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Defined benefit plans, i.e. pensions, are a total disaster. They are premised on a fantasy: that the pension fund will make enough money on the market to to pay

Defined benefit plans, i.e. pensions, are a total disaster. They are premised on a fantasy: that the pension fund will make enough money on the market to to pay its liabilities, or that the backing entity will bail it out if not. Those are bad assumptions. The result is pension funds going broke across the country, and it's just getting started. Defined contribution plans, 401k's and such, are much more sensible. You set aside a percentage of your income, your employer throws some in for you as well, and you decide how to invest it. You decide what level of risk you want to take with your future wealth, and you reap the gains and losses.

jstewartmobile 9y ago
I'm not sure 401ks are so great. Many charge ridiculous management fees for funds that track mundane things like the S&P 500, but if you want that employer match, no way around it. Mostly a case of perfectly intelligent people throwing wads of money into the market on autopilot because that's all the 401k lets you do. Lambs to the slaughter! edit: Example: Back when I was on 401k, was into a S&P500 fund that had an expense ratio over 1.5%. It may not sound like much, but that's compounded year-after-year. All of the other funds the 401k allowed had equally scandalous expense ratios. After starting a business, I rolled over into an IRA. Switched to a different S&P500 fund with expense ratio of 0.09%. Same curve, but I keep more of my money. It would be nice if people had more latitude in what they could put their retirement into--especially when it comes to tangible things, like buildings or equipment--that you can get some value out of even if the market happens to be down when you retire.
- nunez 9y ago
  Yeah the only time it makes sense to have a 401k is if your company matches your contributions.
  - jstewartmobile 9y ago
    Don't they all have a match? It would be nice if people could keep the match and have more control over their portfolios. Buy & sell stocks, bonds, commodities, etc. whenever instead of a very small basket of mutual funds that can only be juggled a few times a year.
    - user5994461 9y ago
      We had that when I was working in a top investment bank, in the UK office. The employment contract was accompanied by a 50 page document explaining the pension system, a long tutorial on risks/asset-types/location/diversification and everything you ever wish to know about pension, and last but not least the 20 funds they make available to us.
    - hkmurakami 9y ago
      yes the limitation of 401k plan fund choices seems very arbitrary to me. Perhaps a result of lobbying, or a remnant of the past when such limitations were a good call?
    - JoshTriplett 9y ago
      > Don't they all have a match? No, some employers just pay in whether you do or not, and your contribution doesn't in any way change theirs.
    - exclusiv 9y ago
      We don't do a match but offer a safe harbor automatic 3% contribution which everyone gets. This is nice because some younger employees don't contribute anything but we're still helping out their 401k.
    - pinewurst 9y ago
      Startups (and even quite a few more mature companies) seldom match. I'm noticing this in a job search now.
    - brewdad 9y ago
      My wife's doesn't have a match per se. Instead the company contributes a lump sum annually that amounts to about 5% of her income. She wouldn't have to contribute anything to get this money and it doesn't count against her annual cap. It is accounted for separately from her contributions, so might technically not be a part of her 401k.
  - exclusiv 9y ago
    Or if your 401k has decent funds available and you also want to lower your taxable income for the year.
  - ericd 9y ago
    Not really, it also makes sense to have one if you're already maxing out your IRA (as long as it's a low fee 401k, many aren't).
  - Joky 9y ago
    I'm using it to save taxes, because I'm not sure what are the alternatives. You're comment makes me feel I should be less ignorant: any good online reading to suggest?
    - wils1245 9y ago
      Saving on taxes is a good reason to contribute to a 401K. Just be mindful of the fees.
    - avemg 9y ago
      There isn’t a good tax-advantaged alternative if you’re an employee with access to a 401k. If you’re under the income limit, you can make deductible contributions to an traditional IRA but that’s capped at $5500 per year vs $18,000 for the 401k. Plus there’s no company match there. The best practice is to contribute to your 401k up to the employer match and then contribute the rest to an IRA. Once you’re at the IRA limit you comtribute the rest to the 401k.
      - marcoperaza 9y ago
        And when you leave your current job, you can transfer your 401k into a Rollover IRA, which you can invest however you want.
    - cmurf 9y ago
      It's worth doing the "what if" on a Roth 401(k). The money goes in after tax, so you lose the deduction, but the money grows tax free, and you can pull it out tax free. Usually you come out ahead paying tax on less money now, and no tax on the grown investment later. You can also open an IRA on your own and stuff that to the limit every year. Again there is a Roth version, which you can dip into for certain things before retirement age without penalty, and never pay tax on the withdrawal because tax was paid already going in. Another thing to look into is if your employer can offer an HSA qualifying health care plan. You get a tax deduction on the front end when funding the HSA, and it can grow tax free, with tax free withdrawals for qualifying medical expenses - the trick is to never use it while you're working. Just pay co-pays, and deductible amount from pocket, instead of from the HSA. Use the HSA later to pay the things Medicare doesn't (which is a lot). The best way to avoid taxes is to make the maximum possible contribution every year now while you can.
  - cmurf 9y ago
    Why are you saying this? The employee can make up to $18,000 in contributions to a 401k, and still max out their IRA (Roth or conventional). You're not maxing out your retirement savings options if you're refusing to participate in a 401k. For those who are self employed should look into SEP and SIMPLE IRAs, in addition to making the max contribution to a Roth IRA and HSA. For those over 50, many offer additional catch up contribution limits, which raise the max contribution you can make each year.
    - nunez 9y ago
      Because not all 401k’s offer low-fee funds, whereas IRAs are more flexible
  - NotSammyHagar 9y ago
    I think you are wrong, because of saving on taxes, and company match, and the fact that many people won't save otherwise, 401ks often make sense. Just chose sensible investments that don't have high fees. I know that's actually nontrivial, but otherwise many people don't have savings.
- hkmurakami 9y ago
  When was this / which vendor was this? My barebones Fidelity 401k plan which only gave me 12 funds to choose from had a S&P500 fund with an expense ratio of ~0.2% iirc. (I don't remember what sort of fees there were in the overall 401k account though)
  - jstewartmobile 9y ago
    That was almost 15 years ago, so I'd have to do some digging to name names. On the whole, perhaps things have gotten better since then. It is still a thing though. Father-in-law had most of his stuff at Edward Jones. Some of their fees put mine to shame: https://www.edwardjones.com/planfees/fees-compensation/mutual-fund-fees.html https://www.edwardjones.com/planfees/fees-compensation/mutua... edit: Most of his had different titles, but their largest holdings were the same handful of stocks. We overlaid the S&P 500 on top of most of them--practically identical performance from time of inception!
    - hkmurakami 9y ago
      those pdfs give basically no inforamation at all. I certainly hope that the equity funds are actively managed (rather than passively managed, though tbh actively managed funds that are provided in a 401k plan are going to be crap about 95%+ of the time) if they are charging 1%+ in fees.
      - richardwhiuk 9y ago
        actively managed funds mostly don't outperform the S&P 500 anyway, so not sure why you'd want an actively managed fund anyway
    - pinewurst 9y ago
      Edward Jones is exceptionally bad. I remember a few years ago, articles about them directing investments preferentially into funds they were rewarded on. I see as many of their branches as convenience stores and wonder why so many people would give them their savings?
- tzs 9y ago
  It sounds like you had a crappy 401k. The one we had when my work offered one had a large number of funds available, with expense ratios close to Vanguard's. Ours was through Fidelity.
- Y7ZCQtNo39 9y ago
  > Mostly a case of perfectly intelligent people throwing wads of money into the market on autopilot because that's all the 401k lets you do. Lambs to the slaughter! That's called "buy and hold" investing (putting additional dollars you have into the market, as your paychecks come in). Historically, it's been a great way to grow wealth. You invest in index funds, and you get basically the market return less some fees. > expense ratio over 1.5% This is worse-case scenario. Employers are coming around to see these fees as astronomical. Plus, well-funded 401(k)'s can get institutional rates, due to their portfolio size. We're talking expense ratio's of 0.03, 0.02, almost non-existent.
  - jstewartmobile 9y ago
    Running everything through the stock market doesn't seem like particularly good risk management to me. Even with a diversified portfolio, in a panic everything goes down. With something tangible, like a building, or a piece of equipment, you can still get some kind of revenue stream from the use of it while you wait for the market to recover. If Wal-Mart guy could have put some of his retirement into lawn equipment or a hot-dog cart, I'm almost certain he could make more in an afternoon with that than what Wal-Mart is paying him for a week's work.
- saryant 9y ago
  Employers should absolutely stop offering high-fee funds. Large employers should be offering institutional funds. My employer uses Vanguard and gives us access to Vanguard's institutional S&P500 fund at 3.5 basis points. Our plan rules also allow for in-service contributions from existing IRA assets so I've been moving all my IRAs into my 401k for access to these cheap funds.
deleted 9y ago
[deleted]
maxxxxx 9y ago
401k is based on a fantasy too: that a regular guy can manage his money though ups and downs in the economy, personal crises and other events.

jstewartmobile 9y ago

I'm not sure 401ks are so great. Many charge ridiculous management fees for funds that track mundane things like the S&P 500, but if you want that employer match, no way around it. Mostly a case of perfectly intelligent people throwing wads of money into the market on autopilot because that's all the 401k lets you do. Lambs to the slaughter! edit: Example: Back when I was on 401k, was into a S&P500 fund that had an expense ratio over 1.5%. It may not sound like much, but that's compounded year-after-year. All of the other funds the 401k allowed had equally scandalous expense ratios. After starting a business, I rolled over into an IRA. Switched to a different S&P500 fund with expense ratio of 0.09%. Same curve, but I keep more of my money. It would be nice if people had more latitude in what they could put their retirement into--especially when it comes to tangible things, like buildings or equipment--that you can get some value out of even if the market happens to be down when you retire.

nunez 9y ago
Yeah the only time it makes sense to have a 401k is if your company matches your contributions.
- jstewartmobile 9y ago
  Don't they all have a match? It would be nice if people could keep the match and have more control over their portfolios. Buy & sell stocks, bonds, commodities, etc. whenever instead of a very small basket of mutual funds that can only be juggled a few times a year.
  - user5994461 9y ago
    We had that when I was working in a top investment bank, in the UK office. The employment contract was accompanied by a 50 page document explaining the pension system, a long tutorial on risks/asset-types/location/diversification and everything you ever wish to know about pension, and last but not least the 20 funds they make available to us.
  - hkmurakami 9y ago
    yes the limitation of 401k plan fund choices seems very arbitrary to me. Perhaps a result of lobbying, or a remnant of the past when such limitations were a good call?
  - JoshTriplett 9y ago
    > Don't they all have a match? No, some employers just pay in whether you do or not, and your contribution doesn't in any way change theirs.
  - exclusiv 9y ago
    We don't do a match but offer a safe harbor automatic 3% contribution which everyone gets. This is nice because some younger employees don't contribute anything but we're still helping out their 401k.
  - pinewurst 9y ago
    Startups (and even quite a few more mature companies) seldom match. I'm noticing this in a job search now.
  - brewdad 9y ago
    My wife's doesn't have a match per se. Instead the company contributes a lump sum annually that amounts to about 5% of her income. She wouldn't have to contribute anything to get this money and it doesn't count against her annual cap. It is accounted for separately from her contributions, so might technically not be a part of her 401k.
- exclusiv 9y ago
  Or if your 401k has decent funds available and you also want to lower your taxable income for the year.
- ericd 9y ago
  Not really, it also makes sense to have one if you're already maxing out your IRA (as long as it's a low fee 401k, many aren't).
- Joky 9y ago
  I'm using it to save taxes, because I'm not sure what are the alternatives. You're comment makes me feel I should be less ignorant: any good online reading to suggest?
  - wils1245 9y ago
    Saving on taxes is a good reason to contribute to a 401K. Just be mindful of the fees.
  - avemg 9y ago
    There isn’t a good tax-advantaged alternative if you’re an employee with access to a 401k. If you’re under the income limit, you can make deductible contributions to an traditional IRA but that’s capped at $5500 per year vs $18,000 for the 401k. Plus there’s no company match there. The best practice is to contribute to your 401k up to the employer match and then contribute the rest to an IRA. Once you’re at the IRA limit you comtribute the rest to the 401k.
    - marcoperaza 9y ago
      And when you leave your current job, you can transfer your 401k into a Rollover IRA, which you can invest however you want.
  - cmurf 9y ago
    It's worth doing the "what if" on a Roth 401(k). The money goes in after tax, so you lose the deduction, but the money grows tax free, and you can pull it out tax free. Usually you come out ahead paying tax on less money now, and no tax on the grown investment later. You can also open an IRA on your own and stuff that to the limit every year. Again there is a Roth version, which you can dip into for certain things before retirement age without penalty, and never pay tax on the withdrawal because tax was paid already going in. Another thing to look into is if your employer can offer an HSA qualifying health care plan. You get a tax deduction on the front end when funding the HSA, and it can grow tax free, with tax free withdrawals for qualifying medical expenses - the trick is to never use it while you're working. Just pay co-pays, and deductible amount from pocket, instead of from the HSA. Use the HSA later to pay the things Medicare doesn't (which is a lot). The best way to avoid taxes is to make the maximum possible contribution every year now while you can.
- cmurf 9y ago
  Why are you saying this? The employee can make up to $18,000 in contributions to a 401k, and still max out their IRA (Roth or conventional). You're not maxing out your retirement savings options if you're refusing to participate in a 401k. For those who are self employed should look into SEP and SIMPLE IRAs, in addition to making the max contribution to a Roth IRA and HSA. For those over 50, many offer additional catch up contribution limits, which raise the max contribution you can make each year.
  - nunez 9y ago
    Because not all 401k’s offer low-fee funds, whereas IRAs are more flexible
- NotSammyHagar 9y ago
  I think you are wrong, because of saving on taxes, and company match, and the fact that many people won't save otherwise, 401ks often make sense. Just chose sensible investments that don't have high fees. I know that's actually nontrivial, but otherwise many people don't have savings.
hkmurakami 9y ago
When was this / which vendor was this? My barebones Fidelity 401k plan which only gave me 12 funds to choose from had a S&P500 fund with an expense ratio of ~0.2% iirc. (I don't remember what sort of fees there were in the overall 401k account though)
- jstewartmobile 9y ago
  That was almost 15 years ago, so I'd have to do some digging to name names. On the whole, perhaps things have gotten better since then. It is still a thing though. Father-in-law had most of his stuff at Edward Jones. Some of their fees put mine to shame: https://www.edwardjones.com/planfees/fees-compensation/mutual-fund-fees.html https://www.edwardjones.com/planfees/fees-compensation/mutua... edit: Most of his had different titles, but their largest holdings were the same handful of stocks. We overlaid the S&P 500 on top of most of them--practically identical performance from time of inception!
  - hkmurakami 9y ago
    those pdfs give basically no inforamation at all. I certainly hope that the equity funds are actively managed (rather than passively managed, though tbh actively managed funds that are provided in a 401k plan are going to be crap about 95%+ of the time) if they are charging 1%+ in fees.
    - richardwhiuk 9y ago
      actively managed funds mostly don't outperform the S&P 500 anyway, so not sure why you'd want an actively managed fund anyway
  - pinewurst 9y ago
    Edward Jones is exceptionally bad. I remember a few years ago, articles about them directing investments preferentially into funds they were rewarded on. I see as many of their branches as convenience stores and wonder why so many people would give them their savings?
tzs 9y ago
It sounds like you had a crappy 401k. The one we had when my work offered one had a large number of funds available, with expense ratios close to Vanguard's. Ours was through Fidelity.
Y7ZCQtNo39 9y ago
> Mostly a case of perfectly intelligent people throwing wads of money into the market on autopilot because that's all the 401k lets you do. Lambs to the slaughter! That's called "buy and hold" investing (putting additional dollars you have into the market, as your paychecks come in). Historically, it's been a great way to grow wealth. You invest in index funds, and you get basically the market return less some fees. > expense ratio over 1.5% This is worse-case scenario. Employers are coming around to see these fees as astronomical. Plus, well-funded 401(k)'s can get institutional rates, due to their portfolio size. We're talking expense ratio's of 0.03, 0.02, almost non-existent.
- jstewartmobile 9y ago
  Running everything through the stock market doesn't seem like particularly good risk management to me. Even with a diversified portfolio, in a panic everything goes down. With something tangible, like a building, or a piece of equipment, you can still get some kind of revenue stream from the use of it while you wait for the market to recover. If Wal-Mart guy could have put some of his retirement into lawn equipment or a hot-dog cart, I'm almost certain he could make more in an afternoon with that than what Wal-Mart is paying him for a week's work.
saryant 9y ago
Employers should absolutely stop offering high-fee funds. Large employers should be offering institutional funds. My employer uses Vanguard and gives us access to Vanguard's institutional S&P500 fund at 3.5 basis points. Our plan rules also allow for in-service contributions from existing IRA assets so I've been moving all my IRAs into my 401k for access to these cheap funds.

deleted 9y ago

[deleted]

maxxxxx 9y ago

401k is based on a fantasy too: that a regular guy can manage his money though ups and downs in the economy, personal crises and other events.