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Around the Internet => Antimustachian Wall of Shame and Comedy => Topic started by: chemistk on March 04, 2016, 09:41:55 AM

Title: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: chemistk on March 04, 2016, 09:41:55 AM
http://finance.yahoo.com/news/retirement-revolution-failed-why-401-101900460.html (http://finance.yahoo.com/news/retirement-revolution-failed-why-401-101900460.html)

I won't reveal any spoilers other than the author's conclusion:
 
Quote
"The 401(k) experiment was a historical accident...We are driving more and more retirees to the brink of poverty and robbing them of their dignity in old age, and it has to stop."
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 04, 2016, 09:45:56 AM
Honestly, I agree with this.  It is a ticking time bomb.  We either need to force people to save in their own accounts somehow, or fund their retirements ourselves.  I think there should be an opt-out option for retirement savings at every job so you have to actively turn it off.  Maybe we can send peopl eyearly updates on how much their current expected SS benefits are so it scares them a bit. 

I'd also love to see more employers be required to offer 401Ks.  This is the first job I"ve had that had that option, and my husband has never had a job that offered one. 
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: NoStacheOhio on March 04, 2016, 10:10:02 AM
I didn't think it was that bad. I definitely feel like I'm swimming against the current when it comes to paychecks covering expenses and still saving, but wow. That California plan sounds like a tiny improvement, but I have a feeling it'll still be a cash cow for the chosen few "investment professionals."
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: zephyr911 on March 04, 2016, 10:17:14 AM
Thaaaat's just fucking stupid.

We still have Social Security. Pensions were never universal. 401(k) is just a tool, like many thing. Use it, or don't, but if you never pick up the ruttin' hammer, don't bitch about the nails not getting pounded in and the roof blowing off.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: I'm a red panda on March 04, 2016, 11:00:39 AM
Maybe we can send peopl eyearly updates on how much their current expected SS benefits are so it scares them a bit. 

They already do that. I get a SS statement every year.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: acroy on March 04, 2016, 11:09:09 AM
I disagree with the underlying assumption that there must be some sort of system to guarantee 'retirement'.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: runningthroughFIRE on March 04, 2016, 11:16:43 AM
Ingredients for a generic shiticle about 401(k)s:
1. Assume absolutely everyone had a pension "in the good old days".                             Check
2. Assume pensions don't exist anymore for anyone.                                                     Check
3. Mention how Social Security just isn't enough to maintain a reasonable lifestyle.          Check
4. Add a statistic about how little people are saving for retirement.                                 Check
5. Take personal responsibility out of the equation.                                                        Check

At this point, your shiticle will be ready for uploading, but might seem a little bland, so you could also add in a dash of mentioning income inequality and politics into the mix to spice things up.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: nobody123 on March 04, 2016, 11:20:54 AM
Thaaaat's just fucking stupid.

We still have Social Security. Pensions were never universal. 401(k) is just a tool, like many thing. Use it, or don't, but if you never pick up the ruttin' hammer, don't bitch about the nails not getting pounded in and the roof blowing off.

+1000.  The rules of the game are what they are.  Retirement isn't a right.  SS and Medicare provide for an existence so you don't have to eat cat food.  If you want a retirement where you can spend some amount above the amount this safety net provides you, figure out how to save and invest to make it happen.  I find it hard to believe that people are so stupid that they don't understand the concept of having to save to stop working.

Now, one could argue that a country as wealthy as the US can do better for its citizens, but that's a debate for another day.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: AZDude on March 04, 2016, 12:33:57 PM
I think the conclusion that SS benefits need to be raised is valid. Average monthly benefit is $1300. Slightly above the poverty line. It should probably be ~$2,000 a month.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 04, 2016, 12:45:44 PM
It's a crappy article, for sure, and it doesn't really offer a real policy solution, but the problems it diagnoses are real:

Long term I think we should move to required self-funding on top of SS, but in the short term we're going to have to pay for the 401(k) revolution for the next couple decades.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: mm1970 on March 04, 2016, 12:48:54 PM
I think the conclusion that SS benefits need to be raised is valid. Average monthly benefit is $1300. Slightly above the poverty line. It should probably be ~$2,000 a month.
I don't think my dad got more than a few hundred bucks on SS.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Jack on March 04, 2016, 01:18:01 PM
I think the conclusion that SS benefits need to be raised is valid. Average monthly benefit is $1300. Slightly above the poverty line. It should probably be ~$2,000 a month.

I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: AZDude on March 04, 2016, 01:34:03 PM
I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.

Why? Assuming you hit the minimums for qualification(age: 62, ~25 years worth of earned income), benefits should all be the same.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Giro on March 04, 2016, 01:43:11 PM
I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.

Why? Assuming you hit the minimums for qualification(age: 62, ~25 years worth of earned income), benefits should all be the same.

Why should they all be the same?  Everyone doesn't pay in the same.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: AZDude on March 04, 2016, 01:50:18 PM
I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.

Why? Assuming you hit the minimums for qualification(age: 62, ~25 years worth of earned income), benefits should all be the same.

Why should they all be the same?  Everyone doesn't pay in the same.

Answering a question with a question? Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 04, 2016, 01:51:08 PM
Yeah, I know they vary based on how long you worked, how much you earned, whether you had a spouse who predeceased you, and of coruse retirement age.

I'm 29 and it says I'd get ~2,854 a month (based on my actual reported income so far in life) if I retired at 67.  I'm not banking on it, but interesting to know.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: nobody123 on March 04, 2016, 02:10:19 PM
I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.

Why? Assuming you hit the minimums for qualification(age: 62, ~25 years worth of earned income), benefits should all be the same.

Why should they all be the same?  Everyone doesn't pay in the same.

Answering a question with a question? Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?

So you want to screw over high income workers instead?

I do think there should be a floor to the SS benefit that is equivalent to the federal minimum wage available at age 62 without any work requirement to meet the social insurance aspect of the program.  However, you can't expect folks who pay significantly higher premiums (as a result of higher earnings) to accept the same bare-bones benefit.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Undecided on March 04, 2016, 02:14:19 PM
I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.

Why? Assuming you hit the minimums for qualification(age: 62, ~25 years worth of earned income), benefits should all be the same.

Why should they all be the same?  Everyone doesn't pay in the same.

Answering a question with a question? Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?

Of course, low income workers do get proportionately greater benefits vs. what they pay in, so screwing them over isn't obviously the answer. The amount isn't proportional to what you pay in---the relationship of the monthly benefit to what one paid in decreases as one pays more. I know you don't like answering questions with questions, but what purpose is served by your mischaracterization?

As to why there is at least a positive relationship between the amount paid in and the amount received, my suggestion is "to gather sufficient support."
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 04, 2016, 02:16:54 PM
Another reason benefits may be tied to what you pay in is because what you pay in is based on what you earn, which, for most people, is basically their yearly spending (or, to be generous, they're spending 90% of what they earn).  This way benefits key to your lifestyle, which people are maybe hardpressed to change at 67.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Apples on March 04, 2016, 02:25:54 PM
Another reason benefits may be tied to what you pay in is because what you pay in is based on what you earn, which, for most people, is basically their yearly spending (or, to be generous, they're spending 90% of what they earn).  This way benefits key to your lifestyle, which people are maybe hardpressed to change at 67.

Also, I think it helps to normalize the SS payouts for HCOL areas.  Now obviously there are minimum wage people everywhere, but the middle class in NYC should be making more than the middle class in podunk town, Midwest.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: AZDude on March 04, 2016, 02:30:00 PM
Quote
So you want to screw over high income workers instead?

I do think there should be a floor to the SS benefit that is equivalent to the federal minimum wage available at age 62 without any work requirement to meet the social insurance aspect of the program.  However, you can't expect folks who pay significantly higher premiums (as a result of higher earnings) to accept the same bare-bones benefit.

How would high income workers get screwed over? Everyone would get the same amount at retirement age. Social Security should be the ultimate safety net since its obvious most of the public refuses to, or is unable to save for their own retirement. People pay significantly more in taxes all the time and receive the same benefit. That is kind of the whole idea of a progressive tax system.

Quote
The amount isn't proportional to what you pay in---the relationship of the monthly benefit to what one paid in decreases as one pays more. I know you don't like answering questions with questions, but what purpose is served by your mischaracterization?

As to why there is at least a positive relationship between the amount paid in and the amount received, my suggestion is "to gather sufficient support."

Mischaracterization of you, or of SS? I am just saying that the current SS system is illogical for its intended purpose. Given that people seem unwilling or unable to self-fund retirement, the government needs a better public pension system.

Quote
Another reason benefits may be tied to what you pay in is because what you pay in is based on what you earn, which, for most people, is basically their yearly spending (or, to be generous, they're spending 90% of what they earn).  This way benefits key to your lifestyle, which people are maybe hardpressed to change at 67.

I suppose, but SS should be used as another way to redistribute wealth, considering the current wealth and income gap.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Jack on March 04, 2016, 02:30:28 PM
(Note: all of the following questions are hypothetical, and should not be construed to represent my actual opinion on the issue.)

Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?

First, is that Social Security's purpose?

Second, if the amount paid out should be equal for everyone, why shouldn't the amount everyone is required to pay in be equal too?

In general, this line of discussion seems analogous to the debate between progressive income taxes and flat sales taxes -- it is highly dependent on what one considers "fair" based on his or her ideology.

Also, I think it helps to normalize the SS payouts for HCOL areas.  Now obviously there are minimum wage people everywhere, but the middle class in NYC should be making more than the middle class in podunk town, Midwest.

Why?

More specifically, why should people currently in a HCOL area have a government-provided advantage towards staying in that HCOL area? Shouldn't the residents of Podunck Town, Midwest have an equal opportunity to move to NYC if they want?
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: AZDude on March 04, 2016, 02:38:04 PM
Quote
First, is that Social Security's purpose?

Second, if the amount paid out should be equal for everyone, why shouldn't the amount everyone is required to pay in be equal too?

In general, this line of discussion seems analogous to the debate between progressive income taxes and flat sales taxes -- it is highly dependent on what one considers "fair" based on his or her ideology.

SS is 80+ years old, so its purpose may have changed. Regardless, that *should* be its primary purpose. As to why shouldnt everyone pay the same amount in taxes, the answer is because we have a progressive tax system in place(and rightfully so). This means higher income pays more as a way to redistribute wealth to the lower rungs of society.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 04, 2016, 02:38:44 PM
Quote
Quote from: Apples on Today at 02:25:54 PM
Also, I think it helps to normalize the SS payouts for HCOL areas.  Now obviously there are minimum wage people everywhere, but the middle class in NYC should be making more than the middle class in podunk town, Midwest.

Why?

More specifically, why should people currently in a HCOL area have a government-provided advantage towards staying in that HCOL area? Shouldn't the residents of Podunck Town, Midwest have an equal opportunity to move to NYC if they want?

I wonder if part of this is offset by the fact that people living in HCOL areas generally pull less on the federal dime and fund economic growth via higher taxes at state and local level.  I'm not saying that was a motivation for the set up, but I think it may be partially or fully offset.   Plus, I'm not sure retiree-friendly areas of the country want all the people living only off of SS to move their and draw on other local resources in their twilight years when they're not really contributing to tax base.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: JR on March 04, 2016, 02:40:37 PM
My dad has a nice pension but he was required to contribute 15% of his pay to it for his entire career. Would people who want a pension be okay with a 15% "pay cut"? Maybe some, but I bet it would bankrupt quite a few people.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 04, 2016, 02:45:20 PM
JR- agreed that some people too close to the edge to lose 15% of their income, but I'd rather have a 30 year old with that problem figure out his spending or get a new job than a 75 year old eating cat food, I guess.  You can't really change much when you're 70, it's the 30 year olds we need to worry about.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Undecided on March 04, 2016, 02:55:04 PM

Mischaracterization of you, or of SS? I am just saying that the current SS system is illogical for its intended purpose. Given that people seem unwilling or unable to self-fund retirement, the government needs a better public pension system.

Giro didn't suggest the payouts should be proportional to pay-ins (s/he just asked why payouts should "all be the same"---which certainly allows for progressive payouts) and the current system's payouts are, in fact, progressive. But you responded to Giro's post with "why should the amount paid out be proportional to what you pay in?" Giro didn't say that it should be, and that's not how the system works today.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: nobody123 on March 04, 2016, 02:57:44 PM
SS is 80+ years old, so its purpose may have changed. Regardless, that *should* be its primary purpose. As to why shouldnt everyone pay the same amount in taxes, the answer is because we have a progressive tax system in place(and rightfully so). This means higher income pays more as a way to redistribute wealth to the lower rungs of society.

It's purpose hasn't changed, but society definitely looks at it differently.  Very few still view it as a way to keep poor widows off the street and instead look at it as a primary retirement vehicle.  You apparently view it as a wealth redistribution mechanism.  However, as long as it is theoretically funded by worker contributions, I have a hard time believing that a capitalistic country would accept a single benefit level without a hard dollar fixed premium.

I have no issue with the progressive income tax paying for roads, police, etc., because I have the same opportunity to us them as someone who pays a fraction of what I pay, and that infrastructure plays a part in my ability to earn an above-average income, which gives me benefits beyond those provided by the government.  I don't like the idea of paying more taxes so someone can spend the money I earned on things beyond basic necessities.

Coincidentally, I think that wealth redistribution would be better addressed through the estate tax.  I am not a huge fan of generational wealth. 
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 04, 2016, 03:04:18 PM
Quote
Coincidentally, I think that wealth redistribution would be better addressed through the estate tax.  I am not a huge fan of generational wealth.

Agreed.  It appears to do literally no one any good, empirically.  I don't like dead hand laws generally, though, except maybe as they relate to treatment of your body/burial/etc.  I know there are exceptions, but so many of the trust fund kids I know are absolutely useless.  It's not good if you're a true capitalist, and it's not good if you believe in wealth redistribution, and it's not good if you worry about efficient taxation models.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Undecided on March 04, 2016, 03:04:26 PM
SS is 80+ years old, so its purpose may have changed. Regardless, that *should* be its primary purpose. As to why shouldnt everyone pay the same amount in taxes, the answer is because we have a progressive tax system in place(and rightfully so). This means higher income pays more as a way to redistribute wealth to the lower rungs of society.

It's purpose hasn't changed, but society definitely looks at it differently.  Very few still view it as a way to keep poor widows off the street and instead look at it as a primary retirement vehicle.  You apparently view it as a wealth redistribution mechanism.  However, as long as it is theoretically funded by worker contributions, I have a hard time believing that a capitalistic country would accept a single benefit level without a hard dollar fixed premium.


Relatedly, I think, many people seem to view Social Security very differently from other entitlement programs specifically intended for the "needy," talking about how they "deserve" social security because they "paid in" for all those years. I think that mental connection between their payments in during their working years and their collections in retirement goes hand-in-hand with the point I made above, that the structure of social security is part of what makes it broadly supported.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 04, 2016, 03:05:44 PM
Quote
Relatedly, I think, many people seem to view Social Security very differently from other entitlement programs specifically intended for the "needy," talking about how they "deserve" social security because they "paid in" for all those years. I think that mental connection between their payments in during their working years and their collections in retirement goes hand-in-hand with the point I made above, that the structure of social security is part of what makes it broadly supported.

Agreed. But then we've essentially just created a national defined benefit old school pension plan.  Which I'm fine with, but people don't seem to see it that way. 
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Tabaxus on March 05, 2016, 09:43:49 AM
I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.

Why? Assuming you hit the minimums for qualification(age: 62, ~25 years worth of earned income), benefits should all be the same.

Why should they all be the same?  Everyone doesn't pay in the same.

Answering a question with a question? Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?

You want to turn SS into welfare.  It's not supposed to be, at least not fully; that's why there is a cap on income subject to SS tax, among other things.  Bernie wants to turn it into welfare by, among other things, removing that cap but not increasing the amount people receive from it on the back end to account for the greater payments in.   Ok to have a different policy view of what it should be, but acknowledge that what you're proposing is to very obviously transform SS into a straight welfare entitlement.

Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: One Noisy Cat on March 05, 2016, 12:32:36 PM
   In the case of my grandparents (born circa 1890) their retirement was 1) men died in mid 60s 2) women live with their children for the next 20 years, getting social security (which I think was pretty minimal until the mid 1970s).

I don't think 401ks are fantastic beyond belief (although I always contributed, plus IRA) but at the same time there are a lot of companies that were stalwarts when I was young: Kodak, Pan Am, U S Steel, GM that have had problems staying in business and relying on a pension from them is problematic.

Some kind of mandatory 401/TSP system seems better. People usually don't think about the future. Or they don't think they can save unless they don't get the cash on Friday to begin with. And emphasizing savings commercials, investor education, etc should be as common as soda pop commercials.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Midwest on March 05, 2016, 01:11:36 PM
I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.

Why? Assuming you hit the minimums for qualification(age: 62, ~25 years worth of earned income), benefits should all be the same.

Why should they all be the same?  Everyone doesn't pay in the same.

Answering a question with a question? Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?

Social security is already heavily weighted towards low income workers.  I don't know how they are being "screwed" by receiving a much higher % of benefits per dollar paid in than high earners. 
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Mathew675 on March 05, 2016, 02:13:58 PM
Quote
Coincidentally, I think that wealth redistribution would be better addressed through the estate tax.  I am not a huge fan of generational wealth.

Agreed.  It appears to do literally no one any good, empirically.  I don't like dead hand laws generally, though, except maybe as they relate to treatment of your body/burial/etc.  I know there are exceptions, but so many of the trust fund kids I know are absolutely useless.  It's not good if you're a true capitalist, and it's not good if you believe in wealth redistribution, and it's not good if you worry about efficient taxation models.

A little surprised by the level of vitriol that I see from time to time on this site.  I'm sure that the "trust fund kids" you know is a statistically significant sample size so I won't try to dispute that logic, but to feel that you should have the right to lay claim on someone's life time earnings is extremely troubling.  Along this same line of logic we should probably nationalize all of the 529 plans as that is also just kids benefiting from their parents as well.  Take a look at the Mini Money Mustache section and you will see how many people work hard and sacrifice in order to ensure that their children have the best possible start in life.  I do not think it is fair to fault those that are supported by their parents as that is how they decided to spend (or not spend) their money.  No one else should have a say in this.  The fact is, that I do not lay claim on someone else's labors, just as I am offended when someone stakes a right to my own.  I am not naive in that I do agree there are shared responsibilities.  (roads, national defense, police, fire)  However, I have to draw the line at grave robbing.  As for these trust fund kids...  "A fool and his money are soon parted."  I think we can do without theft to speed that along.

Milton Friedman said it better than I could have. 
https://www.youtube.com/watch?v=MRpEV2tmYz4
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: BlueHouse on March 06, 2016, 05:56:43 AM

  I find it hard to believe that people are so stupid that they don't understand the concept of having to save to stop working.


I used to feel this way too, until I widened my horizons. I come from a high-achieving family, went to excellent schools and have always been surrounded by smart people. It wasn't until my forties that I witnessed people who just don't have the intellectual capacity to figure this stuff out. Then you have to figure out a way to get them to believe what you tell them without a fundamental understanding because learning is different for them.  Throw reason out and resort to rote. There are functioning, independent people who have very low IQs but are above the threshold for actual mental retardation. There are many more than you might believe.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Abe on March 06, 2016, 09:23:17 AM
My experience as a physician has tempered my opinion of people I may have previously though to to be stupid. Most of the time they are not, but are overwhelmed by the complexity of their situations. Whether these are self-induced or not is besides the point, but regardless they feel stuck and unable to make a decision. Some of them appreciate others with more experience helping make decisions for them, others regard themselves as experts despite clear evidence to the contrary.

During my training I found it helpful to have organized sessions to discuss retirement planning, and having such sessions in private companies may improve enrollment in 401k. The other option is being paternalistic and having an opt-out policy (found to be quite effective, but probably not popular).
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 06, 2016, 09:39:11 AM
Quote
Coincidentally, I think that wealth redistribution would be better addressed through the estate tax.  I am not a huge fan of generational wealth.

Agreed.  It appears to do literally no one any good, empirically.  I don't like dead hand laws generally, though, except maybe as they relate to treatment of your body/burial/etc.  I know there are exceptions, but so many of the trust fund kids I know are absolutely useless.  It's not good if you're a true capitalist, and it's not good if you believe in wealth redistribution, and it's not good if you worry about efficient taxation models.

A little surprised by the level of vitriol that I see from time to time on this site.  I'm sure that the "trust fund kids" you know is a statistically significant sample size so I won't try to dispute that logic, but to feel that you should have the right to lay claim on someone's life time earnings is extremely troubling.  Along this same line of logic we should probably nationalize all of the 529 plans as that is also just kids benefiting from their parents as well.  Take a look at the Mini Money Mustache section and you will see how many people work hard and sacrifice in order to ensure that their children have the best possible start in life.  I do not think it is fair to fault those that are supported by their parents as that is how they decided to spend (or not spend) their money.  No one else should have a say in this.  The fact is, that I do not lay claim on someone else's labors, just as I am offended when someone stakes a right to my own.  I am not naive in that I do agree there are shared responsibilities.  (roads, national defense, police, fire)  However, I have to draw the line at grave robbing.  As for these trust fund kids...  "A fool and his money are soon parted."  I think we can do without theft to speed that along.

Milton Friedman said it better than I could have. 
https://www.youtube.com/watch?v=MRpEV2tmYz4

I don't see how estate taxes are similar to grave robbing.  If you don't want the government to get your money, spend it or (better?) give it away during your lifetime.  Letting someone who's dead determine what to do with money (and in some cases for GENERATIONS after they're gone) makes no sense.  Why are we giving a dead person rights?  I understand an exemption for primary residence and $X (to be adjusted for inflation), maybe more if you're leaving minor children or other dependent family members, but that's it.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: maizefolk on March 06, 2016, 11:44:49 AM
I find when arguing about patterns it is helpful to actually have the data in front of you.

(http://i.imgur.com/rCM6mda.png)

As you can see, social security is both redistributive (those with lower incomes get more from social security proportional to what they've paid in than those with higher incomes) AND people's absolute payment continues to increase they continue to pay into the system.

Overall SS is an amazing deal for people with low incomes, and a reasonable one for people with higher incomes.* The people who lose out under the current system are those who die young, and the next generation (which would inherit the principle behind a retirement income stream if it had been funded by private savings).

Well managed private pensions work roughly the same way (reduced assets in estates and benefiting from people who pay in but die before collecting enable higher annual payouts) which is why the same amount of money can go farther in terms of expected income in retirement with a (again well managed) pension than a 401k. All in all, I'm much happier with private savings than pension plans, but I can see how the switch has been a negative one for others.

*Assuming they'd do what the social security trust fund does and invest their savings in government debt that basically keeps up with inflation. Which is a BIG assumption for people on this board but might actually count as a good outcome for the average person (savings accounts, stuffing it under a mattress, predatory investment scams).

Simplifying assumptions which will alter the absolute numbers but not the overall shape of the curves for the graph above: a single person who worked for 35 years before retirement yet retired at the full retirement age (maybe they went back to school or spent some time as a SAHP?). Factors in SS's adjustments to earnings for inflation each year. There are plenty of real social security calculators out there, don't use this graph to estimate anything about your own life.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: nobody123 on March 07, 2016, 09:45:07 AM
Quote
Coincidentally, I think that wealth redistribution would be better addressed through the estate tax.  I am not a huge fan of generational wealth.

Agreed.  It appears to do literally no one any good, empirically.  I don't like dead hand laws generally, though, except maybe as they relate to treatment of your body/burial/etc.  I know there are exceptions, but so many of the trust fund kids I know are absolutely useless.  It's not good if you're a true capitalist, and it's not good if you believe in wealth redistribution, and it's not good if you worry about efficient taxation models.

A little surprised by the level of vitriol that I see from time to time on this site.  I'm sure that the "trust fund kids" you know is a statistically significant sample size so I won't try to dispute that logic, but to feel that you should have the right to lay claim on someone's life time earnings is extremely troubling.  Along this same line of logic we should probably nationalize all of the 529 plans as that is also just kids benefiting from their parents as well.  Take a look at the Mini Money Mustache section and you will see how many people work hard and sacrifice in order to ensure that their children have the best possible start in life.  I do not think it is fair to fault those that are supported by their parents as that is how they decided to spend (or not spend) their money.  No one else should have a say in this.  The fact is, that I do not lay claim on someone else's labors, just as I am offended when someone stakes a right to my own.  I am not naive in that I do agree there are shared responsibilities.  (roads, national defense, police, fire)  However, I have to draw the line at grave robbing.  As for these trust fund kids...  "A fool and his money are soon parted."  I think we can do without theft to speed that along.

Milton Friedman said it better than I could have. 
https://www.youtube.com/watch?v=MRpEV2tmYz4

I'm not advocating a 100% estate tax like in the video.  Friedman points out that the incentive to provide for your family is a powerful motivator, and I agree.  I am sacrificing to pay for my children's educations and hope to leave them a modest estate when I die, because if I can that means I was not a financial burden to them in my later years.  However, I believe there should be limits to what you can horde.  We provide legal protections such as patents and copyrights to enhance the wealth creation of individuals while they are alive, their businesses benefit from property tax abatements and investment tax credits, so why is it such an issue to take some of that wealth back upon their demise and redistribute it for the common good? 

Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: ShoulderThingThatGoesUp on March 07, 2016, 10:27:00 AM
One issue with the estate tax is that it can make passing down a capital-intensive family business (farm, as an extreme example) very difficult. All taxes have tradeoffs.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Midwest on March 07, 2016, 10:31:56 AM
I find when arguing about patterns it is helpful to actually have the data in front of you.

(http://i.imgur.com/rCM6mda.png)

As you can see, social security is both redistributive (those with lower incomes get more from social security proportional to what they've paid in than those with higher incomes) AND people's absolute payment continues to increase they continue to pay into the system.

Overall SS is an amazing deal for people with low incomes, and a reasonable one for people with higher incomes.* The people who lose out under the current system are those who die young, and the next generation (which would inherit the principle behind a retirement income stream if it had been funded by private savings).

Well managed private pensions work roughly the same way (reduced assets in estates and benefiting from people who pay in but die before collecting enable higher annual payouts) which is why the same amount of money can go farther in terms of expected income in retirement with a (again well managed) pension than a 401k. All in all, I'm much happier with private savings than pension plans, but I can see how the switch has been a negative one for others.

*Assuming they'd do what the social security trust fund does and invest their savings in government debt that basically keeps up with inflation. Which is a BIG assumption for people on this board but might actually count as a good outcome for the average person (savings accounts, stuffing it under a mattress, predatory investment scams).

Simplifying assumptions which will alter the absolute numbers but not the overall shape of the curves for the graph above: a single person who worked for 35 years before retirement yet retired at the full retirement age (maybe they went back to school or spent some time as a SAHP?). Factors in SS's adjustments to earnings for inflation each year. There are plenty of real social security calculators out there, don't use this graph to estimate anything about your own life.

Maize Man - Great graphs.  You should run the #'s on the ROI when income goes from 80 or 100k to the maximum.  At some point, I believe high income earners get a negative ROI on their incremental contributions. 
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Scandium on March 07, 2016, 10:56:14 AM
I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.

Why? Assuming you hit the minimums for qualification(age: 62, ~25 years worth of earned income), benefits should all be the same.

Why should they all be the same?  Everyone doesn't pay in the same.

Answering a question with a question? Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?

Interesting. I think I'd support that. Instead of a sliding scale make SS payouts a single number, or no more than a few. This way it would provide a floor/safety net of minimum wage for acceptable living. This is what I've though of as the purpose of SS from the start. As a high earner I'd be "screwed" by this system, but I'd be fine with that. Consider it a tax I pay to avoid stepping over old people dying of hunger in the street. Worth it to me. And would guarantee me few thousand dollars in retirement should I somehow loose all my money. If anything this might lower the SS tax, since the payout for many higher earners would lower from $50k to $30k, or whatever the new minimum is.

My opinion the failure of the 401k is the idiotic system where it's through the employer. Scrap that and let anyone set up a 401k with any provider outside their employer.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: JZinCO on March 07, 2016, 11:05:27 AM
I find when arguing about patterns it is helpful to actually have the data in front of you.

(http://i.imgur.com/rCM6mda.png)

As you can see, social security is both redistributive (those with lower incomes get more from social security proportional to what they've paid in than those with higher incomes) AND people's absolute payment continues to increase they continue to pay into the system.

Overall SS is an amazing deal for people with low incomes, and a reasonable one for people with higher incomes.* The people who lose out under the current system are those who die young, and the next generation (which would inherit the principle behind a retirement income stream if it had been funded by private savings).

Well managed private pensions work roughly the same way (reduced assets in estates and benefiting from people who pay in but die before collecting enable higher annual payouts) which is why the same amount of money can go farther in terms of expected income in retirement with a (again well managed) pension than a 401k. All in all, I'm much happier with private savings than pension plans, but I can see how the switch has been a negative one for others.

*Assuming they'd do what the social security trust fund does and invest their savings in government debt that basically keeps up with inflation. Which is a BIG assumption for people on this board but might actually count as a good outcome for the average person (savings accounts, stuffing it under a mattress, predatory investment scams).

Simplifying assumptions which will alter the absolute numbers but not the overall shape of the curves for the graph above: a single person who worked for 35 years before retirement yet retired at the full retirement age (maybe they went back to school or spent some time as a SAHP?). Factors in SS's adjustments to earnings for inflation each year. There are plenty of real social security calculators out there, don't use this graph to estimate anything about your own life.

Maize Man - Great graphs.  You should run the #'s on the ROI when income goes from 80 or 100k to the maximum.  At some point, I believe high income earners get a negative ROI on their incremental contributions.
ggplot2 makes everything better!
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: mm1970 on March 07, 2016, 11:14:49 AM
I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.

Why? Assuming you hit the minimums for qualification(age: 62, ~25 years worth of earned income), benefits should all be the same.

Why should they all be the same?  Everyone doesn't pay in the same.

Answering a question with a question? Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?
Really only because at some point, it ceased to be a way to keep widows and children from starving.  At some point (I don't know when), it became an earned benefit, and it was sold that way.

"You pay in, you get back."  In fact, you find this out any time you call it an entitlement.  My grandparents, who had $1M net worth before my grandfather died, talked about the SS they earned, even though they really didn't need the money at that point.  Same with my older retired family members.

It depends on how you sell it.  Try selling it this way:
Well, when you retire at 70 (that's your only option), you will get $1000 a month (currently poverty line for a single is $12,000).
Of course, your taxes will be X% of what you earn, no matter what you earn.

vs selling it this way:
Your SS taxes will be X amount, same as everyone else's, so everyone pays the same.

In the first one, you have to sell it as - you are providing the poverty level support to people who are retired right now.
In the second one, you pretty much are selling it as "you get back what you pay in".
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: dandarc on March 07, 2016, 11:16:41 AM
Maize Man - Great graphs.  You should run the #'s on the ROI when income goes from 80 or 100k to the maximum.  At some point, I believe high income earners get a negative ROI on their incremental contributions.
Just so everyone is clear, what is being plotted on the graphs is not an ROI - it is the annual payout divided by the total amount of taxes paid in.  More akin to the "payout percentage" on an annuity than an ROI figure.

And social security ROI, even at high incomes is positive.  The benefit you receive is indexed to inflation, and it goes up, if even just a little, with every additional tax-payment you make (for 35 years anyway), so in real terms, you are getting ahead even at the very top of the income spectrum subject to social security taxes.  Often times small, but a positive real return.  Barring a change to the benefit formula, that is.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: nobody123 on March 07, 2016, 12:29:53 PM
One issue with the estate tax is that it can make passing down a capital-intensive family business (farm, as an extreme example) very difficult. All taxes have tradeoffs.

Either come up with the money to pay the taxes or sell the business to pay the taxes.  Why would I treat the business worth $50M any different than a $50M pile of gold?
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: randymarsh on March 07, 2016, 01:31:03 PM
One issue with the estate tax is that it can make passing down a capital-intensive family business (farm, as an extreme example) very difficult. All taxes have tradeoffs.

Either come up with the money to pay the taxes or sell the business to pay the taxes.  Why would I treat the business worth $50M any different than a $50M pile of gold?

If I've worked on my family's farm for decades, I'm not sure I should be forced to sell my day job to pay the taxes when a parent passes. Farms require a huge amount of assets to generate even a modest return, so I likely couldn't just "come up with the money".

I thought there were special exemptions for farms though?
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Jack on March 07, 2016, 01:34:12 PM
One issue with the estate tax is that it can make passing down a capital-intensive family business (farm, as an extreme example) very difficult. All taxes have tradeoffs.

Either come up with the money to pay the taxes or sell the business to pay the taxes.  Why would I treat the business worth $50M any different than a $50M pile of gold?

If I've worked on my family's farm for decades, I'm not sure I should be forced to sell my day job to pay the taxes when a parent passes. Farms require a huge amount of assets to generate even a modest return, so I likely couldn't just "come up with the money".

I thought there were special exemptions for farms though?

If it's profitable (and thus worth continuing rather than liquidating) then it shouldn't be too hard to get some kind of loan to pay for the taxes, right?
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: TheGrimSqueaker on March 07, 2016, 01:43:28 PM
One issue with the estate tax is that it can make passing down a capital-intensive family business (farm, as an extreme example) very difficult. All taxes have tradeoffs.

Either come up with the money to pay the taxes or sell the business to pay the taxes.  Why would I treat the business worth $50M any different than a $50M pile of gold?

If I've worked on my family's farm for decades, I'm not sure I should be forced to sell my day job to pay the taxes when a parent passes. Farms require a huge amount of assets to generate even a modest return, so I likely couldn't just "come up with the money".

I thought there were special exemptions for farms though?

If it's profitable (and thus worth continuing rather than liquidating) then it shouldn't be too hard to get some kind of loan to pay for the taxes, right?

No, a loan secured by an income generating asset can only be obtained if the person taking out the loan is able to pay it. If the income generated by the asset (in this case the farm) generally goes to the person doing the work, then when that income has to be used to pay off taxes or a loan instead, the farmer ends up either working for free or abandoning the farm to find some other way to earn a living.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: JZinCO on March 07, 2016, 01:54:36 PM
One issue with the estate tax is that it can make passing down a capital-intensive family business (farm, as an extreme example) very difficult. All taxes have tradeoffs.

Either come up with the money to pay the taxes or sell the business to pay the taxes.  Why would I treat the business worth $50M any different than a $50M pile of gold?

If I've worked on my family's farm for decades, I'm not sure I should be forced to sell my day job to pay the taxes when a parent passes. Farms require a huge amount of assets to generate even a modest return, so I likely couldn't just "come up with the money".

I thought there were special exemptions for farms though?
http://www.ers.usda.gov/topics/farm-economy/federal-tax-issues/federal-estate-taxes.aspx
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: nobody123 on March 07, 2016, 02:57:33 PM
One issue with the estate tax is that it can make passing down a capital-intensive family business (farm, as an extreme example) very difficult. All taxes have tradeoffs.

Either come up with the money to pay the taxes or sell the business to pay the taxes.  Why would I treat the business worth $50M any different than a $50M pile of gold?

If I've worked on my family's farm for decades, I'm not sure I should be forced to sell my day job to pay the taxes when a parent passes. Farms require a huge amount of assets to generate even a modest return, so I likely couldn't just "come up with the money".

I thought there were special exemptions for farms though?

Lots of people lose their jobs every day for reasons out of their control.  A farm is a business like any other, IMHO, and should be treated as such.  I would assume that once a farm reached a certain value of assets where an estate tax would come into play, it would be incorporated anyway.  If you want to pass the farm on and keep it in the family, do the proper planning to do so.

A quick Google search shows that only 20 small businesses / farms owed estate tax in 2013, so it's not like this is a huge problem. 
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: maizefolk on March 07, 2016, 06:51:43 PM
....

Maize Man - Great graphs.  You should run the #'s on the ROI when income goes from 80 or 100k to the maximum.  At some point, I believe high income earners get a negative ROI on their incremental contributions.

....
Just so everyone is clear, what is being plotted on the graphs is not an ROI - it is the annual payout divided by the total amount of taxes paid in.  More akin to the "payout percentage" on an annuity than an ROI figure.

And social security ROI, even at high incomes is positive.  The benefit you receive is indexed to inflation, and it goes up, if even just a little, with every additional tax-payment you make (for 35 years anyway), so in real terms, you are getting ahead even at the very top of the income spectrum subject to social security taxes.  Often times small, but a positive real return.  Barring a change to the benefit formula, that is.

Thanks! Plotting the ROI would look very boring. From 0-$10k/year the ROI of money paid in social security tax is about 21%/year. From $10k-$62k/year of average annual income the ROI of money paid into social security is about 7.4%. From there on up the ROI is 3.5%.

Based on the formula, I agree with dandarc, I don't see how you could actually get a negative ROI from increasing income. As long as you are still paying SS taxes, the worst case scenario is that an increase of income for one year of $350 dollars (so an extra $350*12.4%=$43.40 in extra SS taxes payed) translates into an extra $1.50/year in social security income.*

*$350 dollars of extra income raises your average annual earnings over the top 35 years used to calculate your benefit by $10/year. At the lowest income levels, social security replaces 90% of your average annual income but at the highest income levels, the marginal replacement of income is only 15%. $10*15% = $1.50 of additional income per year from social security.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: maco on March 07, 2016, 07:06:32 PM
(Note: all of the following questions are hypothetical, and should not be construed to represent my actual opinion on the issue.)

Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?

First, is that Social Security's purpose?
From what I was told in history class: yes. The point was to make it possible for older workers to retire and free up jobs for younger workers.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: MgoSam on March 07, 2016, 07:20:57 PM
(Note: all of the following questions are hypothetical, and should not be construed to represent my actual opinion on the issue.)

Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?

First, is that Social Security's purpose?
From what I was told in history class: yes. The point was to make it possible for older workers to retire and free up jobs for younger workers.

And secondly, a ton of elderly citizens were close to poverty. It was meant to help them as well.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: beltim on March 07, 2016, 07:50:05 PM
Based on the formula, I agree with dandarc, I don't see how you could actually get a negative ROI from increasing income. As long as you are still paying SS taxes, the worst case scenario is that an increase of income for one year of $350 dollars (so an extra $350*12.4%=$43.40 in extra SS taxes payed) translates into an extra $1.50/year in social security income.

Not that it's terribly germane to this audience, but the way to have a negative ROI is to work more than 35 years.  Since Social Security only takes 35 years of benefits into account, each additional year displaces one year's worth of contributions.  Note that this doesn't necessarily result in a negative ROI - it depends on what the salary history of that individual is.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: TheGrimSqueaker on March 08, 2016, 08:48:56 AM
(Note: all of the following questions are hypothetical, and should not be construed to represent my actual opinion on the issue.)

Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?

First, is that Social Security's purpose?
From what I was told in history class: yes. The point was to make it possible for older workers to retire and free up jobs for younger workers.

And secondly, a ton of elderly citizens were close to poverty. It was meant to help them as well.

Economy-wise, if you want money to circulate the best way to make it do that is to give it to poor people. That way the money gets spent. If you want money to be invested, you give it to Mustachians or to wealthier folks. If you want it to go overseas, you give it to the class of people who have offshore accounts.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: JLee on March 08, 2016, 09:14:19 AM
I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.

Why? Assuming you hit the minimums for qualification(age: 62, ~25 years worth of earned income), benefits should all be the same.

Why should they all be the same?  Everyone doesn't pay in the same.

Answering a question with a question? Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?

Interesting. I think I'd support that. Instead of a sliding scale make SS payouts a single number, or no more than a few. This way it would provide a floor/safety net of minimum wage for acceptable living. This is what I've though of as the purpose of SS from the start. As a high earner I'd be "screwed" by this system, but I'd be fine with that. Consider it a tax I pay to avoid stepping over old people dying of hunger in the street. Worth it to me. And would guarantee me few thousand dollars in retirement should I somehow loose all my money. If anything this might lower the SS tax, since the payout for many higher earners would lower from $50k to $30k, or whatever the new minimum is.

My opinion the failure of the 401k is the idiotic system where it's through the employer. Scrap that and let anyone set up a 401k with any provider outside their employer.
THIS. Having the only reasonable retirement plan ($5500/yr is effectively nothing in comparison) tied to an employer offering is absurd.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Apples on March 08, 2016, 09:15:47 AM
One issue with the estate tax is that it can make passing down a capital-intensive family business (farm, as an extreme example) very difficult. All taxes have tradeoffs.

Either come up with the money to pay the taxes or sell the business to pay the taxes.  Why would I treat the business worth $50M any different than a $50M pile of gold?

If I've worked on my family's farm for decades, I'm not sure I should be forced to sell my day job to pay the taxes when a parent passes. Farms require a huge amount of assets to generate even a modest return, so I likely couldn't just "come up with the money".

I thought there were special exemptions for farms though?

If it's profitable (and thus worth continuing rather than liquidating) then it shouldn't be too hard to get some kind of loan to pay for the taxes, right?

No, a loan secured by an income generating asset can only be obtained if the person taking out the loan is able to pay it. If the income generated by the asset (in this case the farm) generally goes to the person doing the work, then when that income has to be used to pay off taxes or a loan instead, the farmer ends up either working for free or abandoning the farm to find some other way to earn a living.

And this is one of the major reasons why the mid-size farm is going away.  Large farms (generating over, say $4,000,000 or $5,000,000 in revenue a year) can usually pay to support the owner/operator and some employees and also, at least on good years, throw off extra money to cover loans.  But the profit margin is usually less than 5% including the owner's income as "profit".  So a farm grossing even $1,000,000 is going to have trouble making those loan payments.  Land can be valued at $4,000-$10,000 per acre from what I've seen.  Suddenly the acreage, equipment, and buildings is a lot of money you have to pay taxes on.  Small farms usually are supported by one or both spouses having an off-farm job or someone new either staring their own little farm or buying a small farm using their savings from a previous job.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Marus on March 08, 2016, 09:35:39 AM
I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.

Why? Assuming you hit the minimums for qualification(age: 62, ~25 years worth of earned income), benefits should all be the same.

Why should they all be the same?  Everyone doesn't pay in the same.

Answering a question with a question? Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?

Interesting. I think I'd support that. Instead of a sliding scale make SS payouts a single number, or no more than a few. This way it would provide a floor/safety net of minimum wage for acceptable living. This is what I've though of as the purpose of SS from the start. As a high earner I'd be "screwed" by this system, but I'd be fine with that. Consider it a tax I pay to avoid stepping over old people dying of hunger in the street. Worth it to me. And would guarantee me few thousand dollars in retirement should I somehow loose all my money. If anything this might lower the SS tax, since the payout for many higher earners would lower from $50k to $30k, or whatever the new minimum is.

My opinion the failure of the 401k is the idiotic system where it's through the employer. Scrap that and let anyone set up a 401k with any provider outside their employer.
THIS. Having the only reasonable retirement plan ($5500/yr is effectively nothing in comparison) tied to an employer offering is absurd.

This.  And I would extend the same logic to employer based health plans.  Let companies focus on generating revenue.  Let the government worry about guaranteeing basic levels of human welfare (though I'm sure we'll all disagree about what exactly this would entail).
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: randymarsh on March 08, 2016, 09:36:48 AM
THIS. Having the only reasonable retirement plan ($5500/yr is effectively nothing in comparison) tied to an employer offering is absurd.

This is simply unfair as well. 401ks are most common in higher paying jobs, so white collar professionals receive an income advantage and a savings advantage. Much has been written on this forum about bad decision making skills of the poor, but I think payroll deductions would help make up for this. Out of sight, out of mind.

I'm not sure why the TSP couldn't be available to every US citizen? The gov could let you contribute tax refund money too instead of just payroll deduction. That might encourage people receiving high refunds to put at least some away.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Scandium on March 08, 2016, 09:41:33 AM
Interesting. I think I'd support that. Instead of a sliding scale make SS payouts a single number, or no more than a few. This way it would provide a floor/safety net of minimum wage for acceptable living. This is what I've though of as the purpose of SS from the start. As a high earner I'd be "screwed" by this system, but I'd be fine with that. Consider it a tax I pay to avoid stepping over old people dying of hunger in the street. Worth it to me. And would guarantee me few thousand dollars in retirement should I somehow loose all my money. If anything this might lower the SS tax, since the payout for many higher earners would lower from $50k to $30k, or whatever the new minimum is.

My opinion the failure of the 401k is the idiotic system where it's through the employer. Scrap that and let anyone set up a 401k with any provider outside their employer.
THIS. Having the only reasonable retirement plan ($5500/yr is effectively nothing in comparison) tied to an employer offering is absurd.

This.  And I would extend the same logic to employer based health plans.  Let companies focus on generating revenue.  Let the government worry about guaranteeing basic levels of human welfare (though I'm sure we'll all disagree about what exactly this would entail).

Always thought it weird that the republicans don't support decoupling 401k and health insurance from the employer (if they do I haven't heard about it). Not to transfer it to government, but to other private companies. If they are pro business, less regulation and more flexible workforce this would seem like logical policies? Getting rid of these arcane burdens on businesses I'd think would look great to them. I'm running Uncle Bobs tire store, and now I also have to manage a health insurance and retirement investment company? Idiotic.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: NoStacheOhio on March 08, 2016, 09:47:04 AM
THIS. Having the only reasonable retirement plan ($5500/yr is effectively nothing in comparison) tied to an employer offering is absurd.

This goes back to why the 401k was invented though. It was intended to be a perk, and a way for highly-compensated employees to defer taxes on a portion of their income. It was never meant to be the primary retirement vehicle for the general public. Employers offered the plans as a way to attract top talent. Now that the focus is shifted, we should probably re-evaluate the system.

On the plus side, BECAUSE my 403b is tied to my (large) employer, I can purchase institutional class Vanguard shares without the requisite $10m initial investment.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 08, 2016, 09:48:07 AM
Or we should get rid of 401(k)s and up the IRA contribution limit significantly.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Vanguards and Lentils on March 08, 2016, 09:54:55 AM
#checkyour401(k)privilege
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Marus on March 08, 2016, 10:02:05 AM
THIS. Having the only reasonable retirement plan ($5500/yr is effectively nothing in comparison) tied to an employer offering is absurd.

This is simply unfair as well. 401ks are most common in higher paying jobs, so white collar professionals receive an income advantage and a savings advantage. Much has been written on this forum about bad decision making skills of the poor, but I think payroll deductions would help make up for this. Out of sight, out of mind.

I'm not sure why the TSP couldn't be available to every US citizen? The gov could let you contribute tax refund money too instead of just payroll deduction. That might encourage people receiving high refunds to put at least some away.

I'd say there are a lot of promising retirement alternatives that we could poach from other countries.  Unless you believe that Americans are uniquely incapable among first world citizens of properly planning for their futures, it's clear that our retirement crisis is a failure of policy, not a failure on the individual level to be sufficiently rational.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Scandium on March 08, 2016, 10:36:07 AM
THIS. Having the only reasonable retirement plan ($5500/yr is effectively nothing in comparison) tied to an employer offering is absurd.

This is simply unfair as well. 401ks are most common in higher paying jobs, so white collar professionals receive an income advantage and a savings advantage. Much has been written on this forum about bad decision making skills of the poor, but I think payroll deductions would help make up for this. Out of sight, out of mind.

I'm not sure why the TSP couldn't be available to every US citizen? The gov could let you contribute tax refund money too instead of just payroll deduction. That might encourage people receiving high refunds to put at least some away.

I'd say there are a lot of promising retirement alternatives that we could poach from other countries.  Unless you believe that Americans are uniquely incapable among first world citizens of properly planning for their futures, it's clear that our retirement crisis is a failure of policy, not a failure on the individual level to be sufficiently rational.

yes, european countries at least simply take 10-20% of your salary no matter what, and you can have it back as a low-payout annuity once you reach 65 or so (but not a second before!). No personal responsibility required, glorious! You don't have to decide how much to save, how to save, when to save, when to retire. Sounds fantastic right?!

Oh and you want to save on your own? Too bad, no tax advantaged accounts, and we'll tax capital gains at 30% (so a 2.8% SWR?) because those only go to capitalist pigs. At least the country I'm familiar with this drive people to pile into expensive homes as their "retirement savings" since they are somewhat tax efficient. Interest-only loans FTW! Maybe 20% of the population have any stock ownership.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Midwest on March 08, 2016, 10:45:50 AM


I'd say there are a lot of promising retirement alternatives that we could poach from other countries.  Unless you believe that Americans are uniquely incapable among first world citizens of properly planning for their futures, it's clear that our retirement crisis is a failure of policy, not a failure on the individual level to be sufficiently rational.

The failure of the vast majority of the populace to save nearly enough (or anything) for retirement is substantially due to a lack of rational thought on the part of the individual.

There are many opportunities in the US and many vehicles for saving/investing.  The problem is that most spend nearly every dollar they make rather than saving.  For those in poverty that's understandable, but many are in a situation where they can save and choose not to. 
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 08, 2016, 10:50:39 AM
Quote
The failure of the vast majority of the populace to save nearly enough (or anything) for retirement is substantially due to a lack of rational thought on the part of the individual.

There are many opportunities in the US and many vehicles for saving/investing.  The problem is that most spend nearly every dollar they make rather than saving.  For those in poverty that's understandable, but many are in a situation where they can save and choose not to.

I'm not sure wondering about the "why" is all that interesting.  For what it's worth, I don't entirely agree with you (i am in a distinct minority of graduate school educated 20-somethings by having access to a 401(k)), but i"m not sure it matters all that much.

To me, what matters is the outcome of the failure to save.  It results either in poverty, or in higher burdens on the rest of us to keep elderly people from living in poverty.  Either we're supporting our parents, or we're paying through taxes, or we're paying higher interest on money the US borrowed.  A forced savings plan (modest, maybe 5 or 10%) could really alleviate a large portion of this problem, without doing much harm to those of us set on a 90% SR and retirement at 32.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Scandium on March 08, 2016, 11:47:33 AM
A forced savings plan (modest, maybe 5 or 10%) could really alleviate a large portion of this problem, without doing much harm to those of us set on a 90% SR and retirement at 32.

Maybe 12.4% of salary that pays out an amount scaled for the age from 62-70 when you claim it? Yeah that's a thought..

Oh, what's that? We're already doing that? Ok then, another 12.4% on top of that again..?
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Midwest on March 08, 2016, 11:50:48 AM
A forced savings plan (modest, maybe 5 or 10%) could really alleviate a large portion of this problem, without doing much harm to those of us set on a 90% SR and retirement at 32.

Maybe 12.4% of salary that pays out an amount scaled for the age from 62-70 when you claim it? Yeah that's a thought..

Oh, what's that? We're already doing that? Ok then, another 12.4% on top of that again..?

Maybe we should adjust the hypothetical plan such that low wage earners receive higher benefits per dollar paid in as compared to high earners as well.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 08, 2016, 11:52:21 AM
Quote
Maybe 12.4% of salary that pays out an amount scaled for the age from 62-70 when you claim it? Yeah that's a thought..

Oh, what's that? We're already doing that? Ok then, another 12.4% on top of that again..?

Sorry, I meant more of a conservative-style real forced savings plan that you are the beneficiary of.  That the government can't use for other things.  Even just making a 5% contribution the default on each paycheck might change a lot.  People should be able to opt out if they want, but the default could be in.

I'm not strongly advocating this particular policy solution, though it seems workable.  I'm just saying that we can point fingers and say people are lazy all we want, but I'd rather pass legislation making savings more attractive or forced now than pay for my retirement, and that of my parents' generation, and that of my non-savings compatriots in 40 years.  We know the problem is there, let's find a way to solve it.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: JZinCO on March 08, 2016, 12:08:10 PM
I understand where you are coming from Only Kelsey. An example of this is a 401a DC plan. For example, I must save 8% of my salary. There is no wiggle room. I am free to invest that amount however I choose.
Of course this is employer-specific.

I wonder if making this sort of plan mandated, even with a government contribution would be cheaper than the social safety net that we provide retirees who have not been prudent during their working years.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Vanguards and Lentils on March 08, 2016, 02:29:40 PM
Quote
Maybe 12.4% of salary that pays out an amount scaled for the age from 62-70 when you claim it? Yeah that's a thought..

Oh, what's that? We're already doing that? Ok then, another 12.4% on top of that again..?

Sorry, I meant more of a conservative-style real forced savings plan that you are the beneficiary of.  That the government can't use for other things.  Even just making a 5% contribution the default on each paycheck might change a lot.  People should be able to opt out if they want, but the default could be in.

Mandatory retirement savings and social security tax are really not comparable... one of them is literally saving money for future you, and the other is the (arguably high) cost of having a social safety net.

Australia has been doing mandatory, tax-advantaged, retirement savings (the "Superannuation Guarantee") for over 20 years now. The rate is ~9% of salary now and is supposed to rise to ~12% in a few years. The result has been that the average Australian has many times more in retirement savings than the average American. Sounds good. But apparently for the Australians, the wealth effect (https://en.wikipedia.org/wiki/Wealth_effect) has caused spending to increase as well, to the point where consumer debt is keeping pace with retirement savings. People see their super accounts, think they're rich, and spend more, using borrowed money. They'll reach retirement age, use their savings to pay off the debt they've accumulated, and be back at zero. And with the added bonus of being a more spendy consumer => having higher lifestyle costs.

The greatest beneficiaries of this plan would be the high earners, who likely form the bulk of the ~1 in 5 people who make voluntary contributions on top of the mandatory 9%, for the tax savings.

Source: Report (https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-resources/superannuation/twenty-years-superannuation-guarantee.pdf?la=en) from an Australian accounting body
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 08, 2016, 02:34:02 PM
INteresting, supermatthew.  I'm more familiar with the Swedish and German systems, having lived long-ish term in both countries.  Swedes definitely have (or had, maybe I"m out of date) co-existing systems of voluntary self-saving and mandatory sort of Social Security-like tax nets.

From what I can see, it seems like the UK, US, Canada and Australia are all consumer debt happy.  I get that the US incentivizes mortgage debt, but do you think consumer debt is just a cultural thing?
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Marus on March 10, 2016, 08:35:04 AM
Always thought it weird that the republicans don't support decoupling 401k and health insurance from the employer (if they do I haven't heard about it). Not to transfer it to government, but to other private companies. If they are pro business, less regulation and more flexible workforce this would seem like logical policies? Getting rid of these arcane burdens on businesses I'd think would look great to them. I'm running Uncle Bobs tire store, and now I also have to manage a health insurance and retirement investment company? Idiotic.
For large corporations it's not really that idiotic which is largely why you aren't going to see them go away either.

In the United States, health insurance started to be offered as a benefit to workers back during World War II to allow companies to be competitive in the labor market at a time of wage controls. After the war people wanted to enact a national health insurance program, but settled for an employer provided once since the national one was seen as "socialism." Thanks to the tax advantages that are now in place with insurance, employers now treat it as part of your compensation, but it is cheaper than a larger paycheck since they don't have to pay the payroll taxes on it. Thus, if the option went away, people would expect their income to go up enough to pay for non-employer health insurance, but the cost to the employer would be higher since that would then be payroll.

Not necessarily.  Most policy proposals to eliminate employer based healthcare would be bundled with single payer or public option plans, either of which would allow for significant cost savings both by reducing overhead and negotiating better prices with pharmaceuticals.  As long as we can establish a health plan reasonably similar to any other first world nation the employers should stand to benefit from losing the responsibility to provide healthcare.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Reynold on March 11, 2016, 08:55:59 AM
yes, european countries at least simply take 10-20% of your salary no matter what, and you can have it back as a low-payout annuity once you reach 65 or so (but not a second before!). No personal responsibility required, glorious! You don't have to decide how much to save, how to save, when to save, when to retire. Sounds fantastic right?!

Providing they can even pay those; as an article in the Wall Street Journal pointed out on March 6, most European countries don't even have the pseudo "savings" the U.S. Social Security system has for their pensions, they just pay them directly out of current worker contributions.  They have much worse demographics going forward than the U.S. does.  They are going to have some serious issues in 10-20 years trying to pay those pensions, and its not just
Greece, Italy and Spain. 
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: JR on March 11, 2016, 09:10:09 AM
yes, european countries at least simply take 10-20% of your salary no matter what, and you can have it back as a low-payout annuity once you reach 65 or so (but not a second before!). No personal responsibility required, glorious! You don't have to decide how much to save, how to save, when to save, when to retire. Sounds fantastic right?!

Providing they can even pay those; as an article in the Wall Street Journal pointed out on March 6, most European countries don't even have the pseudo "savings" the U.S. Social Security system has for their pensions, they just pay them directly out of current worker contributions.  They have much worse demographics going forward than the U.S. does.  They are going to have some serious issues in 10-20 years trying to pay those pensions, and its not just
Greece, Italy and Spain.

Thus the reason that countries like Germany are welcoming refugees with open arms.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Shane on March 11, 2016, 10:20:37 AM
I was about to disagree, then I re-read the word "average." IMO, the minimum monthly benefit should be exactly at the poverty line (because anything above it is at least adequate by definition). I don't think it's necessary for the "average" benefit to hit any particular number, except that amount paid out should at least tend to remain proportional to the amount paid in.

Why? Assuming you hit the minimums for qualification(age: 62, ~25 years worth of earned income), benefits should all be the same.

Why should they all be the same?  Everyone doesn't pay in the same.

Answering a question with a question? Social security is meant as a fail safe retirement mechanism. Which means it should provide everyone with the minimum retirement amount needed as long as you qualify. Paying more or less based on lifetime earning is silly, and basing it on the age you start collecting is just a way to push out needed reforms.

Now, I am asking again, why should the amount paid out be proportional to what you pay in? To screw over low income workers?

Interesting. I think I'd support that. Instead of a sliding scale make SS payouts a single number, or no more than a few. This way it would provide a floor/safety net of minimum wage for acceptable living. This is what I've though of as the purpose of SS from the start. As a high earner I'd be "screwed" by this system, but I'd be fine with that. Consider it a tax I pay to avoid stepping over old people dying of hunger in the street. Worth it to me. And would guarantee me few thousand dollars in retirement should I somehow loose all my money. If anything this might lower the SS tax, since the payout for many higher earners would lower from $50k to $30k, or whatever the new minimum is.

My opinion the failure of the 401k is the idiotic system where it's through the employer. Scrap that and let anyone set up a 401k with any provider outside their employer.

Good idea. I agree that it makes sense for everyone to get the same livable payout from SS no matter what he paid into the system. I also agree with the poster above who said the reason the system is not that way is because it would be more difficult to get voters to accept it.

Why not have a national 401k type option that anyone could choose to pay into and the federal government would match her contributions up to a certain %? It seems to me like the problems with 401ks are related to the fact that they are connected to employers and the unscrupulous investment firms they are in bed with.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: NoStacheOhio on March 11, 2016, 10:28:23 AM
Good idea. I agree that it makes sense for everyone to get the same livable payout from SS no matter what he paid into the system. I also agree with the poster above who said the reason the system is not that way is because it would be more difficult to get voters to accept it.

Why not have a national 401k type option that anyone could choose to pay into and the federal government would match her contributions up to a certain %? It seems to me like the problems with 401ks are related to the fact that they are connected to employers and the unscrupulous investment firms they are in bed with.

Because those same unscrupulous investment firms make large campaign contributions to various legislators who would decide that sort of thing. Also, the aforementioned corporate payroll tax reasons. Honestly, I think you'd have more traction trying to enact mandatory 401k availability for W-2 employees than separating it from employment. It would be better than nothing?
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 11, 2016, 10:38:38 AM
Quote
Honestly, I think you'd have more traction trying to enact mandatory 401k availability for W-2 employees than separating it from employment.

Agreed, realistically.

Although what would be the benefit of doing that over raising the IRA contribution limit? I guess if Congress hates freelancers (or loves big companies, more accurately), the 401K availability would produce less loss in taxes.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: dandarc on March 11, 2016, 10:43:37 AM
Quote
Honestly, I think you'd have more traction trying to enact mandatory 401k availability for W-2 employees than separating it from employment.

Agreed, realistically.

Although what would be the benefit of doing that over raising the IRA contribution limit? I guess if Congress hates freelancers (or loves big companies, more accurately), the 401K availability would produce less loss in taxes.
Freelancers already have high deferral limits available - Individual 401K.  It is awesome - currently deferring in excess of 40K / year into mine.  Many brokers offer a prototype plan for no fees these days.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: onlykelsey on March 11, 2016, 10:45:34 AM
Brainfart, dandarc, thanks.  I'm actually looking into setting one up for my husband at the moment, as well.  Offtopic, but have any recommendations?  He doesn't earn 18K through his business (sole proprietor, part time, has a full time gig (with no 401K)), and doesn't need a vast amount of investment choices or anything.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Midwest on March 11, 2016, 10:54:44 AM
Brainfart, dandarc, thanks.  I'm actually looking into setting one up for my husband at the moment, as well.  Offtopic, but have any recommendations?  He doesn't earn 18K through his business (sole proprietor, part time, has a full time gig (with no 401K)), and doesn't need a vast amount of investment choices or anything.

Fidelity.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: dandarc on March 11, 2016, 11:01:31 AM
Brainfart, dandarc, thanks.  I'm actually looking into setting one up for my husband at the moment, as well.  Offtopic, but have any recommendations?  He doesn't earn 18K through his business (sole proprietor, part time, has a full time gig (with no 401K)), and doesn't need a vast amount of investment choices or anything.
I'm at eTrade which is fine, but the funds available aren't great.  At the time I set this up I really wanted a Roth option, and eTrade had one then.  Stupid because I've only got like 15% or less in Roth now with all new contributions going traditional, and knowing what I know now, that would be 0%.  Hadn't fully seen the light on traditional vs. Roth until year 3 of my soloK experience. 

Thinking about switching to TD Ameritrade - lots of commission free Vanguard ETF's there - I could have my 3 fund portfolio there in Vanguard ETFs at close to Admiral costs - VTI, VSS, BND.  That is if the commission-free ETF list doesn't change.

Vanguard's plan is OK, but you're stuck with investor shares and no Admiral shares or even ETFs there, last I checked.  They didn't even have a Roth option for quite a while.  Frustrating, because it seems like it could be so much better.  But if you're inclined to go with a target date or life strategy fund anyway, the "no Admiral shares" thing is not a problem.

[ETA]: Vanguard's $20 per account annual fee would be a deal breaker for me, but if you qualify for Voyager or above, it is waived.[/Edit]

There are others out there, of course as well.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: dandarc on March 11, 2016, 11:03:46 AM
Brainfart, dandarc, thanks.  I'm actually looking into setting one up for my husband at the moment, as well.  Offtopic, but have any recommendations?  He doesn't earn 18K through his business (sole proprietor, part time, has a full time gig (with no 401K)), and doesn't need a vast amount of investment choices or anything.

Fidelity.
Can you get Spartan funds in the SoloK there?  If so, this might have just moved to the top of my list.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Jack on March 11, 2016, 11:29:56 AM
Good idea. I agree that it makes sense for everyone to get the same livable payout from SS no matter what he paid into the system. I also agree with the poster above who said the reason the system is not that way is because it would be more difficult to get voters to accept it.

Why not have a national 401k type option that anyone could choose to pay into and the federal government would match her contributions up to a certain %? It seems to me like the problems with 401ks are related to the fact that they are connected to employers and the unscrupulous investment firms they are in bed with.

Because those same unscrupulous investment firms make large campaign contributions to various legislators who would decide that sort of thing. Also, the aforementioned corporate payroll tax reasons. Honestly, I think you'd have more traction trying to enact mandatory 401k availability for W-2 employees than separating it from employment. It would be better than nothing?

I think the ideal solution would be some sort of middle ground where companies could still make payroll-tax-exempt 'employer contributions,' but into a tax-deferred account of the employee's choosing instead of one chosen by the company. After all, direct deposit into normal checking accounts works now; why should it be any different for 401ks (or HSAs)? All you really need is a mechanism for the payroll people to be able to verify that the account is of the right type (that the employee isn't trying to direct their 401k contribution into a regular non-tax-deferred savings or checking account or something).
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Midwest on March 11, 2016, 11:30:04 AM
Brainfart, dandarc, thanks.  I'm actually looking into setting one up for my husband at the moment, as well.  Offtopic, but have any recommendations?  He doesn't earn 18K through his business (sole proprietor, part time, has a full time gig (with no 401K)), and doesn't need a vast amount of investment choices or anything.

Fidelity.
Can you get Spartan funds in the SoloK there?  If so, this might have just moved to the top of my list.

I suspect yes.  My SIMPLE is with fidelity and own FUSVX in it.  If I recall the prototype plan is free.  Keep it under the $200k or 250k limit and no 5500 on the 401k.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: TheOldestYoungMan on March 11, 2016, 11:30:36 AM
The graph in the article surprised the hell out of me.  I think I knew the info, but it really brought home to me just how much whatever it is that is available right now just isn't working.

This thread went down a road of arguing about all the reasons why, no, in fact, it's all working fine.

But it isn't working.  The median retirement savings for someone in my age group is $480.00?  What a bunch of assholes!  Save some money!

It doesn't matter if the reason is that people are stupid or if its wage stagnation or if it's lack of personal responsibility.  It truly doesn't.  That's a broken system.  That's a system where for all intents and purposes retirement is not a thing the average person is actually working towards or thinks is a thing.

Which might be true.  I mean, if you build railroads in the sun all day every day, you can't reasonably expect to do that job until you drop dead.  There's a very good chance you'll reach a point where you are unable to do that job.

But if you just type things into twitter all day, maybe you really can expire at your desk.

If instead we as a society have just failed to mandate either a level of financial literacy that avoids ruination, or mandatory savings that stave off ruination, then we should probably figure that out.

If you looked at the last 25 years as an experiment in how well people govern their own finances, then I think the empirical data is in and we can now see, the median person isn't taking care of their shit.

So two possibilities are coming:

People are going to be subsistence living off of social security, straining that system and exerting immense pressure to increase benefits right as it is running out of money, leading to a higher mandatory social security contribution rate and likely reducing the available 401k/IRA/403/457 options.

Or

Some supplemental retirement thing is going to be put into place, forcing people to save more, or (more likely) taxing those of us who have saved more.

So which option do you want as part of your ideological self-consistent worldview.  Because what's been expressed so far, "everything is fine and this is a non-problem" isn't really right.

I'm just grateful Cinnabon and Pizza-hut are out there doing everything they can to get your median American to drop dead prior to being able to claim social security.

God bless the food industry.

Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Midwest on March 11, 2016, 11:31:47 AM
Good idea. I agree that it makes sense for everyone to get the same livable payout from SS no matter what he paid into the system. I also agree with the poster above who said the reason the system is not that way is because it would be more difficult to get voters to accept it.

Why not have a national 401k type option that anyone could choose to pay into and the federal government would match her contributions up to a certain %? It seems to me like the problems with 401ks are related to the fact that they are connected to employers and the unscrupulous investment firms they are in bed with.

Because those same unscrupulous investment firms make large campaign contributions to various legislators who would decide that sort of thing. Also, the aforementioned corporate payroll tax reasons. Honestly, I think you'd have more traction trying to enact mandatory 401k availability for W-2 employees than separating it from employment. It would be better than nothing?

I think the ideal solution would be some sort of middle ground where companies could still make payroll-tax-exempt 'employer contributions,' but into a tax-deferred account of the employee's choosing instead of one chosen by the company. After all, direct deposit into normal checking accounts works now; why should it be any different for 401ks (or HSAs)? All you really need is a mechanism for the payroll people to be able to verify that the account is of the right type (that the employee isn't trying to direct their 401k contribution into a regular non-tax-deferred savings or checking account or something).


SIMPLE plan has many of the features you describe.  Unfortunately, limits are lower than 401k.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Jack on March 11, 2016, 11:41:17 AM
Good idea. I agree that it makes sense for everyone to get the same livable payout from SS no matter what he paid into the system. I also agree with the poster above who said the reason the system is not that way is because it would be more difficult to get voters to accept it.

Why not have a national 401k type option that anyone could choose to pay into and the federal government would match her contributions up to a certain %? It seems to me like the problems with 401ks are related to the fact that they are connected to employers and the unscrupulous investment firms they are in bed with.

Because those same unscrupulous investment firms make large campaign contributions to various legislators who would decide that sort of thing. Also, the aforementioned corporate payroll tax reasons. Honestly, I think you'd have more traction trying to enact mandatory 401k availability for W-2 employees than separating it from employment. It would be better than nothing?

I think the ideal solution would be some sort of middle ground where companies could still make payroll-tax-exempt 'employer contributions,' but into a tax-deferred account of the employee's choosing instead of one chosen by the company. After all, direct deposit into normal checking accounts works now; why should it be any different for 401ks (or HSAs)? All you really need is a mechanism for the payroll people to be able to verify that the account is of the right type (that the employee isn't trying to direct their 401k contribution into a regular non-tax-deferred savings or checking account or something).


SIMPLE plan has many of the features you describe.  Unfortunately, limits are lower than 401k.

Does it? I wish I'd known that back when I had one; my employer at the time had picked some sort of shitty annuity (https://www.symetra.com/) that cost me an annoyingly large amount of money just to exit and roll over to an IRA (let alone the ongoing fees had I stayed in it). If I had known I could have picked my own account somewhere else, I certainly would have!
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Midwest on March 11, 2016, 11:45:28 AM
Good idea. I agree that it makes sense for everyone to get the same livable payout from SS no matter what he paid into the system. I also agree with the poster above who said the reason the system is not that way is because it would be more difficult to get voters to accept it.

Why not have a national 401k type option that anyone could choose to pay into and the federal government would match her contributions up to a certain %? It seems to me like the problems with 401ks are related to the fact that they are connected to employers and the unscrupulous investment firms they are in bed with.

Because those same unscrupulous investment firms make large campaign contributions to various legislators who would decide that sort of thing. Also, the aforementioned corporate payroll tax reasons. Honestly, I think you'd have more traction trying to enact mandatory 401k availability for W-2 employees than separating it from employment. It would be better than nothing?

I think the ideal solution would be some sort of middle ground where companies could still make payroll-tax-exempt 'employer contributions,' but into a tax-deferred account of the employee's choosing instead of one chosen by the company. After all, direct deposit into normal checking accounts works now; why should it be any different for 401ks (or HSAs)? All you really need is a mechanism for the payroll people to be able to verify that the account is of the right type (that the employee isn't trying to direct their 401k contribution into a regular non-tax-deferred savings or checking account or something).


SIMPLE plan has many of the features you describe.  Unfortunately, limits are lower than 401k.

Does it? I wish I'd known that back when I had one; my employer at the time had picked some sort of shitty annuity (https://www.symetra.com/) that cost me an annoyingly large amount of money just to exit and roll over to an IRA (let alone the ongoing fees had I stayed in it). If I had known I could have picked my own account somewhere else, I certainly would have!

Let me clarify -

Your employer has to implement the simple plan (versus having a 401k).  Once they implement, you have more freedom in where/how you $'s are invested.  We have 3 choices at my employer one of which is fidelity.

Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Jack on March 11, 2016, 11:50:55 AM
SIMPLE plan has many of the features you describe.  Unfortunately, limits are lower than 401k.

Does it? I wish I'd known that back when I had one; my employer at the time had picked some sort of shitty annuity (https://www.symetra.com/) that cost me an annoyingly large amount of money just to exit and roll over to an IRA (let alone the ongoing fees had I stayed in it). If I had known I could have picked my own account somewhere else, I certainly would have!

Let me clarify -

Your employer has to implement the simple plan (versus having a 401k).  Once they implement, you have more freedom in where/how you $'s are invested.  We have 3 choices at my employer one of which is fidelity.

So are you saying that with a SIMPLE plan, the employer still chooses what company to hold the accounts? That sounds correct -- which makes it no better than a 401k, unless I'm missing something. It sounds like your company gave you three choices of brokerage (or whatever the right term is), while my company gave me only one.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Shane on March 11, 2016, 12:13:26 PM
Good idea. I agree that it makes sense for everyone to get the same livable payout from SS no matter what he paid into the system. I also agree with the poster above who said the reason the system is not that way is because it would be more difficult to get voters to accept it.

Why not have a national 401k type option that anyone could choose to pay into and the federal government would match her contributions up to a certain %? It seems to me like the problems with 401ks are related to the fact that they are connected to employers and the unscrupulous investment firms they are in bed with.

Because those same unscrupulous investment firms make large campaign contributions to various legislators who would decide that sort of thing. Also, the aforementioned corporate payroll tax reasons. Honestly, I think you'd have more traction trying to enact mandatory 401k availability for W-2 employees than separating it from employment. It would be better than nothing?

I think the ideal solution would be some sort of middle ground where companies could still make payroll-tax-exempt 'employer contributions,' but into a tax-deferred account of the employee's choosing instead of one chosen by the company. After all, direct deposit into normal checking accounts works now; why should it be any different for 401ks (or HSAs)? All you really need is a mechanism for the payroll people to be able to verify that the account is of the right type (that the employee isn't trying to direct their 401k contribution into a regular non-tax-deferred savings or checking account or something).

Agreed. That would be an improvement on the the system we have now where each employer chooses its own investment company for its employees' 401ks.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Shane on March 11, 2016, 12:16:59 PM
I'm just grateful Cinnabon and Pizza-hut are out there doing everything they can to get your median American to drop dead prior to being able to claim social security.

God bless the food industry.

LOL! That's one way to look at it.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: FINate on March 11, 2016, 12:33:55 PM
Economy-wise, if you want money to circulate the best way to make it do that is to give it to poor people. That way the money gets spent. If you want money to be invested, you give it to Mustachians or to wealthier folks. If you want it to go overseas, you give it to the class of people who have offshore accounts.

I disagree. Yes, the poor will spend it, but they will spend it primarily on things like fast food, overpriced processed food, cheap Made in China products, etc. So the money will mostly be spent at big corporations and will be divided between the executives (the ones with offshore accounts) and the factory owners in the producing countries. All the while the government will come up with ways to extract more money from those who already pay taxes (such as Mustachians) in the name of spreading it around.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Midwest on March 11, 2016, 12:43:06 PM
SIMPLE plan has many of the features you describe.  Unfortunately, limits are lower than 401k.

Does it? I wish I'd known that back when I had one; my employer at the time had picked some sort of shitty annuity (https://www.symetra.com/) that cost me an annoyingly large amount of money just to exit and roll over to an IRA (let alone the ongoing fees had I stayed in it). If I had known I could have picked my own account somewhere else, I certainly would have!

Let me clarify -

Your employer has to implement the simple plan (versus having a 401k).  Once they implement, you have more freedom in where/how you $'s are invested.  We have 3 choices at my employer one of which is fidelity.

So are you saying that with a SIMPLE plan, the employer still chooses what company to hold the accounts? That sounds correct -- which makes it no better than a 401k, unless I'm missing something. It sounds like your company gave you three choices of brokerage (or whatever the right term is), while my company gave me only one.

With a 401k, you are typically stuck with one company to invest and often high fees at least partially due to the testing requirements. 

With SIMPLE, more choices (I believe ours is limited to 3 companies as an employer preference so they don't have to send funds to 30 different places).  No testing requirements either.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Jack on March 11, 2016, 12:53:32 PM
SIMPLE plan has many of the features you describe.  Unfortunately, limits are lower than 401k.

Does it? I wish I'd known that back when I had one; my employer at the time had picked some sort of shitty annuity (https://www.symetra.com/) that cost me an annoyingly large amount of money just to exit and roll over to an IRA (let alone the ongoing fees had I stayed in it). If I had known I could have picked my own account somewhere else, I certainly would have!

Let me clarify -

Your employer has to implement the simple plan (versus having a 401k).  Once they implement, you have more freedom in where/how you $'s are invested.  We have 3 choices at my employer one of which is fidelity.

So are you saying that with a SIMPLE plan, the employer still chooses what company to hold the accounts? That sounds correct -- which makes it no better than a 401k, unless I'm missing something. It sounds like your company gave you three choices of brokerage (or whatever the right term is), while my company gave me only one.

With a 401k, you are typically stuck with one company to invest and often high fees at least partially due to the testing requirements. 

With SIMPLE, more choices (I believe ours is limited to 3 companies as an employer preference so they don't have to send funds to 30 different places).  No testing requirements either.

As far as I know, with my SIMPLE plan I was stuck with one company just like I would have been with a 401k. Are you saying that I was actually allowed to go open my own account with some other broker and force my employer to contribute to it instead of the one they picked for me? (I mean, sure, I could rollover my SIMPLE account to some other broker after I quit working for that employer when employer direct deposits didn't matter anymore, but if I had the right to redirect the direct deposits then I sure as hell wish somebody had informed me of it!)

Because if you're saying what I think you are -- that the employer (not the employee) has the option (not the requirement) to allow multiple choice of brokerages -- then that's really no additional freedom at all and nothing like my initial proposal.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Scandium on March 11, 2016, 01:16:56 PM
Economy-wise, if you want money to circulate the best way to make it do that is to give it to poor people. That way the money gets spent. If you want money to be invested, you give it to Mustachians or to wealthier folks. If you want it to go overseas, you give it to the class of people who have offshore accounts.

I disagree. Yes, the poor will spend it, but they will spend it primarily on things like fast food, overpriced processed food, cheap Made in China products, etc. So the money will mostly be spent at big corporations and will be divided between the executives (the ones with offshore accounts) and the factory owners in the producing countries. All the while the government will come up with ways to extract more money from those who already pay taxes (such as Mustachians) in the name of spreading it around.
On addition to your thinly veiled disparaging of poor people, what exactly are you saying?

That cash transfers that favor the poor stimulate the economy more than giving more to the rich isn't really an opinion, it's a pretty established macroeconomic fact. Of course you run into issues of fairness, but it's no doubt that giving more to people who will spend it (and usually locally at that) is better at stimulating the broader economy than giving it to people who will pile it into equities (especially now with high valuations).
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: FINate on March 11, 2016, 02:04:32 PM
Economy-wise, if you want money to circulate the best way to make it do that is to give it to poor people. That way the money gets spent. If you want money to be invested, you give it to Mustachians or to wealthier folks. If you want it to go overseas, you give it to the class of people who have offshore accounts.

I disagree. Yes, the poor will spend it, but they will spend it primarily on things like fast food, overpriced processed food, cheap Made in China products, etc. So the money will mostly be spent at big corporations and will be divided between the executives (the ones with offshore accounts) and the factory owners in the producing countries. All the while the government will come up with ways to extract more money from those who already pay taxes (such as Mustachians) in the name of spreading it around.
On addition to your thinly veiled disparaging of poor people, what exactly are you saying?

That cash transfers that favor the poor stimulate the economy more than giving more to the rich isn't really an opinion, it's a pretty established macroeconomic fact. Of course you run into issues of fairness, but it's no doubt that giving more to people who will spend it (and usually locally at that) is better at stimulating the broader economy than giving it to people who will pile it into equities (especially now with high valuations).

It's not disparaging to point out that the poor, in general, tend to spend their money in the way stated. The poor are not typically spending their money on locally crafted artisan goods or at the farmer's market. Sure some do, but that is the exception. Is this spending still good at a national/global macroeconomic level? Yes. Is it good for the environment or for the health of the poor? Probably not. Is it good for the local economy? I think that depends on the specifics - much of the revenue flowing into the big stores and franchises actually ends up at corporate headquarters.

I'm simply questioning the status quo and suggesting that giving out a bunch of money for people to spend may not be the healthiest thing. We should provide an essential level of minimum support for the poorest, but beyond that just giving away more to spend is like a sugar rush - it feels great in the moment but it's not a good long-term plan. I would rather have people saving and investing. Savings in bank accounts end up back in the economy as a result of fractional reserve banking. Investments in real estate, rentals, businesses, and stocks grow our local economy and create jobs. Even index fund investing means that people are pooling money in equities which increases liquidity and makes it possible to raise large amounts of new capital for startups.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: Scandium on March 11, 2016, 02:17:08 PM
Economy-wise, if you want money to circulate the best way to make it do that is to give it to poor people. That way the money gets spent. If you want money to be invested, you give it to Mustachians or to wealthier folks. If you want it to go overseas, you give it to the class of people who have offshore accounts.

I disagree. Yes, the poor will spend it, but they will spend it primarily on things like fast food, overpriced processed food, cheap Made in China products, etc. So the money will mostly be spent at big corporations and will be divided between the executives (the ones with offshore accounts) and the factory owners in the producing countries. All the while the government will come up with ways to extract more money from those who already pay taxes (such as Mustachians) in the name of spreading it around.
On addition to your thinly veiled disparaging of poor people, what exactly are you saying?

That cash transfers that favor the poor stimulate the economy more than giving more to the rich isn't really an opinion, it's a pretty established macroeconomic fact. Of course you run into issues of fairness, but it's no doubt that giving more to people who will spend it (and usually locally at that) is better at stimulating the broader economy than giving it to people who will pile it into equities (especially now with high valuations).

It's not disparaging to point out that the poor, in general, tend to spend their money in the way stated. The poor are not typically spending their money on locally crafted artisan goods or at the farmer's market. Sure some do, but that is the exception. Is this spending still good at a national/global macroeconomic level? Yes. Is it good for the environment or for the health of the poor? Probably not. Is it good for the local economy? I think that depends on the specifics - much of the revenue flowing into the big stores and franchises actually ends up at corporate headquarters.

I'm simply questioning the status quo and suggesting that giving out a bunch of money for people to spend may not be the healthiest thing. We should provide an essential level of minimum support for the poorest, but beyond that just giving away more to spend is like a sugar rush - it feels great in the moment but it's not a good long-term plan. I would rather have people saving and investing. Savings in bank accounts end up back in the economy as a result of fractional reserve banking. Investments in real estate, rentals, businesses, and stocks grow our local economy and create jobs. Even index fund investing means that people are pooling money in equities which increases liquidity and makes it possible to raise large amounts of new capital for startups.
Ah yes. Trickle down economics; working exactly as advertised since 1982..

What do you think is better: $1 being spent at Walmart which results in staff being hired and paid, sales taxes, business taxes to state and fed, property taxes etc.
Or $1 being put to Walmart stock. Which results in... 15% in dividend tax?

Which is better for Walmart?

Poor people buying food for their children is a "quick sugar rush"?
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: runningthroughFIRE on March 11, 2016, 03:34:21 PM
Economy-wise, if you want money to circulate the best way to make it do that is to give it to poor people. That way the money gets spent. If you want money to be invested, you give it to Mustachians or to wealthier folks. If you want it to go overseas, you give it to the class of people who have offshore accounts.

I disagree. Yes, the poor will spend it, but they will spend it primarily on things like fast food, overpriced processed food, cheap Made in China products, etc. So the money will mostly be spent at big corporations and will be divided between the executives (the ones with offshore accounts) and the factory owners in the producing countries. All the while the government will come up with ways to extract more money from those who already pay taxes (such as Mustachians) in the name of spreading it around.
On addition to your thinly veiled disparaging of poor people, what exactly are you saying?

That cash transfers that favor the poor stimulate the economy more than giving more to the rich isn't really an opinion, it's a pretty established macroeconomic fact. Of course you run into issues of fairness, but it's no doubt that giving more to people who will spend it (and usually locally at that) is better at stimulating the broader economy than giving it to people who will pile it into equities (especially now with high valuations).

It's not disparaging to point out that the poor, in general, tend to spend their money in the way stated. The poor are not typically spending their money on locally crafted artisan goods or at the farmer's market. Sure some do, but that is the exception. Is this spending still good at a national/global macroeconomic level? Yes. Is it good for the environment or for the health of the poor? Probably not. Is it good for the local economy? I think that depends on the specifics - much of the revenue flowing into the big stores and franchises actually ends up at corporate headquarters.

I'm simply questioning the status quo and suggesting that giving out a bunch of money for people to spend may not be the healthiest thing. We should provide an essential level of minimum support for the poorest, but beyond that just giving away more to spend is like a sugar rush - it feels great in the moment but it's not a good long-term plan. I would rather have people saving and investing. Savings in bank accounts end up back in the economy as a result of fractional reserve banking. Investments in real estate, rentals, businesses, and stocks grow our local economy and create jobs. Even index fund investing means that people are pooling money in equities which increases liquidity and makes it possible to raise large amounts of new capital for startups.
Ah yes. Trickle down economics; working exactly as advertised since 1982..

What do you think is better: $1 being spent at Walmart which results in staff being hired and paid, sales taxes, business taxes to state and fed, property taxes etc.
Or $1 being put to Walmart stock. Which results in... 15% in dividend tax?

Which is better for Walmart?

Poor people buying food for their children is a "quick sugar rush"?
Depends on if you think buying food for their children is "essential".
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: FINate on March 11, 2016, 09:42:05 PM
Economy-wise, if you want money to circulate the best way to make it do that is to give it to poor people. That way the money gets spent. If you want money to be invested, you give it to Mustachians or to wealthier folks. If you want it to go overseas, you give it to the class of people who have offshore accounts.

I disagree. Yes, the poor will spend it, but they will spend it primarily on things like fast food, overpriced processed food, cheap Made in China products, etc. So the money will mostly be spent at big corporations and will be divided between the executives (the ones with offshore accounts) and the factory owners in the producing countries. All the while the government will come up with ways to extract more money from those who already pay taxes (such as Mustachians) in the name of spreading it around.
On addition to your thinly veiled disparaging of poor people, what exactly are you saying?

That cash transfers that favor the poor stimulate the economy more than giving more to the rich isn't really an opinion, it's a pretty established macroeconomic fact. Of course you run into issues of fairness, but it's no doubt that giving more to people who will spend it (and usually locally at that) is better at stimulating the broader economy than giving it to people who will pile it into equities (especially now with high valuations).

It's not disparaging to point out that the poor, in general, tend to spend their money in the way stated. The poor are not typically spending their money on locally crafted artisan goods or at the farmer's market. Sure some do, but that is the exception. Is this spending still good at a national/global macroeconomic level? Yes. Is it good for the environment or for the health of the poor? Probably not. Is it good for the local economy? I think that depends on the specifics - much of the revenue flowing into the big stores and franchises actually ends up at corporate headquarters.

I'm simply questioning the status quo and suggesting that giving out a bunch of money for people to spend may not be the healthiest thing. We should provide an essential level of minimum support for the poorest, but beyond that just giving away more to spend is like a sugar rush - it feels great in the moment but it's not a good long-term plan. I would rather have people saving and investing. Savings in bank accounts end up back in the economy as a result of fractional reserve banking. Investments in real estate, rentals, businesses, and stocks grow our local economy and create jobs. Even index fund investing means that people are pooling money in equities which increases liquidity and makes it possible to raise large amounts of new capital for startups.
Ah yes. Trickle down economics; working exactly as advertised since 1982..

What do you think is better: $1 being spent at Walmart which results in staff being hired and paid, sales taxes, business taxes to state and fed, property taxes etc.
Or $1 being put to Walmart stock. Which results in... 15% in dividend tax?

Which is better for Walmart?

Poor people buying food for their children is a "quick sugar rush"?
Depends on if you think buying food for their children is "essential".

Thanks for that.

Not that it really needs pointing out, but we have a massive obesity problem in the USA. A strong case can be made that sugary and processed foods play a large role in this. Walmart, Target and the other superstores do sell fresh wholesome foods but that's not how they make their profits and so they promote the processed stuff. It's certainly true that Americans don't buy enough wholesome foods and we overspend on unhealthy crap. In the news just this week - http://www.latimes.com/science/sciencenow/la-sci-sn-ultra-processed-foods-diet-20160309-story.html Also, the poor have higher rates of obesity - http://stateofobesity.org/socioeconomics-obesity/ - there are many reasons for this, but the way unhealthy food is pushed/promoted in the big chain stores and the prevalence of fast food in lower income neighborhoods are contributing factors.

Just to be super clear again: I have no issue with people buying healthy food or other essentials at the big chain stores, this is a good way to stretch a dollar. My family uses Costco for this, keeping to a strict shopping list of staple foods. But you don't have to look very hard to see that this is not the norm - Americans overspend on cheap and unhealthy foods and we overspend on cheap imported consumer goods - so satisfying in the moment, so disastrous in the long run - to our health, our environment, our finances. So to answer your question about the $1 spent: It ultimately depends on how it is spent and less on where. If we're talking about spending on wholesome food or other true essentials, that's great. Otherwise everyone would be better off if that $1 were invested instead.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: NoStacheOhio on March 14, 2016, 06:13:06 AM
Quote
Honestly, I think you'd have more traction trying to enact mandatory 401k availability for W-2 employees than separating it from employment.

Agreed, realistically.

Although what would be the benefit of doing that over raising the IRA contribution limit? I guess if Congress hates freelancers (or loves big companies, more accurately), the 401K availability would produce less loss in taxes.

No tangible benefit other than the likelihood of getting it passed ;-)

Seriously, I'd love to be able to direct my tax-deferred savings to a direct-deposit account, but my employer plan is good, so it doesn't bother me a whole lot.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: maco on March 14, 2016, 08:10:16 AM
So to answer your question about the $1 spent: It ultimately depends on how it is spent and less on where. If we're talking about spending on wholesome food or other true essentials, that's great. Otherwise everyone would be better off if that $1 were invested instead.
Not eating at all because you live in a food desert with only access to fast food will kill you a lot faster than eating the fast food will. We're talking days/weeks versus decades.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: FINate on March 14, 2016, 10:19:32 AM
So to answer your question about the $1 spent: It ultimately depends on how it is spent and less on where. If we're talking about spending on wholesome food or other true essentials, that's great. Otherwise everyone would be better off if that $1 were invested instead.
Not eating at all because you live in a food desert with only access to fast food will kill you a lot faster than eating the fast food will. We're talking days/weeks versus decades.

Yes, but to the extent that this problem exists the solution is to get better food options in those neighborhoods. By definition of low-income and low-access food deserts do exist (http://www.ers.usda.gov/data-products/food-access-research-atlas/go-to-the-atlas.aspx). What is the causal relationship between poverty, food deserts, and diet? There is ongoing debate about this (http://www.nytimes.com/2012/04/18/health/research/pairing-of-food-deserts-and-obesity-challenged-in-studies.html?_r=1 and http://www.lshtm.ac.uk/newsevents/news/2014/us_obesity_initiative_fails.html as a couple examples).
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: franklin w. dixon on March 14, 2016, 11:56:23 AM
One issue with the estate tax is that it can make passing down a capital-intensive family business (farm, as an extreme example) very difficult. All taxes have tradeoffs.

Either come up with the money to pay the taxes or sell the business to pay the taxes.  Why would I treat the business worth $50M any different than a $50M pile of gold?

If I've worked on my family's farm for decades, I'm not sure I should be forced to sell my day job to pay the taxes when a parent passes. Farms require a huge amount of assets to generate even a modest return, so I likely couldn't just "come up with the money".

I thought there were special exemptions for farms though?
Forced to sell your precious day job, with nothing but millions upon millions of dollars to console you! I'm crying great goobery tears for you, poor multimillionaire, with snot and everything. Let us all weep for the handful of gazillionaire Family Farmers(tm) trotted out every time this stupid conversation happens.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: franklin w. dixon on March 14, 2016, 11:58:31 AM
"Look here everyone there are like seven Family Farmers(tm) whose story sounds sympathetic until you realize they are outrageously rich. For that reason we must abolish taxes forever. The case is closed." -Whole bunch of clever rich guys sitting on their pile of loot like Smaug and laughing at how y'all idiots believe them
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: TheGrimSqueaker on March 14, 2016, 12:37:02 PM
One issue with the estate tax is that it can make passing down a capital-intensive family business (farm, as an extreme example) very difficult. All taxes have tradeoffs.

Either come up with the money to pay the taxes or sell the business to pay the taxes.  Why would I treat the business worth $50M any different than a $50M pile of gold?

If I've worked on my family's farm for decades, I'm not sure I should be forced to sell my day job to pay the taxes when a parent passes. Farms require a huge amount of assets to generate even a modest return, so I likely couldn't just "come up with the money".

I thought there were special exemptions for farms though?
Forced to sell your precious day job, with nothing but millions upon millions of dollars to console you! I'm crying great goobery tears for you, poor multimillionaire, with snot and everything. Let us all weep for the handful of gazillionaire Family Farmers(tm) trotted out every time this stupid conversation happens.

The land isn't necessarily that valuable or that extensive. Some of it also contains the family home.
Title: Re: 401(k)'s Aren't Working Now, and Never Worked In The First Place
Post by: WGH on March 14, 2016, 08:27:08 PM
Good idea. I agree that it makes sense for everyone to get the same livable payout from SS no matter what he paid into the system. I also agree with the poster above who said the reason the system is not that way is because it would be more difficult to get voters to accept it.

Why not have a national 401k type option that anyone could choose to pay into and the federal government would match her contributions up to a certain %? It seems to me like the problems with 401ks are related to the fact that they are connected to employers and the unscrupulous investment firms they are in bed with.

Because those same unscrupulous investment firms make large campaign contributions to various legislators who would decide that sort of thing. Also, the aforementioned corporate payroll tax reasons. Honestly, I think you'd have more traction trying to enact mandatory 401k availability for W-2 employees than separating it from employment. It would be better than nothing?

I think the ideal solution would be some sort of middle ground where companies could still make payroll-tax-exempt 'employer contributions,' but into a tax-deferred account of the employee's choosing instead of one chosen by the company. After all, direct deposit into normal checking accounts works now; why should it be any different for 401ks (or HSAs)? All you really need is a mechanism for the payroll people to be able to verify that the account is of the right type (that the employee isn't trying to direct their 401k contribution into a regular non-tax-deferred savings or checking account or something).

Problem might be vesting. For instance where I work now funds are placed in an employee's account but are vested 20% a year until fully at 5 years. If an employee leaves at say three years they lose 40% of what the employer put in. Since the employer controls the account they can claw this money back if the employee controls the account it might not be so simple.