More people forced into ER and early social security

[nun]

Quote:

Originally Posted by ziggy29 See also: "It's not to *replace* pensions, but to supplement them..." Yeah, right.

the 401k is the biggest ever con played on the American workforce.

[REWahoo]

Hey, it worked for me...

[MichaelB]

Quote:

Originally Posted by nun the 401k is the biggest ever con played on the American workforce.

Why is the 401(k) a con?

[SunsetSail]

Quote:

Originally Posted by nun the 401k is the biggest ever con played on the American workforce.

I completely disagree from my perspective, although I understand how someone in a different situation could agree with this point of view. I knew before I graduated college that I would not receive a pension unless I decided to w*rk for the government - corporate pensions were pretty already gone. I understood the implications of not having a pension (many family members w*rked in government jobs and some were already retired at the time) and made sure I took that into account when choosing a position (increased salary, vacation, etc. over gov't). I am happy that I was able not to be locked into working somewhere until I was 55 or older to get 'full benefits'. The 401k (along with regular taxable savings) provides me with the flexibilty to FIRE earlier and with less restrictions.

An example of this difference is going to w*rk with a Big 8 accounting firm as a tax professional in the 70s or 80s versus taking a government tax auditor position. At the time you would receive a pension at both places and would start off with a 25% to 35% higher salary with the government. The trade off being the resume prestige and huge potential salary in the future.

Fast forward to late 90s, no more pensions at the now Big 5 accounting firms but salaries were now 25% to 35% higher than government with typical annual percentage increases in double digits. Depending on your goals I see the late 90s as a time with more choice so long as you understand the trade offs.

Just to make sure I'm not being misunderstood - pensions are absoultely great, but they are not necessarily for everyone in all circumstances.

I don't think the 401k is a con on workers. Pensions were creating massive burdens on companies because of increased longevity so they needed to go so that companies could stay globally competitive and be around to hire our kids and grandkids. 401ks or taxable savings could be used to purchase annuities if someone wants to mimic a pension.

[ziggy29]

Quote:

Originally Posted by nun the 401k is the biggest ever con played on the American workforce.

The 401K itself isn't a con. The "con" was the bait and switch played on the (mostly non-union, private sector) workers who were told it was going to be a great way to *supplement* pension and SS income. As it turned out Big Business was all too happy to use it as a *replacement* for pensions -- which has put many retirements in danger of either happening later or not happening at all. We're in a tough stretch trying to adjust to that new reality.

But that's not the fault of the 401K concept itself.

[dex]

Quote:

Originally Posted by MichaelB Why is the 401(k) a con?

Possibly because companies moved away from defined pensions to 401k w/matching $ from the company. Now companies are dropping the matching $ or reducing them.

Pensions weren't/aren't too good also since they rely upon the company being in business for many decades. If you work for a company for 40 years then that company needs to be in business for another 25-30 years to cover your life span. That could be a con also.

But, pensions were also a con. Usually, a person had to work for 5-10 years to be vested and then work at the same company for decades to get a a worth while amount out of it. So if you changed companies before vesting or didn't stay long enough you didn't get much.

I also think the pensions discussion is a red herring. Unions, government and large corporations had them but a large percentage of workers did not.

[FIREd]

I guess I missed the part where employers have a moral obligation to provide for their employees' retirement either via defined benefit plans or defined contribution plan matching.

[nun]

Quote:

Originally Posted by ziggy29 The 401K itself isn't a con. The "con" was the bait and switch played on the (mostly non-union, private sector) workers who were told it was going to be a great way to *supplement* pension and SS income.

Yes that's a better way to state it. The 401k costs the company far less than a DB pension plan and those savings were not returned to the employees as increased wages, they went to shareholders. It was initially introduced as a supplement to pensions and then replaced them and sold on it's portability and potential returns, remember when projections used 8 and even 10% annual returns.

I'm all for the voluntary nature of the 401k, and being single and well paid it has worked for me, but the removal of the non-contributory pension plan was an effective pay cut for employees and has lead to the average low level of retirement savings for middle class families who have costs like education to also support. Very few of my friends with children max out their 401ks and some say they just can't afford it. If they had a DB as part of their employment contract at least they'd have something to look forward to other than just SS.

The terrible current state of retirement preparation in the US shows just what a disaster the 401k etc has been for most people.

[nun]

Quote:

Originally Posted by FIREdreamer I guess I missed the part where employers have a moral obligation to provide for their employees' retirement either via defined benefit plans or defined contribution plan matching.

Not a moral obligation, it's contractual

[MichaelB]

I can understand the transition from DB to DC plans being unfair to middle aged and older employees. Making individuals responsible for their own retirement planning and funding without them having the financial knowledge or tools is also a flaw and weakness.

There might be an element of business all too happy to get rid of pensions for non-executive employees – but alongside is perhaps some excess passivity on the part of employees that haven’t planned their retirement finances.

I think the 401(k), along with Roth and IRA (and SEPP, and Keogh, etc) , are great options and have really pushed my children to take maximum advantage. Maybe we need just 2 options – before and after tax contributions.

Dex – agree with your view on pension hypocrisy.

[FIREd]

Quote:

Originally Posted by nun Not a moral obligation, it's contractual

Personally, my wife and I have never worked for an employer that contractually owed us any type of retirement benefit. The 401K match, if any, was always treated as a bonus. The employer reserved the right to stop paying it at any time and for any reason.

[ziggy29]

Quote:

Originally Posted by nun Not a moral obligation, it's contractual

Except where collective bargaining agreements mandate it, most DB pension plans I've seen (as well as 401K matches) were stated up front as being subject to termination by employers at any time and for any reason.

[nun]

Quote:

Originally Posted by ziggy29 Except where collective bargaining agreements mandate it, most DB pension plans I've seen (as well as 401K matches) were stated up front as being subject to termination by employers at any time and for any reason.

I agree, with the reduction in collective bargaining agreements the majority of working Americans have little employment protections. I understand the need to have flexibility in employment and be able to hire and fire given economic circumstances, but I just feel that it's been one way traffic for the last 40 years and the pendulum has swung too far away from the employee. The current terrible state of retirement savings surely shows that the current environment isn't working. To say it's the fault of people for not planning isn't addressing the problem. Maybe the having to opt out of contributions plan will go some way to solve things.

The real issue is that the community on this forum is so far from the norm. Most people don't think like us or have our resources - for whatever reason so the options for retirement funding aren't working for them. Unless we want to retire into a dystopian future we should all be concerned with getting a better solution.

[ziggy29]

Quote:

Originally Posted by nun ... I just feel that it's been one way traffic for the last 40 years and the pendulum has swung too far away from the employee.

Yes it has, at least in the private sector -- but in the era of cheap global competition, what is the answer?

[dex]

Quote:

Originally Posted by ziggy29 Yes it has, at least in the private sector -- but in the era of cheap global competition, what is the answer?

Inquiring minds want to know.

[SunsetSail]

Quote:

Originally Posted by nun ...The real issue is that the community on this forum is so far from the norm. Most people don't think like us or have our resources - for whatever reason so the options for retirement funding aren't working for them. Unless we want to retire into a dystopian future we should all be concerned with getting a better solution.

I agree and this is a good point. I think the ultimate solution is to educate from a very young age - people need to learn to take care of themselves financially so they don't effectively become wards of the state. This wouldn't be contradictory to teaching charity and generosity in fact it could dovetail into teaching that the first step in generosity is ensuring that you don't ever become a financial burden on anyone else. I don't know a solution for those who have most of their working years behind them other than to keep working or reduce their lifestyle to a level on par with SS. I do think the decision (and burden to find a solution for themselves) should always rest with the individual and not the government, employer or anyone else.

[FIREd]

Quote:

Originally Posted by nun I agree, with the reduction in collective bargaining agreements the majority of working Americans have little employment protections. I understand the need to have flexibility in employment and be able to hire and fire given economic circumstances, but I just feel that it's been one way traffic for the last 40 years and the pendulum has swung too far away from the employee. The current terrible state of retirement savings surely shows that the current environment isn't working. To say it's the fault of people for not planning isn't addressing the problem. Maybe the having to opt out of contributions plan will go some way to solve things. The real issue is that the community on this forum is so far from the norm. Most people don't think like us or have our resources - for whatever reason so the options for retirement funding aren't working for them. Unless we want to retire into a dystopian future we should all be concerned with getting a better solution.

I think the "golden age" for retirement is probably over. Contextually, it amounted for less than 1% of all human recorded history. It was probably a fluke and it certainly proved to be unsustainable. We might be simply reverting back to the mean. People will have to work longer and/or provide for their own retirement. It sucks, I know.

[Andre1969]

Quote:

Originally Posted by nun This sounds like a good thing to me. Reduce SS age (say 55) and benefits and move in with the children and look after the grand kids. Denser living arrangements would make better use of resources and we'd have more close knit families.....hang on I just described the Waltons.

"Daddy, when I grow up, can I marry you?"

"Sorry Elizabeth, got two sisters ahead of you, and that Mary-Ellen's lookin mighty fine!"

[ziggy29]

Quote:

Originally Posted by FIREdreamer I think the "golden age" for retirement is probably over. Contextually, it amounted for less than 1% of all human recorded history. It was probably a fluke and it certainly proved to be unsustainable. We might be simply reverting back to the mean. People will have to work longer and/or provide for their own retirement. It sucks, I know.

I think it's pretty clear that retirement is being redefined in a way that will make it less of a middle class expectation. We happened to catch economic lightning in a bottle in the 25 years after WW2 and started basing future assumption on that abnormally prosperous period.

In the future if the middle class wants a long, comfortable retirement they will have to divert a LOT of their income starting at a very early age. That means not all will achieve it, particularly if it remains voluntary.

[rescueme]

Quote:

Originally Posted by ziggy29 In the future if the middle class wants a long, comfortable retirement they will have to divert a LOT of their income starting at a very early age. That means not all will achieve it, particularly if it remains voluntary.

Exactly. The bi*ch I have, growing up in the time I did was the changing of the rules in mid-stream. I did not have the defined benefit (pension) plan of my parents/grandparents working in the private sector, nor the structure that my children would have in later years.

Heck, I was with two separate companies and "lost out" on two separate plans due to "old rules". The first, because I did not stay in the j*b for ten years (I left at eight, for a better j*b). The second started out with a good pension plan, but was eliminated when the 401(k) came in.

Including IRA's (which also were not available till our mid-30's, just before our respective 401(k)'s), we've gone through tax-deductable, taxable, and Roth IRA's, due to changes along the way.

Including the various "standards", along with the education required for each product along the way, no wonder that those in their 50/60's are going to have a difficult time. If you're older, you probably have a pension; if you're younger, you probably have a 401(k) and an IRA from the first year you start work. It's the folks in the middle that are getting squeezed.

We're lucky. My DW/me did take advantage of what was available through the years, through all the changes. But we also understand we're not typical of most folks our age.