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> 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

> 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.
      - toomuchtodo 3y ago
        > I suspect most of these people have other savings. Please show me the data, because all available public sources indicate this is not the case, and in my travels, the data confirms my conversations with these cohorts (because I am very curious). If they have other savings not showing up in the data, what and where is it? We cannot simply assume it exists. Hope is not a strategy.
        the_gastropod 3y ago
        Well, for starters, we can look at the median net worth of Americans, which in 2019 was between $250k and $310k for the age groups we’re talking about here. Is that enough? Still probably not, but it’s a heck of a lot more than just $71k. https://www.federalreserve.gov/econres/scf/dataviz/scf/chart/#series:Net_Worth;demographic:agecl;population:all;units:median;range:1989,2019 https://www.federalreserve.gov/econres/scf/dataviz/scf/chart...
- 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?

> 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.
    - toomuchtodo 3y ago
      > I suspect most of these people have other savings. Please show me the data, because all available public sources indicate this is not the case, and in my travels, the data confirms my conversations with these cohorts (because I am very curious). If they have other savings not showing up in the data, what and where is it? We cannot simply assume it exists. Hope is not a strategy.
      - the_gastropod 3y ago
        Well, for starters, we can look at the median net worth of Americans, which in 2019 was between $250k and $310k for the age groups we’re talking about here. Is that enough? Still probably not, but it’s a heck of a lot more than just $71k. https://www.federalreserve.gov/econres/scf/dataviz/scf/chart/#series:Net_Worth;demographic:agecl;population:all;units:median;range:1989,2019 https://www.federalreserve.gov/econres/scf/dataviz/scf/chart...
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?