If you can read this, either the style sheet didn't load or you have an older browser that doesn't support style sheets. Try clearing your browser cache and refreshing the page.

(LA Times)   New report says the 401(k) system leaves most people with inadequate retirement savings. That report is called your 401(k) statement   (latimes.com) divider line 37
    More: Fail, pension plans, saves, Economic Policy Institute  
•       •       •

1572 clicks; posted to Business » on 06 Sep 2013 at 11:38 AM (49 weeks ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



Voting Results (Smartest)
View Voting Results: Smartest and Funniest

2013-09-06 04:12:34 PM
3 votes:

Problem: 100% of Americans need a source of funds for retirement after working and contributing to the economy for 40-50 years.


Solution: 1935 Social Security is created, but is never intended to be the sole source of retirement funds.  Between 1945 and 1980 or so, public- and private-sector unions are notably successful in negotiating defined-benefit retirement plans (pensions) for average US workers at nearly all levels of income.  Businesses experience steadily rising production efficiencies, with rising profits, and can afford to pay for pension plans. Progressive taxes pay for public-sector worker retirement plans.

This system is generally successful for its recipients, and for the first time in human history a large portion of the population can expect a retirement that is actually enjoyable and doesn't involve starvation and being placed on ice floes.


Problem: Shareholders decide they want annual gains in share value of at least 10% a year every year.  Also, they don't want to pay any taxes on those gains.

Solution:Stagnate wages to all worker levels below upper management,

www.artonissues.com

and elect politicians who steadily reduce tax rates on upper income levels, and declare capital gains to be excluded from ordinary income.

Problem: This works for a while, but 10%/yr adds up so we need to squeeze more.

Solution: Eliminate defined benefit (pension) plans for all worker levels below upper management, and replace with defined contribution plans (401k, IRA). Sell defined contribution plans as being better for the worker ("They're portable!") and use unrealistic growth assumptions ("12% a year, and with never a market correction!"). This produces a feeding frenzy for the finance industry, in large part because average workers don't know that 2-5% fees are looneytunes and have no realistic way to know that they could have used no-loads with maybe .2% fees for the same indexes, assuming their employer lets them have any access to something like that.

Problem: Of course, the market doesn't really work as predictably or as lucratively for its end users to give 12% net returns every year, and workers are beginning to realize they won't have anywhere near enough money for retirement.

Solution: Blame the workers. They didn't put enough into their 401k (never mind the declining wages for 30+ years) because they're irresponsible spendthrifts (wanting to have children! buy shoes, healthcare and education for those children!). It's their fault, because all workers should have the same professional level of understanding and education in financial management as a licensed financial planner. So it's their fault you see.
2013-09-06 04:59:03 PM
2 votes:
The main problem I have with these articles is that they discourage folks from even trying.

No one knows the future. Salary, savings, career length, etc. are not guaranteed.

But that does not mean you can't give it a try. Not to guarantee, but to improve the odds.

Almost 20 years ago there were a lot of naysayers who said either "why invest in a 401K? my pension is my retirement", or "why invest if I can't touch the money for 30-40 years? By that time it won't be worth anything!"

And then, Black Monday in 1987, when I saw my 401K lose 22% of its value in ONE DAY. When statements came out, you should have seen folks rushing to get out of their 401K ("I'll lose everything if I stay in!").

My 401K has done well over the past 29 years... but I did not know that at the time. And every crisis that came along I saw folks panic and take money out. I had no more insight than them. I just thought "what are the long term odds?" And kept plugging away.

Oh, and also - I kept my 401K simple. All index funds - large cap, small cap, international, bond fund. Part of the problem is that 401K plans offer so many options that folks think they need to take advantage of those options. 90% of folks should just stick to broad index funds and probably no more than 5 (full disclouse: I am a Boglehead).
2013-09-06 03:05:48 PM
2 votes:

HeadLever: Dave Ramsey


Dave Ramsey is an anti-debt fanatic who advocates making no retirement contributions if you have a credit card to pay down.

Prior to creating his bible-based1 financial advice radio- and publishing system, he made money in highly leveraged real estate speculation that went so well he had to file bankruptcy.2  He appears to be self-taught as far as his education in basic financial principles, economics, management and planning go.

He also makes projections on retirement account results using assumptions that investments will return 12% (net!) and that in retirement you can draw 8% out safely every year. He appears to never differentiate between "average" returns vs "compound" returns.

1The bible is a nice enough book but not the best basis for modern financial planning.  There are other, more recent, more finance-oriented sources that may produce better results.

2It is kinda weird how frequently some high-profile finance gurus, who advocate discipline and patience and risk avoidance for others, have a history of real estate speculation and leverage (AKA "gambling with other peoples' money") as the main source of their own wealth. Weirder still, they don't seem to advocate it for others.  But I wanna be a Rich Dad too!
2013-09-06 02:37:48 PM
2 votes:
"...and invest too conservatively to sustain themselves through old age."

Except that those of us who did take on higher risk "because you're young and you can weather any market fluctuations!" got f*cked in the ass by Wall Street selling shiat sandwiches as "moderate risk".
2013-09-06 01:55:57 PM
2 votes:
If a self-managed retirement account were a sensible way of planning for retirement everybody would just be a stock broker from day one.

I have an IRA and a 401k because I have no reasonable retirement-planning options (and I'm not leaving the paltry company match on the table), but even though I'm doing fine with both I think the whole idea is still farking retarded. If everybody were able to make money in the stock market everybody would be a goddamn fund manager. You shouldn't have to have two careers your entire life just so you can eat past 65.

401ks are particularly insidious since the only thing they actually accomplish is a better bottom line for the companies that get to cut their staffing costs.

On the flip side, it's workers' faults they let companies steal their pensions away in the first place so I'm a bit torn on who gets more ire, companies or their employees.
2013-09-06 12:33:16 PM
2 votes:
When Obama launches those 200 cruise missiles at Syria, thats 91,000 monthly Social Security payments. Not a problem to launch those missiles. Fix Social Security? Man, it's broken beyond repair. Wars are easier to fight, then dealing with domestic problems.
2013-09-06 12:17:11 PM
2 votes:

HeadLever: Yep, subby. All the system's fault.  Has nothing to do with this.  Personal responsibiltiy is only for others, amiright?


Frontline had a great show that talked about retirement/401K.

They pointed out 2/3 of gains are typically swallowed up in fees by the Wall Street companies that run the 401ks.
2013-09-06 10:56:54 AM
2 votes:
I have SS, 401k, a retirement fund, two houses paid for and I still doubt I'm set up for retirement.

But that (of course) is because I'm lazy and don't know how to handle money. That's ALWAYS the right wing answer...
2013-09-06 05:06:18 PM
1 votes:
Step 1: know exactly what you spend your money on.
2013-09-06 04:54:15 PM
1 votes:

HeadLever: From 25 to 65 is 40 years. Say I save a modest $300/month and my employer matches 50%. Say I average 8%. When I retire at age 65, I'll have $1.57Million.

It just takes a bit of discipline.


That's an unattainable dream for recent grads, not something that a little discipline will get you.
The pay isn't there, nor are the benefits. The job I did have with great pay and benefits was outsourced before I could ever contribute. When outsourcing didn't work out, what I used to get $21/hr with full bennies and a defined career path is now performed by interns who get <$10/hr and the knowledge they're gone if the wind changes.
My current job has neither the wages to support decent savings nor does it do 401K matching. And this is what the majority of jobs are looking like these days. All this talk of discipline and 8% returns for 40 years sounds like so much "I've got mine, fark you." It's the same kind of ignorance that still thinks hitting the bricks will land you a great job.
2013-09-06 04:50:11 PM
1 votes:
HeadLever: From 25 to 65 is 40 years.  Say I save a modest $300/month and my employer matches 50%.  Say I average 8%.  When I retire at age 65, I'll have $1.57Million.

It just takes a bit of discipline.


You sound young. It also takes a lot of luck.

From 25 - 65, you're apt to marry and/or spawn an off-spring or two. Also likely to be: divorced, fired, laid-off, sick, or disabled in that same 40 year period. Once one bad thing happens, things tend to go downhill very quickly. After which, you'll have to raid your retirement account just to eat.

/ middle aged
// survived my 2009 personal & financial disaster pretty well
/// not bitter
//// love slashies
2013-09-06 04:48:40 PM
1 votes:

KierzanDax: "...and invest too conservatively to sustain themselves through old age."

Except that those of us who did take on higher risk "because you're young and you can weather any market fluctuations!" got f*cked in the ass by Wall Street selling shiat sandwiches as "moderate risk".


Only if you cashed out. If you opted to cash out during the crash, you ignored wall street. If you had to, you ignored wall street when you put short-term money in a long term investment.

You made that sandwich.
2013-09-06 04:22:52 PM
1 votes:

HeadLever: While he has a degree in Finance from UTenn


No he doesn't. He has a BA in Business Administration from UTenn. That's the male equivalent of a sorority girl with a Communications degree. He's on par with Robert Kiyosaki, Suze Orman or Motley Fool. Good luck with that, and keep blaming average Americans for getting shut out of our nation's continual growth and prosperity - it's their fault for not getting an MBA.
2013-09-06 04:13:51 PM
1 votes:

error 303: the whole 401k model seems like such a crapshoot.


Really? You doubt that rank and file americans have the savvy to succeed at something that accredited professional money managers with huge buying advantages utterly failed at? You don't say...

Me, I'm doing ok and I think my lucky stars that I somehow learned about index funds and the effect of fund expenses at an early age and took it to heart. I still doubt I'll have enough but I do think I'm doing better than most - I'm not making a ton of money, just that I started saving in my early 30's and have put substantial amounts of money into low cost index funds for more than a decade so I have something of a balance.
2013-09-06 03:55:41 PM
1 votes:

mcreadyblue: ddam: mcreadyblue: HeadLever: Yep, subby. All the system's fault.  Has nothing to do with this.  Personal responsibiltiy is only for others, amiright?

Frontline had a great show that talked about retirement/401K.

They pointed out 2/3 of gains are typically swallowed up in fees by the Wall Street companies that run the 401ks.

The employee must be getting a very large kickback if the only plans available in then 401k have high fees. The 2 funds I put my 401k money in have maintenance fees of less than .2% and there are a couple of options with less than that.

Also, the biggest gain the the employee contribution. For example, my employee matches 100% up to 5% of my paycheck so I'm only using the 401k for that 100% return on my investment. The market return on top of that is just icing on the cake.

Can you give up the name of the funds?

Here is a link to the PBS show online :

http://www.pbs.org/wgbh/pages/frontline/retirement/view/


About 60% of my 401K is in Fidelity LifePath Index 2045 Fund Q which has an expense ratio (gross) of 0.12%
I have about 30% in Fidelity Stable Value Fund which has an expense ratio (gross) of 0.03%

If you have your 401K invested in any fund that has fees and expenses higher than 0.20% then you better lood for an alternative or ask your company to switch investment firms. Some is getting a kickback if all available funds have fees in the 5-6% range or higher.
2013-09-06 03:40:58 PM
1 votes:

rnld: Sometimes it's better to pay off debt when the interest on the debt is higher than the return on your investments.



For a savy individual this is a needed decision point but most people are not savy.  I would suggest not accruing any more debt, find your budget excess, apply that 50/50 to investment/savings and debt reduction.
2013-09-06 03:17:20 PM
1 votes:

error 303: I made every effort to shovel as much as I could into my retirement fund early on. Now that I've got 2 kids I've had to dial back, and stuff like this worries me. At 6.5% over the next 30 years I can hit $500,000, which would probably be enough (combined with planned pension and SS), especially if I can have my mortgage paid off by then, but adding to everything is  the fact that the prospect of paying for college for two (or more) kids is just terrifying. The financial planner we talked to recomended saving about $600 a month, per kid, to ensure we could fully fund their college education, which is just way out of our budget right now.

I'd be much happier and comfortable with a better pension option and the knowledge that SS will be more robust in the future, the whole 401k model seems like such a crapshoot.


This is something I'll never understand - why would you pay for your kids college? Let em get bootstrappy and pay for it themselves - they'll appreciate their education more and thank you later for not delivering everything to them on a platter.
2013-09-06 02:38:29 PM
1 votes:

dustman81: Dave Ramsey's program is already taught in schools, it's called "Foundations in Personal Finance"


Yep, and it (or something similar) needs to be expanded to be manditory for HS graduation.
2013-09-06 02:28:38 PM
1 votes:

ddam: mcreadyblue: HeadLever: Yep, subby. All the system's fault.  Has nothing to do with this.  Personal responsibiltiy is only for others, amiright?

Frontline had a great show that talked about retirement/401K.

They pointed out 2/3 of gains are typically swallowed up in fees by the Wall Street companies that run the 401ks.

The employee must be getting a very large kickback if the only plans available in then 401k have high fees. The 2 funds I put my 401k money in have maintenance fees of less than .2% and there are a couple of options with less than that.

Also, the biggest gain the the employee contribution. For example, my employee matches 100% up to 5% of my paycheck so I'm only using the 401k for that 100% return on my investment. The market return on top of that is just icing on the cake.


Can you give up the name of the funds?

Here is a link to the PBS show online :

http://www.pbs.org/wgbh/pages/frontline/retirement/view/
2013-09-06 02:22:40 PM
1 votes:

AngryDragon: bark_atda_moon: HeadLever: Say I save $150 a month in an IRA at 8% for 40 years.  That is a bit more than 500K in savings. It doesn't take much to save some money in the future.  What it does take is discipline.  That is what most folks are missing - not money.

They are also missing a magic way to get a guaranteed 8%.  Safe investments are making less than 2%.  Younger folks can roll the dice, but people already in their 50s and 60s are playing it safe.

Returns are usually calculated by historical averages.  Example:



The big loss years bring things down dramatically.  Average annual return of the S&P over time is over 10%.  The key is over time.  You're saving for retirement not for next weekend's party.  That's why you save early, often, and consistently.


You need to factor in inflation.

rpreschern.files.wordpress.com
2013-09-06 02:21:10 PM
1 votes:

HeadLever: Things cost more becacuse folks are going into debt more and more


Or folks are going into debt more and more because things cost more and wages haven't risen in 30 years.
2013-09-06 02:05:36 PM
1 votes:

HeadLever: Yep, subby. All the system's fault.  Has nothing to do with this.  Personal responsibiltiy is only for others, amiright?

[www.creditwritedowns.com image 570x371]


Yeah, because everyone making less money while things cost more has nothing to do with the inability to save.  Were you born stupid or just raised that way?
2013-09-06 01:55:58 PM
1 votes:

rumpelstiltskin: Yeah, it's The System's fault you can't save any money.


Actually, yes, yes it is.

And if Americans actually saved what they needed to for retirement, it'd probably send the world economy into a tailspin as even more wealth sat idle.

Imagine if every working American socked away just 10% of their income each month.  That's a huge chunk of cash taken out of circulation, sitting earning interest in some account, 401K, IRA, or whatever you choose.
2013-09-06 01:33:22 PM
1 votes:

MugzyBrown: HeadLever: They can react fine.  They have requested as much.  However, since they don't have the authority to make the change (congress does), they utlimtatly cannot control the situation they are in

Uhh yeah.. that's the whole point.

Gov't programs have to deal with politicians and are using other people's money.  Same reason FDIC is a joke, and NFIP is underfunded


The FDIC is perfectly fine and weathered the Great Financial crisis without any problems. They also increased the premium that they charged banks for their insurance subsequent to that crisis. But they can act without Congressional approval.

If you want to go back to the time when banks were uninsured and you could lose all your money when it went under, feel free. I hear you can get some biatching rates on CDs from the Stanford International Bank. Or stuff it in your mattress.
2013-09-06 01:30:08 PM
1 votes:
I made every effort to shovel as much as I could into my retirement fund early on. Now that I've got 2 kids I've had to dial back, and stuff like this worries me. At 6.5% over the next 30 years I can hit $500,000, which would probably be enough (combined with planned pension and SS), especially if I can have my mortgage paid off by then, but adding to everything is  the fact that the prospect of paying for college for two (or more) kids is just terrifying. The financial planner we talked to recomended saving about $600 a month, per kid, to ensure we could fully fund their college education, which is just way out of our budget right now.

I'd be much happier and comfortable with a better pension option and the knowledge that SS will be more robust in the future, the whole 401k model seems like such a crapshoot.
2013-09-06 01:23:42 PM
1 votes:
The worst part about this, as usual the people who have saved and have been responsible will have to step in and help those who blew through their salary every month without saving.

I don't make big money, but I've been able to put a nice % aside every month, and I have a mortgage and a kid.

They'll change the tax laws to keep SS afloat for the irresponsible people even though for 20 years people have been saying SS isn't enough to live off of.

Same thing with the mortgage crisis and every problem.  The profitable banks and responsible homeowners got to sit back and watch their tax dollars bail out irresponsible lenders and lendees
2013-09-06 01:18:28 PM
1 votes:

Minarets: The biggest problem with the 401(k) system is the average person does not make enough in the first place to set aside a meaningful amount of money to retire with.  All that is going to happen is they are are at retirement age, they are going to take the $50k they saved up over 30 years as a distribution and live off of social security and medicare for the rest of their lives.

Combine that with theability to take a loan on the 401(k) account, which destroys earnings potential, and its no wonder that Americans in general, are farked for retirement.



I'll disagree with that.  They make plenty of money, they just choose to spend it on other things.  A 200 to 500 dollar car loan, 150 to 250 bucks a month for TV and Internet and a smart phone, 100 to 200 bucks a month in Credit Card interest, 100 bucks a month for beer, 200 bucks a month for eating out, etc.

Say I save $150 a month in an IRA at 8% for 40 years.  That is a bit more than 500K in savings. It doesn't take much to save some money in the future.  What it does take is discipline.  That is what most folks are missing - not money.
2013-09-06 01:09:31 PM
1 votes:
The biggest problem with the 401(k) system is the average person does not make enough in the first place to set aside a meaningful amount of money to retire with.  All that is going to happen is they are are at retirement age, they are going to take the $50k they saved up over 30 years as a distribution and live off of social security and medicare for the rest of their lives.

Combine that with theability to take a loan on the 401(k) account, which destroys earnings potential, and its no wonder that Americans in general, are farked for retirement.
2013-09-06 01:07:59 PM
1 votes:

MugzyBrown: A failing government program?


The only reason that it is 'failing' is that congress will not give it the authority to charge the premiums that is required to balance assets and liabilities.  So far, they have not had to have any bailout from taxpayers, but if they allow the asset-liability gap to continue on its current path, that will only become a matter of when.

overall, it looks to be an easy fix.  Thier hands are tied in its implementation, though.
2013-09-06 12:56:25 PM
1 votes:

HeadLever: dsmith42: That insurance on the private pensions is, as of November of 2012, a possessor of $85 billion of assets with $112 billion of liabilities.

You wouldn't happen to have a link to that source info, would you?  I would like to get more info on the accounting here.


Sure, here you go:

http://articles.washingtonpost.com/2012-11-16/business/35505545_1_pb gc -premiums-pension-plans-troubled-pension-funds

I tried to go directly to the PBGC website directly, but for some reason it would not load for me. But it seems to be working now.
2013-09-06 12:46:46 PM
1 votes:
I've been saving for 25 years, have 300K and my monthly income from that is probably 300 a month. 25 years ago, the investment company and HR was telling people that if they started at 21, they'd be millionaires at 40. So, yeah. Pretty much. Once I seriously sat down and did the math, I started paying down the house. At least I won't have to make the choice of rent or cat food.
2013-09-06 12:45:08 PM
1 votes:
"But the 401(k) system has been a dud for the vast majority of Americans, with women, young people and minorities among the broad groups whose financial well-being is at risk because they're not saving enough. "

I think I'm seeing the problem here...

"For middle-income earners, the median balance in 401(k) plans as of 2010 was a lowly $23,000, according to the study. "

So assuming they're talking about people in their mid-40s, that means 15 years of savings.  $23K over 15 years is 1,500 a year or $60 per bi-weekly paycheck and that is without any interest.

Conversely, after a quick calculation, saving just $100 a paycheck in that same timeframe at 8% average yields $65,000.  Take that out another 20 years, and the total is $413,500.  It's not that the system is failing, it's that people are short-sighted.  Is there a reason why they don't teach a semester of personal finance in high school?
2013-09-06 12:38:27 PM
1 votes:

ddam: Public sector pension funds have been raided by politicians for various reasons and that's the biggest reason why there are underfunded.


That is part of the issue, but not all.  Some of it is just poor planning and promises that they could not keep.
2013-09-06 12:31:05 PM
1 votes:

rumpelstiltskin: Yeah, it's The System's fault you can't save any money.


While this may be true, it will end up being your problem.  Rather than saying FU, I got mine, you should be looking for solutions.
2013-09-06 12:23:12 PM
1 votes:

AirForceVet: Because businesses want to give more money to shareholders, executives, CEOs rather than the employees who make the businesses run?


Some of the worst performing and must underfunded pensions are in the public sector.  Also don't forget that private pensions are insured, while public pensions are generally not.  Also, I belive that private pensions need to be funded upfront, whereas public entitites can promise whatever thier alligator mouth spouts, regardless if they are supporting a hummingbird ass or not.
2013-09-06 12:15:23 PM
1 votes:

HeadLever: Has nothing to do with this. Personal responsibiltiy is only for others, amiright?


Your first mistake is assuming that the graph has something to do with personal responsibility. It's still very much the system if wages haven't increased in the entire timespan the graph represents, while the cost of everything else has.
2013-09-06 12:09:26 PM
1 votes:

You're the jerk... jerk: Yes, let's return to the magically sustainable world of pensions. That will solve everything.


Oh, and why is that, pray tell? Because businesses want to give more money to shareholders, executives, CEOs rather than the employees who make the businesses run?

Expect the next benefits to lose from employers to be, in no particular order: Health insurace, paid vacation days, pay raises.
 
Displayed 37 of 37 comments

View Voting Results: Smartest and Funniest


This thread is closed to new comments.

Continue Farking
Submit a Link »






Report