should 401K limits be raised significantly?

[FUEGO]

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Originally Posted by DoraM I don't think it would be right to increase 401K limits because the private sector employees get social security while the public employees don't (I think).

I'm a government employee and I will still qualify for full SS (theoretically speaking assuming it is still extant). No clue if that is the exception or the rule though.

[DangerMouse]

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Originally Posted by DoraM I don't think it would be right to increase 401K limits because the private sector employees get social security while the public employees don't (I think). I don't think you need such a large 401K balance if you are going to have a nice cost of living adjusted social security check waiting for you in retirement. Wouldn't this be similar to the pension that the public employees get? Besides, if more retirement money is allowed to be sheltered by 401K contributions then where will the tax money come to bail out the public pension funds?

I am assuming this is a joke. With the uncertainly of Social Security in it's current format I think it would be a bit naive of anyone to choose not to contribute to their 401k because SS will fill their needs.

What about the poor saps who can no longer even contribute the current 401k max because of the testing done that means if the lower echelons are not putting in you can't either.

[DoraM]

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Originally Posted by DangerMouse I am assuming this is a joke. With the uncertainly of Social Security in it's current format I think it would be a bit naive of anyone to choose not to contribute to their 401k because SS will fill their needs. What about the poor saps who can no longer even contribute the current 401k max because of the testing done that means if the lower echelons are not putting in you can't either.

I did not intend to make a joke, I was quite serious. Is it really bad to depend on social security as one of the support legs of our retirement? Both my husband and I have been contributing to it for over 21 years and are now in our mid 40s. I haven't been around here long enough to get a feel for what people think about it, but I always assumed it was as stable as a public or private pension or a FDIC backed CD since it is run by the same government. I actually hope YOU are joking.

[DFA]

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Originally Posted by DangerMouse What about the poor saps who can no longer even contribute the current 401k max because of the testing done that means if the lower echelons are not putting in you can't either.

Yep this happened to me just last month, I got a refund from my 401k because of testing. I for one would like to see the testing changed and limits raised related to some index on an annual basis. With the current limits and testing I don't believe you can save enough in a 401k and IRA to retire with a good lifestyle.

[LOL!]

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Originally Posted by DFA With the current limits and testing I don't believe you can save enough in a 401k and IRA to retire with a good lifestyle.

But so what? No one prevents anyone from using a taxable investment account that has no contribution limits and no early withdrawal penalties to help with their retirement.

Indeed, it is surprising how tax efficient such an after-tax account can be. It is almost as good as a Roth IRA under the right circumstances. Of course, one has to be informed about how the tax code works or one will pay more taxes than necessary on such an account.

[MichaelB]

I find this thread confusing. Ask me to name the top 100 impediments to building a durable retirement portfolio with a real current value of $2.5M ($100K in yearly withdrawals @4%) and "too low limits on 401(k) contributions" would not make the list. Likewise a limit on any other type of tax deferred savings.

Anyone who has the surplus current income already has the means to save, invest, accumulate and reach their portfolio goal. Tax deferred options are nice but not required.

[GregLee]

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Originally Posted by FUEGO I'm a government employee and I will still qualify for full SS (theoretically speaking assuming it is still extant). No clue if that is the exception or the rule though.

My wife and I are both getting state government pensions and also SS. Which is nice (>100k). But we did pay in 7% of our salaries plus SS tax for around 40 years, contributing to those pensions. We could have had a 40xy plan, I guess, theoretically, but we never had any spare cash for that, so I never investigated the details.

[clifp]

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Originally Posted by aaronc879 I would agree that it would just be a perk for the rich. The average person would have to contribute 30% of their pay to max out the 401K at it's current limit. Not many can put that high of a percentage towards retirement therefore it would be favoring the rich or at least the "richer". I am currently contributing 33% and still not reaching the limit.

I am inclined to agree, the current limit with periodic adjustments for inflation, is certainly sufficient to fund an adequate retirement in 30 years and a $100K+ (in today dollars) retirement in 40 years. I think most of us who have retired early without pensions, did so with a large chunk of regular savings. Except for corporate bonds, investment income are taxed pretty lightly in this country. The gains from both stocks and real estate can be allowed to compound taxed deferred for many decades and then taxed a low capital gains rates.

Finally to point out the obvious we have pretty huge deficit RIGHT NOW, and I am loath to make it worse by providing yet another tax break for a special interest.

[clifp]

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Originally Posted by DoraM I did not intend to make a joke, I was quite serious. Is it really bad to depend on social security as one of the support legs of our retirement? Both my husband and I have been contributing to it for over 21 years and are now in our mid 40s. I haven't been around here long enough to get a feel for what people think about it, but I always assumed it was as stable as a public or private pension or a FDIC backed CD since it is run by the same government. I actually hope YOU are joking.

I don't think it is naive to depend on SS as one of the legs of your retirement. However, SS was never intended as the primary means of funding retirement. In 20 years when you are about to retire, us baby boomers will have sucked out much of the money in the system, and there won't be enough Gen X and Y to pay for all of the retired folks. I would expect that those of under 55, and almost certainly folks in their 40s will see means tests, and/or modest reductions in benefits.

[Texas Proud]

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Originally Posted by Gone4Good None in California, several in New York. And I never said Senin was a liar. But I still wouldn't use the claim of a single anonymous member of an internet forum about his very specific situation to make very broad assumptions about the population as a whole. I don't even think you can use one group of workers, in one field, in one state (say California prison guards) to do that either. This is the Economist's take, which seems to reflect my thoughts above . . . Quote: . . . in California, over 9,000 such pensioners are getting more than $100,000 a year. . . . To be fair, fat-cat pensions in the public sector are far from typical. According to Alicia Munnell of the Centre for Retirement Research in Boston, the mean public-sector pension is just $20,000 a year So yes, some do, but the vast majority do not. (and remember, the fat cat pensions inflate the mean. The median is lower.) Oh, and Individual 401(k)'s do allow contributions of up to $54,500. I'm sure some affluent married couples are using two to sock away $100K per year. So maybe I should claim that it's 'far from unusual' for fat-cat private sector workers to shelter $100K per year tax free for retirement in 401(k)s whereas the poor public sector worker gets a miserly pension of less than $20K. See how this works?

I am surprised that nobody has challenged you on this post... what got left out seems to be that the mean pension is $20K... then you go on to compare that to the fat cats...

First, most of the people who retire do NOT have their whole career in one place... like my mom who taught for only 13 year... she would be in that 'mean'... and you read about all the teachers etc. who get burned out and leave after 5 to 7 years... (can not find any reference... just from hersay)

Also, there are a number of people who work in other gvmt jobs that do not stay for one reason or another...

If you want to state that pensions of the average gvmt worker is lower than the fat cats, you need to compare them with the same time on the job etc. etc... apples to apples...


Someone else pointed out the flaw in your second argument.... suffice it to say that they did not say that the money being put in the 401(k) is mostly from the person, not the 'company' (or government entitiy).... most of the value of the pension is NOT from the employee... and some do not put any of their own money in.... so it is all extra...


Yes, I see how this works.... do you?

[DoraM]

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Originally Posted by Texas Proud Someone else pointed out the flaw in your second argument.... suffice it to say that they did not say that the money being put in the 401(k) is mostly from the person, not the 'company' (or government entitiy).... most of the value of the pension is NOT from the employee... and some do not put any of their own money in.... so it is all extra... Yes, I see how this works.... do you?

But to counter, the person with the 401K can get an 11% or higher return on their money, even though it is mostly their contribution with a little bit added in by the employer. The person with the public pension on the other hand has to settle for a guaranteed 8% (I think that is about the return they assume?) although I guess also they get it adjusted for inflation...not sure about that.

It is kind of strange that a public employee gets a pension *and* gets to contribute to a tax defered account like 401K *and* gets social security in some cases. I guess they get a 5 or 6 leg stool while the rest of us make do with 2 or 3. Three legs are more stable than five anyway

[ziggy29]

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Originally Posted by DoraM But to counter, the person with the 401K can get an 11% or higher return on their money, even though it is mostly their contribution with a little bit added in by the employer. The person with the public pension on the other hand has to settle for a guaranteed 8% (I think that is about the return they assume?) although I guess also they get it adjusted for inflation...not sure about that.

Frankly, give me an option between a scary-as-hell 11% (and that assumes a 100% stock allocation based on a possibly unsustainable economic boom after WW2) and a guaranteed 8% where the risk was offloaded to others, and I take the guaranteed 8%. I'm only assuming about a 6.5% long term return for my 60/40ish allocation, and that comes with considerable risk.

Quote:

Originally Posted by DoraM It is kind of strange that a public employee gets a pension *and* gets to contribute to a tax defered account like 401K *and* gets social security in some cases. I guess they get a 5 or 6 leg stool while the rest of us make do with 2 or 3. Three legs are more stable than five anyway

I do think those not covered by a DB pension plan should (perhaps) have higher contribution limits, since they are likely to need a much larger percentage of retirement income to come from personal savings.

[GregLee]

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Originally Posted by Texas Proud If you want to state that pensions of the average gvmt worker is lower than the fat cats, ...

I read over the material you quoted, looking for such a statement. It's not there. Just because it's obviously true doesn't mean it was stated by Gone4Good.

[DoraM]

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Originally Posted by ziggy29 Frankly, give me an option between a scary-as-hell 11% (and that assumes a 100% stock allocation based on a possibly unsustainable economic boom after WW2) and a guaranteed 8% where the risk was offloaded to others, and I take the guaranteed 8%. I'm only assuming about a 6.5% long term return for my 60/40ish allocation, and that comes with considerable risk. I do think those not covered by a DB pension plan should (perhaps) have higher contribution limits, since they are likely to need a much larger percentage of retirement income to come from personal savings.

Now you have me rethinking my investments, hah hah. Everyone says stocks return historically 11% and so my husband and I have 100% of our 401K invested in total stock market fund. I know there will be ups and downs but I have always assumed eventually it would grow by around 11% per year. Maybe the original owner of this thread actually has something there with the idea of raising the limit on 401K or maybe keeping the limit the same but requiring the employer make a full match instead of matching just 3% or whatever. This could be offset for them with a lower corporate tax rate or slightly lower wages.

[REWahoo]

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Originally Posted by DoraM Everyone says stocks return historically 11%...

Can you find some recent references stating this?

[samclem]

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Originally Posted by DoraM Now you have me rethinking my investments, hah hah. Everyone says stocks return historically 11% and so my husband and I have 100% of our 401K invested in total stock market fund.

Oh, I'm pretty sure you'll see 11% returns, but it will be after the Fed's "money avalanche" policy comes home to roost and inflation is at 10%.
I'll be very happy if we get 5-6% real (inflation adjusted) returns over the next 20 years, and our portfolio is mostly stocks (small/value tilt)

[DoraM]

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Originally Posted by REWahoo Can you find some recent references stating this?

I think I must have rounded up.

"

According to Yahoo! Finance, the average return for common stocks since 1926 has been 10.5 percent. This amount includes both stock price growth and dividends earned"

Read more: The Average Stock Market Rate of Return | eHow.co.uk The Average Stock Market Rate of Return | eHow.co.uk

[DblDoc]

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Originally Posted by DoraM I think I must have rounded up. " According to Yahoo! Finance, the average return for common stocks since 1926 has been 10.5 percent. This amount includes both stock price growth and dividends earned" Read more: The Average Stock Market Rate of Return | eHow.co.uk The Average Stock Market Rate of Return | eHow.co.uk

The past is no prediction for the future...

Here is a much more likely set of nominal and real returns going forward: The Portfolio Solutions 30-Year Market Forecast: Low cost investment manager, Portfolio Solutions

DD

[DangerMouse]

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Originally Posted by DoraM I think I must have rounded up. " According to Yahoo! Finance, the average return for common stocks since 1926 has been 10.5 percent. This amount includes both stock price growth and dividends earned" Read more: The Average Stock Market Rate of Return | eHow.co.uk The Average Stock Market Rate of Return | eHow.co.uk

I think the best estimate would be to look at your own investments over the past 10-20 years and see what you have actually made rather than have these general numbers thrown out there. It would be interesting how many here on this very board could say they have returned 11% consistently year on year.

With all the issues with SS I would be surprised if it survives in it's current format. I would be putting into place a Plan A, B, C & D to supplement it.

Personally I think it would be harder to sleep at night if you were totally reliant on any one source. We will have a bit of social security, 401k but the majority of our money has been accumulated in accounts outside of retirement funds.

[Independent]

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Originally Posted by MichaelB I find this thread confusing. Ask me to name the top 100 impediments to building a durable retirement portfolio with a real current value of $2.5M ($100K in yearly withdrawals @4%) and "too low limits on 401(k) contributions" would not make the list. Likewise a limit on any other type of tax deferred savings. Anyone who has the surplus current income already has the means to save, invest, accumulate and reach their portfolio goal. Tax deferred options are nice but not required.

+1

I don't see any public policy reason for providing tax breaks for saving for $100k retirements, whether they are in DB pensions or DC savings.