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401(k)s Not Working for People?
I work as a “retirement plan administrator” and am credentialed as an “expert” in the non-investment-side of 401(k)s and older-style pension plans. As such, my antennae always twitch any time I see a story regarding my industry. This story got me shaking my head at the framing of the issue.
I see companies’ payroll, deferral, and contribution figures every day, so I know that folks are not utilizing their 401(k) plans enough. Such a huge percentage of employees don’t defer anything, while others are deferring only, say, 2 percent; not even enough to earn all of their company’s matching contribution available to them.
Now, I am not credentialed as a financial planner, so I’m certainly not going to advise at what percentage or amount that you should invest; however, regarding the article: just because folks aren’t taking advantage of their 401(k) doesn’t mean that “their 401(k) isn’t working for them.” We live in a society that relies more and more on someone somewhere else taking care of us because we can’t be bothered to take care of ourselves; income / cost coverage in our golden years is chief among them.
I’m afraid to say that there’s going to be a huge problem in the coming years as the Boomers, the last ones with any meaningful pension incomes (and, even then, not as numerous or as generous as The Greatest and The Silent Generations had), pass the retirement torch to we Gen Xers. Our generation doesn’t have retirement savings, but we do have iPhone 11s, car payments, and trips to Disneyland / The Caribbean, on top of the student loans for the college degree we were told we needed (but didn’t / don’t). We’re living well now, instead of living ok now with the aim of living at least ok later.
Published in Economics
Annuities are a way to trade a fixed amount for a lifetime stream of money. Conversely, you can sort of convert a lifetime stream of money into a fixed amount.
I think Ricochet has a planned giving form on the bottom of the home page.
401k is for big corporations. Small business owners want to use a SEP.
https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps
That’s what we did with the CREF portion of my TIAA-CREF plan. In fact, that was almost the only reasonable thing to do with it, other than taking it as a lump sum, which would have had undesirable tax consequences. While working I had some control over how much went into each, and I could transfer funds from TIAA to CREF. After the 2008 crash I didn’t do any more transfers, as the TIAA portion went into a decline and took a while to recover. At about age 67 or so we annuitized the CREF portion. The Fed tries to steal 2 percent a year, but if that’s the worst they do I guess we’ll manage.
I have a rollover 401k at vanguard with the proceeds from 401ks at previous employers, my 401k at current employer, my wife’s 401k from her employer (a large insurance company) plus a few scattered IRAs and a small SEP form when I was self-employed.
I balance across the entire portfolio instead of within each one, which gives the advisor that comes in for our company 401k conniptions because he starts a meeting with me by only seeing my company 401k in isolation, and I have it 100% invested in a single fund. Fortunately, 9 years ago when I started there I managed picked the one fund that as of today has the best 10-year cumulative return (15-plus%) out of all funds offered in the plan. So that worked out well.
I love my wife’s 401k as well – the insurance company she works for offers a “guaranteed” fund which pays their dividend rate. I treat it as a bond fund and put her entire account into that. It currently pays about 5%, and the best part is the balance *never* goes down, although the rate fluctuates slightly year-to-year. I don’t worry about what happens if the company goes under – if things get bad enough that that happens, retirement savings will be the least of our problems.
I’m of two minds about it—not sure how I feel. We are a church-owned company that provides benefits for other church-owned companies. Churches are an odd mix of paternalistic and personal responsibility promoting. I think the mindset is something like, if we make sure employees save for retirement, they will be less likely to need church or government help when they retire. And they will be more likely to have the means to serve in the church or community should they so choose. It has increased savings levels by quite a bit.
It was over thirty years ago, but I still remember the conversation with a GenX type who asked how I had saved money. I told him, “It’s pretty simple. I have two accounts and I’ve signed up for electronic paycheck deposit at both. Some money goes in account 1 and doesn’t come out, while the rest goes in account 2. It’s not a lot going to 1 because I need enough in account 2 to pay bills and such.” In addition, I contributed to the 401K.
He then asked, “What if you want something and don’t have enough in account 2 to pay for it?” My answer was, “I wait until I have enough.” “But you have money in 1”, he said. I referred him to rule 1: Money doesn’t come out of account 1. He persisted, “But that means you’re denying yourself something you want, and I won’t live that way.”
What was there to say except, “It’s your life.” He filed for bankruptcy at least one time over the next 20 years.
Never going to happen. Violates the Constitution. Plus the single thing that would actually cause a rebellion.
Still is, in Asia – even in places of prosperity, like Singapore.
You are an optimist.
Never going to happen, they need the tax revenue too much.
No, I just believe that Demoncrats have a healthy respect for pitchforks.
They also set new rules recently where people with wrongthink can be hounded out of public spaces.
Seriously, do we really think that they could pass such a bill and get it through all the wickets and make it law? Doubtful.
I am currently 49. In the next 10 years my wife and I would like to have our home paid off, plus have at least ~$500K in post-tax savings stashed away. I think we should be alright with that.
Not a bad start, especially if the post-tax savings is in a Roth. Past performance does not guarantee future results, but a 60% Stock / 40% Bond fund should be good for at least 6% tax-free yield until then. Now that both of us are retired, we are shifting to a 50/50 allocation. Dollar Cost Averaging is your friend – it worked well for us.
Really, they should make contributions unlimited and no penalty on withdrawal at any time. Then apply the tax system to whatever people take out every year. This has the result of taxing actual consumption instead of income. You are then taxed on your quality of life rather than how much you happen to make in a particular calendar year.
Even if they controlled all 4 Branches of the Fed (House, Senate, President, Judicial), how would it be implemented without passing a law? It would take months to go into effect. If the 1930’s Bank Runs were bad, imagine the results of this action.
The same way they implement a whole lot of things without passing a law. For example, they decide they want the power to regulate e-cigarettes, and presto, they regulate e-cigarettes.
I’m 60.
I’m planning on retiring at 70.
But, barring some bit advances in life extension, I’m not planning on much beyond that – I have no family, and nobody who would really care if I lived much beyond “retirement” age.
I still have trouble understanding why people don’t max their contributions, at least to the level where their employer matches it. It’s free money. Odds are really good that you won’t miss that income in the short run and you absolutely will need it later.
I’m so upside down on savings and investments (52 now, just bought my first real house 2.5 years ago), that I expect to be working well into my 70’s. Not a problem, I get a lot out of working, the hard part will be staying current with tech, etc. Funny thing is, the more senior you get, the less hands-on you are at work, so you can get rusty with stuff.
Organizational changes, mergers, layoffs, etc, are the inevitable outcome at some point in everyone’s career. Multiple ones. We’re in one right now, at my gig, an internal “re-org”, which is really an acquisition of our business unit by another. It’s a freakshow of demotions and internal placements, doled out piecemeal across about 1,000 employees, over the past several months, and it’s still not done. And I don’t know where I’m going in the new organization (or merged organization), or if I have a gig.
In other words, resume’ has been updated, already have an application in at another company, etc. I’m not worried about finding a job, I’m worried about transitions and impacts to my family.
Again, I disagree; my entire career has been concentrated on small, even micro-, companies’ 401(k) plans, with employees as many as 50-75, all the way down to a single owner and no one else.
I am doing horribly. I started saving too late and I am not putting enough away. I am probably going to have to keep working until I croak. (I just turned 50, FYI)
@cirby, beg to differ. You do have family, right here at Ricochet. We do care whether and how long you live after retirement. Maybe you could attend a meetup soon, and get to know your Ricochet family in person.
According to the linked article, there are disparities between different income groups! So someone with a $200,000 annual income usually has more in retirement savings than someone who makes $25,000 a year? Thank goodness we have crack researchers to ferret out such counter-intuitive data.
Good Lord! Next they’ll tell us that if you make $200K instead of $25K, you can afford a nicer home and a newer car.
The old adage for college professors was “publish or perish.” The corollary for article writers is “publish anything, especially if it is woke.”
By 40 I have 115000 saved while usually taking a 5 percent match on RRSP.
I’m older than you are. My only hope is to buy a winning lottery ticket. 😁
I wonder how much one’s experiences as a child affect one’s saving habits. I was the product of a man’s second marriage, a man who was 19 when the “Great Depression” hit. His father, my paternal grandfather, was killed in what may or may not have been a hunting accident, and as the oldest son he was responsible for a large family. It marked him, and I got tired of hearing about it as a child, but in a way, it marked me. In my mid-50s, I took a financial test to determine how much I needed to save to live in the manner I wanted in retirement, a modest manner. I got a negative number. The plan had served me well, so I continued and retired at 64. I called in some favors and got a severance package just short of $100K. In material terms, I won the game. But, let me say that all it means is that I have one less issue to worry about. A major issue perhaps that I don’t worry about, but all other issues remain.
You’re over 50?! I always thought you were closer to me in age (37).
That avatar photo was taken years ago, Mike.