14 ms·

The other problem is that 401ks let you do dumb stuff pensions don't. Dumb stuff like pulling most of your funds in the 2008 crisis and holding it in cash to mi

The other problem is that 401ks let you do dumb stuff pensions don't. Dumb stuff like pulling most of your funds in the 2008 crisis and holding it in cash to miss out on the rebound. Or investing in borderline scam products like variable annuities. 401ks are great if you're savvy. They are massively inefficient for society in that they require all the people who use them to understand investing. This is really bad policy at a society level. People need real, unbiased investing guidance.

jdavis703 9y ago
At what point does personal responsibility kick in? Every 401(k) I've been on has given the option of investing in funds that ramp down risk exposure as the fund's target retirement date comes closer. Literally all you need to do is put your $1400/month in to a retirement account and not touch it. If you're upper middle class this is not hard to do (again I'm not talking about poor people here, but those with money who aren't saving). Whenever our 401(k) report comes out at work I can tell that most people are not putting nearly the amount of money they should be into savings -- and this is a tech company so most everyone aside from interns are being generously compensated.
- deleted 9y ago
  [deleted]
- throwawaybbqed 9y ago
  I think education is an important factor. I'm nearing 40, make a lot of money, but have no idea how to optimize my 401k. When I ask co-workers, they are more ignorant than me. I changed companies a few times and have tranches of cash in each of their 401ks.
  - jdavis703 9y ago
    Well if you don't mind me asking, what kind of annual returns are you generating? If you're in the 7-8% range you're probably about as "optimized" as you can be, assuming your 401(k) is only giving access to large index funds. Another trick you can use is switch to a Roth 401(k). It means you'll be taxed on your savings today, but when you retire they'll be tax free. Now this is total speculation here, but I'm kind of assuming taxes will be pretty high in the coming decades as we try to keep social security going and pay down deficit spending, not too mention dealing with climate change fallout. Also good for you on keeping all your money in the 401(k) accounts, some people cash them out when they change jobs which triggers penalities and taxes. If you can however, I would roll all your accounts in to one giant 401(k) so you can better keep track of what's going on.
    - brewdad 9y ago
      I have no doubt that if the capping of 401k deductions goes through, Roth IRAs will be next. There is nothing stopping the government from deciding to tax Roth withdrawals down the road. They'll probably do it at a lower rate, like capital gains, but I fully expect it to happen.
    - throwawaybbqed 9y ago
      I have like 20K in a 401K when I worked at Microsoft a long time ago. This is around the 2008 fiasco. I just converted everything to cash. I didn't do a rollover when I changed employers (I think there is some time limit which I have likely exceeded). I've been trying to figure out if I can make use of that cash. The confusion is that the plan I was in was for Microsoft employees. Can I still use their plan's investment options?? I also don't want to incur any tax implication ... literally the cash has been sitting there for years because I am too stupid to figure out all the details. It is just sad :(
      - billmalarky 9y ago
        > I didn't do a rollover when I changed employers (I think there is some time limit which I have likely exceeded). There are several "timelimit" related aspects to 401k rollovers, neither would apply in your circumstance. You sound anxiety paralyzed like you made some "unfix-able past mistake" and there is zero reason for you to be. > It is just sad :( See my other comment about consolidating all of your legacy 401ks into a single robo-advisor (betterment/wealthfront/etc). It isn't hard, mainly consists of sending a few emails to HR departments and forwarding a few paper checks. Any robo-advisor will have a support team that will hold your hand through the process for free - they want to earn your business.
      - astrange 9y ago
        401k’s don’t have taxes and Microsoft employees don’t get secret better investment options than you do. Just move it into Betterment and forget about it.
        jacalata 9y ago
  - stevenwoo 9y ago
    Roll all of your 401K's over into a single Roth IRA. I lost track of one for years until I went to work for another company that had a 401K with the same firm as my previous employer. It's easier to keep track of and mentally manage and last time I was in a 401K you are limited to a specific hand picked set of funds that may or may not be that great. Invest the Roth IRA 100% into index or age specific target retirement funds, off the top of my head there's a Vanguard 2040 or 2045 fund or equivalent at other mutual fund companies.
    - otoburb 9y ago
      >>Roll all of your 401K's over into a single Roth IRA. In the US, Roth contributions are made with "after-tax dollars", while 401K contributions are generally made with "pre-tax dollars", so if you rollover the 401K into a Roth, the IRS will see the rollover (aka "conversion") as a bump in your income and ask you to pay tax on the rollover amount, with the remainder/net going to the Roth IRA. I still think a Roth conversion is a good idea for self-directed investments, but folks should be aware of the incoming tax bill. [1] https://www.investopedia.com/articles/retirement/09/roth-401k-rollover.asp https://www.investopedia.com/articles/retirement/09/roth-401...
      - tavert 9y ago
        You can pay the tax bill separately, which is a better move than letting it come out of the rollover amount if you have cash to afford it.
        hiram112 9y ago
        I still don't understand why you'd convert to Roth. My tax rate will be higher while I'm working and earning a salary than they will when I'm retired. Also, by keeping the base amount higher (pre tax), won't I have more growth than compared to the after-tax amount?
        gameshot911 9y ago
        One reason for Roth would be if you think tax rates will be higher when you retire.
  - bko 9y ago
    Not sure if you actually want financial advice but here goes: Buy a low cost diversified ETF. Take all your options, sort on management expense, and read the description. Not sure about your personal preferences and needs, but you're still young so you can be relatively risky. Buy 75% of the cheapest diversified stock fund and 25% of the cheapest diversified bond fund. It doesn't have to be too complicated. You just have to not make very bad decisions (all stocks a year before retirement, or all cash for decades). And avoid high fees
  - billmalarky 9y ago
    If you want a simple answer, consolidate by rolling all your legacy 401k accounts into a robo-advisor that handles traditional IRA accounts (ie 401k). A robo-advisor is a tech company in the financial space. They provide one-size-fits-all opinionated investment strategy (ie they do not let you pick individual stocks etc, you respect their overall portfolio strategy) that is not actively managed (ie they buy "the market" instead of individual stocks). As a result you will be diversified and you pay extremely low fees (many company 401k plan funds have horrible fees that completely take advantage of you). Personally, I use betterment (https://www.betterment.com/ https://www.betterment.com/). I approve of their investment portfolio strategy (https://www.betterment.com/portfolio/ https://www.betterment.com/portfolio/) and their fees are significantly below the fund choices I have in my company's 401k, so it is a good fit for me. The one decision betterment does allow you to make (again the goal is simplicity), is your stock/bond allocation. Allocation strategy is a bit outside of the scope of this response, but to keep things simple I'll say anything from 70% stocks/30% bonds to 80/20 stocks/bonds is probably fine. If you have further questions, or want a more "complicated" answer, feel free to email me directly (check my profile page). I'm an engineer, not a financial adviser, but I've been actively interested in personal finance for a long time now.
  - joejerryronnie 9y ago
    Step 1: Dump it all into cryptocurrencies Step 2: ??? Step 3: Profit! Seriously though, everyone has given very solid advice. As mentioned, the first thing you should do is consolidate all 401K accounts into a single IRA (or Roth IRA if you're hedging against much higher tax rates in the future). Also, consider setting aside 10% of your IRA to play/learn/speculate with. By this I mean investing in funds or direct stocks in areas that you have an outside interest in (e.g. tech, clean energy, socially responsible, geographic region, etc). Due to your interests in this area outside of pure personal finance, you may be motivated to learn more about investing in general - which is always a good thing and will be more important as you begin to pull money out of your IRA during retirement.
  - andyv 9y ago
    Look at the returns for each of your 401's. Move your money from the poorly performing funds to the well performing funds. If your top-performing funds have about the same return, keep things diversified.
- PopePompous 9y ago
  Another big problem is that 401Ks have a "longevity risk". Saving as an individual, you must save enough to handle the very remote possibility that you will live past age 100. A pension fund, on the other hand, can safely assume that on average pensioners will die long before that. So a responsible 401K holder must oversave.
  - walshemj 9y ago
    401's have ridiculous low contribution maximums and you don't get any tax rebate unlike the UK where you get relief at your effective tax rate
  - gozur88 9y ago
    In theory you can hedge that risk with an annuity, and anyway you get social security until you die.
- jackmott 9y ago
  > At what point does personal responsibility kick in? That only kicks in for people with IQs >= 120 and good mental self control. So basically never.
  - geomark 9y ago
    Speak for yourself ;)
- justin66 9y ago
  > At what point does personal responsibility kick in? Every 401(k) I've been on has given the option of investing in funds that ramp down risk exposure as the fund's target retirement date comes closer. There is no reason to assume that a target-date fund is actually any good. It's like any fund, there are good ones and there are really bad ones, and we're not even talking about whether the 401(k) account that holds the fund has its own problems (which an employee won't be able to avoid if they want to actually invest to the tax sheltered limit every year). So the "personal responsibility" kicks in once you've educated yourself on all the ins and outs of the way the retirement system in the US can rip people off, intentionally on the part of those peddling bad products or as the result of poor decisions on the part of the investor. Something maybe half of the people out there are qualified to do, and somewhat less than 1% of the people out there are actually interested in doing. We could fix all this with better policy (allowing everyone to do fee-free in-service rollovers of their 401ks and IRAs to the retirement funds federal workers use, which rely on low-cost index funds, might be one basis of a decent system) but we won't. Too many people are making money ripping other people off.
  - pcardh0 9y ago
    Maybe, I am misinformed, but aren't Federal pensions defined benefits plans? The contributions aren't invested in low-cost index funds. if this is the case, your comment about transferring doesn't make any sense.
- llamataboot 9y ago
  But again, "you aren't talking about poor people here". Wanna take a look at the income distribution of the US and tell me what % of people you think can afford a $1400/month hit to their paycheck?
- deleted 9y ago
  [deleted]
lotsofpulp 9y ago
Considering the extremely poor state of private defined benefit pension funds, as well as taxpayer funded ones, I don't see how one can make the claim that 401k has too much freedom to do dumb things compared to defined benefit pensions. Agency risk is always there when you hand over responsibility of something to someone, and it's especially acute with big pots of money. The best investment for retirement is to raise children who will raise grandchildren who all look after each other.
- Spooky23 9y ago
  The secret to pensions is making contributions. Places like New York that legally require full contributions are doing fine (although that is not cheap to do). Places like Illinois who skip the bill or most companies post 1980 who steal the money are a different story.
  - pcardh0 9y ago
    https://www.mercatus.org/statefiscalrankings https://www.mercatus.org/statefiscalrankings According to this New York is ranked 39th of 50. Unfunded pension obligations, on a guaranteed-to-be-paid basis, are $321.07 billion, or 28 percent of personal income.
- act_right 9y ago
  > Considering the extremely poor state of private defined benefit pension funds The poorly funded ones make the news, but there are many healthy ones that don't. It isn't agency risk that causes problems, it's a combination of increased longevity and low interest rates. A big problem with 401Ks is predatory investment advice. "Advisors" channel money into high-fee funds and commissionable investments and often "churn" money to generate additional commissions. The Obama administration cracked down by instituting a "Fiduciary" standard for retirement funds, but Trump has delayed implementation of the rule twice.
  - lotsofpulp 9y ago
    Almost every state and local government agency is underfunded, many in the billions of dollars. The reasoning is that they can always just raise future taxes, which allows for huge agency risk of politicians buying union votes. The politician gets elected, the current union members get paid, and the future taxpayers and union members who aren't voting get shafted. 401ks aren't perfect, but it's better than the above system. There's a reason no one sells annuities even close to what the government offers in it's pension benefits. It's ridiculously costly without using funny numbers.
bko 9y ago
Sure individuals can make dumb decisions with their money, like try to time the market. But so can companies when it comes to managing pension funds. This includes not funding future liabilities, since you likely won't be the one responsible when the payments become due.
WalterBright 9y ago
We already have a forcible retirement system that makes all the decisions for you - social security.
- mikestew 9y ago
  Note the lack of the word “retirement” in “social security”. It’s a safety net, not a retirement account. Says so right on the tin. EDIT: and before anyone else gets an itchy downvote finger, go look it up. Here, I’ll quote from the SSA’s own page: “Based on social insurance principles, the program provides monthly benefits designed to replace, in part, the loss of income due to retirement, disability, or death.” (emphasis mine). It’s so the old and disabled don’t starve in the streets, not a retirement plan.
  - mooreds 9y ago
    Absolutely! Social security was designed to help the elderly avoid being desperately poor. And has succeeded at that to a large extent. But a full fledged retirement program it is not. The average monthly payment as of Jan 2017 is ~$1400/month: https://faq.ssa.gov/link/portal/34011/34019/Article/3736/What-is-the-average-monthly-benefit-for-a-retired-worker https://faq.ssa.gov/link/portal/34011/34019/Article/3736/Wha... Depending on your cost of living that may help (maybe a little, maybe a lot) but it's not typically going to be a replacement for your own savings.
    - hiram112 9y ago
      $1400 a month is the average. I can start collecting that amount at 67, and will statistically die at 78. So 11 years of benefits is $185k. Meanwhile, if I make an average of $100k for just 12 years, then I will have paid that much into the system (15% contribution). And that's not even counting the massive amount of compounding that will have occurred as I've been contributing since I was 14 years old. I know it's quite popular for the HN crowd to talk about raising taxes for things like universal health care, social programs, etc. But when I actually do the numbers and look at how I'm already paying about 1/3 of my income to taxes, I'm beginning to see why many conservatives don't trust the government to be fair stewards of our money.
act_right 9y ago
> Or investing in borderline scam products like variable annuities. It's interesting that you say this, because many VAs have embedded put options that were very valuable post-crisis. The "scam" happens when someone invests 100% of their modest life-savings in a VA. Ben Bernanke invests the majority of his retirement savings in annuities, it's really just like buying into a pension.
ixacto 9y ago
Pensions, 401(k)s, and most saving for retirement are not necessary. Just Roth IRA and compound interest. All one needs to do is save an extra $450/mo after tax starting at age 22, put that into Vanguard VFIAX or similar for the next 40 years. That will give you a few million at retirement...tax free assuming the market continues to act how it has acted for the last 50 years. Combine it with social security and retirement will be manageable for most. Spend the rest of your salary on hookers/blow or iPhone game microtransactions, it doesn't matter. The problem is the lack of financial education and ethic in the population.
- Broken_Hippo 9y ago
  Or some of the problem could be the $450 per month. At 22. In indiana, that's a rent payment. A car payment. You might not even be done with school let alone getting a decent enough job to be able to afford this on top of your rent, transportation, and student loan debt. You are worse off if you didn't go to school or if you are working on a masters (or higher). All the financial education in the world won't make these ends meet for most folks.
  - loco5niner 9y ago
    > A car payment. > $450 per month. At 22. Well, there's your problem
vinhboy 9y ago
> They are massively inefficient for society in that they require all the people who use them to understand investing. This is really bad policy at a society level. I am so happy to meet someone who understands the concept of "society level". Too often on the internet, I debate with people who's only concern is what benefits them or their cohort. I find very few people think about "society" when talking policy.
castratikron 9y ago
Society allowed me to graduate with degrees in science and engineering without knowing the difference between a stock and a bond, and yet the same society gives me complete control over my retirement investments. Luckily, investing is not very difficult to figure out on your own. I read the book "Investing for Dummies" and I thought it did a great job at teaching basic ideas, and basic ideas are enough for the majority of people. If society expects us to manage our own investments, then it should also equip us with the tools to do it effectively. It should be a required topic at the high school level.

jdavis703 9y ago

At what point does personal responsibility kick in? Every 401(k) I've been on has given the option of investing in funds that ramp down risk exposure as the fund's target retirement date comes closer. Literally all you need to do is put your $1400/month in to a retirement account and not touch it. If you're upper middle class this is not hard to do (again I'm not talking about poor people here, but those with money who aren't saving). Whenever our 401(k) report comes out at work I can tell that most people are not putting nearly the amount of money they should be into savings -- and this is a tech company so most everyone aside from interns are being generously compensated.

deleted 9y ago
[deleted]
throwawaybbqed 9y ago
I think education is an important factor. I'm nearing 40, make a lot of money, but have no idea how to optimize my 401k. When I ask co-workers, they are more ignorant than me. I changed companies a few times and have tranches of cash in each of their 401ks.
- jdavis703 9y ago
  Well if you don't mind me asking, what kind of annual returns are you generating? If you're in the 7-8% range you're probably about as "optimized" as you can be, assuming your 401(k) is only giving access to large index funds. Another trick you can use is switch to a Roth 401(k). It means you'll be taxed on your savings today, but when you retire they'll be tax free. Now this is total speculation here, but I'm kind of assuming taxes will be pretty high in the coming decades as we try to keep social security going and pay down deficit spending, not too mention dealing with climate change fallout. Also good for you on keeping all your money in the 401(k) accounts, some people cash them out when they change jobs which triggers penalities and taxes. If you can however, I would roll all your accounts in to one giant 401(k) so you can better keep track of what's going on.
  - brewdad 9y ago
    I have no doubt that if the capping of 401k deductions goes through, Roth IRAs will be next. There is nothing stopping the government from deciding to tax Roth withdrawals down the road. They'll probably do it at a lower rate, like capital gains, but I fully expect it to happen.
  - throwawaybbqed 9y ago
    I have like 20K in a 401K when I worked at Microsoft a long time ago. This is around the 2008 fiasco. I just converted everything to cash. I didn't do a rollover when I changed employers (I think there is some time limit which I have likely exceeded). I've been trying to figure out if I can make use of that cash. The confusion is that the plan I was in was for Microsoft employees. Can I still use their plan's investment options?? I also don't want to incur any tax implication ... literally the cash has been sitting there for years because I am too stupid to figure out all the details. It is just sad :(
    - billmalarky 9y ago
      > I didn't do a rollover when I changed employers (I think there is some time limit which I have likely exceeded). There are several "timelimit" related aspects to 401k rollovers, neither would apply in your circumstance. You sound anxiety paralyzed like you made some "unfix-able past mistake" and there is zero reason for you to be. > It is just sad :( See my other comment about consolidating all of your legacy 401ks into a single robo-advisor (betterment/wealthfront/etc). It isn't hard, mainly consists of sending a few emails to HR departments and forwarding a few paper checks. Any robo-advisor will have a support team that will hold your hand through the process for free - they want to earn your business.
    - astrange 9y ago
      401k’s don’t have taxes and Microsoft employees don’t get secret better investment options than you do. Just move it into Betterment and forget about it.
      - jacalata 9y ago
- stevenwoo 9y ago
  Roll all of your 401K's over into a single Roth IRA. I lost track of one for years until I went to work for another company that had a 401K with the same firm as my previous employer. It's easier to keep track of and mentally manage and last time I was in a 401K you are limited to a specific hand picked set of funds that may or may not be that great. Invest the Roth IRA 100% into index or age specific target retirement funds, off the top of my head there's a Vanguard 2040 or 2045 fund or equivalent at other mutual fund companies.
  - otoburb 9y ago
    >>Roll all of your 401K's over into a single Roth IRA. In the US, Roth contributions are made with "after-tax dollars", while 401K contributions are generally made with "pre-tax dollars", so if you rollover the 401K into a Roth, the IRS will see the rollover (aka "conversion") as a bump in your income and ask you to pay tax on the rollover amount, with the remainder/net going to the Roth IRA. I still think a Roth conversion is a good idea for self-directed investments, but folks should be aware of the incoming tax bill. [1] https://www.investopedia.com/articles/retirement/09/roth-401k-rollover.asp https://www.investopedia.com/articles/retirement/09/roth-401...
    - tavert 9y ago
      You can pay the tax bill separately, which is a better move than letting it come out of the rollover amount if you have cash to afford it.
      - hiram112 9y ago
        I still don't understand why you'd convert to Roth. My tax rate will be higher while I'm working and earning a salary than they will when I'm retired. Also, by keeping the base amount higher (pre tax), won't I have more growth than compared to the after-tax amount?
        gameshot911 9y ago
        One reason for Roth would be if you think tax rates will be higher when you retire.
- bko 9y ago
  Not sure if you actually want financial advice but here goes: Buy a low cost diversified ETF. Take all your options, sort on management expense, and read the description. Not sure about your personal preferences and needs, but you're still young so you can be relatively risky. Buy 75% of the cheapest diversified stock fund and 25% of the cheapest diversified bond fund. It doesn't have to be too complicated. You just have to not make very bad decisions (all stocks a year before retirement, or all cash for decades). And avoid high fees
- billmalarky 9y ago
  If you want a simple answer, consolidate by rolling all your legacy 401k accounts into a robo-advisor that handles traditional IRA accounts (ie 401k). A robo-advisor is a tech company in the financial space. They provide one-size-fits-all opinionated investment strategy (ie they do not let you pick individual stocks etc, you respect their overall portfolio strategy) that is not actively managed (ie they buy "the market" instead of individual stocks). As a result you will be diversified and you pay extremely low fees (many company 401k plan funds have horrible fees that completely take advantage of you). Personally, I use betterment (https://www.betterment.com/ https://www.betterment.com/). I approve of their investment portfolio strategy (https://www.betterment.com/portfolio/ https://www.betterment.com/portfolio/) and their fees are significantly below the fund choices I have in my company's 401k, so it is a good fit for me. The one decision betterment does allow you to make (again the goal is simplicity), is your stock/bond allocation. Allocation strategy is a bit outside of the scope of this response, but to keep things simple I'll say anything from 70% stocks/30% bonds to 80/20 stocks/bonds is probably fine. If you have further questions, or want a more "complicated" answer, feel free to email me directly (check my profile page). I'm an engineer, not a financial adviser, but I've been actively interested in personal finance for a long time now.
- joejerryronnie 9y ago
  Step 1: Dump it all into cryptocurrencies Step 2: ??? Step 3: Profit! Seriously though, everyone has given very solid advice. As mentioned, the first thing you should do is consolidate all 401K accounts into a single IRA (or Roth IRA if you're hedging against much higher tax rates in the future). Also, consider setting aside 10% of your IRA to play/learn/speculate with. By this I mean investing in funds or direct stocks in areas that you have an outside interest in (e.g. tech, clean energy, socially responsible, geographic region, etc). Due to your interests in this area outside of pure personal finance, you may be motivated to learn more about investing in general - which is always a good thing and will be more important as you begin to pull money out of your IRA during retirement.
- andyv 9y ago
  Look at the returns for each of your 401's. Move your money from the poorly performing funds to the well performing funds. If your top-performing funds have about the same return, keep things diversified.
PopePompous 9y ago
Another big problem is that 401Ks have a "longevity risk". Saving as an individual, you must save enough to handle the very remote possibility that you will live past age 100. A pension fund, on the other hand, can safely assume that on average pensioners will die long before that. So a responsible 401K holder must oversave.
- walshemj 9y ago
  401's have ridiculous low contribution maximums and you don't get any tax rebate unlike the UK where you get relief at your effective tax rate
- gozur88 9y ago
  In theory you can hedge that risk with an annuity, and anyway you get social security until you die.
jackmott 9y ago
> At what point does personal responsibility kick in? That only kicks in for people with IQs >= 120 and good mental self control. So basically never.
- geomark 9y ago
  Speak for yourself ;)
justin66 9y ago
> At what point does personal responsibility kick in? Every 401(k) I've been on has given the option of investing in funds that ramp down risk exposure as the fund's target retirement date comes closer. There is no reason to assume that a target-date fund is actually any good. It's like any fund, there are good ones and there are really bad ones, and we're not even talking about whether the 401(k) account that holds the fund has its own problems (which an employee won't be able to avoid if they want to actually invest to the tax sheltered limit every year). So the "personal responsibility" kicks in once you've educated yourself on all the ins and outs of the way the retirement system in the US can rip people off, intentionally on the part of those peddling bad products or as the result of poor decisions on the part of the investor. Something maybe half of the people out there are qualified to do, and somewhat less than 1% of the people out there are actually interested in doing. We could fix all this with better policy (allowing everyone to do fee-free in-service rollovers of their 401ks and IRAs to the retirement funds federal workers use, which rely on low-cost index funds, might be one basis of a decent system) but we won't. Too many people are making money ripping other people off.
- pcardh0 9y ago
  Maybe, I am misinformed, but aren't Federal pensions defined benefits plans? The contributions aren't invested in low-cost index funds. if this is the case, your comment about transferring doesn't make any sense.
llamataboot 9y ago
But again, "you aren't talking about poor people here". Wanna take a look at the income distribution of the US and tell me what % of people you think can afford a $1400/month hit to their paycheck?
deleted 9y ago
[deleted]

lotsofpulp 9y ago

Considering the extremely poor state of private defined benefit pension funds, as well as taxpayer funded ones, I don't see how one can make the claim that 401k has too much freedom to do dumb things compared to defined benefit pensions. Agency risk is always there when you hand over responsibility of something to someone, and it's especially acute with big pots of money. The best investment for retirement is to raise children who will raise grandchildren who all look after each other.

Spooky23 9y ago
The secret to pensions is making contributions. Places like New York that legally require full contributions are doing fine (although that is not cheap to do). Places like Illinois who skip the bill or most companies post 1980 who steal the money are a different story.
- pcardh0 9y ago
  https://www.mercatus.org/statefiscalrankings https://www.mercatus.org/statefiscalrankings According to this New York is ranked 39th of 50. Unfunded pension obligations, on a guaranteed-to-be-paid basis, are $321.07 billion, or 28 percent of personal income.
act_right 9y ago
> Considering the extremely poor state of private defined benefit pension funds The poorly funded ones make the news, but there are many healthy ones that don't. It isn't agency risk that causes problems, it's a combination of increased longevity and low interest rates. A big problem with 401Ks is predatory investment advice. "Advisors" channel money into high-fee funds and commissionable investments and often "churn" money to generate additional commissions. The Obama administration cracked down by instituting a "Fiduciary" standard for retirement funds, but Trump has delayed implementation of the rule twice.
- lotsofpulp 9y ago
  Almost every state and local government agency is underfunded, many in the billions of dollars. The reasoning is that they can always just raise future taxes, which allows for huge agency risk of politicians buying union votes. The politician gets elected, the current union members get paid, and the future taxpayers and union members who aren't voting get shafted. 401ks aren't perfect, but it's better than the above system. There's a reason no one sells annuities even close to what the government offers in it's pension benefits. It's ridiculously costly without using funny numbers.

bko 9y ago

Sure individuals can make dumb decisions with their money, like try to time the market. But so can companies when it comes to managing pension funds. This includes not funding future liabilities, since you likely won't be the one responsible when the payments become due.

WalterBright 9y ago

We already have a forcible retirement system that makes all the decisions for you - social security.

mikestew 9y ago
Note the lack of the word “retirement” in “social security”. It’s a safety net, not a retirement account. Says so right on the tin. EDIT: and before anyone else gets an itchy downvote finger, go look it up. Here, I’ll quote from the SSA’s own page: “Based on social insurance principles, the program provides monthly benefits designed to replace, in part, the loss of income due to retirement, disability, or death.” (emphasis mine). It’s so the old and disabled don’t starve in the streets, not a retirement plan.
- mooreds 9y ago
  Absolutely! Social security was designed to help the elderly avoid being desperately poor. And has succeeded at that to a large extent. But a full fledged retirement program it is not. The average monthly payment as of Jan 2017 is ~$1400/month: https://faq.ssa.gov/link/portal/34011/34019/Article/3736/What-is-the-average-monthly-benefit-for-a-retired-worker https://faq.ssa.gov/link/portal/34011/34019/Article/3736/Wha... Depending on your cost of living that may help (maybe a little, maybe a lot) but it's not typically going to be a replacement for your own savings.
  - hiram112 9y ago
    $1400 a month is the average. I can start collecting that amount at 67, and will statistically die at 78. So 11 years of benefits is $185k. Meanwhile, if I make an average of $100k for just 12 years, then I will have paid that much into the system (15% contribution). And that's not even counting the massive amount of compounding that will have occurred as I've been contributing since I was 14 years old. I know it's quite popular for the HN crowd to talk about raising taxes for things like universal health care, social programs, etc. But when I actually do the numbers and look at how I'm already paying about 1/3 of my income to taxes, I'm beginning to see why many conservatives don't trust the government to be fair stewards of our money.

act_right 9y ago

> Or investing in borderline scam products like variable annuities. It's interesting that you say this, because many VAs have embedded put options that were very valuable post-crisis. The "scam" happens when someone invests 100% of their modest life-savings in a VA. Ben Bernanke invests the majority of his retirement savings in annuities, it's really just like buying into a pension.

ixacto 9y ago

Pensions, 401(k)s, and most saving for retirement are not necessary. Just Roth IRA and compound interest. All one needs to do is save an extra $450/mo after tax starting at age 22, put that into Vanguard VFIAX or similar for the next 40 years. That will give you a few million at retirement...tax free assuming the market continues to act how it has acted for the last 50 years. Combine it with social security and retirement will be manageable for most. Spend the rest of your salary on hookers/blow or iPhone game microtransactions, it doesn't matter. The problem is the lack of financial education and ethic in the population.

Broken_Hippo 9y ago
Or some of the problem could be the $450 per month. At 22. In indiana, that's a rent payment. A car payment. You might not even be done with school let alone getting a decent enough job to be able to afford this on top of your rent, transportation, and student loan debt. You are worse off if you didn't go to school or if you are working on a masters (or higher). All the financial education in the world won't make these ends meet for most folks.
- loco5niner 9y ago
  > A car payment. > $450 per month. At 22. Well, there's your problem

vinhboy 9y ago

> They are massively inefficient for society in that they require all the people who use them to understand investing. This is really bad policy at a society level. I am so happy to meet someone who understands the concept of "society level". Too often on the internet, I debate with people who's only concern is what benefits them or their cohort. I find very few people think about "society" when talking policy.

castratikron 9y ago

Society allowed me to graduate with degrees in science and engineering without knowing the difference between a stock and a bond, and yet the same society gives me complete control over my retirement investments. Luckily, investing is not very difficult to figure out on your own. I read the book "Investing for Dummies" and I thought it did a great job at teaching basic ideas, and basic ideas are enough for the majority of people. If society expects us to manage our own investments, then it should also equip us with the tools to do it effectively. It should be a required topic at the high school level.