Another Tale of Pensions
Once upon a time, a guy named Mike had money accumulated from various sources. He wanted to use some of that money to buy a car. The car was priced at $20,000.
As Mike was preparing to visit the car dealer, a young gentleman named Brian passed by. Brian had also accumulated some money of his own, though not as much as Mike had, mostly because Brian was much younger than Mike. Mike discreetly approached Brian, pointed to the $20,000 car in the showroom, and said “I have a plan that can get a car like that for the lowest cost possible. Do you want to learn how it works?”. Brian, always looking for ways to stretch his money, said he did. Mike said, “Give me $5,000 of your dollars”. Brian, being a trusting and innocent young fellow, complied.
Mike entered the dealership with his money and Brian’s, bought the car for $20,000, and drove off, leaving Brian behind.
Brian patiently waited for the plan to make the purchase less expensive to continue to unfold, but heard nothing further from Mike. Being a resourceful young man, Brian found a way to contact Mike and messaged him to inquire when the next step in the plan to lower the cost of a car would occur. Mike answered “What do you mean by ‘next step’? I just bought a $20,000 car by spending only $15,000 of the money I had saved for myself”.
Brian, now growing concerned, replied “But I’m now $5,000 further away from a car of my own — and I’ll still have to pay the full $20,000 to get it”.
Mike was honestly confused. “I got a $20,000 car for my $15,000. I got it at the lowest cost possible, like I said I would”. Then, realizing what the problem was and its obvious remedy, Mike continued, “Don’t worry, Brian. You’re young enough; you’ll eventually find someone even younger who will be willing to make the same deal with you that you made with me”.
Understand this story, and you will understand the meaning of “lowest cost possible” used by advocates of reamortizing the pension system.