4 ms·

>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

>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.
  - deleted 3y ago
    [deleted]
ChuckMcM 3y ago
To be fair, Individual Retirement Accounts (aka IRAs) are available outside of your employer's purview, the thing that 401Ks have over IRAs occur when the employer matches some part of your contribution. I continued to roll over my 401k's from various employers into an IRA when I changed jobs and now just have the IRA. The investment choices are often sub-par, and while I can prove nothing, it sometimes "felt" like investment banks would shift losses from their clients into their funds to "spread them out across the retail investors."
- deleted 3y ago
  [deleted]
- BobaFloutist 3y ago
  IRAs have a much lower max contribution than 401ks which as far as I can tell only serves to force you to line the pockets of whoever your company chooses to operate your 401k.
- nirvdrum 3y ago
  IRAs have much lower contribution limits though. If you want tax-advantaged savings for retirement, those with access to a 401(k) have a huge advantage over those without. I would expect as a society we want people to properly prepare for retirement, but then we make the ability to do so contingent on your particular employer.
dehrmann 3y ago
> It's tied to your employer This is a non-issue. You can roll it over penalty-free into an IRA when you leave. Anything you contributed is still yours, though there might be a vesting schedule for the employer match. > Even when it's available, it's not mandatory to save anything. As long as it's not hard to sign up, I'm an adult. I can save money on my own. > Investment options are often active funds My employer has a good plan, and some of the options are Fidelity target date funds. These are great options, and I've been seeing them at more employers. Granted, some might not have these options. > It's too easy for retail investors to panic Again, I'm an adult. Every financial advisor says don't do that. > If the government... Individuals aren't responsible enough to save money on their own, but the group that couldn't elect a leader for 3 weeks, can barely pass a bill to keep the government running for the next 45 days, plays chicken with the credit limit, and is watching its credit score fall because of these shenanigans is responsible enough?
- wing-_-nuts 3y ago
  Most of your objections kind of prove my point that the 401k is more a tax break for the upper class than than a reasonable retirement plan for the average american. >> It's tied to your employer >This is a non-issue. It absolutely is an issue when half the people in the US do not have access to a 401k https://www.prnewswire.com/news-releases/new-aarp-research-nearly-half-of-americans-do-not-have-access-to-retirement-plans-at-work-301585809.html https://www.prnewswire.com/news-releases/new-aarp-research-n... >I'm an adult. If you're posting on this site, you're not just 'an adult', you're likely well off, financially literate, are able to delay gratification, and have a great deal more bargaining power than the average joe. No judgement, but that is not most Americans. You know how most publications target an 8th grade reading level? Our retirement plans should target that level of financial literacy as well. While I don't trust our politicians I do trust the rank and file government employees that serve the american people. I have a tsp account left over from my time with the navy and it is by far the best retirement account I've ever had.
  - dehrmann 3y ago
    > It absolutely is an issue when half the people in the US do not have access to a 401k As someone else said, IRAs offer the same tax break. The contribution limit is lower (I'd support changing this), but most of the people who don't have access aren't maxing out their contributions, anyway.

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.
- deleted 3y ago
  [deleted]

ChuckMcM 3y ago

To be fair, Individual Retirement Accounts (aka IRAs) are available outside of your employer's purview, the thing that 401Ks have over IRAs occur when the employer matches some part of your contribution. I continued to roll over my 401k's from various employers into an IRA when I changed jobs and now just have the IRA. The investment choices are often sub-par, and while I can prove nothing, it sometimes "felt" like investment banks would shift losses from their clients into their funds to "spread them out across the retail investors."

deleted 3y ago
[deleted]
BobaFloutist 3y ago
IRAs have a much lower max contribution than 401ks which as far as I can tell only serves to force you to line the pockets of whoever your company chooses to operate your 401k.
nirvdrum 3y ago
IRAs have much lower contribution limits though. If you want tax-advantaged savings for retirement, those with access to a 401(k) have a huge advantage over those without. I would expect as a society we want people to properly prepare for retirement, but then we make the ability to do so contingent on your particular employer.

dehrmann 3y ago

> It's tied to your employer This is a non-issue. You can roll it over penalty-free into an IRA when you leave. Anything you contributed is still yours, though there might be a vesting schedule for the employer match. > Even when it's available, it's not mandatory to save anything. As long as it's not hard to sign up, I'm an adult. I can save money on my own. > Investment options are often active funds My employer has a good plan, and some of the options are Fidelity target date funds. These are great options, and I've been seeing them at more employers. Granted, some might not have these options. > It's too easy for retail investors to panic Again, I'm an adult. Every financial advisor says don't do that. > If the government... Individuals aren't responsible enough to save money on their own, but the group that couldn't elect a leader for 3 weeks, can barely pass a bill to keep the government running for the next 45 days, plays chicken with the credit limit, and is watching its credit score fall because of these shenanigans is responsible enough?

wing-_-nuts 3y ago
Most of your objections kind of prove my point that the 401k is more a tax break for the upper class than than a reasonable retirement plan for the average american. >> It's tied to your employer >This is a non-issue. It absolutely is an issue when half the people in the US do not have access to a 401k https://www.prnewswire.com/news-releases/new-aarp-research-nearly-half-of-americans-do-not-have-access-to-retirement-plans-at-work-301585809.html https://www.prnewswire.com/news-releases/new-aarp-research-n... >I'm an adult. If you're posting on this site, you're not just 'an adult', you're likely well off, financially literate, are able to delay gratification, and have a great deal more bargaining power than the average joe. No judgement, but that is not most Americans. You know how most publications target an 8th grade reading level? Our retirement plans should target that level of financial literacy as well. While I don't trust our politicians I do trust the rank and file government employees that serve the american people. I have a tsp account left over from my time with the navy and it is by far the best retirement account I've ever had.
- dehrmann 3y ago
  > It absolutely is an issue when half the people in the US do not have access to a 401k As someone else said, IRAs offer the same tax break. The contribution limit is lower (I'd support changing this), but most of the people who don't have access aren't maxing out their contributions, anyway.