7 ms·

I think DC is about 85% of the way there. All we need are slightly better defaults in how money is invested. Fidelity already does this, I remember signing a bi

I think DC is about 85% of the way there. All we need are slightly better defaults in how money is invested. Fidelity already does this, I remember signing a big stack of forms to "take the safeties off" to be able to trade it as a raw brokerage account. 401(k) custodians are fiduciaries, btw. Whereas DB, it seems like every place and in every time, there are always incentives to underfund, to cheat, to push liabilities around, to misrepresent them, to dump them on taxpayers. These things are closer to immutable human nature and won't change, IMO. The bigger issue that is NOBODY can really afford to retire given how long people are living, escalating medical costs, and low rates of return. The DC people are just ahead of the DB folks in realizing this, because they're relying on bailouts there isn't enough money anywhere to fund. Illinois is a case in point.

LatteLazy 7y ago
I think there is a more fundamental question here with DC models: human nature. If you tell people to shut up and pay and we'll assure the outcome, they can do that. Thats DB. If you give people an "account" (even with good default investments), people have to manage that. They have to fill it up when they have a bad year, with actual cash from their current accounts. They have to ignore their brother in laws who put all the money in enron and made a bomb and tells you you're an idiot for sticking low fees. They have to pay attention and watch out for changes to fees or laws. And they have to start moving the money to lower risk items and plan 5+ years ahead to retire. And even then, that's just getting the index fund strategy right. The strategy may fail. They have to put money in when a market goes down and take it out when a market goes up. I doubt very much that people will succeed at that. That's the core flaw in the DC model. Personally I think that sort of work is better done centrally.

LatteLazy 7y ago

I think there is a more fundamental question here with DC models: human nature. If you tell people to shut up and pay and we'll assure the outcome, they can do that. Thats DB. If you give people an "account" (even with good default investments), people have to manage that. They have to fill it up when they have a bad year, with actual cash from their current accounts. They have to ignore their brother in laws who put all the money in enron and made a bomb and tells you you're an idiot for sticking low fees. They have to pay attention and watch out for changes to fees or laws. And they have to start moving the money to lower risk items and plan 5+ years ahead to retire. And even then, that's just getting the index fund strategy right. The strategy may fail. They have to put money in when a market goes down and take it out when a market goes up. I doubt very much that people will succeed at that. That's the core flaw in the DC model. Personally I think that sort of work is better done centrally.