they told me that I don't have to pay the personal property tax this year because I just moved here. They told me that I do however have to go in and pay the 12 dollars for the decal that goes next to my inspection sticker. They told me that next year I have to pay for the personal property tax for the first time.
It sounds like Arlington has a lot of things you have to pay for on your car! Is this true in Manassas also?
Ace-
I think the thing you are forgetting is their are two inspections. You have the emissions inspection that I think is every couple of years. You also have the safety inspection which I believe is every year. I least am pretty sure that is accurate.
Jeff
Welcome to NOVA, I did the same thing when I moved here. If they catch you reporting late they charge you the full tax (ie without the personal property tax relief). It was very surprising as all the states I'd lived previously had DMV collect the county personal property tax which worked well.
thanks, HB!
TBW: you seem to reading what you want to read and not what I've written. No, most ppl do NOT receive these benefits, period, even for the time period at issue (save the industries I pointed-out) So, no, what you've suspected is WRONG, dead wrong. Again, most ppl see absolutely no decrease in the pension they've earned when PBGC takes over their plan. Do you understand now?
re: car tax
I thought we hadn't paid it, but it turns out my husband just paid it and I forgot.
Filling out the forms at the DMV was INDEED sufficient, it asks which county or municipality you will be registering the car in, and then they send you a bill for the tax when it's due. That's all there was to it for FFX County anyway.
So the 60 days to register was with the DMV.
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