Doug Moore wrote:
With respect, I have been trying to follow your math, as you put it, but I just don’t “see” it. Yes, there is a 5-year period of significant slowdown in advancement (not frozen as in my example) but I do not see how your advancement in 2017 will have changed from what you expected in 2012, all other things being equal. I get the sense that you consider these 5 years to be some kind of a compounding millstone that 10 years from now will cause you to be worse off than you were in 2012. I don’t see it but I accept that it causes you great concern.
Thanks for the well thought out response Doug. Yes this is a big concern to me. I'm actually surprised no one else sees it either. Well that's not true, an actuary would see it in a heart beat. On the other hand perhaps it's my back ground and I just expect everyone to see it. It's obvious.....right?....
After a page and a half of explaining, and then have someone jump in (you) who obviously wants to understand(thank you), but isn't following me? Perhaps it's me? Perhaps I have done a rather crappy job of this.
So back to square one and a different approach. One last attempt.
Attached is a spread sheet:
It's a make believe company.
The benchmark on the left in green.
-Everyone works from 30 to 60 and then retires.
-Everyone gets 50% of their best five years for pension in retirement.
-The pay scale works like this. Year 1-6 employees are paid 1. Years 7-12 are paid 2. Years 13-18 are paid 3. Years 19-24 are paid 4. Years 25-30 are paid 5. I have deliberately chosen this very basic pay scheme to make sure the focus is not on money but rather the mechanics of the outcome.
-To the right of the benchmark in our fictitious employee group are four separate scenarios. Each scenario represents a five year delay in progression due to retirement changed from 60 to 65.
- in each case the delay is 5 years. In each case the loss is 5 within those 5 years. Just like Rockie and Raymond assert.
THIS IS THE POINT IM TRYING TO GET ACROSS.
- notice that the earlier the delay takes place the greater the career compensation loss is to age 60. It is NOT a single loss for a 5 year period.
If the delay happens at year 25? Compensation lost to age 60 is 5.5%. Delay at year 19? Compensation lost at age 60 is 11%. Delay at year 13? Compensation lost at age 60 is 16%. Delay at year 7? Compensation lost at age 60 is 22%.
Why is this happening? The 5 year delay compounds itself every time the next step is delayed. The more steps ahead of you? The greater the compounding.
Notice also that anyone from year 1-12 can not make up for this lost income even if they work to 65.
Notice that the total compensation to age 65 of the individual who experienced the retirement change at year 7. If he works to 65 his compensation is 7.5% less than the benchmark who retired at 60.
Again this was simply for demonstration purposes. Namely to point out that the impact is NOT just a five year delay. The largest factor in determining impact is "WHEN" the delay happens and the resulting compounding effect every time the next step is delayed. In fact not understanding the magnitude of the impact of "WHEN" is leading people to disregard some of the numbers floating around as propaganda. When in reality they just can't wrap their head around the mechanism leading to these very large numbers.