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It's worse than that. The 401k generation will begin think about retiring in the next few years. Most will discover that their 401K, despite maximum contributio

It's worse than that. The 401k generation will begin think about retiring in the next few years. Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on. This will either keep older workers in the workforce longer, preventing younger workers for getting into positions, or it will result in discrimination against older workers who will find themselves unable to get jobs, let go, or laid off to make room for younger, cheaper workers. The expectation for your 401k is that it's going to grow by 6-8% each year. If there isn't any room for growth in the market then it's going to be hard to deliver that going forward, compounding the problem for later generations who probably won't be inheriting anything from their parents.

flashback2199 3y ago
> Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on. How will that happen when there has been so much growth in the S&P?
- toomuchtodo 3y ago
  https://www.nerdwallet.com/article/investing/the-average-401k-balance-by-age https://www.nerdwallet.com/article/investing/the-average-401... https://www.gao.gov/blog/growing-disparities-retirement-account-savings https://www.gao.gov/blog/growing-disparities-retirement-acco... https://www.gao.gov/financial-security-older-americans https://www.gao.gov/financial-security-older-americans (401k plans were a way for capital to con Americans that ditching pensions was the way to go; pension contributions became shareholder profits, and most did not or could not contribute to 401ks in any meaningful fashion)
  - flashback2199 3y ago
    Thanks for this pile of links... I don't believe what you're saying that 401k's are somehow not going to be enough to retire. Unless you meant retire where housing prices are rising the fastest.
    - toomuchtodo 3y ago
      You didn't read the links then. Median 401k balance is no more than $71k across all age cohorts. Assuming a 4% perpetual withdrawal rate (Trinity study), that is ~$2840/year in income. Per the GAO: > Even for those who do have access, traditional defined benefit pensions have become much less common as defined contribution plans, such as 401(k)s, have become the primary type of retirement plan. This shift has increased the risks and responsibilities for individuals in planning and managing their retirement. Yet research shows that many households are ill-equipped for this task and have little or no retirement savings. As of 2016, about half of households with a worker age 55 and older had no retirement savings, and 29% had no retirement savings or a defined benefit plan. Policymakers will need to consider how to best encourage expanded pension coverage, adequate and secure pension benefits, and more effective use of tax preferences to foster workers’ retirement security. 40% of Social Security recipients have no other income. https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf https://web.archive.org/web/20231028173718/https://www.nirsonline.org/2020/01/new-report-40-of-older-americans-rely-solely-on-social-security-for-retirement-income/ https://web.archive.org/web/20231028173718/https://www.nirso...
      - flashback2199 3y ago
        I'm not following your reasoning Regardless of whether and how much private equity is affecting growth in prices of stocks for public companies, the S&P in which people's 401ks are invested has grown a lot, and will probably continue to Low balances in 401k's are therefore due to insufficient contributions and not insufficient growth in S&P prices
      - the_gastropod 3y ago
        This thread started as a response to: > The 401k generation will begin think about retiring in the next few years. Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on. The maximum individual contribution—not counting employer contributions—is $22,500. Or if you’re over 50, it’s $30,000. If You’re maxing out your 401k, you’ll pass $71k after working just a few years. To retire with just $71k after working a typical career of 40 years, you’d have to save less than ~$600/year. In other words, saving $600/year—~4% of a minimum wage salary—is enough to surpass this median $71k number after a 40 year career and a conservative 5% avg return. I suspect most of these people have other savings.
  - nightski 3y ago
    Who do you think the shareholders are? That's right, it includes 401(k) and retirement plan owners. It's a way to diversify your retirement beyond a single company. A pension plan in a company that can disappear and that can make investments on your behalf without any control is the big con. The fact that people contribute less to their 401(k) means they care less about saving for retirement, not that the plans themselves are a con. I personally don't even have a 401(k) because I am self employed and there are other options.
    - toomuchtodo 3y ago
      https://www.cnbc.com/2021/10/18/the-wealthiest-10percent-of-americans-own-a-record-89percent-of-all-us-stocks.html https://www.cnbc.com/2021/10/18/the-wealthiest-10percent-of-... ("The wealthiest 10% of Americans own a record 89% of all U.S. stocks") https://www.usnews.com/news/national-news/articles/2021-03-15/who-owns-stocks-in-america-mostly-its-the-wealthy-and-white https://www.usnews.com/news/national-news/articles/2021-03-1... ("Median household owns $15k in equities") (unless you're wealthy, you are a token participant in the capital markets)
      - deleted 3y ago
        [deleted]
      - nightski 3y ago
        I'm fine being a token participant as long as it means I've been seeing significant gains over the past decade, which I have.
        toomuchtodo 3y ago
        I'm not faulting the selfish position, simply pointing out the game is rigged for everyone except outliers (like yourself or the ultra wealthy). These are just facts, not feelings, when you review the data about who has sufficient cashflow for inflows into investments during accumulation phases as well as their current and potential future investment exposure to these asset classes. Congrats on the luck (no snark, honestly). But let us not extrapolate luck and personal anecdotes to solutions for systems. "In God We Trust, all others must bring data", working backwards from first principles, etc.
  - onlyrealcuzzo 3y ago
    The majority of domestically-owned S&P shares are owned by either pension funds or IRAs (401ks): https://theirrelevantinvestor.com/2020/10/25/who-owns-the-stock-market/ https://theirrelevantinvestor.com/2020/10/25/who-owns-the-st... The foreign share is a roughly similar breakdown to the domestic share. How do you think Pension Funds get a return if not investing in equities in similar ratios to most people's 401k allocation?
  - loeg 3y ago
    The quoted excerpt is referring to only the subset who has maxed out their 401k contributions, whereas you're describing the median, who mostly have not. These are different groups. People who maxed out their 401ks for their working years and had vaguely reasonable investment options (mostly diversified stock funds) will be fine. And social security income should not be ignored.
  - red-iron-pine 3y ago
    > and most did not or could not contribute to 401ks in any meaningful fashion) burying the lede here, killer. to be clear, the 2% mgmt fee in a lot of 401k plans is terrible and is absolutely scamming the average folks. but you can't retire on something you didn't contribute to, either because you didn't or couldn't.
    - toomuchtodo 3y ago
      Some improvements are in flight. https://www.cnbc.com/2023/10/31/biden-administration-to-crack-down-on-junk-fees-in-retirement-plans.html https://www.cnbc.com/2023/10/31/biden-administration-to-crac... https://www.whitehouse.gov/briefing-room/statements-releases/2023/10/31/fact-sheet-president-biden-to-announce-new-actions-to-protect-retirement-security-by-cracking-down-on-junk-fees-in-retirement-investment-advice/ https://www.whitehouse.gov/briefing-room/statements-releases...
  - nineplay 3y ago
    Pensions have a lot of problems. They become handcuffs that keep workers at the same place no matter how unhappy they are, and employers know how to take advantage of that. It's easy to look back with rose-colored glasses but I know several people who dragged themselves though several years of misery to hang on to their pension funds. I wouldn't trade my 401k.
    - nunez 3y ago
      Still happens today in education. Many of those retirement accounts are pensions of another name, and educators need to work a number of years to become fully vested into it
  - arielweisberg 3y ago
    Pension plans as they were are still kind of bad because they could be mismanaged in a variety of ways. Pensions are kind of always problematic because you take control away from people and give it to people with misaligned incentives. It's the same if you give people control over their own retirement because they can not contribute or mismanage how the money is invested. Defined contribution pensions are maybe an improvement on this because at least you know there is money there and can have a regulatory framework that is simple and heavily restricts how the money can be used. I would really like to see broad market index funds only. Dumb money should stay dumb. Maybe if you pull the responsibility up to the federal government you minimize the risk of mismanagement, but it's still pretty large. Seems like we are doomed to pick an option that is still risky and it's every person for themselves. You need to super save and not rely on any framework provided by others. And this is where 401ks shine. Sure I am stuck relying on the stock market, but I think the distribution of outcomes there are more in my favor than if it were managed by someone else. Whatever is in my 401k (or IRA or whatever) is owned by me and is heavily diversified.
    - ryandrake 3y ago
      > Pensions are kind of always problematic because you take control away from people and give it to people with misaligned incentives. Maybe I'm the weird one, but I don't necessarily want control of my retirement fund. My primary requirement is that it exists when I need it. Somehow the financial industry convinced the public that being able to micromanage their retirement investment and pick their own stocks and mutual funds is somehow beneficial. I can probably count on one hand the number of people I know who find this kind of micromanagement interesting. I just want "money goes in" and "enough money eventually comes out" and I don't think I'm alone in that. You can accomplish that with a well-run pension, a well-run government plan, and so on. Lots of options that don't involve me having to decide between stock and bond funds.
      - WkndTriathlete 3y ago
        Having watched a close friend of my dad's sell at the bottom in 2007-2008 after he had retired, I understand your sentiment. However, before the advent of discount brokerages and widespread 401(k) plans investing really was only for the extremely wealthy and inept fund management - resulting in extremely high expense ratios - was rampant. Now investment is more accessible and ETFs are offering near-zero (or actually zero (!) - see FNILX) expense ratios on the strength of the economy, which has been a net win for a larger segment of the population than the 0.1%. We're up to 20% now! I would like to see a much larger percentage of the population to be able to get in on this opportunity. Doing away with wealth and income inequality will get us halfway there. Trust-managed investing addresses what you're asking for, where a company manages your investments and retirements for you at some level of expense ratio. (These companies exist today for retirees.)
- spiralpolitik 3y ago
  Two market crashes and badly managed 401k accounts won’t help. Most trust that their 401k is correctly managed. This is often not the case. The merry-go-round of debt ceiling and budget confrontations in congress doesn’t help. Any gains from this year are probably going to be wiped out by that continuing drama. Finally the increase in cost of living expenses and cost of long term medical care will quickly eat into your 401k once you stop contributing. The math looks ugly once you sit down and figure it out.
  - nradov 3y ago
    What do you mean by "trust that their 401k is correctly managed"? Those 401(k) plans are self managed. In most plans the investment selection defaults to a low-cost retirement date fund. There's no one to trust.
    - spiralpolitik 3y ago
      If you start at a company today the default setting would be for the 401k money to be invested in something like LifePath N or similar ETFs that are designed for retirement funds. Most people, lacking the knowledge to do otherwise will stick with that. So you are working on the assumption that LifePath or similar ETFs are going to be correctly managed for their cohort (shifting into safer investments as the retirement date approaches).
      - njarboe 3y ago
        Somehow the "safety" of bonds were not adjusted as yields reached and sometimes went below zero. A multi-year zero interest bond is not a very safe investment. I did have that default setting on a retirement account and got out of those LifePath type ETFs over a decade ago.
        nradov 3y ago
        You appear to be confusing safety with investment returns. As an asset class, bonds with high credit ratings have a lower risk of losing capital than stocks. Those bonds will lose some value as interest rates rise but they very rarely go to zero. For investors approaching retirement age it's more important to preserve capital than to worry about interest rate risks.
- throw0101c 3y ago
  > How will that happen when there has been so much growth in the S&P? If you invested in an index fund, you will get very close to the S&P 500/Russell 3000/Whilshire 5000/etc. If you invested in an actively managed fund, then the fund manager takes their cut, but also probably tries to be 'too clever' and doesn't get as good returns as a plain index, and so you're not getting as high returns.
- DontchaKnowit 3y ago
  My 401k account offered by fidelity, using the highest risk investment strategy available to me, returned about 8 percent during a period where the S&P did about 30%. and they took a 1.5% commission. Absolute fucking scam. took all my money out and ended contributions.
  - wenebego 3y ago
    You werent allowed to invest in the s&p 500 or any other low cost index fund?
    - DontchaKnowit 3y ago
      If I was, they did not make that clear at all. They had a set of about 14 different "packages" that were aggregations of different etfs and such that were available to invest in and that's it. I couldn't find any way to invest in a single stock or etf. They also told me I couldn't cash out my money until I left the company I worked for which I am pretty sure is untrue.
      - gymbeaux 3y ago
        You usually can’t cash out while still employed with the company sponsoring the 401k plan. Conversely, you can usually only take a loan withdrawal if you’re still employed with said company. Definitely 401ks are obscure and confusing and full of deception. I think John Oliver did a segment on them. Your experience is not atypical.
  - bushbaba 3y ago
    You can always do a S&P 500 fund in a 401k
    - hirvi74 3y ago
      Isn't having an S&P 500 fund legally required?
    - nunez 3y ago
- gymbeaux 3y ago
  Past performance does not guarantee future results. You can find periods in the US stock market’s history of years, even a decade or so, where the return on the DOW was essentially 0. Look at other countries and it gets worse; Japan’s NIKKEI returned 0 between 1995 and 2020. 25 years of… dividend reinvestment I guess? Still nothing compared to the US stock market during that period. The stock market is a circus- that’s common knowledge- yet we rely on it for retirement? Okay. That’ll work until it doesn’t.
  - nradov 3y ago
    The Dow Jones Industrial Average is a garbage index with components selected arbitrarily. No one in finance takes it seriously. No one can guarantee stock market returns, but over decades it's a lot safer than depending on pension contributions from a single company. And most 401(k) plans now offer target date mutual funds which automatically reduce stock exposure over time, thus reducing risk of capital loss as you approach retirement.
    - danaris 3y ago
      We're not talking about what people "in finance" know or care about. We're talking about regular people's retirement funds.
      - nradov 3y ago
        What's your point? Regular people's retirement funds aren't invested in the Dow. They mostly use target date funds.
        gymbeaux 3y ago
        Even worse. If you’re using a TRD fund to stash your retirement, it will severely underperform in a bull market, and if it spares you somewhat from a bear market, well… you probably weren’t going to be able to retire on that money anyway. Then there’s the relatively high expense ratio most of those “actively managed” funds have.
    - 3y ago
- BeetleB 3y ago
  > How will that happen when there has been so much growth in the S&P? Almost no one gave the obvious answer: Most 401 K plans are not investing in the S&P. Many give you the option to, but it's not the default, and probably over 90% of workers are unaware of the fund. And quite a few do not even give you the option to invest in it.
  - gymbeaux 3y ago
    I’ve never worked for a company whose 401k default was an index fund. I probably never will. Best-case it was a target retirement fund, worst case I think it was some bullshit little proprietary fund that had a high expense ratio.
- PKop 3y ago
  The cost of real goods, energy, medical care etc will inflate to account for this, plus extracting the gains will involve selling..to whom? At what price?
ilamont 3y ago
> despite maximum contributions The people with insufficient 401k balances aren't making the max. They're doing the minimum, starting too late, or selecting the most conservative investments such as bond funds (NAVs have collapsed) or cash. Many plans don't have good low cost index funds, so people are forced into actively managed funds some of which are complete garbage in terms of fees and returns. Workers living paycheck to paycheck (61% of the population, see https://www.cnbc.com/2023/07/31/61percent-of-americans-live-paycheck-to-paycheck-even-as-inflation-cools.html https://www.cnbc.com/2023/07/31/61percent-of-americans-live-...) means that contributions aren't realistic for millions of people. Further, a lot of people don't understand how they work, and never contribute, even if they could. Even with matching contributions. Or, they don't trust them after the 2008 collapse or a vague suspicion that the system is rigged against them. This is what I hear from my spouse; many of her colleagues won't touch the solid 401k investments offered by their employer. Some employers have made changes that makes it easier to get started, but many never will, assuming (wrongly) that social security is their retirement solution. Your predictions about older workers working longer is correct. You can see it now, seniors working at grocery stores into their 70s and even older.
- jandrewrogers 3y ago
  > Workers living paycheck to paycheck (61% of the population According to US BLS and Federal Reserve studies, only about 15% of the population necessarily lives paycheck-to-paycheck. The median US household has a ~$12,000 surplus per year after all ordinary expenses. Note that "ordinary expenses" includes car payments on a BMW, the latest iPhone, and other by-no-means-necessary expenditures, and also includes all healthcare costs. If 61% of the US population is living paycheck-to-paycheck, it isn't because they need to. Americans have very high income surpluses compared to the rest of the developed world. 15% of the population necessarily living paycheck-to-paycheck is still a lot of people, but it implies 85% are not.
  - ilamont 3y ago
    > If 61% of the US population is living paycheck-to-paycheck, it isn't because they need to. Consumers can share blame for not living below their means, needless wealth signaling, and financial illiteracy. But predatory entities are part of the problem, too - car dealers obscuring true costs of borrowing ("how much do you want to pay per month?"), credit card issuers jacking up rates to 37%, and real estate "investors" jacking up rents after buying mom & pop mobile homes and senior rental units knowing that tenants have nowhere else to go. Here's one example from Montana: “I can’t tell you how many calls I got from folks that were older, like older than 55 or 60, that had lived in their same house for decades, had the same owner for decades who never raised the rent,” Huey said. “Then all of a sudden they lost their housing.” Huey and other providers across the state have heard countless stories of homeowners turning their rental property into Air-BnBs or evicting their long-term tenants in order to house their own children in increasingly affluent communities. https://billingsgazette.com/news/state-regional/montana-seniors-newly-homeless-long-term-care/article_0edbdcd4-330a-11ee-ae9e-d369414779d0.html https://billingsgazette.com/news/state-regional/montana-seni...
QuarterReptile 3y ago
This is over-hyped. Professionals who want out will overwhelmingly figure out how to save more, regardless of whether their investment returns are 5% or 9%. Most people are working for much more than a paycheck (though I believe they often fail to realize that), and stop working for far more varied reasons than achieving financial independence or a fully vested retirement plan. Sure, this will move some people at the margins, but most people will stop working from physical or mental frailty, to move across the country to be with grandchildren, or to preserve their limited energy to do things that they find more compelling than work. To the extent that they need to, they'll find lower-cost ways to live, probably including down-sizing, living with their adult children, renting rooms, or other informal arrangements within their communities.
- gymbeaux 3y ago
  It’s not over-hyped. If you play around with the numbers, the ~$22k per year (increases a little each year usually) you can put in a 401k is insufficient to retire on, even if you start at age 20 and max it each year till 55… unless the stock market goes up, up, up. One flaw is that you can only contribute that $22k to retirement if you have an employer and that employer offers a 401k plan to employees. Most do, but it also discourages entrepreneurship and gig work (which can be lucrative). Without a 401k, we are limited to contributing $6k/year to an IRA, which only has a tax deduction if you make less than $85k or so per year. Meanwhile 15% or so of our paychecks go towards social security, which many believe won’t exist in 20 years, regardless of contributions you made. Finally, the cost of retiring heavily depends on two things- healthcare and housing. Many Americans remain employed until 65 when they are eligible for Medicare as their employer-provided health insurance is all they can afford. Prior to Obamacare, these individuals would simply be uninsured, but now it’s “insured but it’s ridiculously expensive” without their employer. As for housing… it’s common to sell a single family home for X and use X/Y of that money to buy a smaller townhome or condo to live in until the day you die. This can work out well, adding tens or hundreds of thousands of dollars to the retirement account, but it relies on the person owning the home, having significant equity in the home if it’s not fully paid off, and being willing and able to sell the house and downsize. The system is broken and in this software engineer-heavy forum, I think it’s easy to forget that we make more money than most Americans. Heck, we make more money than most humans.
peteradio 3y ago
Maybe by then Canada will have some sort of MAID tourist visa.
- bluefirebrand 3y ago
  Maybe it's time for a tech startup to invent the Futurama suicide booth. We could have a test market lined up. Combine it with a Cyberpunk 2077 crematorium vending machine and it sounds like a great one stop shop.
bluefirebrand 3y ago
> preventing younger workers for getting into positions This won't matter anyways, or at least it feels that way. I have no real hope that jobs that open up above me will go to me or someone else in my cohort. What I think instead is one of three things will happen: 1) Those job responsibilities will be split among remaining people as much as possible, and effectively remain vacant with other people scrambling to take over part of it. They will receive a tiny pay bump at most. 2) Those job responsibilities will be filled by someone but pay nowhere near what the person retiring was making. 3) The job will be automated somehow. Maybe this is too cynical but I really do feel like companies are getting better at making sure employees make exactly the minimum they will tolerate faster than employees are becoming intolerant of how little they are paid.
- nradov 3y ago
  Those are the things that happen in static or declining companies. If you see those things happening then it's time to look for a new job in a growing company, unless you're already close to retirement.
  - bluefirebrand 3y ago
    Most companies have ups and downs. Longterm stable companies tend to be static, short term success can turn into cratering failure in a hurry, and no company can grow forever. When you're interviewing, every company will swear they are growing rapidly and making oodles of money. How do you tell if they really are? If I could identify growing companies so easily I wouldn't work at all, just make bank on the stock markets, right?
    - nradov 3y ago
      It's easy to tell if companies are actually growing. For public companies just read their quarterly financials. For private companies look through LinkedIn to check the pace of hiring and promotions. Of course there are no guarantees. If your current employer stops growing then it's time to look for other opportunities. I don't understand your point about the stock markets. All other investors have access to the same growth data about public companies. The growth rates are already priced in.
bushbaba 3y ago
Honestly just see a lot more RV/Van dwellers in retirement. housing and healthcare are the greatest costs.
- trashface 3y ago
  This is what I'm contemplating in the near future. My house mostly paid off, but I struggle to afford the maintenance and some stuff is starting to go seriously wrong, and younger people are moving into town with eye-popping incomes, driving up COL overall. But then I can't afford to rent either because my income is tiny. I understand RV living has many issues but there are likely no other options for me. Its "funny" that I'm not that old (40s) and I've now lived through 2 major housing crisis as an adult. Its the same number as my parents who are in their 80s, and they never even had to buy a house in a post crisis era. Housing was basically ez-mode for them their whole lives (as was healthcare). Only now are they having any difficulty, even with a defined-benefits pension, but they have me to help out, lucky them (not so much me). As for healthcare I've given up on that already. I might have one elective surgery next year, after that if anything major goes wrong with me, I'm dead. Not even really bothering with many doctor visits now, though I manage the prexisting issues I know about.
  - conductr 3y ago
    I’m not sure about your budget/priorities, but there’s plenty of affordable housing if you’re willing to live in a low growth or rural area. Sounds like we’re similar age, and I’ve thought about this, have a few places in mind that COL is pretty attractive AND I get to live in a real house instead of an RV.
- vsareto 3y ago
  I wish, but those things are heinously expensive for what you get
mint2 3y ago
Also all the older workers who do have enough used it to buy multiple investment properties, helping make house prices absurd.
renonce 3y ago
Just wondering, how many U.S. citizens have considered retiring in another country, possibly a developing country? I live in an Asian country where the living costs are significantly lower than that of U.S., so as long as the US dollar remains strong you can expect 2~3X more purchasing power for the same dollars. Countries like Malasyia have favorable policies for foreign retired workers, such as easy retirement visa, world-class medical care, etc. Could be an ideal place for retirement in case 401k was insufficient for retirement in US.
- EVa5I7bHFq9mnYK 3y ago
  Don't know why, but all those cheap countries are too hot for me. All the colder climate countries are well developed and expensive. Maybe the chain of derivation is cold -> hard to survive -> expensive -> developed.
  - renonce 3y ago
    What about getting an air conditioner?
    - EVa5I7bHFq9mnYK 3y ago
      Meaning sitting under house arrest all the time?
  - smabie 3y ago
    How about South Africa?
    - EVa5I7bHFq9mnYK 3y ago
      Good example to illustrate my point - coldest of the continent, best developed (still going to shit lately).
- trashface 3y ago
  I'm closer to retirement than probably most people here, and I have considered it, though I haven't specifically looked at any countries. One risk for me is the the potential for culture shock, as I haven't ever lived outside the US (and indeed have not been outside of US in over 20 years, and when I did it was to the UK, so not exactly a big difference from US). I also have to take care of my aging parents here, by the time I don't have to do that anymore, I could be near 60 and really not in much condition to manage a big move like that. My own retirement might be...rather short at that point; there is no one to take care of me. My brother really wants us to try for Irish citizenship (we have distant relatives so its possible while one of my parents is still alive), but its highly unlikely we'd get approved and Ireland is not cheap nowadays. I've looked at Canada but there is a lot of red tape for US citizens to move there, especially ones who are already partially retired.
EVa5I7bHFq9mnYK 3y ago
>> The expectation for your 401k is that it's going to grow by 6-8% each year. I have always been suspicious of the 6-8% figure, as it also includes an unknown number of insiders. They know when to buy and when to sell, so their returns are higher than 6-8%. Correspondingly, all non-insider returns are lower, such as 3-4%, but you will not be able to tell because statistically, it will still average out to 6-8%.
- AgentOrange1234 3y ago
  Perhaps the historic returns from a passively managed index fund would bypass these concerns?
wing-_-nuts 3y ago
>Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on. The biggest problem I have with the 401k is that it was very clearly set up as a tax break for the upper class. It was then extended to be the primary retirement for everyone and it has oh so many footguns and ways to bilk retail investors along the way. 1. It's tied to your employer, and not universally available. 2. Even when it's available, it's not mandatory to save anything. It should at the very least have a decent default contribution with a 'I really know what I'm doing' opt out. 3. Investment options are often active funds with subpar performance and high fees 4. It's too easy for retail investors to panic and sell everything during a downturn. If the government were really intending to set up a defined contribution retirement plan, they should have just made the TSP available 'at cost' to everyone. Autoenroll everyone at 10% in a 'target date' index fund and don't let them touch it until their 60's unless they have a terminal illness or something. It really is that simple.
- supertrope 3y ago
  Indeed. The switch from defined benefit to defined contribution puts investment risk and longevity risk on the individual. Australia has much better pension/retirement savings policy public in the form of Superannuation.
  - djrobstep 3y ago
    What are you talking about? Australia's superannuation system is also defined contribution with individualized risk.
    - marcus_holmes 3y ago
      But a pension to back it up if your super won't support you. So not entirely individualised risk.
      - djrobstep 3y ago
        The US also has this.
giantg2 3y ago
Who is actually making max contributions? $19k per year is out of reach for most. If someone makes the max 401k and IRA contributions over a 35 year career, they would be set.
- ChuckMcM 3y ago
  I suspect all of the exempt employees of Meta, Apple, Google, Microsoft, Intel, and pretty much the ones in any of the other fortune 100 companies. There is a funny thing though, you can have "too much" in your 401k/IRA :-). When you hit 72 you have to withdraw 10% annually and that amount can put you into the top tax bracket if you've been saving your whole career and have more than a million bucks in there.
  - oh_sigh 3y ago
    The good news is - if you have to take out $100k, you only need to take out $90k the next year!
    - ChuckMcM 3y ago
      Yeah unless the market is doing well and your balance is growing. I get that it isn't a "problem" per se. :-)
  - gshubert17 3y ago
    Required minimum distributions start at about 5% (not 10%) at age 72, and increase with age. But your general point stands. RMDs will add to one's tax bill, by regular tax brackets and having up to 85% of Social Security benefits taxed too.
- alistairSH 3y ago
  Hell, even among people who should be able to contribute the max, many do not.
- gymbeaux 3y ago
  They’re would be set assuming continued US stock market returns, which will “probably” continue indefinitely so long as we are a country, but it’s not guaranteed. If I recall correctly, maxing out 401k for 30 years doesn’t even get you $1M on principal. 30 years from now even $2M is probably not enough to comfortably retire on. Then if you need any nursing care it’s $100k+ per year.
delfinom 3y ago
The 401k generation is retiring right now. They peak in 5 years and end in 10. I think the guessing they'll work longer is optimistic. Once you hit age 65 or 67 man, you'll be surprised how much harder life is lol. At my workplace, two people retired this year and they announced their funerals within 2 weeks. That caused 5 more to finally retire before it's err, too late. But I fully agree the 401k meme is in trouble. It's modeled just like social security and pensions. Infinite growth, which simply does not exist. Except instead of the government footing it, we threw it into the market and allowed middlemen to also take a cut.
oh_sigh 3y ago
What about all the 401k generation that can retire? Should we be expecting a massive sell-off of stocks held by 401k-ers?
WalterBright 3y ago
The number of workers in the economy is not zero-sum.
stouset 3y ago
> It's worse than that. The 401k generation will begin think about retiring in the next few years. Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on. I’m sorry, are you looking at the same market graphs I’m looking at? Anyone who is retiring soon and has been maxing their 401(k) for the last decade-plus is doing pretty damn well.
- conductr 3y ago
  It’s all relative. That person is likely to need more in retirement based on their living standards
  - stouset 3y ago
    I’m pretty confident the majority of families that have been maxing their 401(k)s have a pretty good awareness of their retirement situation. Not a lot of people in that bracket are going to wake up one day in their sixties and suddenly realize they need to drop their standard of living if they want to make it. There’s not a lot of overlap in the Venn diagram of people who care enough to max out their retirement plans and people who don’t routinely assess their financial situation. I’d be much, much more worried about the depressingly large number of people who have next to nothing saved, who almost certainly will be surprised to learn that retirement isn’t an age, it’s a financial situation.
    - conductr 3y ago
      > I’d be much, much more worried about the depressingly large number of people who have next to nothing saved I agree. > Not a lot of people in that bracket are going to wake up one day in their sixties and suddenly realize they need to drop their standard of living if they want to make it. If all they've been doing is maxing their 401k and expecting that to be enough are likely in for a shock. I don't know if this person is more savvy than others. They likely have many other tailwinds, like paid off mortgages and kids with good careers that will ease things. But the drop in income is going to be an adjustment is all I'm saying.
  - 3y ago
missedthecue 3y ago
Unless you plan to retire with a very expensive lifestyle, the contribution max of $22,500 per year is very fair, plus you can also put $6,500 max in a roth IRA. That's almost $30,000 per year in tax advantaged accounts. More if you're in you're 50s. If you were to max your accounts for any reasonable portion of your career, you would retire with millions. Most people don't make enough to hit the max every year, thankfully, retirement will still work without going near the max. The problem is that people don't put anything in, or only put 1-3% in. My friend works in HR at a company that employs a lot of engineers. These are people that are educated, can do 6th grade math, and make decent incomes. I think the average contribution in the department was a little over 4%. Those people are going to retire with $150k in their account and have to life off social security but they shouldn't blame it on anyone else. I know a lot of people are struggling in America right now, but a lot of retirement savings shortfalls are just ignorance. The only policy solution to this is to force some kind of deduction from paychecks into retirement accounts. Australia and Singapore do this and it works reasonably well.
- lmm 3y ago
  > The only policy solution to this is to force some kind of deduction from paychecks into retirement accounts. Or to admit that privately managed retirement accounts were a mistake, and ramp social security up to the point where it's enough to live on, taking enough contributions to cover that. Investment should be money that someone can afford to lose. Treating privately managed investment as the way to do retirement savings is going to leave some people destitute.
  - missedthecue 3y ago
    The demographics of the world mean that social security and government pensions are no longer going to work very well. They will need to be cut, and can certainly not be raised even higher. In your lifetime, most countries will have 1 worker per retiree. Some, like South Korea, will have two retirees per worker. Good luck paying all your normal taxes as well as increased levels of medicare and social security all on one income. Investment will continue to be the cornerstorne or retirement, the math for redistribution just doesn't work. Especially if you increase the distributions.
test6554 3y ago
401K contribution limits only apply to 401K contributions. People can save and invest unlimited additional money outside of those plans. They just don’t get the same tax benefits or potential employer matching.
m_0x 3y ago
> Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on. Is that a hunch you have or are you basing that statement on data?

flashback2199 3y ago

> Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on. How will that happen when there has been so much growth in the S&P?

toomuchtodo 3y ago
https://www.nerdwallet.com/article/investing/the-average-401k-balance-by-age https://www.nerdwallet.com/article/investing/the-average-401... https://www.gao.gov/blog/growing-disparities-retirement-account-savings https://www.gao.gov/blog/growing-disparities-retirement-acco... https://www.gao.gov/financial-security-older-americans https://www.gao.gov/financial-security-older-americans (401k plans were a way for capital to con Americans that ditching pensions was the way to go; pension contributions became shareholder profits, and most did not or could not contribute to 401ks in any meaningful fashion)
- flashback2199 3y ago
  Thanks for this pile of links... I don't believe what you're saying that 401k's are somehow not going to be enough to retire. Unless you meant retire where housing prices are rising the fastest.
  - toomuchtodo 3y ago
    You didn't read the links then. Median 401k balance is no more than $71k across all age cohorts. Assuming a 4% perpetual withdrawal rate (Trinity study), that is ~$2840/year in income. Per the GAO: > Even for those who do have access, traditional defined benefit pensions have become much less common as defined contribution plans, such as 401(k)s, have become the primary type of retirement plan. This shift has increased the risks and responsibilities for individuals in planning and managing their retirement. Yet research shows that many households are ill-equipped for this task and have little or no retirement savings. As of 2016, about half of households with a worker age 55 and older had no retirement savings, and 29% had no retirement savings or a defined benefit plan. Policymakers will need to consider how to best encourage expanded pension coverage, adequate and secure pension benefits, and more effective use of tax preferences to foster workers’ retirement security. 40% of Social Security recipients have no other income. https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf https://web.archive.org/web/20231028173718/https://www.nirsonline.org/2020/01/new-report-40-of-older-americans-rely-solely-on-social-security-for-retirement-income/ https://web.archive.org/web/20231028173718/https://www.nirso...
    - flashback2199 3y ago
      I'm not following your reasoning Regardless of whether and how much private equity is affecting growth in prices of stocks for public companies, the S&P in which people's 401ks are invested has grown a lot, and will probably continue to Low balances in 401k's are therefore due to insufficient contributions and not insufficient growth in S&P prices
    - the_gastropod 3y ago
      This thread started as a response to: > The 401k generation will begin think about retiring in the next few years. Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on. The maximum individual contribution—not counting employer contributions—is $22,500. Or if you’re over 50, it’s $30,000. If You’re maxing out your 401k, you’ll pass $71k after working just a few years. To retire with just $71k after working a typical career of 40 years, you’d have to save less than ~$600/year. In other words, saving $600/year—~4% of a minimum wage salary—is enough to surpass this median $71k number after a 40 year career and a conservative 5% avg return. I suspect most of these people have other savings.
- nightski 3y ago
  Who do you think the shareholders are? That's right, it includes 401(k) and retirement plan owners. It's a way to diversify your retirement beyond a single company. A pension plan in a company that can disappear and that can make investments on your behalf without any control is the big con. The fact that people contribute less to their 401(k) means they care less about saving for retirement, not that the plans themselves are a con. I personally don't even have a 401(k) because I am self employed and there are other options.
  - toomuchtodo 3y ago
    https://www.cnbc.com/2021/10/18/the-wealthiest-10percent-of-americans-own-a-record-89percent-of-all-us-stocks.html https://www.cnbc.com/2021/10/18/the-wealthiest-10percent-of-... ("The wealthiest 10% of Americans own a record 89% of all U.S. stocks") https://www.usnews.com/news/national-news/articles/2021-03-15/who-owns-stocks-in-america-mostly-its-the-wealthy-and-white https://www.usnews.com/news/national-news/articles/2021-03-1... ("Median household owns $15k in equities") (unless you're wealthy, you are a token participant in the capital markets)
    - deleted 3y ago
      [deleted]
    - nightski 3y ago
      I'm fine being a token participant as long as it means I've been seeing significant gains over the past decade, which I have.
      - toomuchtodo 3y ago
        I'm not faulting the selfish position, simply pointing out the game is rigged for everyone except outliers (like yourself or the ultra wealthy). These are just facts, not feelings, when you review the data about who has sufficient cashflow for inflows into investments during accumulation phases as well as their current and potential future investment exposure to these asset classes. Congrats on the luck (no snark, honestly). But let us not extrapolate luck and personal anecdotes to solutions for systems. "In God We Trust, all others must bring data", working backwards from first principles, etc.
- onlyrealcuzzo 3y ago
  The majority of domestically-owned S&P shares are owned by either pension funds or IRAs (401ks): https://theirrelevantinvestor.com/2020/10/25/who-owns-the-stock-market/ https://theirrelevantinvestor.com/2020/10/25/who-owns-the-st... The foreign share is a roughly similar breakdown to the domestic share. How do you think Pension Funds get a return if not investing in equities in similar ratios to most people's 401k allocation?
- loeg 3y ago
  The quoted excerpt is referring to only the subset who has maxed out their 401k contributions, whereas you're describing the median, who mostly have not. These are different groups. People who maxed out their 401ks for their working years and had vaguely reasonable investment options (mostly diversified stock funds) will be fine. And social security income should not be ignored.
- red-iron-pine 3y ago
  > and most did not or could not contribute to 401ks in any meaningful fashion) burying the lede here, killer. to be clear, the 2% mgmt fee in a lot of 401k plans is terrible and is absolutely scamming the average folks. but you can't retire on something you didn't contribute to, either because you didn't or couldn't.
  - toomuchtodo 3y ago
    Some improvements are in flight. https://www.cnbc.com/2023/10/31/biden-administration-to-crack-down-on-junk-fees-in-retirement-plans.html https://www.cnbc.com/2023/10/31/biden-administration-to-crac... https://www.whitehouse.gov/briefing-room/statements-releases/2023/10/31/fact-sheet-president-biden-to-announce-new-actions-to-protect-retirement-security-by-cracking-down-on-junk-fees-in-retirement-investment-advice/ https://www.whitehouse.gov/briefing-room/statements-releases...
- nineplay 3y ago
  Pensions have a lot of problems. They become handcuffs that keep workers at the same place no matter how unhappy they are, and employers know how to take advantage of that. It's easy to look back with rose-colored glasses but I know several people who dragged themselves though several years of misery to hang on to their pension funds. I wouldn't trade my 401k.
  - nunez 3y ago
    Still happens today in education. Many of those retirement accounts are pensions of another name, and educators need to work a number of years to become fully vested into it
- arielweisberg 3y ago
  Pension plans as they were are still kind of bad because they could be mismanaged in a variety of ways. Pensions are kind of always problematic because you take control away from people and give it to people with misaligned incentives. It's the same if you give people control over their own retirement because they can not contribute or mismanage how the money is invested. Defined contribution pensions are maybe an improvement on this because at least you know there is money there and can have a regulatory framework that is simple and heavily restricts how the money can be used. I would really like to see broad market index funds only. Dumb money should stay dumb. Maybe if you pull the responsibility up to the federal government you minimize the risk of mismanagement, but it's still pretty large. Seems like we are doomed to pick an option that is still risky and it's every person for themselves. You need to super save and not rely on any framework provided by others. And this is where 401ks shine. Sure I am stuck relying on the stock market, but I think the distribution of outcomes there are more in my favor than if it were managed by someone else. Whatever is in my 401k (or IRA or whatever) is owned by me and is heavily diversified.
  - ryandrake 3y ago
    > Pensions are kind of always problematic because you take control away from people and give it to people with misaligned incentives. Maybe I'm the weird one, but I don't necessarily want control of my retirement fund. My primary requirement is that it exists when I need it. Somehow the financial industry convinced the public that being able to micromanage their retirement investment and pick their own stocks and mutual funds is somehow beneficial. I can probably count on one hand the number of people I know who find this kind of micromanagement interesting. I just want "money goes in" and "enough money eventually comes out" and I don't think I'm alone in that. You can accomplish that with a well-run pension, a well-run government plan, and so on. Lots of options that don't involve me having to decide between stock and bond funds.
    - WkndTriathlete 3y ago
      Having watched a close friend of my dad's sell at the bottom in 2007-2008 after he had retired, I understand your sentiment. However, before the advent of discount brokerages and widespread 401(k) plans investing really was only for the extremely wealthy and inept fund management - resulting in extremely high expense ratios - was rampant. Now investment is more accessible and ETFs are offering near-zero (or actually zero (!) - see FNILX) expense ratios on the strength of the economy, which has been a net win for a larger segment of the population than the 0.1%. We're up to 20% now! I would like to see a much larger percentage of the population to be able to get in on this opportunity. Doing away with wealth and income inequality will get us halfway there. Trust-managed investing addresses what you're asking for, where a company manages your investments and retirements for you at some level of expense ratio. (These companies exist today for retirees.)
spiralpolitik 3y ago
Two market crashes and badly managed 401k accounts won’t help. Most trust that their 401k is correctly managed. This is often not the case. The merry-go-round of debt ceiling and budget confrontations in congress doesn’t help. Any gains from this year are probably going to be wiped out by that continuing drama. Finally the increase in cost of living expenses and cost of long term medical care will quickly eat into your 401k once you stop contributing. The math looks ugly once you sit down and figure it out.
- nradov 3y ago
  What do you mean by "trust that their 401k is correctly managed"? Those 401(k) plans are self managed. In most plans the investment selection defaults to a low-cost retirement date fund. There's no one to trust.
  - spiralpolitik 3y ago
    If you start at a company today the default setting would be for the 401k money to be invested in something like LifePath N or similar ETFs that are designed for retirement funds. Most people, lacking the knowledge to do otherwise will stick with that. So you are working on the assumption that LifePath or similar ETFs are going to be correctly managed for their cohort (shifting into safer investments as the retirement date approaches).
    - njarboe 3y ago
      Somehow the "safety" of bonds were not adjusted as yields reached and sometimes went below zero. A multi-year zero interest bond is not a very safe investment. I did have that default setting on a retirement account and got out of those LifePath type ETFs over a decade ago.
      - nradov 3y ago
        You appear to be confusing safety with investment returns. As an asset class, bonds with high credit ratings have a lower risk of losing capital than stocks. Those bonds will lose some value as interest rates rise but they very rarely go to zero. For investors approaching retirement age it's more important to preserve capital than to worry about interest rate risks.
throw0101c 3y ago
> How will that happen when there has been so much growth in the S&P? If you invested in an index fund, you will get very close to the S&P 500/Russell 3000/Whilshire 5000/etc. If you invested in an actively managed fund, then the fund manager takes their cut, but also probably tries to be 'too clever' and doesn't get as good returns as a plain index, and so you're not getting as high returns.
DontchaKnowit 3y ago
My 401k account offered by fidelity, using the highest risk investment strategy available to me, returned about 8 percent during a period where the S&P did about 30%. and they took a 1.5% commission. Absolute fucking scam. took all my money out and ended contributions.
- wenebego 3y ago
  You werent allowed to invest in the s&p 500 or any other low cost index fund?
  - DontchaKnowit 3y ago
    If I was, they did not make that clear at all. They had a set of about 14 different "packages" that were aggregations of different etfs and such that were available to invest in and that's it. I couldn't find any way to invest in a single stock or etf. They also told me I couldn't cash out my money until I left the company I worked for which I am pretty sure is untrue.
    - gymbeaux 3y ago
      You usually can’t cash out while still employed with the company sponsoring the 401k plan. Conversely, you can usually only take a loan withdrawal if you’re still employed with said company. Definitely 401ks are obscure and confusing and full of deception. I think John Oliver did a segment on them. Your experience is not atypical.
- bushbaba 3y ago
  You can always do a S&P 500 fund in a 401k
  - hirvi74 3y ago
    Isn't having an S&P 500 fund legally required?
  - nunez 3y ago
gymbeaux 3y ago
Past performance does not guarantee future results. You can find periods in the US stock market’s history of years, even a decade or so, where the return on the DOW was essentially 0. Look at other countries and it gets worse; Japan’s NIKKEI returned 0 between 1995 and 2020. 25 years of… dividend reinvestment I guess? Still nothing compared to the US stock market during that period. The stock market is a circus- that’s common knowledge- yet we rely on it for retirement? Okay. That’ll work until it doesn’t.
- nradov 3y ago
  The Dow Jones Industrial Average is a garbage index with components selected arbitrarily. No one in finance takes it seriously. No one can guarantee stock market returns, but over decades it's a lot safer than depending on pension contributions from a single company. And most 401(k) plans now offer target date mutual funds which automatically reduce stock exposure over time, thus reducing risk of capital loss as you approach retirement.
  - danaris 3y ago
    We're not talking about what people "in finance" know or care about. We're talking about regular people's retirement funds.
    - nradov 3y ago
      What's your point? Regular people's retirement funds aren't invested in the Dow. They mostly use target date funds.
      - gymbeaux 3y ago
        Even worse. If you’re using a TRD fund to stash your retirement, it will severely underperform in a bull market, and if it spares you somewhat from a bear market, well… you probably weren’t going to be able to retire on that money anyway. Then there’s the relatively high expense ratio most of those “actively managed” funds have.
  - 3y ago
BeetleB 3y ago
> How will that happen when there has been so much growth in the S&P? Almost no one gave the obvious answer: Most 401 K plans are not investing in the S&P. Many give you the option to, but it's not the default, and probably over 90% of workers are unaware of the fund. And quite a few do not even give you the option to invest in it.
- gymbeaux 3y ago
  I’ve never worked for a company whose 401k default was an index fund. I probably never will. Best-case it was a target retirement fund, worst case I think it was some bullshit little proprietary fund that had a high expense ratio.
PKop 3y ago
The cost of real goods, energy, medical care etc will inflate to account for this, plus extracting the gains will involve selling..to whom? At what price?

ilamont 3y ago

> despite maximum contributions The people with insufficient 401k balances aren't making the max. They're doing the minimum, starting too late, or selecting the most conservative investments such as bond funds (NAVs have collapsed) or cash. Many plans don't have good low cost index funds, so people are forced into actively managed funds some of which are complete garbage in terms of fees and returns. Workers living paycheck to paycheck (61% of the population, see https://www.cnbc.com/2023/07/31/61percent-of-americans-live-paycheck-to-paycheck-even-as-inflation-cools.html https://www.cnbc.com/2023/07/31/61percent-of-americans-live-...) means that contributions aren't realistic for millions of people. Further, a lot of people don't understand how they work, and never contribute, even if they could. Even with matching contributions. Or, they don't trust them after the 2008 collapse or a vague suspicion that the system is rigged against them. This is what I hear from my spouse; many of her colleagues won't touch the solid 401k investments offered by their employer. Some employers have made changes that makes it easier to get started, but many never will, assuming (wrongly) that social security is their retirement solution. Your predictions about older workers working longer is correct. You can see it now, seniors working at grocery stores into their 70s and even older.

jandrewrogers 3y ago
> Workers living paycheck to paycheck (61% of the population According to US BLS and Federal Reserve studies, only about 15% of the population necessarily lives paycheck-to-paycheck. The median US household has a ~$12,000 surplus per year after all ordinary expenses. Note that "ordinary expenses" includes car payments on a BMW, the latest iPhone, and other by-no-means-necessary expenditures, and also includes all healthcare costs. If 61% of the US population is living paycheck-to-paycheck, it isn't because they need to. Americans have very high income surpluses compared to the rest of the developed world. 15% of the population necessarily living paycheck-to-paycheck is still a lot of people, but it implies 85% are not.
- ilamont 3y ago
  > If 61% of the US population is living paycheck-to-paycheck, it isn't because they need to. Consumers can share blame for not living below their means, needless wealth signaling, and financial illiteracy. But predatory entities are part of the problem, too - car dealers obscuring true costs of borrowing ("how much do you want to pay per month?"), credit card issuers jacking up rates to 37%, and real estate "investors" jacking up rents after buying mom & pop mobile homes and senior rental units knowing that tenants have nowhere else to go. Here's one example from Montana: “I can’t tell you how many calls I got from folks that were older, like older than 55 or 60, that had lived in their same house for decades, had the same owner for decades who never raised the rent,” Huey said. “Then all of a sudden they lost their housing.” Huey and other providers across the state have heard countless stories of homeowners turning their rental property into Air-BnBs or evicting their long-term tenants in order to house their own children in increasingly affluent communities. https://billingsgazette.com/news/state-regional/montana-seniors-newly-homeless-long-term-care/article_0edbdcd4-330a-11ee-ae9e-d369414779d0.html https://billingsgazette.com/news/state-regional/montana-seni...

QuarterReptile 3y ago

This is over-hyped. Professionals who want out will overwhelmingly figure out how to save more, regardless of whether their investment returns are 5% or 9%. Most people are working for much more than a paycheck (though I believe they often fail to realize that), and stop working for far more varied reasons than achieving financial independence or a fully vested retirement plan. Sure, this will move some people at the margins, but most people will stop working from physical or mental frailty, to move across the country to be with grandchildren, or to preserve their limited energy to do things that they find more compelling than work. To the extent that they need to, they'll find lower-cost ways to live, probably including down-sizing, living with their adult children, renting rooms, or other informal arrangements within their communities.

gymbeaux 3y ago
It’s not over-hyped. If you play around with the numbers, the ~$22k per year (increases a little each year usually) you can put in a 401k is insufficient to retire on, even if you start at age 20 and max it each year till 55… unless the stock market goes up, up, up. One flaw is that you can only contribute that $22k to retirement if you have an employer and that employer offers a 401k plan to employees. Most do, but it also discourages entrepreneurship and gig work (which can be lucrative). Without a 401k, we are limited to contributing $6k/year to an IRA, which only has a tax deduction if you make less than $85k or so per year. Meanwhile 15% or so of our paychecks go towards social security, which many believe won’t exist in 20 years, regardless of contributions you made. Finally, the cost of retiring heavily depends on two things- healthcare and housing. Many Americans remain employed until 65 when they are eligible for Medicare as their employer-provided health insurance is all they can afford. Prior to Obamacare, these individuals would simply be uninsured, but now it’s “insured but it’s ridiculously expensive” without their employer. As for housing… it’s common to sell a single family home for X and use X/Y of that money to buy a smaller townhome or condo to live in until the day you die. This can work out well, adding tens or hundreds of thousands of dollars to the retirement account, but it relies on the person owning the home, having significant equity in the home if it’s not fully paid off, and being willing and able to sell the house and downsize. The system is broken and in this software engineer-heavy forum, I think it’s easy to forget that we make more money than most Americans. Heck, we make more money than most humans.

peteradio 3y ago

Maybe by then Canada will have some sort of MAID tourist visa.

bluefirebrand 3y ago
Maybe it's time for a tech startup to invent the Futurama suicide booth. We could have a test market lined up. Combine it with a Cyberpunk 2077 crematorium vending machine and it sounds like a great one stop shop.

bluefirebrand 3y ago

> preventing younger workers for getting into positions This won't matter anyways, or at least it feels that way. I have no real hope that jobs that open up above me will go to me or someone else in my cohort. What I think instead is one of three things will happen: 1) Those job responsibilities will be split among remaining people as much as possible, and effectively remain vacant with other people scrambling to take over part of it. They will receive a tiny pay bump at most. 2) Those job responsibilities will be filled by someone but pay nowhere near what the person retiring was making. 3) The job will be automated somehow. Maybe this is too cynical but I really do feel like companies are getting better at making sure employees make exactly the minimum they will tolerate faster than employees are becoming intolerant of how little they are paid.

nradov 3y ago
Those are the things that happen in static or declining companies. If you see those things happening then it's time to look for a new job in a growing company, unless you're already close to retirement.
- bluefirebrand 3y ago
  Most companies have ups and downs. Longterm stable companies tend to be static, short term success can turn into cratering failure in a hurry, and no company can grow forever. When you're interviewing, every company will swear they are growing rapidly and making oodles of money. How do you tell if they really are? If I could identify growing companies so easily I wouldn't work at all, just make bank on the stock markets, right?
  - nradov 3y ago
    It's easy to tell if companies are actually growing. For public companies just read their quarterly financials. For private companies look through LinkedIn to check the pace of hiring and promotions. Of course there are no guarantees. If your current employer stops growing then it's time to look for other opportunities. I don't understand your point about the stock markets. All other investors have access to the same growth data about public companies. The growth rates are already priced in.

bushbaba 3y ago

Honestly just see a lot more RV/Van dwellers in retirement. housing and healthcare are the greatest costs.

trashface 3y ago
This is what I'm contemplating in the near future. My house mostly paid off, but I struggle to afford the maintenance and some stuff is starting to go seriously wrong, and younger people are moving into town with eye-popping incomes, driving up COL overall. But then I can't afford to rent either because my income is tiny. I understand RV living has many issues but there are likely no other options for me. Its "funny" that I'm not that old (40s) and I've now lived through 2 major housing crisis as an adult. Its the same number as my parents who are in their 80s, and they never even had to buy a house in a post crisis era. Housing was basically ez-mode for them their whole lives (as was healthcare). Only now are they having any difficulty, even with a defined-benefits pension, but they have me to help out, lucky them (not so much me). As for healthcare I've given up on that already. I might have one elective surgery next year, after that if anything major goes wrong with me, I'm dead. Not even really bothering with many doctor visits now, though I manage the prexisting issues I know about.
- conductr 3y ago
  I’m not sure about your budget/priorities, but there’s plenty of affordable housing if you’re willing to live in a low growth or rural area. Sounds like we’re similar age, and I’ve thought about this, have a few places in mind that COL is pretty attractive AND I get to live in a real house instead of an RV.
vsareto 3y ago
I wish, but those things are heinously expensive for what you get

mint2 3y ago

Also all the older workers who do have enough used it to buy multiple investment properties, helping make house prices absurd.

renonce 3y ago

Just wondering, how many U.S. citizens have considered retiring in another country, possibly a developing country? I live in an Asian country where the living costs are significantly lower than that of U.S., so as long as the US dollar remains strong you can expect 2~3X more purchasing power for the same dollars. Countries like Malasyia have favorable policies for foreign retired workers, such as easy retirement visa, world-class medical care, etc. Could be an ideal place for retirement in case 401k was insufficient for retirement in US.

EVa5I7bHFq9mnYK 3y ago
Don't know why, but all those cheap countries are too hot for me. All the colder climate countries are well developed and expensive. Maybe the chain of derivation is cold -> hard to survive -> expensive -> developed.
- renonce 3y ago
  What about getting an air conditioner?
  - EVa5I7bHFq9mnYK 3y ago
    Meaning sitting under house arrest all the time?
- smabie 3y ago
  How about South Africa?
  - EVa5I7bHFq9mnYK 3y ago
    Good example to illustrate my point - coldest of the continent, best developed (still going to shit lately).
trashface 3y ago
I'm closer to retirement than probably most people here, and I have considered it, though I haven't specifically looked at any countries. One risk for me is the the potential for culture shock, as I haven't ever lived outside the US (and indeed have not been outside of US in over 20 years, and when I did it was to the UK, so not exactly a big difference from US). I also have to take care of my aging parents here, by the time I don't have to do that anymore, I could be near 60 and really not in much condition to manage a big move like that. My own retirement might be...rather short at that point; there is no one to take care of me. My brother really wants us to try for Irish citizenship (we have distant relatives so its possible while one of my parents is still alive), but its highly unlikely we'd get approved and Ireland is not cheap nowadays. I've looked at Canada but there is a lot of red tape for US citizens to move there, especially ones who are already partially retired.

EVa5I7bHFq9mnYK 3y ago

>> The expectation for your 401k is that it's going to grow by 6-8% each year. I have always been suspicious of the 6-8% figure, as it also includes an unknown number of insiders. They know when to buy and when to sell, so their returns are higher than 6-8%. Correspondingly, all non-insider returns are lower, such as 3-4%, but you will not be able to tell because statistically, it will still average out to 6-8%.

AgentOrange1234 3y ago
Perhaps the historic returns from a passively managed index fund would bypass these concerns?

wing-_-nuts 3y ago

>Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on. The biggest problem I have with the 401k is that it was very clearly set up as a tax break for the upper class. It was then extended to be the primary retirement for everyone and it has oh so many footguns and ways to bilk retail investors along the way. 1. It's tied to your employer, and not universally available. 2. Even when it's available, it's not mandatory to save anything. It should at the very least have a decent default contribution with a 'I really know what I'm doing' opt out. 3. Investment options are often active funds with subpar performance and high fees 4. It's too easy for retail investors to panic and sell everything during a downturn. If the government were really intending to set up a defined contribution retirement plan, they should have just made the TSP available 'at cost' to everyone. Autoenroll everyone at 10% in a 'target date' index fund and don't let them touch it until their 60's unless they have a terminal illness or something. It really is that simple.

supertrope 3y ago
Indeed. The switch from defined benefit to defined contribution puts investment risk and longevity risk on the individual. Australia has much better pension/retirement savings policy public in the form of Superannuation.
- djrobstep 3y ago
  What are you talking about? Australia's superannuation system is also defined contribution with individualized risk.
  - marcus_holmes 3y ago
    But a pension to back it up if your super won't support you. So not entirely individualised risk.
    - djrobstep 3y ago
      The US also has this.

giantg2 3y ago

Who is actually making max contributions? $19k per year is out of reach for most. If someone makes the max 401k and IRA contributions over a 35 year career, they would be set.

ChuckMcM 3y ago
I suspect all of the exempt employees of Meta, Apple, Google, Microsoft, Intel, and pretty much the ones in any of the other fortune 100 companies. There is a funny thing though, you can have "too much" in your 401k/IRA :-). When you hit 72 you have to withdraw 10% annually and that amount can put you into the top tax bracket if you've been saving your whole career and have more than a million bucks in there.
- oh_sigh 3y ago
  The good news is - if you have to take out $100k, you only need to take out $90k the next year!
  - ChuckMcM 3y ago
    Yeah unless the market is doing well and your balance is growing. I get that it isn't a "problem" per se. :-)
- gshubert17 3y ago
  Required minimum distributions start at about 5% (not 10%) at age 72, and increase with age. But your general point stands. RMDs will add to one's tax bill, by regular tax brackets and having up to 85% of Social Security benefits taxed too.
alistairSH 3y ago
Hell, even among people who should be able to contribute the max, many do not.
gymbeaux 3y ago
They’re would be set assuming continued US stock market returns, which will “probably” continue indefinitely so long as we are a country, but it’s not guaranteed. If I recall correctly, maxing out 401k for 30 years doesn’t even get you $1M on principal. 30 years from now even $2M is probably not enough to comfortably retire on. Then if you need any nursing care it’s $100k+ per year.

delfinom 3y ago

The 401k generation is retiring right now. They peak in 5 years and end in 10. I think the guessing they'll work longer is optimistic. Once you hit age 65 or 67 man, you'll be surprised how much harder life is lol. At my workplace, two people retired this year and they announced their funerals within 2 weeks. That caused 5 more to finally retire before it's err, too late. But I fully agree the 401k meme is in trouble. It's modeled just like social security and pensions. Infinite growth, which simply does not exist. Except instead of the government footing it, we threw it into the market and allowed middlemen to also take a cut.

oh_sigh 3y ago

What about all the 401k generation that can retire? Should we be expecting a massive sell-off of stocks held by 401k-ers?

WalterBright 3y ago

The number of workers in the economy is not zero-sum.

stouset 3y ago

> It's worse than that. The 401k generation will begin think about retiring in the next few years. Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on. I’m sorry, are you looking at the same market graphs I’m looking at? Anyone who is retiring soon and has been maxing their 401(k) for the last decade-plus is doing pretty damn well.

conductr 3y ago
It’s all relative. That person is likely to need more in retirement based on their living standards
- stouset 3y ago
  I’m pretty confident the majority of families that have been maxing their 401(k)s have a pretty good awareness of their retirement situation. Not a lot of people in that bracket are going to wake up one day in their sixties and suddenly realize they need to drop their standard of living if they want to make it. There’s not a lot of overlap in the Venn diagram of people who care enough to max out their retirement plans and people who don’t routinely assess their financial situation. I’d be much, much more worried about the depressingly large number of people who have next to nothing saved, who almost certainly will be surprised to learn that retirement isn’t an age, it’s a financial situation.
  - conductr 3y ago
    > I’d be much, much more worried about the depressingly large number of people who have next to nothing saved I agree. > Not a lot of people in that bracket are going to wake up one day in their sixties and suddenly realize they need to drop their standard of living if they want to make it. If all they've been doing is maxing their 401k and expecting that to be enough are likely in for a shock. I don't know if this person is more savvy than others. They likely have many other tailwinds, like paid off mortgages and kids with good careers that will ease things. But the drop in income is going to be an adjustment is all I'm saying.
- 3y ago

missedthecue 3y ago

Unless you plan to retire with a very expensive lifestyle, the contribution max of $22,500 per year is very fair, plus you can also put $6,500 max in a roth IRA. That's almost $30,000 per year in tax advantaged accounts. More if you're in you're 50s. If you were to max your accounts for any reasonable portion of your career, you would retire with millions. Most people don't make enough to hit the max every year, thankfully, retirement will still work without going near the max. The problem is that people don't put anything in, or only put 1-3% in. My friend works in HR at a company that employs a lot of engineers. These are people that are educated, can do 6th grade math, and make decent incomes. I think the average contribution in the department was a little over 4%. Those people are going to retire with $150k in their account and have to life off social security but they shouldn't blame it on anyone else. I know a lot of people are struggling in America right now, but a lot of retirement savings shortfalls are just ignorance. The only policy solution to this is to force some kind of deduction from paychecks into retirement accounts. Australia and Singapore do this and it works reasonably well.

lmm 3y ago
> The only policy solution to this is to force some kind of deduction from paychecks into retirement accounts. Or to admit that privately managed retirement accounts were a mistake, and ramp social security up to the point where it's enough to live on, taking enough contributions to cover that. Investment should be money that someone can afford to lose. Treating privately managed investment as the way to do retirement savings is going to leave some people destitute.
- missedthecue 3y ago
  The demographics of the world mean that social security and government pensions are no longer going to work very well. They will need to be cut, and can certainly not be raised even higher. In your lifetime, most countries will have 1 worker per retiree. Some, like South Korea, will have two retirees per worker. Good luck paying all your normal taxes as well as increased levels of medicare and social security all on one income. Investment will continue to be the cornerstorne or retirement, the math for redistribution just doesn't work. Especially if you increase the distributions.

test6554 3y ago

401K contribution limits only apply to 401K contributions. People can save and invest unlimited additional money outside of those plans. They just don’t get the same tax benefits or potential employer matching.

m_0x 3y ago

> Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on. Is that a hunch you have or are you basing that statement on data?