The Champions of the 401(k) Lament the Revolution They Started

[Big_Hitter]

I heard the titanic had an engine fire

 

[travelover]

I heard the titanic had an engine fire

Maybe so, but that was a drastic way to extinguish it.

 

[Greencheese]

I'd certainly agree that a 401k isn't perfect compared to a pension for many people, but I'd also argue that the additional transparency a 401k offers has greatly benefitted workers.

It's easier to calculate 6% of $50,000/year for your average employee than a pension formula that can either change at any point in 30+ years and depends on you guessing your final salary decades out. Sure the 401k funds aren't perfect but nowadays I can log into a Vanguard or Fidelity website and see the expense ratios and stock/bond makeup of what each fund has. Heck nowadays I can just open an account and select a low cost target date index fund and be done retirement planning for decades! Growing transparency from the internet is really helping to drive down costs for consumers as media like John Oliver hammer home to individuals that index funds + low fees are all you need. The loss of most load funds and continually declining expense ratios show that.

As a 27 year old would I prefer a pension from a mega corp if I knew I could draw at 55 penalty free and was guaranteed to not only have that job for 30 years but also my wages would be kept market rate competitive? Absolutely. But with job hoping much more the norm I'll take a more portable plan that at least gives me a shot at a secure financial retirement as opposed to a broken system that assumes I can hunker down in place my entire career.

Pensions are amazing if you can make the gauntlet, but terrible if you fail. And even if you do make it, what's to say that the rules won't change later? See Central States workers pension plan or the Steel Workers in the east.

 

[Koolau]

It took several serious mistakes on my part before I finally realized that I AM responsible for my own retirement. Yes, there are contractual and legal requirements placed on employers and gummint. BUT in the final analysis, if I don't take care of my own retirement, someone else will likely screw it up (either to save money or because THEY are incompetent or even because they are dishonest.)

For me the practical application to the above is that I LBYM, save like crazy, defer gratification, make decisions rather than letting someone else make them for me, diversify (not only AA but vehicles - having a DB does NOT mean you shouldn't also have a DC if it's available), PLAN for retirement, calculate benefits/SWRs, etc. In short, act like this is your second j*b.

This seems pretty sophomoric, but I submit the reason most folks don't have adequate retirement funding is NOT because the various plans (whether DB, DC, IRAs, etc. etc.) are flawed (they certainly are) but because folks don't take the responsibility to make what's available to them work for them.

Space provided below for responsible differing views because YMMV.

 

[FIREmenow]

This seems pretty sophomoric, but I submit the reason most folks don't have adequate retirement funding is NOT because the various plans (whether DB, DC, IRAs, etc. etc.) are flawed (they certainly are) but because folks don't take the responsibility to make what's available to them work for them.

Space provided below for responsible differing views because YMMV.

BINGO! +1000

[making full use of space provided......]

It's only the ones that come to this realization at some point in their lives that "make it". I DON'T believe there is a bunch of luck involved. It is a DECISION and a RESPONSIBILITY. Yes, there is luck for moving one up and (and down) within that "window" of comfort, but LBYM is your JOB, not someone else's (.....like your employer or thier retirement plan). If LBYM is not comfortable enough for you, then raise/improve your "means". This is America - anyone can succeed with enough drive.

One help for this, however, would be a mandatory financial class or two in high-school. Heck, we're preparing out kids for Job #1, why are we not preparing them for Job #2?

JMHO

 

[athena53]

As a 27 year old would I prefer a pension from a mega corp if I knew I could draw at 55 penalty free and was guaranteed to not only have that job for 30 years but also my wages would be kept market rate competitive? Absolutely. But with job hopping much more the norm I'll take a more portable plan that at least gives me a shot at a secure financial retirement as opposed to a broken system that assumes I can hunker down in place my entire career.

Yeah, those are a lot of "ifs". After a 38-year career, I have two corporate pensions, each about $900/month, no COLA, no retiree health insurance. One was from a company where I was downsized and the other was from a company that sold us off- so in both cases there was no option to hang around and accrue a bigger pension.

Still, I believe that the people on this Board are in the minority. It takes discipline and some knowledge to LBYM and invest wisely, including not selling out at the bottom of the market.

 

[Texas Proud]

It took several serious mistakes on my part before I finally realized that I AM responsible for my own retirement. Yes, there are contractual and legal requirements placed on employers and gummint. BUT in the final analysis, if I don't take care of my own retirement, someone else will likely screw it up (either to save money or because THEY are incompetent or even because they are dishonest.)

For me the practical application to the above is that I LBYM, save like crazy, defer gratification, make decisions rather than letting someone else make them for me, diversify (not only AA but vehicles - having a DB does NOT mean you shouldn't also have a DC if it's available), PLAN for retirement, calculate benefits/SWRs, etc. In short, act like this is your second j*b.

This seems pretty sophomoric, but I submit the reason most folks don't have adequate retirement funding is NOT because the various plans (whether DB, DC, IRAs, etc. etc.) are flawed (they certainly are) but because folks don't take the responsibility to make what's available to them work for them.

Space provided below for responsible differing views because YMMV.

BINGO! +1000

[making full use of space provided......]

It's only the ones that come to this realization at some point in their lives that "make it". I DON'T believe there is a bunch of luck involved. It is a DECISION and a RESPONSIBILITY. Yes, there is luck for moving one up and (and down) within that "window" of comfort, but LBYM is your JOB, not someone else's (.....like your employer or thier retirement plan). If LBYM is not comfortable enough for you, then raise/improve your "means". This is America - anyone can succeed with enough drive.

One help for this, however, would be a mandatory financial class or two in high-school. Heck, we're preparing out kids for Job #1, why are we not preparing them for Job #2?

JMHO

/sarcasm/

But, but, but, but.... what about all those poor people who cannot make a decision for themselves!!! SOMEONE has to take care of them... isn't that what gvmt is for

 

[travelover]

/sarcasm/

But, but, but, but.... what about all those poor people who cannot make a decision for themselves!!! SOMEONE has to take care of them... isn't that what gvmt is for

It is hardly a new problem, as I recall someone referencing "the least of these" quite a while back. As a society, we have to decide how to deal with the unfortunate and the screw ups. To much empathy and you end up bankrupt, too little and out come the guillotines.

As a tiny, self selected group we can say that if we can do it, anyone can also do it. IMHO, Joe Average can't really self direct a long range retirement plan.

 

[FIREmenow]

IMHO, Joe Average can't really self direct a long range retirement plan.

I don't (with all due respect) believe this for a minute.

Now, I do believe that Joe Average may not WANT to learn how to manage a long range retirement plan, but "can't" is reserved for a very small group of people in my mind.

It doesn't have to be as complicated as the folks here enjoy. It need only be as simple as a diet - calories in vs. calories out. Keep up with inflation and LBYM, and that's it (not luxury, but for a situation far better than one sees today). As the man said, "It ain't rocket science." My DM was doing this with (single) dollar bills and multiple envelopes in the dresser drawer when I was growing up.....

 

[growing_older]

IMHO, Joe Average can't really self direct a long range retirement plan.

Set the default option on 401k to 10% contribution and put it all in a target date fund. Limit loans and withdrawals other than in retirement. Even Joe should be able to handle that, especially if it's a default part of the plan so no additional action is needed.

 

[GTFan]

This is one of the dumbest lawyers I've ever seen, from the article:

Some savers underestimate how much they will need to retire or accumulate too much debt. Lucian J. Bernard is among those wishing he had a do-over. The 65-year-old lawyer from Edgewood, Ky., doesn’t have much savings beyond a small company pension and Social Security. He cashed out a 401(k) in the 1980s to fund law school and never replenished it. He implores his daughter to start saving.

“It’s a little easier saying it than doing it,” he says.

Really? 65 year old lawyer with nothing saved? How the hell did you graduate from law school?

Just reinforces the fact that it's NOT the retirement vehicles that are at fault for some folks - those people are ignoring them.

 

[GTFan]

/sarcasm/

But, but, but, but.... what about all those poor people who cannot make a decision for themselves!!! SOMEONE has to take care of them... isn't that what gvmt is for

You know there's a bell curve, right? There's plenty of folks that will not ever get it. I volunteer with one of them and it's not his fault, he just doesn't have an IQ high enough.

 

[GTFan]

Set the default option on 401k to 10% contribution and put it all in a target date fund. Limit loans and withdrawals other than in retirement. Even Joe should be able to handle that, especially if it's a default part of the plan so no additional action is needed.

This would work, and I don't know why mandatory contributions and plan selections have not already been enacted.

 

[LOL!]

This would work, and I don't know why mandatory contributions and plan selections have not already been enacted.

People did have mandatory contributions in the past. Some of have been linked in this thread.

A couple of problems in the past: The people doing the investing and management of those mandatory contributions pillaged them. And the low-expense-ratio passively-managed index funds of today did not exist decades ago. Just look at what has happened to teachers. There's a lesson there.


But nowadays, I would not be averse to forced investing in the TSP as long as I could have a guaranteed low expense ratio for a guaranteed set of asset classes such as those in the TSP. And as long as I could contribute additional investments to places of my choice.

 

[exnavynuke]

Lots of people wouldn't be keen on the government "taxing" them even more for another Social Security system, regardless of how good such a plan might be for the "average" person.

 

[GTFan]

Well then those people can't complain when they can't afford to retire.

 

[mpeirce]

Isn't Social Security already [American] society's fall back plan?

 

[nun]

Social Insurance ie SS and Medicare and personal savings are a sensible approach to retirement. On the personal responsibility side some people could improve, but many people simply don't have the income to save much and LBYM. With the cost of healthcare, education and housing rising the practical poverty level is creeping into the middle class. If you are working for minimum wage living day to day is hard so I can see how retirement saving would suffer.

ER people often forget that this is a rarefied place full of well paid people or those who've had job with great benefits so LBYM hasn't meant worrying about the kids being hungry.


Sent from my iPhone using Early Retirement Forum

 

[JohnnyBGoode]

Social Insurance ie SS and Medicare and personal savings are a sensible approach to retirement. On the personal responsibility side some people could improve, but many people simply don't have the income to save much and LBYM. With the cost of healthcare, education and housing rising the practical poverty level is creeping into the middle class. If you are working for minimum wage living day to day is hard so I can see how retirement saving would suffer.

ER people often forget that this is a rarefied place full of well paid people or those who've had job with great benefits so LBYM hasn't meant worrying about the kids being hungry.

+1
I'm not sure given our consumer-driven culture with relentless buy-buy-buy coming from all forms of media LBYM is a solvable problem without some sort of "forced-savings" option for DC plan or re-introduction of DB plan.

However, as others have said, the new administration seems quite keen on removing government mandates, so I'm not really sure any progress would be made in forcing 401K savings.

Despite being (more-or-less) a west-coast lefty, I've got more of a contrarian view on company-sponsored retirement plans. While I think they are awesome if you are a recipient, as a small business owner they don't make much sense to me. Unless I absolutely must provide it to be competitive in the marketplace for employees (like offering healthcare) I sure don't want to offer it. My job as a business owner is to run a good, profitable business and take care of my employees. But I'm not sure that extends to signing up to provide income for employees for the rest of their lives.

 

[travelover]

Set the default option on 401k to 10% contribution and put it all in a target date fund. Limit loans and withdrawals other than in retirement. Even Joe should be able to handle that, especially if it's a default part of the plan so no additional action is needed.

The mechanics are simple, the politics are hard. Tell Joe the gumminit is forcing him to do something and watch him holler.

 

[mpeirce]

The mechanics are simple, the politics are hard. Tell Joe the gumminit is forcing him to do something and watch him holler.

So forcing people to "do the right thing" "for their own good" is where America has end up.

Sigh

 

[GTFan]

I take it you didn't notice what's going to happen with the ACA.

IMO there are some things in life that are too big to fail. Adequate retirement and universal, truly affordable health care are two of them. SS is not enough for #1, and the ACA obviously wasn't the answer for #2. Fortunately we have all new people that are going to solve this for us.

*ducking*

 

[Fermion]

When we first started at a megacorp the fund options in the 401K had fees of 1% to 2%. It eventually got a lot better when they added Vanguard funds but can you imagine the amount of money that was effectively stolen from everyone with these funds? (which did not even end up beating the index). It is little wonder people did not trust 401K.

 

[hankster]

My company started the 401k plan around 1986. I've actually heard about a number of employees who have been around since that time but never contributed to the 401k. 30+ years foregoing a 75% match on up to 6% of salary It boggles the mind.

 

[Big_Hitter]

My company started the 401k plan around 1986. I've actually heard about a number of employees who have been around since that time but never contributed to the 401k. 30+ years foregoing a 75% match on up to 6% of salary It boggles the mind.

definite facepalm