The 401(k)- a failure?

[imoldernu]

That's the subject of this CNBC article.For millions of Americans, the 401(k) is a failure
"For millions, 401(k) plans have fallen short"

median $ 18,433
for ages 55 to 64 median $76,381

The Video is about "how much is needed?"
The article, more extensive, with the "whys".

 

[CSdot]

I watched that earlier today, and was not impressed by the supposed expert. The reporters tried to call the expert out on her statement that you need $2.5M in your 401(k) to retire, but the expert lady refused to elaborate. Missed opportunity to explore reality. Makes me think the expert is hoping to make a name for herself by tossing out what most would admit is a high figure. Sure some will hit $2.5M, but it is not a necessity to have $2.5M in your 401(k) to retire as this expert said.

 

[GrayHare]

It's not the 401k plan that has fallen short.

 

[aaronc879]

It's not the 401k plan that has fallen short.

True, the plan is just fine. Most people here talk about how the failure is with the spendthrifts and that is partially to blame but the main problem is low wages. You can't max out your 401K if you gross $25K/yr. If you gross $125K/yr then there's no one to blame but yourself.

 

[soupcxan]

Don't worry, Teresa Ghilarducci wants to take away the 401k and have the government run everyone's savings accounts. Can't see any problems with that idea...

 

[Midpack]

It's not the 401k plan that has fallen short.

+2. If you contribute to the program, maximize matching where offered, and follow basic investment principles - it is a very effective, valuable, portable way to accumulate a nest egg.

 

[photoguy]

An additional +1 on GrayHare's comment. When I was working, I kept thinking to myself why did they limit it to just 17k / year. I would have killed for higher limits.

On the other hand, I knew a PhD stats guy who didn't contribute anything to his 401k. He would have even come out ahead if he contributed, got the match, and then immediately pulled it out paying the penalty.

 

[FUEGO]

I'm glad I had a 401k and a 457. Smashing success. Very early retirement (though not quite $2.5M in the accounts!). It's all about controlling my own life instead of having someone else decide when I can retire.

I'm not glad at all about having a pension withholding of 6% (that was eventually refunded when I departed plus some paltry interest). It did shift taxation of that 6% into the future (and perhaps never), so maybe it wasn't a servicing without lube after all. Sure would be nice to have been able to invest it in something productive though.

As for SS, after seeing how little an extra couple paid into SS increases my eventual benefit, I'm glad I'm not putting much into SS these days. I'm not sad about having a $12,000/yr (in 2015 dollars) safety net at age 67 (in 33 more years!), but having all of the tens of thousands I paid into SS back would be pretty awesome.

 

[frayne]

+2. If you contribute to the program, maximize matching where offered, and follow basic investment principles - it is a very effective, valuable, portable way to accumulate a nest egg.

Nail-head !

 

[MRG]

It's not the 401k plan that has fallen short.

+1
How many that were in management were required to give the 401k talk every year. I got sick of that.

 

[pb4uski]

True, the plan is just fine. Most people here talk about how the failure is with the spendthrifts and that is partially to blame but the main problem is low wages. You can't max out your 401K if you gross $25K/yr. If you gross $125K/yr then there's no one to blame but yourself.

But if you gross $25k, presumably you live on $22k or less after taxes and other deductions are taken out and SS will cover a lot of that and you don't need to max out a 401k to make up the gap.

 

[aaronc879]

But if you gross $25k, presumably you live on $22k or less after taxes and other deductions are taken out and SS will cover a lot of that and you don't need to max out a 401k to make up the gap.

Someone starting out in the work force today and making $25K/yr every year until age 67 would only get $1145/mo or $13,740/yr in SS. That's a pretty big cut in pay for someone who already could barely get by let alone save for retirement. A lot of people in that income range work physically demanding jobs and probably can't work until age 67 so their benefit would be even lower.

 

[sengsational]

An additional +1 on GrayHare's comment. When I was working, I kept thinking to myself why did they limit it to just 17k / year. I would have killed for higher limits.

$17K seems generous compared to what I had to deal with. Started out at $9.5K, and no catchup. Then, one of the companies I worked for didn't have enough lower wage workers using the 401k, so I got locked-out due to being categorized as "highly compensated". So I although was maxed out through 2003, during the five years from 2004 through 2008 I was only able to average $8K per year! That set me back over 30 grand.


http://fmiretirementservices.com/index.php/401k-limit-graph

 

[2B]

I guess as a data point, I need to admit that my 401k has around $63,000 in it and I'm now retired. I don't have any financial concerns despite having small non-COLAd pensions. I won't bring up what my IRAs and taxable account balances are.

As an isolated metric, 401k balances have this giant vacuum sound.

 

[2B]

+1
How many that were in management were required to give the 401k talk every year. I got sick of that.

I was never required to do "the talk" but I did it at least once a year. There was this belief that somehow "the company" kept the money. I tried to dispel that (with limited success) and try to describe the time value of money. I ended with a version if they didn't invest in the 401k and take the free money they should invest a like amount in an after tax account.

I always brought up my former steel mill worker father who ended up working for the post office and retired with almost no savings.

 

[photoguy]

Sengsational -- I had forgotten the 401k limit had increased so much over the past decade. I started in 2001 @ 10.5k and I was maxing it out. Back then I had a sweet gig where they gave me 1.5x my contribution.

I'd be so pissed if I got hit by the highly compensated employee limit.

 

[aaronc879]

Sengsational -- I had forgotten the 401k limit had increased so much over the past decade. I started in 2001 @ 10.5k and I was maxing it out. Back then I had a sweet gig where they gave me 1.5x my contribution.

I'd be so pissed if I got hit by the highly compensated employee limit.

You need to make at least $120K to be affected by that rule. The last thing i'd be is "pissed" if I made $120K/yr.

 

[Big_Hitter]

I'd be so pissed if I got hit by the highly compensated employee limit.

that's why they created safe harbor 401k plans

 

[Big_Hitter]

You need to make at least $120K to be affected by that rule. The last thing i'd be is "pissed" if I made $120K/yr.

back in the day the HCE limit was much lower

PensionSoft - Rounded/Unrounded 414(q)(1)(B) HCE Limits - from 1987 through 2015

 

[athena53]

I guess as a data point, I need to admit that my 401k has around $63,000 in it and I'm now retired. I don't have any financial concerns despite having small non-COLAd pensions. I won't bring up what my IRAs and taxable account balances are.

As an isolated metric, 401k balances have this giant vacuum sound.

Yeah, one thing that occurred to me was that there's no law prohibiting savings outside of 401(k)s! My Dad probably had them only the last 20 years of his working life. Almost exactly half of my investments are after-tax, with the rest being rollovers from 401(k)s of various past employers. If you'd looked at my 401(k) balance just before I left my last employer, I was 61 years old and it was about $30K. Pitiful!

 

[Midpack]

+1
How many that were in management were required to give the 401k talk every year. I got sick of that.

I looked forward to the annual presentations, or at least considered it important, and my HR Mgr and I tried many new ways to get people on board. After almost 20 years "selling" 401k's to employees every way we could dream up, sadly we never had as much success as we were hoping for.

When I retired early, some of our non-participants were shocked and asked how it was possible for me to retire at 57? As much as I wanted to answer, I didn't...

 

[Walt34]

When I retired early, some of our non-participants were shocked and asked how it was possible for me to retire at 57? As much as I wanted to answer, I didn't...

You have greater willpower than I do. I would have said something along the lines of "Remember all those 401k lectures you ignored? I didn't".

 

[MRG]

..snip....
If you'd looked at my 401(k) balance just before I left my last employer, I was 61 years old and it was about $30K. Pitiful!

I'm assuming because the remainder was in a rollover somewhere? Plus taxable.

Which is exactly why some of the data being quoted is invalid. Sure ICI knows how much fund companies tell them is in 401k accounts(4.5 trillion). Vanguard can say what their customers have in their 401k. If you're across multiple providers the data presented is skewed. The value of an individuals savings is potentially incorrect, in that scenerio. It maybe close but it's 100% wrong for a set of data.

 

[Gumby]

A misleading title for this article. 26 U.S.C. Sec. 401k is just a section of the tax code providing that certain earned income can be saved tax deferred. It is neither a success nor a failure; it is just the law.

The failure is the wholesale abandonment of defined benefit pensions and shift to defined contribution plans for retirement security, with the concomitant shifting of risk to those who in many cases are ill suited to bear it. The failure is an economy that has given almost every bit of productivity gains over the past 30 years to capital rather than labor, such that employees who are not highly skilled have not seen sufficient income gains to allow them to save for retirement, on a tax-deferred basis or otherwise. And, yes, the failure is a society that values current consumption over virtually everything else.

 

[athena53]

I'm assuming because the remainder was in a rollover somewhere? Plus taxable.

Right- I was there less than 2 years. Every single time I left an employer my 401(k) left soon after- rolled over into an IRA, of
course. I'd saved plenty in after-tax accounts as well.