Politics & Current Events
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Re: Are 401ks a failed experiment?
401Ks were created for high income earners. I believe it was supposed to retirement income above their max for SS. Their income was high enough to either know how to invest or be able to hire someone to invest for them. It was just supposed to be a supplement.
Then they went and turned this option for high income earners into the retirement system for everyone. No matter how much money you make. Most people do not have the skills to make 401Ks work for them as a retirement vehicle. One based on the average salary in this country, most people cannot afford to contribute the max. And how many people attend classes or seminars that are offered by their jobs explaining more about 401Ks, if they are offered at all. I know at my fed. agency when I first started you could not go to a retirement class until you had 10 years on. I am still not there. They have since changed this practice, but if you wait 10 years before you figure out what you are doing, you are way behind.
I do think 401Ks are a failed experiment because they are unsuccessfully being used as the sole retirement and that was never their intention.
I'm 34 and retirement already scares the hell out of me. I pay into the state retirement account and I have a 403(b) that my company matches, and some days I still don't think that's going to be enough.
I am not financially savvy enough to truly debate these issues (this is why I have a financial planner to handle all of this for me), but I would guess there too many people out there like me that have no clue and fuuuck it up for themselves. And are we making it too easy for people to get at their money for shiits they don't need right now?
I don't trust the government to provide my retirement for me, a la social security...but I also don't trust myself to provide it either because I know I'm not savvy enough to do it. So where's the middle ground of people that CAN provide that service?
Also, if I had ginormous student loan debt, I have no idea how I could save what I do for retirement. Hell, if I had kids right now I don't know how I could save what I do.
I feel pretty good about my 401k, but I don't like that I'm subject to market forces I only partially understand, and I fear that if/when the boomers sell massive amounts of stocks to fund their retirements, it will be bad for the stock market. Not to mention the way that 401ks are touted as THE solution, and te way that makes me think of the story of the shoe shine boy. I'd google it and quote it, but I'm on my phone. I know I'm the shoe shine boy, and that scares the crap out of me and it would scare the serious investors too, if they knew what was good for them.
On the other hand, I know I'm not going to get to my retirement goals by buying treasury bonds. And while I support Social Security, I'm only one vote.
Or is it a wage problem? You can't save enough for retirement if you aren't working or the wage you are earning is only/less than a livable one.
Sure, its easy to just call people stupid for not saving when they had the extra to save in the first place. It's another thing when they didn't have a chance of saving for the future in a sufficient way to begin with.
I don't think 401ks are the devil but I don't think they are the complete solution either. Saving money in a variety of ways is really the best way to be smart about your retirement. That being said, I smartened up only a few years ago and I am way behind. I am tightening my belt now in order to up my percentage. H is a little better off than I am in that he's been in the state's pension program since graduating college. Of course I say that very loosely as Rick Scott continues to try and screw over government employees. He has a side 401k as well.
I know if I retired tomorrow I'd be screwed. I have about 35 years to go before I reach the "retired age." I'm already tired...
ETA: I could have saved some time and just ditto EmilyJ.
my read shelf:
I get all that, but there are plenty of people who have not and do not plan to touch their 401(k) and still won't have enough money to retire. That is a problem. For people who do everything right, it is not guaranteed that they will be able to retire comfortably without SS and medicare. If it only works for the highest income brackets, that means the system as it is set up is not really working for all Americans.
But the 401K system was designed for the highest income brackets. That is the problem. And it will never work for the majority of Americans.
And how is this not Social Security? Or at least what people assume or want SS to be? You get $$ taken out, by law, and you get $$ out later. Isn't this is really an argument FOR more SS.
This is so odd to me. Despite paying over 1,000 per month in loans and renting a studio at 2,600 apparently the 401(k) system was made for me (despite my employer not letting us use it until we'd been there over a year), but yet I make TOO much money to use a Roth IRA. So those are for poor people and 401(k)s are for rich people? Even though most people will save for the 401(k) first and then put additional money into the IRA?
Of course it is a failed experiment.
Human nature is human nature and you cannot overcome that and the 401k doesn't overcome humans' desire for instant gratification
Above Us Only Sky
YESSSSSSSSSSS!!!!!!!!!!!!
Jumping in on this train. We sit around on this board pissed that some 49% of Americans don't pay anything in taxes. Some of that 49% are sitting around eating cheese sandwiches because they have more month than money, but we don't want to say that the 401K system is a bit problematic?
This was my chief complaint when GWB wanted to privatize SS. If I'm your average Joe who doesn't know jack schitt about Wall Stret, investing, or anything else, how the hell does it help him? Oh, you want him to go to a financial adviser? Who could pull a Bernie Madoff with the little money he has or charge him exorbitant fees because he doesn't know any better. These are the same people who spend $500 to get a tax return filed by Mo Money Taxes.
There has to be a better way.
It isn't just that, though. Even people who have put aside as much as they could afford and never dipped into them for unnecessary reasons still find themselves with not nearly enough money to retire. Maybe they don't have the investing savvy to know where to put their money. Maybe they can only afford to save $100 a month. Maybe they are unemployed or have a financial disaster and have no choice but to dip into their retirement savings.
There are lots of reasons why 401ks don't work for many people.
This doesn't solve the math problem. If you make household income of $60K per year and contribute 10% then you are only contributing $6K per year which is not enough to retire on.
If your household income is $60K per year and both you and your spouse contributed the dollar max then that would be over half the salary going to retirement leaving $30K which is not enough to live on with kids and debt.
I am not sure how any of those scenarios has more to do with human nature than just basic math.
I get it, plenty of people don't make responsible decisions but plenty of people do. And when it may not work for the average American that is responsible then we should look into it. Pretending it will work if people just do it right doesn't change the reality.
Ok. Solve this riddle. I've been contributing to 403bs since I was 24(was not previously eligible) and maxing out since I was 27. My husband began funding a 401k at 23 and fully funding an Indy 401k/SEP plan at 28 (the max is something like 49k a year). We have never raided our retirement nor would we do so. We have also funded IRAs to the max and have additional investments and savings that we add to annually. Given the cost of health care and some pretty silly ore-existing conditions I am not confident we will have enough to retire nor that we will ever be able to live a day without one of us employed in insurance-issuing employment.
So how exactly have we done this incorrectly? In what way am I overindulging when I am saving to a penny up to the legal limit in tax advantages vehicles and investig beyond that.
And if my household that is in the top 1.5% of income earners has zero confidence of the viability of retirement due to skyrocketing health care costs, what is the average wage earning household to do? Is saving the extra $300 (or whatever "mandatory" amount) a month you refer to going to be anything but a drop in a bucket?
And don't forget that even companies that match 401 contributions, they often stop them during hard economic ties. Oh, and what about mandatory pay cuts during those times? Whhhhheeeeeeeeeeeeeeeeee!!!!!!!!!
I don't know if they are a "failed" experiment but they certainly haven't played out the way they were supposed to - probably a combination of laziness on part of the boomers (driven partly bc they know they will still have some social security funds available to them) and little education about the retirement options etc AND what you SHOULD have to retire.
My parents are lucky in that my father has worked for one company for 43 years (since he was 18.) He has a very nice pension that is fully vested and he also has had access to a 401(k) for about the past 20 or 25 years so he kind of gets the best of both worlds. My mom is a bit more strapped but combined with my father they should be okay at least for the first 10 or 20 years of their retirement and my mom says after that it wont matter anymore bc she will be long dead (she has been predicting an early death for herself for the past 10 years.)
Now though if you ask my father, he can tell you exactly how long they can live on their savings and pensions if they are spending x amount a year. A lot of people don't know that. They are just blindly putting money into retirement without doing the calculations for how much they NEED to have. For a lot of these people, they are doing what they can, and they can't afford to put more away. But for many its just a matter of assuming "if I put enough in to match my company's contribution it'll all be gravy!" and really for many people that is not going to be sufficient.
FINALLY I'll say that too many of my generation view retirement savings as optional and dont see 401(k)s as part of their overall compensation. I have a friend who was complaining about her low salary in NYC and I asked if she had any retirement benefits and she was like yeah but I dont do it. I asked if she had a match and she said yeah, 8%!!! but she was putting 0 in it. I kind of freaked out at her lol bc that is a benefit that you are losing every month. That 8% is a lot of money over time, and yes 8% is a hefty contribution when you are making it on a low (in her mind) salary, but its part of your compensation and a lot of people don't view it as such.
It'd be a lot easier to save for retirement if health care costs were under control over a person's lifetime. That's right - UHC, socialist style.
The crux of the issue is that you can't expect/force people to save for everything themselves when they have very little certainty in costs throughout their lives. Health care can eat into your savings while you are working PLUS you need to save more for god knows what you will face in old age?! The vast majority of poeple cannot (not will not, not are too stupid to) keep up with that.
In order to plan properly of course you need some knowledge and discipline... but how does one make a savings plan when all the major costs are moving? You end up juggling and just trying to survive.
Dayum straight I'm entitled to a yearly vacation. Id on't care if I sit my happy azz at home for 5 days. I need a dayum break because mofos at the job be crazy. And if I didn't take off and dropped dead the next day, TRUST, they would hire someone for my position.
Now, what I think you are trying to say is folks want to take vacations that they can't afford. And yes, that is not financially prudent.
LOL. You sneak these gems about your mom in all over the place. She seriously sounds like a hoot.
Every time you mention her, I think, "Will they want me to scrub in?"
It's called SS and most likely none of us in this thread right now will ever see a dime.
I agree with you btw. I don't think this a failure on the part of 401ks but rather the failure of an entire generation to prioritize saving. Saving for retirement is no joke. You have to be serious and disciplined about it, starting at a young age. It needs to come first (well perhaps behind making monthly payments on SLs) before buying a nice house, before buying a car, before going on a vacation, ect. ect. It's not fun. But it has to be done.
Thankfully, I think this is something that many people in our generation do understand, probably because we've always had the god awful example set by the Boomers of what NOT to emulate.
Anything you can achieve through hard work, you could also just buy.
I do agree, but just because many young people understand that saving for retirement is important doesn't mean we'll have enough to live on during retirement. In some cases, yes, people have the means to save but do not. In other cases, life throws you a curveball or fifty different curveballs in your lifetime. Still in other cases, like what cookie mention in her pp, people are doing as much as they can and it still won't be enough. So yes, we know what to do, but doing it is not always possible due to a variety of factors.
Also, increasing healthcare costs during retirement age for boomers AND the rest of us make me want to shiit my pants.
<a href="http://www.thenest.com/?utm_source=ticker&utm_medium=HTML&utm_campaign=tickers" title="Home DI agree, healthcare for our generation is the big question right now. I don't what to say about that except that I hope we're on the path to the creation of some type of UHC program.
WRT to saving enough on various incomes, I've always heard/read that it's the percentage of your gross income that you're putting away that really matters and not the actual number. So that if you're only making 60k a year but you're putting 20% a way, you should be fine. Does anyone have any hard data on this? If this isn't true, then I agree that there's a big problem. But, as always, the guy who wrote this article provided probably one of the least sympathetic examples they could find to make this point. I mean, he admits that all along he knew what to do to maximize his savings and had the money to do it. He just didn't do it. And now he wants what? Sympathy? More SS?
I think this is part of the problem. People assume that just because you understand something, or want to do it, that it will actually work. It's all part of the bootstraps mentality - if it didn't work out for you, it must be your fault and not that the system is set against you, or that life sometimes just sucks.
OK, I realize this will NEVER in a million years happen (and I know it's not practically or politically feasible), but what if the government matched part of your savings? So if when you retire, you have enough in your 401k to be getting 2,000 per month, the government would pay you an additional 1,000.
This would need some sort of cap and sliding scale so that if you are getting 5,000 a month you don't get a government match. But on the other hand, if you've only saved up enough to get 500 per month the government matches you at 100% and you get 1,000. I don't think this would deter people from saving because, well, 3,000 is vastly preferable to 1,000.
That would maybe get people to be more serious about savings and act similar to SS. I wonder if on the whole it would lead to more or less government spending on SS.
LOL she is kind of bizarre. She told me today that there is a full moon this weekend so I will have the baby then. But in reality she is ticked bc she had yesterday in the baby pool.
I agree. (Although I don't get an employer match, so basically I'm on my own. I've been investing in a 401k since I was 22, and I remember my tax accountant being stunned that I had the foresight to invest at that age.)
Also, people have more to spend money on than ever before. Heath care costs have gone up exponentially. Education and child care costs have gone up exponentially. Is it any wonder that people can't "afford" to contribute some of their pay check to retirement? Not to mention, pensions have gone away, but wages have remained stagnant. It's not as though companies decided to just give employees the money they saved on pensions as extra compesation. People are literally trying to do more with the same amount of money.
I don't have a problem raising SS to a living wage and pegging it to inflation, and funding it in a different way.
40/112
Ugh, this reminds me that my dad was a state employee who was with his employer for 9.5 years. He would have been fully vested in the state retirement program after 10 years, but his job was eliminated. Bitter doesn't even begin to cover it. He's been maxing out his retirement investments ever since, and thankfully he's always been frugal and will own the home he wants to live in forever outright before retirement.
40/112
And my point is that I can understand why many don't make it a priority when the goalposts are hazy at best and frequently moving and when in the age of shrinking safety nets and out of control health care costs, gross expansions in chronic illness and long life expectancies no one but the hedge fund manager can actually save enough.
If I'm a middle income person and I realize I'm going to get means tested out of social security and medicare and be left uninsurable if I do the "right thing" and scrimp and save, making huge sacrifices in order to do so, well I guess I don't really see the incentive. Most people are not capable of saving "enough" even if they never take a vacation for their entire life.