"The 401k Problem We Refuse to Solve"

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
novicemoney
Posts: 242
Joined: Fri Aug 01, 2014 10:36 am

"The 401k Problem We Refuse to Solve"

Postby novicemoney » Fri Jan 06, 2017 2:57 pm

An interesting article on Bloomberg on the 401k.

https://www.bloomberg.com/view/articles ... e-to-solve

Probably nothing new to people on this forum. To me the money quote is:

"The 401(k) was not the miracle cure for our retirement problems that was promised by some of its more zealous advocates. But it wasn’t a mistake, either, or at least not the important one. The important mistake was deciding that we could spend our first 25 years in school, and our last 25 years in retirement, without cutting our consumption in between. And, at least to date, that’s one mistake we don’t seem to be able to learn from."

Yankuba
Posts: 8
Joined: Wed Dec 07, 2016 10:45 am

Re: "The 401k Problem We Refuse to Solve"

Postby Yankuba » Fri Jan 06, 2017 3:10 pm

Personally, although I hope to get a federal pension in 10 years I think we need to move away from pensions. Pensions lock people into jobs and prevent people from making career moves. I need 25 years of service to retire early but I started hating my job after 10. But it would be financial suicide to leave so close to the finish. I would get a smaller pension and it would activate at year 60 or so instead of age 47 (when I will have 25 years of service).

I love the 401k system because workers keep those assets, can leave the accounts to their heirs if they die and they can invest as they see fit. Obviously we need to cut out the 401k advisors making 1% to place people into terrible mutual funds, but that day is coming.

I think the real problem is that under the defined benefit system, employers used to put let's say $15k away for each worker per year. Now, under the 401k system the employer only contributes $5k to $10k per worker through their small matches. The employers are putting away less, forcing the workers to save more or consume less.

What I really hate about pensions is that if I die before my 25th year - when I can activate my pension - my heirs get nothing. They don't get the survival benefits of my 24 years of service. But my heirs will get my 401k and IRAs. That's also why I'm not such a big fan of SS - some people collect for 30 years and some people never collect.

User avatar
nisiprius
Advisory Board
Posts: 32779
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: "The 401k Problem We Refuse to Solve"

Postby nisiprius » Fri Jan 06, 2017 3:21 pm

Also interesting is the Wall Street Journal article they reference, which I can read by copying and pasting the exact phrase
The Champions of the 401(k) Lament the Revolution They Started
into Google. The pathetic part is the "champions" saying oh, my goodness, "it wasn’t designed to be a primary retirement tool." Tell that to anyone who's ever asked, in a job interview, "Do you have a retirement plan?" and been told "Yes, we have a 401(k)."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

livesoft
Posts: 53260
Joined: Thu Mar 01, 2007 8:00 pm

Re: "The 401k Problem We Refuse to Solve"

Postby livesoft » Fri Jan 06, 2017 3:26 pm

Journalists everywhere are rushing to copy each other with articles about 401(k)s. It is getting rather tiring reading the same old stuff which boils down to:

People didn't save in their IRAs when they should have.

I suspect that journalists are one of the biggest offenders of not saving in IRAs when they should have. And there have been locked threads when journalists wrote their "Mea culpa" articles about their personal situations.

The article linked by the OP is the Megan McArdle article linked in the other thread: viewtopic.php?t=207142
This signature message sponsored by sscritic: Learn to fish.

Grt2bOutdoors
Posts: 15625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: "The 401k Problem We Refuse to Solve"

Postby Grt2bOutdoors » Fri Jan 06, 2017 3:33 pm

livesoft wrote:Journalists everywhere are rushing to copy each other with articles about 401(k)s. It is getting rather tiring reading the same old stuff which boils down to:

People didn't save in their IRAs when they should have.

I suspect that journalists are one of the biggest offenders of not saving in IRAs when they should have.
I agree, but also believe that journalists who cover financial topics are not necessarily experts on anything except that of writing well. They rely on outside sources, most of the time which seem to advocate their own self-interests, rather than that of the public good.
The article linked by the OP is the Megan McArdle article linked in the other thread.
"Luck is not a strategy" Asking Portfolio Questions

User avatar
blueblock
Posts: 725
Joined: Sun Oct 19, 2014 6:06 pm
Location: Wisconsin

Re: "The 401k Problem We Refuse to Solve"

Postby blueblock » Fri Jan 06, 2017 7:55 pm

I'm comfortably retired, thanks to my 401K, but I was perhaps the ideal person for it: a well-paid executive working at the same place for many years who lived below his means and regularly socked away the rest, ignoring downturns, in funds with not-outrageous fees. The sad fact seems to be that many people (most?) are not positioned to take advantage of the plan, because wages are generally low, saving is hard and in general folks poorly understand basic investing principles.

I'm just glad I'm not a public pension pawn, paying a steep price for state legislators, like in Illinois, that used them for decades to perform accounting prestidigitational stunts that are now coming home to roost in the form of less-than-promised defined benefits.

swguy
Posts: 42
Joined: Thu May 14, 2015 5:27 pm

Re: "The 401k Problem We Refuse to Solve"

Postby swguy » Fri Jan 06, 2017 9:01 pm

I wasn't the ideal candidate for a 401k. Fresh out of 10 years in the military, leaving to help care for a family member, I took an entry level job with a small company. I was 30, married, with two young kids. A few years later they got a 401k plan, and I had earned a raise. My raise went in it. They all did until I maxed out my contribution, which was many years later. It was hard, as our standard of living didn't ever change. Today though I'm 58, FI, and I'm working because I enjoy the company I'm with, and I work from home.

Its not because of a 401k we are able to retire when we want, but having one sure helped. Saving was hard, but it's easy to see now it was worth it. Most of the folks I have known were no worse off than we were, they just made different choices when it came to saving.

I don't know what it feels like to take a vacation every year, but I do know how good a paid for house feels. Not always, but often, it's about choices.

User avatar
White Coat Investor
Posts: 12491
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: "The 401k Problem We Refuse to Solve"

Postby White Coat Investor » Sat Jan 07, 2017 12:25 am

There isn't a "401(k) problem." It's just a savings problem. The 401(k) might help a little, but come on. Even the match for most people doesn't amount to all that much. Most of us would have been just fine if 401(k)s had never been invented. It's not like you can't save for retirement in a taxable account.

If there is a 401(k) problem it's high fees and poor investment choices.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

TIAX
Posts: 605
Joined: Sat Jan 11, 2014 12:19 pm

Re: "The 401k Problem We Refuse to Solve"

Postby TIAX » Sat Jan 07, 2017 12:48 am

blueblock wrote:The sad fact seems to be that many people (most?) are not positioned to take advantage of the plan, because wages are generally low, saving is hard and in general folks poorly understand basic investing principles.

I don't see how 401(k)s do anything but help. If one's wages are too low to save enough, then, surely, they are too low to save enough in a taxable account as well.

Portfolio7
Posts: 111
Joined: Tue Aug 02, 2016 3:53 am

Re: "The 401k Problem We Refuse to Solve"

Postby Portfolio7 » Sat Jan 07, 2017 2:29 am

I've had my (future) pension slashed by 90%+. There is talk of increasing the retirement age for SS, and/or changing the benefit level. Without our 401(k)s we'd be in serious retirement trouble. My dad talked to me about his 401K when I was a teen; & it made a big impression on me. As soon as I was eligible, which was not until I was 27 due to various circumstances, I started contributing. First year 7%, then never less than 10% but usually 13-15%, with the company throwing in another 3%. Now we've surpassed over $1M NW and it's reasonable to expect we'll break $3M before retirement. I love my 401K. What I love even more is that it's mine. My company can go broke, and it will have zero impact on my vested 401K.

Despite all this, it's true that the 401K and IRA are not structured to solve the wider issues for which they were hyped as a solution. So, forgive me but it's late and night and I'm having fun:

Living the Retirement Blues (12 bar aab pattern I believe it's called, iambic pentameter, just for fun )
I lost my pension, lost my job
now I'm running with an angry mob
Re-education, what's the point
let go again from a different joint
If I had work I'd save more cash
I'd stand for you girl, oh so fast
I still got game, and you're so fine
you know next year our sun will shine
so I just hope, yes I just pray
they all don't touch my 401(k)!
(rumbling baritone) Yeeee-eaaaah!

Dyloot
Posts: 68
Joined: Mon Oct 14, 2013 8:04 am

Re: "The 401k Problem We Refuse to Solve"

Postby Dyloot » Sat Jan 07, 2017 3:44 am

White Coat Investor wrote:There isn't a "401(k) problem." It's just a savings problem.


That's essentially what the author is saying.

All the pundits and experts and not a few politicians have been telling us the exact same thing for decades: The retirement system doesn’t have enough money in it. Yet somehow, we are no closer to the obvious solution of putting more money in it. Arguably, in fact, we’re further away, because these endless arguments about the form that our savings should take provide us an excuse to put off doing the saving.

So why do we spend so much time complaining about some side problem with one of the systems, instead of the major problem with all three? Because none of the experts know how to get people to actually do this: to save 15 to 20 percent of their income, or sit still for a law that would make them. Nor has any clever technocrat come up with a way to sort of slip this by folks without their really noticing.


This is well said.

It's quite sad. We've already seen the backlash of "making Americans" buy health insurance via the ACA. Clearly, many of us don't like to be told what to do.

Social Security remains the safety net that many Americans will rely on--and that will be limited. If the retiree has an IRA, a small pension, or owns their home, etc, it's easier. If they don't... poverty is the ugly word that manifests in a person's life.

I'm already picturing the responses to this post. Debating topics like this on this forum is a bit like hanging out with triathletes and discussing why it's hard for the country to get exercise. I mean, what's so hard about it? You get up, run 10 miles, go to work, swim laps during your lunch break, and bike 50 miles after work. What's so hard about that? :D

I do my best in my own social groups to encourage more savings. I'm nearing my full 401k contribution, and I'm not aware of a single one of my friends/peers who have managed it. It's just not a priority, and it really should be. I think the article in this thread really speaks to this sad reality of our society.

AlohaJoe
Posts: 1731
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: "The 401k Problem We Refuse to Solve"

Postby AlohaJoe » Sat Jan 07, 2017 3:58 am

Dyloot wrote:Social Security remains the safety net that many Americans will rely on--and that will be limited.


Limited? Social Security is extremely generous by global standards. That's why tens of millions of Americans are able to retire on nothing but it. The equivalent old age pension in Australia maxes out at $22,000 for a couple. And is means tested with both asset and income limits. If you own a home and have other assets greater than $215,000 then you don't receive the full amount; if you have more than $860,000 then you don't get anything. Other income you receive (say from dividends or interest) reduce the amount you receive as well.

User avatar
jhfenton
Posts: 1676
Joined: Sat Feb 07, 2015 11:17 am
Location: Ohio

Re: "The 401k Problem We Refuse to Solve"

Postby jhfenton » Sat Jan 07, 2017 8:13 am

Dyloot wrote:I'm already picturing the responses to this post. Debating topics like this on this forum is a bit like hanging out with triathletes and discussing why it's hard for the country to get exercise. I mean, what's so hard about it? You get up, run 10 miles, go to work, swim laps during your lunch break, and bike 50 miles after work. What's so hard about that? :D

I do my best in my own social groups to encourage more savings. I'm nearing my full 401k contribution, and I'm not aware of a single one of my friends/peers who have managed it. It's just not a priority, and it really should be. I think the article in this thread really speaks to this sad reality of our society.

I laughed at that first paragraph, because you're exactly right. (Except that if you plan your training properly, you really only need to work in two sports per day in varying combinations. :beer) I did one triathlon in 2015, but I'm mostly just a runner. But like you said, while journalists and experts are lamenting the state of obesity in America, my running buddies are debating the relative merits of 60 miles per week with more intensity versus 80 miles per week with just one "hard" day. You can't understand why folks can't at least walk 3 miles per day 5 days per week.

When the topic of saving for retirement comes up--how hard it is--I ask folks if they could live on 85% of what they make. Most folks say yes, they'd have to cut back, but they could do it. At which point, the answer is obvious…why don't you.

Because delayed gratification is very, very hard.

Lindrobe
Posts: 326
Joined: Fri Dec 26, 2014 9:35 am
Location: Mishawaka, IN

Re: "The 401k Problem We Refuse to Solve"

Postby Lindrobe » Sat Jan 07, 2017 8:25 am

White Coat Investor wrote:There isn't a "401(k) problem." It's just a savings problem. The 401(k) might help a little, but come on. Even the match for most people doesn't amount to all that much. Most of us would have been just fine if 401(k)s had never been invented. It's not like you can't save for retirement in a taxable account.

If there is a 401(k) problem it's high fees and poor investment choices.


I don' think there is as much of an incentive to save in a taxable account. With a 28% federal rate and a 5% state rate, I feel like there is an incentive of roughly $12,000 in tax savings for husband and I to max 401ks.

student
Posts: 570
Joined: Fri Apr 03, 2015 6:58 am

Re: "The 401k Problem We Refuse to Solve"

Postby student » Sat Jan 07, 2017 8:48 am

AlohaJoe wrote: The equivalent old age pension in Australia maxes out at $22,000 for a couple. And is means tested with both asset and income limits. If you own a home and have other assets greater than $215,000 then you don't receive the full amount; if you have more than $860,000 then you don't get anything. Other income you receive (say from dividends or interest) reduce the amount you receive as well.

I hope we do not adopt this as this will punish the savers and reward the spenders. I really have a problem with the situation that Person A and Person B have the same lifetime earnings whereas Person A has saved but not Person B, and now Person A is being punished. However, given the relatively small amount of Australia's old age pension, I guess it is an acceptable program as I do not want people being destitute in their old age, which should be the intent of the program.

student
Posts: 570
Joined: Fri Apr 03, 2015 6:58 am

Re: "The 401k Problem We Refuse to Solve"

Postby student » Sat Jan 07, 2017 8:49 am

jhfenton wrote:
Dyloot wrote:I'm already picturing the responses to this post. Debating topics like this on this forum is a bit like hanging out with triathletes and discussing why it's hard for the country to get exercise. I mean, what's so hard about it? You get up, run 10 miles, go to work, swim laps during your lunch break, and bike 50 miles after work. What's so hard about that? :D


+1. I know I should exercise but I don't.

grok87
Posts: 7224
Joined: Tue Feb 27, 2007 9:00 pm

Re: "The 401k Problem We Refuse to Solve"

Postby grok87 » Sat Jan 07, 2017 8:49 am

novicemoney wrote:An interesting article on Bloomberg on the 401k.

https://www.bloomberg.com/view/articles ... e-to-solve

Probably nothing new to people on this forum. To me the money quote is:

"The 401(k) was not the miracle cure for our retirement problems that was promised by some of its more zealous advocates. But it wasn’t a mistake, either, or at least not the important one. The important mistake was deciding that we could spend our first 25 years in school, and our last 25 years in retirement, without cutting our consumption in between. And, at least to date, that’s one mistake we don’t seem to be able to learn from."


good quote.I like this one too.
Imagine yourself storing up food for the last 30 years of your life from the harvests made during the first 40. You might hope that when you're older, and no longer toiling in the fields, you won’t need to eat so much. Nonetheless, you’d understand that you would need to put aside a considerable portion of your harvest -- something close to what you're eating each day -- to ensure that you don’t starve to death in your old age.


Interpreted somewhat literally, this is basically an argument for the liability matching portfolio (LMP) approach advocated by Bernstein, Bodie, et al.

in other words, start buying 30 year tips when you are say 35 years old and keep buying them for 30 years until you retire at age 65. Then you will have built yourself a nice TIPS ladder to supplement social security and serve as the foundation of your retirement.

The problem? Basically no 401ks allow one to do this easily. There is only one long term tips fund that i am aware of: Pimco's LTPZ. And it's an ETF so it can't easily be offered by most 401ks. If you have a 401k with a brokerage window that lets you directly buy TIPs bonds you can do it but such plans are in the minority.

There has been some action recently from the government in trying to create annuity withdrawal solutions for retirees in 401ks but that all really misses the point. We need to have a way to start building those annuity positions early in our working years-i.e. to dollar cost average into those positions over our working lives. then we will not be so vulnerable to stock and bond market fluctuations just before we retire.

For example what if we have an equity oriented portfolio up until shortly before retirement? And then the market crashes so our "retirement pot" is smaller? And then on top of that, what if interest rates are low so annuity prices are higher and our diminished "retirement pot" purchases less monthly income per dollar?

that's how we can end up with a real retirement crisis out of our current 401k system...
Frodo: I wish it need'nt have happened in my time. Gandalf: So do all who live to see such times. But that isn't for them to decide. All we have to decide is what to do with the time that is given us.

User avatar
F150HD
Posts: 517
Joined: Fri Sep 18, 2015 7:49 pm

Re: "The 401k Problem We Refuse to Solve"

Postby F150HD » Sat Jan 07, 2017 9:52 am

AlohaJoe wrote:
Dyloot wrote:If you own a home and have other assets greater than $215,000 then you don't receive the full amount; if you have more than $860,000 then you don't get anything. .


you mean Social Security? (I'm nowhere near retirement so am not totall fluent w/ it...yet)

dbr
Posts: 21221
Joined: Sun Mar 04, 2007 9:50 am

Re: "The 401k Problem We Refuse to Solve"

Postby dbr » Sat Jan 07, 2017 10:00 am

F150HD wrote:
AlohaJoe wrote:
Dyloot wrote:If you own a home and have other assets greater than $215,000 then you don't receive the full amount; if you have more than $860,000 then you don't get anything. .


you mean Social Security? (I'm nowhere near retirement so am not totall fluent w/ it...yet)


That is in Australia. This is certainly not true in the US today.

User avatar
Kenkat
Posts: 3390
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: "The 401k Problem We Refuse to Solve"

Postby Kenkat » Sat Jan 07, 2017 10:04 am

AlohaJoe wrote:
Dyloot wrote:Social Security remains the safety net that many Americans will rely on--and that will be limited.


Limited? Social Security is extremely generous by global standards. That's why tens of millions of Americans are able to retire on nothing but it. The equivalent old age pension in Australia maxes out at $22,000 for a couple. And is means tested with both asset and income limits. If you own a home and have other assets greater than $215,000 then you don't receive the full amount; if you have more than $860,000 then you don't get anything. Other income you receive (say from dividends or interest) reduce the amount you receive as well.


But Australia also has Superannuation which while not perfect, does require 9.5% employer contributions, allows extra employee contributions (salary sacrifice - say it like saakrifoyce to be cool) with tax advantages, government contributions for low income earners among others. Pretty well set up overall.

User avatar
F150HD
Posts: 517
Joined: Fri Sep 18, 2015 7:49 pm

Re: "The 401k Problem We Refuse to Solve"

Postby F150HD » Sat Jan 07, 2017 10:11 am

dbr wrote:
F150HD wrote:
AlohaJoe wrote:
Dyloot wrote:If you own a home and have other assets greater than $215,000 then you don't receive the full amount; if you have more than $860,000 then you don't get anything. .


you mean Social Security? (I'm nowhere near retirement so am not totall fluent w/ it...yet)


That is in Australia. This is certainly not true in the US today.


Glad you clarified, I had never heard that before, or anything remotely like that IRT the USA. Thanks.

User avatar
Kenkat
Posts: 3390
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: "The 401k Problem We Refuse to Solve"

Postby Kenkat » Sat Jan 07, 2017 10:17 am

White Coat Investor wrote:There isn't a "401(k) problem." It's just a savings problem. The 401(k) might help a little, but come on. Even the match for most people doesn't amount to all that much. Most of us would have been just fine if 401(k)s had never been invented. It's not like you can't save for retirement in a taxable account.

If there is a 401(k) problem it's high fees and poor investment choices.


It is a savings problem and a total (employee and employer) savings problem. Where I think things took a negative turn with the 401(k) is that many companies saw elimination of pensions and replacement with 401(k) as a way to cut the contribution amount that they have to make for each employee and, overall, employers are contributing far less than they used to.

As a personal example, I am lucky to still be covered by a pension plan at work. My employer produces a benefit statement every year which shows how much they contributed to cover "my portion" of the retirement plan funding. It is typically in the 11-13% range (thank you company). The pension plan is eliminated for new hires; they receive a 5% dump in to a 401(k) like account instead. It saves the company money but is not nearly enough without a significant employee contribution as well (we do also have a 401(k) with a 3% match).

There are plenty of opportunities to save money at my company and I think they do try to provide competitive benefits, but for newer hires, it does fall more on them to insure they take advantage and there is little safety net if they don't. That is something that Superannuation Australia does a much better job at I think.

Yooper
Posts: 200
Joined: Fri May 21, 2010 7:25 am
Location: Nothern Michigan

Re: "The 401k Problem We Refuse to Solve"

Postby Yooper » Sat Jan 07, 2017 10:32 am

Yankuba wrote:What I really hate about pensions is that if I die before my 25th year - when I can activate my pension - my heirs get nothing. They don't get the survival benefits of my 24 years of service. But my heirs will get my 401k and IRAs.

It all depends. If by "heirs" you mean spouse/children, in fact they will get a significant death benefit type pension based on the number of years you had worked and how many minor children you have. I too was concerned about dying before my magical eligibility date (i.e. hit by a cement truck the day before I was eligible), but after looking into it I found out that in some ways I was worth more "dead before my pension" than after.... It was an eye opener for me (current federal pensioner) and certainly eased my mind at the time. And, since you're talking about a federal government job, your heirs would get your TSP balance.

Portfolio7
Posts: 111
Joined: Tue Aug 02, 2016 3:53 am

Re: "The 401k Problem We Refuse to Solve"

Postby Portfolio7 » Sat Jan 07, 2017 10:35 am

White Coat Investor wrote:There isn't a "401(k) problem." It's just a savings problem. The 401(k) might help a little, but come on. Even the match for most people doesn't amount to all that much. Most of us would have been just fine if 401(k)s had never been invented. It's not like you can't save for retirement in a taxable account.

If there is a 401(k) problem it's high fees and poor investment choices.


I think there's another element. i.e. not just a savings problem, as in personal decisions. I believe it's a savings problem as in scope and effectiveness (the latter of which includes fees and choices as you mention.)

The 401(k) problem is the same as the Pension problem. Scope. It isn't available to everyone. Granted, everyone can save on their own at Vanguard or Fidelity, and via an IRA.... but frankly it's nuts that someone working at a small company with no 401(k) is limited to setting up their own IRA and dropping $5,500 in it annually, or whatever the limit is now. Then, there are some 401(k) offerings barely worth your time. There's no point to do more than get the matching, and again your only decent option is an IRA. I think a national 401k clearing house not tied to specific employers would make much more sense.

User avatar
alec
Posts: 2789
Joined: Fri Mar 02, 2007 2:15 pm

Re: "The 401k Problem We Refuse to Solve"

Postby alec » Sat Jan 07, 2017 10:36 am

AlohaJoe wrote:
Dyloot wrote:Social Security remains the safety net that many Americans will rely on--and that will be limited.


Limited? Social Security is extremely generous by global standards. That's why tens of millions of Americans are able to retire on nothing but it. The equivalent old age pension in Australia maxes out at $22,000 for a couple. And is means tested with both asset and income limits. If you own a home and have other assets greater than $215,000 then you don't receive the full amount; if you have more than $860,000 then you don't get anything. Other income you receive (say from dividends or interest) reduce the amount you receive as well.


eh, maybe I'm misunderstanding the bolded part, but some googling seems to indicate that your statement may not true.

https://www.google.com/#q=how+does+soci ... +countries
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair

johnubc
Posts: 674
Joined: Wed Jan 06, 2010 6:54 am

Re: "The 401k Problem We Refuse to Solve"

Postby johnubc » Sat Jan 07, 2017 10:43 am

AlohaJoe wrote:
Dyloot wrote:Social Security remains the safety net that many Americans will rely on--and that will be limited.


Limited? Social Security is extremely generous by global standards. That's why tens of millions of Americans are able to retire on nothing but it. The equivalent old age pension in Australia maxes out at $22,000 for a couple. And is means tested with both asset and income limits. If you own a home and have other assets greater than $215,000 then you don't receive the full amount; if you have more than $860,000 then you don't get anything. Other income you receive (say from dividends or interest) reduce the amount you receive as well.


You are comparing apples to oranges when you try to equate the US Social Security to the Australian system.

The Australian Social Security is means tested - but it is from general tax funds, i.e., the participant does not pay into it. In the US, we do.
The Australian system has a mandatory employer contribution to a Super Annuity - 9% rising to 12% over time of ones salary. The annuity is owned by the person.

Imagine the political push back if employers were mandated to contribute 9% -12% of earnings on behalf of all employees. FICA is currently 6.2%.

goingup
Posts: 2176
Joined: Tue Jan 26, 2010 1:02 pm

Re: "The 401k Problem We Refuse to Solve"

Postby goingup » Sat Jan 07, 2017 10:59 am

White Coat Investor wrote:There isn't a "401(k) problem." It's just a savings problem. The 401(k) might help a little, but come on. Even the match for most people doesn't amount to all that much. Most of us would have been just fine if 401(k)s had never been invented. It's not like you can't save for retirement in a taxable account.

If there is a 401(k) problem it's high fees and poor investment choices.

The best feature of any 401K is automated payroll deduction. Many companies enroll new employees as the default now. Lots of folks just can't muster what it takes to open and fund a Roth, let alone set up a taxable account.

All the focus on the high fees of 401Ks may force better options, but it also has the effect of thwarting participation by those who need it most.

AlohaJoe
Posts: 1731
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: "The 401k Problem We Refuse to Solve"

Postby AlohaJoe » Sat Jan 07, 2017 11:00 am

johnubc wrote:Imagine the political push back if employers were mandated to contribute 9% -12% of earnings on behalf of all employees. FICA is currently 6.2%.


American employers already do pay 15.3% of earnings on behalf of all employees. (Though there is a ceiling after which you no longer have to pay the 15.3% tax.)

User avatar
White Coat Investor
Posts: 12491
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: "The 401k Problem We Refuse to Solve"

Postby White Coat Investor » Sat Jan 07, 2017 11:05 am

AlohaJoe wrote:
johnubc wrote:Imagine the political push back if employers were mandated to contribute 9% -12% of earnings on behalf of all employees. FICA is currently 6.2%.


American employers already do pay 15.3% of earnings on behalf of all employees. (Though there is a ceiling after which you no longer have to pay the 15.3% tax.)


No. There is a ceiling for 12.4% of it. The other 2.9% has no ceiling I assure you.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

User avatar
Watty
Posts: 10120
Joined: Wed Oct 10, 2007 3:55 pm

Re: "The 401k Problem We Refuse to Solve"

Postby Watty » Sat Jan 07, 2017 11:06 am

One thing to consider when looking at how well people are doing with 401k plans is that they did not become common until around the late 1990s and many companies still don't have them. I retired in 2015 and I only had about 17 years out of the 35 years I worked when I could contribute to a 401k plan. That was also the second half of my career so I lost out on a lot of the benefits of the compounding if I had been able to contribute to a 401k earlier in my career.

IRA's were not introduced until 1974 and they were not originally deductible and you could originally only make a token $250 contribution for a non-working spouse. Originally you could only have an IRA at a bank too. The contribution limit was only $2000 until 2001 which even when adjusted for inflation was not enough to fully save for retirement.

I was still able to save enough to be able to retire but when you hear some statistic like "The average retiree only had $XXX in retirement savings." you need to take that with a grain of salt since future generations will have a lot better opportunity to prepare for retirement.
Last edited by Watty on Sat Jan 07, 2017 11:12 am, edited 1 time in total.

User avatar
bottlecap
Posts: 4285
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: "The 401k Problem We Refuse to Solve"

Postby bottlecap » Sat Jan 07, 2017 11:08 am

Schizophrenic article, given that the conclusion is we need to save more after making a lot of comments about pensions and 401(k)s that aren't exactly correct.

The absolute best thing about 401(k)s is that they give the individual responsibility and control. This comes with problems because responsibility is not something we always like. It's not fun.

But regardless, the retirement problem is always saving. It's worrisome and not fun.

Fun is not saving anything and having someone else take care of you when you can no longer work. This is your pension. Your employer, who wants to pay you as little as possible, agrees to pay you a lesser salary in exchange for payments when you retire. You can't see or calculate that portion of your pay, so you can't evaluate it properly. You just take you employer's word for it after they show you some made up projections based on rosy market returns.

Of course, the problem is that there is all the incentive in the world for the employer to cheat, both intitially and over time, and they can legally do so by underfunding the pension based on some slight changes to anticipated returns or costs. Not only can they maintain plausible deniability in the moment, but by the time you retire, management will have changed numerous times. Each successive management will alleviate the problems inherited from the previous by a little more "cheating". They pass the buck and no one is the wiser.

So this presents a "savings" problem, too. If you are lucky everything works out for "you". But somewhere down the line, someone gets left holding the bag.

I'd love a pension, but it's just a vague promise made by someone at the time I take the job that might be fullfilled by someone at the end of my career if everyone in between keeps this promise despite a tremendous temptation not to do so.

Ultimately, there is no "panacea"; saving isn't fun! But at least with the 401(k) you have the means and incentive to take responsibility.

JT

User avatar
Ged
Posts: 3074
Joined: Mon May 13, 2013 1:48 pm
Location: Roke

Re: "The 401k Problem We Refuse to Solve"

Postby Ged » Sat Jan 07, 2017 11:17 am

Yankuba wrote:Personally, although I hope to get a federal pension in 10 years I think we need to move away from pensions.


The private defined benefit pension is clearly obsolete. The idea that you are going to be hired out of school and work for the same employer for your entire career is laughable in this day and age. I think government needs to move away from defined benefit pensions as well.

I was fortunate that my first employer bought into this when the 401(k) program was established in 1978 and was generous with matches as well. It has made for a comfortable retirement for me and the savings will be a great help to my children when I am gone.

There are of course some problems with 401k plan participation and the financial industry ripping people off. However these are minor and obvious solutions exist compared to the problems with a defined benefit pension system.

User avatar
nedsaid
Posts: 6793
Joined: Fri Nov 23, 2012 12:33 pm

Re: "The 401k Problem We Refuse to Solve"

Postby nedsaid » Sat Jan 07, 2017 11:21 am

grok87 wrote:Interpreted somewhat literally, this is basically an argument for the liability matching portfolio (LMP) approach advocated by Bernstein, Bodie, et al.

in other words, start buying 30 year tips when you are say 35 years old and keep buying them for 30 years until you retire at age 65. Then you will have built yourself a nice TIPS ladder to supplement social security and serve as the foundation of your retirement.



Grok87, the fundamental flaw with your approach with TIPS is that at 35 years of age, I was saving between 15% and 20% of my salary towards retirement. Social Security might replace maybe 40% of your income while working, I need more than 55% to 60% of my salary to live on.

This is why my portfolio was as is still stock heavy, at age 57 my retirement is still invested in 2/3 stocks and 1/3 bonds. I needed the growth that the stock market provided to increase my retirement account balances. Buying TIPS for a TIPS ladder from age 35 on to retirement pretty much means my retirement savings would be "running in place" during my career. Your approach just doesn't leave enough to retire on unless one could save extraordinary amounts of money. Starting TIPS ladders at age 35 would necessitate savings rates of 30% to 40% to get to the 70% to 80% replacement rates that financial planners suggest. For higher income workers, the savings rate would have to be even higher as Social Security is tilted towards lower income workers.

My belief is that as you get closer to "critical mass", that is a better time to start building TIPS ladders. I probably have lived on about 70% of my salary when 100% probably wasn't enough.
A fool and his money are good for business.

Angst
Posts: 1533
Joined: Sat Jun 09, 2007 11:31 am
Location: St Louis, MO

Re: "The 401k Problem We Refuse to Solve"

Postby Angst » Sat Jan 07, 2017 11:29 am

nedsaid wrote:
grok87 wrote:Interpreted somewhat literally, this is basically an argument for the liability matching portfolio (LMP) approach advocated by Bernstein, Bodie, et al.

in other words, start buying 30 year tips when you are say 35 years old and keep buying them for 30 years until you retire at age 65. Then you will have built yourself a nice TIPS ladder to supplement social security and serve as the foundation of your retirement.

Grok87, the fundamental flaw with your approach with TIPS is that at 35 years of age, I was saving between 15% and 20% of my salary towards retirement. Social Security might replace maybe 40% of your income while working, I need more than 55% to 60% of my salary to live on.

This is why my portfolio was as is still stock heavy, at age 57 my retirement is still invested in 2/3 stocks and 1/3 bonds. I needed the growth that the stock market provided to increase my retirement account balances. Buying TIPS for a TIPS ladder from age 35 on to retirement pretty much means my retirement savings would be "running in place" during my career. Your approach just doesn't leave enough to retire on unless one could save extraordinary amounts of money. Starting TIPS ladders at age 35 would necessitate savings rates of 30% to 40% to get to the 70% to 80% replacement rates that financial planners suggest. For higher income workers, the savings rate would have to be even higher as Social Security is tilted towards lower income workers.

My belief is that as you get closer to "critical mass", that is a better time to start building TIPS ladders. I probably have lived on about 70% of my salary when 100% probably wasn't enough.

Nedsaid,
it's all in the implementation. If you are all equity, i.e. you have 0% fixed income at age 35, and you just max your IRA annually with TIPS purchases (and do equity in the 401k and taxable), you will slowly increase your fixed income over the years, just as is typically advocated around here. You can always fine tune this, but if I were 35 now, it's exactly what I'd be doing.

grok87
Posts: 7224
Joined: Tue Feb 27, 2007 9:00 pm

Re: "The 401k Problem We Refuse to Solve"

Postby grok87 » Sat Jan 07, 2017 11:39 am

nedsaid wrote:
grok87 wrote:Interpreted somewhat literally, this is basically an argument for the liability matching portfolio (LMP) approach advocated by Bernstein, Bodie, et al.

in other words, start buying 30 year tips when you are say 35 years old and keep buying them for 30 years until you retire at age 65. Then you will have built yourself a nice TIPS ladder to supplement social security and serve as the foundation of your retirement.



Grok87, the fundamental flaw with your approach with TIPS is that at 35 years of age, I was saving between 15% and 20% of my salary towards retirement. Social Security might replace maybe 40% of your income while working, I need more than 55% to 60% of my salary to live on.

This is why my portfolio was as is still stock heavy, at age 57 my retirement is still invested in 2/3 stocks and 1/3 bonds. I needed the growth that the stock market provided to increase my retirement account balances. Buying TIPS for a TIPS ladder from age 35 on to retirement pretty much means my retirement savings would be "running in place" during my career. Your approach just doesn't leave enough to retire on unless one could save extraordinary amounts of money. Starting TIPS ladders at age 35 would necessitate savings rates of 30% to 40% to get to the 70% to 80% replacement rates that financial planners suggest. For higher income workers, the savings rate would have to be even higher as Social Security is tilted towards lower income workers.

My belief is that as you get closer to "critical mass", that is a better time to start building TIPS ladders. I probably have lived on about 70% of my salary when 100% probably wasn't enough.

It's a good criticism. I'm going to run the numbers and respond, perhaps kicking off a sepArate thread.
Frodo: I wish it need'nt have happened in my time. Gandalf: So do all who live to see such times. But that isn't for them to decide. All we have to decide is what to do with the time that is given us.

grok87
Posts: 7224
Joined: Tue Feb 27, 2007 9:00 pm

Re: "The 401k Problem We Refuse to Solve"

Postby grok87 » Sat Jan 07, 2017 11:42 am

Angst wrote:
nedsaid wrote:
grok87 wrote:Interpreted somewhat literally, this is basically an argument for the liability matching portfolio (LMP) approach advocated by Bernstein, Bodie, et al.

in other words, start buying 30 year tips when you are say 35 years old and keep buying them for 30 years until you retire at age 65. Then you will have built yourself a nice TIPS ladder to supplement social security and serve as the foundation of your retirement.

Grok87, the fundamental flaw with your approach with TIPS is that at 35 years of age, I was saving between 15% and 20% of my salary towards retirement. Social Security might replace maybe 40% of your income while working, I need more than 55% to 60% of my salary to live on.

This is why my portfolio was as is still stock heavy, at age 57 my retirement is still invested in 2/3 stocks and 1/3 bonds. I needed the growth that the stock market provided to increase my retirement account balances. Buying TIPS for a TIPS ladder from age 35 on to retirement pretty much means my retirement savings would be "running in place" during my career. Your approach just doesn't leave enough to retire on unless one could save extraordinary amounts of money. Starting TIPS ladders at age 35 would necessitate savings rates of 30% to 40% to get to the 70% to 80% replacement rates that financial planners suggest. For higher income workers, the savings rate would have to be even higher as Social Security is tilted towards lower income workers.

My belief is that as you get closer to "critical mass", that is a better time to start building TIPS ladders. I probably have lived on about 70% of my salary when 100% probably wasn't enough.

Nedsaid,
it's all in the implementation. If you are all equity, i.e. you have 0% fixed income at age 35, and you just max your IRA annually with TIPS purchases (and do equity in the 401k and taxable), you will slowly increase your fixed income over the years, just as is typically advocated around here. You can always fine tune this, but if I were 35 now, it's exactly what I'd be doing.

It's a good suggestion to buy tips in an ira. One problem is thAt for some people they are not tax advantaged in which cAse i struggle to recommend them.
Frodo: I wish it need'nt have happened in my time. Gandalf: So do all who live to see such times. But that isn't for them to decide. All we have to decide is what to do with the time that is given us.

Yankuba
Posts: 8
Joined: Wed Dec 07, 2016 10:45 am

Re: "The 401k Problem We Refuse to Solve"

Postby Yankuba » Sat Jan 07, 2017 11:50 am

Yooper wrote:
Yankuba wrote:What I really hate about pensions is that if I die before my 25th year - when I can activate my pension - my heirs get nothing. They don't get the survival benefits of my 24 years of service. But my heirs will get my 401k and IRAs.

It all depends. If by "heirs" you mean spouse/children, in fact they will get a significant death benefit type pension based on the number of years you had worked and how many minor children you have. I too was concerned about dying before my magical eligibility date (i.e. hit by a cement truck the day before I was eligible), but after looking into it I found out that in some ways I was worth more "dead before my pension" than after.... It was an eye opener for me (current federal pensioner) and certainly eased my mind at the time. And, since you're talking about a federal government job, your heirs would get your TSP balance.


Wow, that's great news! In 15 years nobody told this to me. I just assumed that my pension would vanish upon my demise unless I was already collecting the pension and I elected for survivor benefits

Dollarsign16
Posts: 34
Joined: Thu Jun 02, 2016 11:24 am
Location: CA

Re: "The 401k Problem We Refuse to Solve"

Postby Dollarsign16 » Sat Jan 07, 2017 11:53 am

White Coat Investor wrote:There isn't a "401(k) problem." It's just a savings problem.


This. While some savings vehicles are better constructed than others (fund options, fees, matching), the habit or saving or lack thereof is the problem.
I'm in early/mid 30's, have maxed Roth IRA since I was 23 and have recently been able to max 403b. Many of my friends and colleagues just don't get it and would rather prioritize spending on things I would consider crap... or at least lower priorities. I can't make them 'get it' and have largely given up trying. I have a close friend who didn't contribute to his 401K for years, even though the company matched 5%! He just pissed away that money. I was educated about retirement at an early age and have always been money savvy (or so I think), and I think many/most people just aren't as educated as they should be. It's a shame really. :oops:
Too many people spend money they earned..to buy things they don’t want..to impress people they don’t like. –Will Rogers

livesoft
Posts: 53260
Joined: Thu Mar 01, 2007 8:00 pm

Re: "The 401k Problem We Refuse to Solve"

Postby livesoft » Sat Jan 07, 2017 11:59 am

So my spouse and I have contributed the max possible to IRAs, 403(b), and 401(k) since the early 1980s. Yes, the contribution limits were low back then, but salaries were below $20,000 a year, so saving $2,000 a year would still be 10%.

But perhaps better marketing of these kinds of plans would have been helpful. Instead of calling them 401(k) plans, they could have called them FreeMoney plans. Who doesn't want Free Money? They could take a page from great marketing campaigns and even whole life insurance schemes.

Examples:

Put in $2500 and get $500 rebate back the first year FREE!
-or-
Contribute to your Guaranteed Retirement Annuity (GRA)! It's FREE money! Put in 3% a year and get up to 20% annual return*!
*Results may vary. Only 1.5% is actually guaranteed. Not a typical return. No real people were used in this advertisement.
-or-
No money down! A low monthly payment of just $400 for 30 years, gets you lifetime income of $800 a month. That's $400 a month absolutely FREE!
Last edited by livesoft on Sat Jan 07, 2017 12:01 pm, edited 1 time in total.
This signature message sponsored by sscritic: Learn to fish.

User avatar
nedsaid
Posts: 6793
Joined: Fri Nov 23, 2012 12:33 pm

Re: "The 401k Problem We Refuse to Solve"

Postby nedsaid » Sat Jan 07, 2017 12:01 pm

Angst wrote:
nedsaid wrote:
grok87 wrote:Interpreted somewhat literally, this is basically an argument for the liability matching portfolio (LMP) approach advocated by Bernstein, Bodie, et al.

in other words, start buying 30 year tips when you are say 35 years old and keep buying them for 30 years until you retire at age 65. Then you will have built yourself a nice TIPS ladder to supplement social security and serve as the foundation of your retirement.

Grok87, the fundamental flaw with your approach with TIPS is that at 35 years of age, I was saving between 15% and 20% of my salary towards retirement. Social Security might replace maybe 40% of your income while working, I need more than 55% to 60% of my salary to live on.

This is why my portfolio was as is still stock heavy, at age 57 my retirement is still invested in 2/3 stocks and 1/3 bonds. I needed the growth that the stock market provided to increase my retirement account balances. Buying TIPS for a TIPS ladder from age 35 on to retirement pretty much means my retirement savings would be "running in place" during my career. Your approach just doesn't leave enough to retire on unless one could save extraordinary amounts of money. Starting TIPS ladders at age 35 would necessitate savings rates of 30% to 40% to get to the 70% to 80% replacement rates that financial planners suggest. For higher income workers, the savings rate would have to be even higher as Social Security is tilted towards lower income workers.

My belief is that as you get closer to "critical mass", that is a better time to start building TIPS ladders. I probably have lived on about 70% of my salary when 100% probably wasn't enough.

Nedsaid,
it's all in the implementation. If you are all equity, i.e. you have 0% fixed income at age 35, and you just max your IRA annually with TIPS purchases (and do equity in the 401k and taxable), you will slowly increase your fixed income over the years, just as is typically advocated around here. You can always fine tune this, but if I were 35 now, it's exactly what I'd be doing.


Angst, I deeply respect Grok87 and try to read all of his posts. I think TIPS ladders are a great idea but I just wanted to show that the concept of buying them at an earlier age needed some fine tuning.

Another point is that some Bogleheads out there make some pretty extraordinary incomes. I saved a pretty good chunk towards my retirement, between 15% and 20% during my career. Towards the end of my stint as a Hospital Accountant, my savings rate for retirement counting employer contributions and matches was probably 27%. That is a lot of dough but I still didn't come anywhere close to maxing my workplace savings plan or even my IRA. Frugal as I am, even I have to live on something. I need more than a shopping cart, a "will work for food" cardboard sign, and a bridge underpass to live on.

There are folks here who live in a world that most of the US population does not experience. How many people can really afford to max out their 401k's, IRA's, their I-Bond limits at Treasury Direct, live in an expensive home, drive a very nice car, and still have a very sizable taxable investment portfolio? They are out there but represent a very small slice of the population.

Your suggestion is a good one. Putting 100% of your fixed income investments in TIPS are not a bad idea. I remember when TIPS and I-Bonds had real yields of 3% or a bit more. Should have backed up the truck and bought all I could but I didn't realize what a great deal they were then. In other threads, I have pointed out that TIPS have been more volatile than what people including myself would have expected.
A fool and his money are good for business.

Angst
Posts: 1533
Joined: Sat Jun 09, 2007 11:31 am
Location: St Louis, MO

Re: "The 401k Problem We Refuse to Solve"

Postby Angst » Sat Jan 07, 2017 12:18 pm

grok87 wrote:It's a good suggestion to buy tips in an ira. One problem is thAt for some people they are not tax advantaged in which cAse i struggle to recommend them.

Agreed. Part of what I like about the idea of maxing the IRA annually from age 35 is how contributions will grow with inflation (roughly) as allowables are increased over time. Of course TIPS still have to be purchased (at Vanguard) in $1,000 increments.

nedsaid,
I also read your later post reply farther down the thread and your points are well-taken, thank you. The BH population is a fairly rarefied crowd, to say the least. :) And admittedly, I'm more in tune with my own perspective, although that's one of not only living quite frugally and probably having had income even slightly below yours on average, but I've also had minimal expenses - e.g., no kids and an adult lifetime of Vanguard funds. Anyhow, clearly, annually maxing out ones 401k and IRA and adding to taxable investments in his or her 30's is much more doable for some than others.

dblck
Posts: 19
Joined: Sun Mar 10, 2013 10:58 am

Re: "The 401k Problem We Refuse to Solve"

Postby dblck » Sat Jan 07, 2017 12:33 pm

I think this discussion has answered a question I was thinking about posting: My DIL works for a company (over 100 employees) that does not offer any retirement benefits, so is it true the only "tax deferred" retirement plan available to her is the Roth IRA (I know contributions are after taxes, but earning are not taxed). I am seeing the answer is YES.

Also, I observe that most of the posters are likely men, as the topic is very familiar to me, because, working in a women's field prior to 1990 (one that required a Bachelors degree), I had no pension or options for meaningful retirement plans. I changed careers and thank goodness I did, as I later became single. Just sayin.

Finally, I know we cannot discuss pending legislation, but a means tested SS benefit is not impossible. Hope that does not boot my comments.

livesoft
Posts: 53260
Joined: Thu Mar 01, 2007 8:00 pm

Re: "The 401k Problem We Refuse to Solve"

Postby livesoft » Sat Jan 07, 2017 3:27 pm

dblck wrote:I think this discussion has answered a question I was thinking about posting: My DIL works for a company (over 100 employees) that does not offer any retirement benefits, so is it true the only "tax deferred" retirement plan available to her is the Roth IRA (I know contributions are after taxes, but earning are not taxed). I am seeing the answer is YES.

Also, I observe that most of the posters are likely men, as the topic is very familiar to me, because, working in a women's field prior to 1990 (one that required a Bachelors degree), I had no pension or options for meaningful retirement plans. I changed careers and thank goodness I did, as I later became single. Just sayin.

Finally, I know we cannot discuss pending legislation, but a means tested SS benefit is not impossible. Hope that does not boot my comments.

Some details:
A Roth IRA is not a tax-deferred retirement plan. The taxes are paid upfront on the money before contributing to a Roth IRA and then everything afterwards is tax-free, not tax deferred.

A traditional IRA, however, is tax-deferred. Details in IRS Publications 590-A and 590-B.

A taxable account can also be considered "tax-deferred" in that unrealized capital gains are not taxed until they are realized. That is, the taxes are deferred until one sells the investment. There may be very small amount of tax to be paid along the way if the investments in the taxable account pay out dividends, but these taxes for a tax-efficient investment are less than 0.5% (half a percent) a year.

I was able to save 100% of my income for many years because my wife worked and we could live off her income. The same thing could be said about my mom in the 1950s: My dad worked and my mom was able to save 100% of her income. The problem there was she had no income. :)

So your DIL has plenty of options to choose from to save for retirement. Knowledge is power.

IMHO, there have always been great ways to save for retirement, but folks just seemed to not want to learn about them.
This signature message sponsored by sscritic: Learn to fish.

Grt2bOutdoors
Posts: 15625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: "The 401k Problem We Refuse to Solve"

Postby Grt2bOutdoors » Sat Jan 07, 2017 3:45 pm

kenschmidt wrote:
AlohaJoe wrote:
Dyloot wrote:Social Security remains the safety net that many Americans will rely on--and that will be limited.


Limited? Social Security is extremely generous by global standards. That's why tens of millions of Americans are able to retire on nothing but it. The equivalent old age pension in Australia maxes out at $22,000 for a couple. And is means tested with both asset and income limits. If you own a home and have other assets greater than $215,000 then you don't receive the full amount; if you have more than $860,000 then you don't get anything. Other income you receive (say from dividends or interest) reduce the amount you receive as well.


But Australia also has Superannuation which while not perfect, does require 9.5% employer contributions, allows extra employee contributions (salary sacrifice - say it like saakrifoyce to be cool) with tax advantages, government contributions for low income earners among others. Pretty well set up overall.


Employers are making 6.2% contributions to Social Security in the U.S., if you get a basic 3% match in the 401k, then we (U.S.) would match the Australians. If your employer offers more, then so much the better. The biggest problem with the 401k plan is there are no standard rules to be followed - contribute X% with Y% match and you can receive Z% of final salary at age 50, 55, 59, 62, 67, whatever. The employees who are in 401ks really have no benchmark to guide them. Oh yes, some plans offer estimates through sources like Financial Engines (my own employer does but I chuckle at some of those estimates, I think they are really "pie in the sky" estimates, as if everything will be a bowl of cherries over the next 25 years).
"Luck is not a strategy" Asking Portfolio Questions

Grt2bOutdoors
Posts: 15625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: "The 401k Problem We Refuse to Solve"

Postby Grt2bOutdoors » Sat Jan 07, 2017 4:04 pm

Angst wrote:
grok87 wrote:It's a good suggestion to buy tips in an ira. One problem is thAt for some people they are not tax advantaged in which cAse i struggle to recommend them.

Agreed. Part of what I like about the idea of maxing the IRA annually from age 35 is how contributions will grow with inflation (roughly) as allowables are increased over time. Of course TIPS still have to be purchased (at Vanguard) in $1,000 increments.


Biggest problem I have with purchasing TIPs, is a Roth is very valuable space. Why would I want/should buy TIPs in that space when I could be purchasing fixed income in a 401K and leaving equities to grow tax free in a Roth with low/no need for required mandatory distributions come retirement? I used to like I-bonds, but the 0% fixed rate leaves alot to be desired these days.
"Luck is not a strategy" Asking Portfolio Questions

Nate79
Posts: 434
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: "The 401k Problem We Refuse to Solve"

Postby Nate79 » Sat Jan 07, 2017 4:17 pm

401k, IRA's are great tax advantage accounts. They have been one of the best things available to workers and thank goodness that pensions have fallen out of favor. Pensions are a horrible option in general. Don't like 401k? Use savings accounts and taxable accounts. It's what people have used for eons. SS is basically a pension and shows what is so wrong with the whole idea of pensions.

My money is my money and I want full control when and where I decide to invest in a fully transparent system. I don't care to be part of a system controlled by others who invest in manners that are not transparent, make promised that they may not fulfil and that could be changed after the fact. As well they offer no value to my heirs.

But it's a free country. Try to work at a company that offers a pension if you want. Companies can offer pensions if they want. Most decide not to.

dblck
Posts: 19
Joined: Sun Mar 10, 2013 10:58 am

Re: "The 401k Problem We Refuse to Solve"

Postby dblck » Sat Jan 07, 2017 4:26 pm

Thanks Livesoft, for adding some precision to my Roth IRA comment.

I think DIL cannot do a tax deferred traditional IRA, but if she can, the IRA limit applies to total IRA contributions in a year doesn't it? (sorry to be lazy and not look it up.)

Not sure I get that "deferred taxes" on unliquidated capital gains is equivalent to tax deferred savings in a 401K etc. for the average earner (who may not enjoy investment challenges). Can be riskier, and/or require more management, IMHO.

Glad you could live off of one income, but I also am not so sure that is true today. And your income was still taxed, right?

DIL does have options, but not so many favorable to her current income tax situation, I think. Other specific suggestions are welcome!

Thanks!

pkcrafter
Posts: 11204
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: "The 401k Problem We Refuse to Solve"

Postby pkcrafter » Sat Jan 07, 2017 4:45 pm

Nicely done, Portfolio7. :thumbsup


Living the Retirement Blues (12 bar aab pattern I believe it's called, iambic pentameter, just for fun )
I lost my pension, lost my job
now I'm running with an angry mob
Re-education, what's the point
let go again from a different joint
If I had work I'd save more cash
I'd stand for you girl, oh so fast
I still got game, and you're so fine
you know next year our sun will shine
so I just hope, yes I just pray
they all don't touch my 401(k)!
(rumbling baritone) Yeeee-eaaaah!
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

User avatar
Phineas J. Whoopee
Posts: 6057
Joined: Sun Dec 18, 2011 6:18 pm

Re: "The 401k Problem We Refuse to Solve"

Postby Phineas J. Whoopee » Sat Jan 07, 2017 5:05 pm

dblck wrote:...
Finally, I know we cannot discuss pending legislation, but a means tested SS benefit is not impossible. Hope that does not boot my comments.

Present taxation of SS benefits, under enacted legislation, accomplishes means testing to an extent.
PJW

User avatar
LadyGeek
Site Admin
Posts: 36387
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: "The 401k Problem We Refuse to Solve"

Postby LadyGeek » Sat Jan 07, 2017 5:19 pm

This thread has run its course and is locked (general rant, stupidity of other people). See: Unacceptable Topics

Non-actionable (Trolling) Topics

If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:
  • US or world economic, political, tax, health care and climate policies
  • conspiracy theories of any type
  • discussions of the crimes, shortcomings or stupidity of other people, whether they be political figures, celebrities, CEOs, Fed chairmen, subprime mortgage borrowers, lottery winners, federal "bailout" recipients, poor people, rich people, etc. Of course, you are welcome to talk about the stupid financial things you have done.

I also removed a few posts regarding proposed changes to Social Security (proposed legislation, off-topic).
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.


Return to “Investing - Theory, News & General”

Who is online

Users browsing this forum: banjoeman, Bing [Bot], Bracket, columbia, granpa, ImmigrantSaver, mcblum, NCPE, siamond, Visitor, WallStreetPhysician, Yahoo [Bot] and 68 guests