Author Topic: CNBC Making the Call 401k's are a failure  (Read 19014 times)

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
CNBC Making the Call 401k's are a failure
« on: March 23, 2015, 05:55:19 AM »
http://www.cnbc.com/id/102496157?trknav=homestack:topnews:1

main reasons why

1. its optional so people choose not to invest
2. its hard to pick the right investments by yourself
3. 401k fees(this is a real issue at some places - may be the only legit argument)
4. only rich people with disposable income can afford to put extra money away

MayDay

  • Magnum Stache
  • ******
  • Posts: 3904
Re: CNBC Making the Call 401k's are a failure
« Reply #1 on: March 23, 2015, 06:18:10 AM »
I don't disagree with any of those except #4 for a huge chunk of the population.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
Re: CNBC Making the Call 401k's are a failure
« Reply #2 on: March 23, 2015, 06:23:53 AM »
its just a complainypants article though.  the 401k system works fine its people making poor life decisions that lead to them having no money for retirement. 

Al gore invented this thing called the internet where you can educate yourself on just about anything.

slugline

  • Handlebar Stache
  • *****
  • Posts: 1158
  • Location: Houston, TX USA
Re: CNBC Making the Call 401k's are a failure
« Reply #3 on: March 23, 2015, 07:34:06 AM »
Maybe we should re-brand them as "FU Funds" or something similar....

kite

  • Pencil Stache
  • ****
  • Posts: 584
Re: CNBC Making the Call 401k's are a failure
« Reply #4 on: March 23, 2015, 07:59:21 AM »
If CNBC's parent company actually cared, they might instead say -- "Ya'll don't have enough money saved in your 401k or IRA or SEP or cookie jar.  As such, Suze Orman says you are NOT APPROVED to keep a cable television subscription to even watch our CNBC drivel."  But that won't happen,  because the dealer never tries to put a junkie into rehab.....

Jack

  • Magnum Stache
  • ******
  • Posts: 4734
  • Location: Atlanta, GA
Re: CNBC Making the Call 401k's are a failure
« Reply #5 on: March 23, 2015, 08:30:57 AM »
its just a complainypants article though.  the 401k system works fine its people making poor life decisions that lead to them having no money for retirement. 

Nevertheless, when making poor life decisions is normal then there's a problem. I, for one, do not relish the thought of having a bunch of destitute Gen-Xers fucking up the economy in 20 years!

IMO, there needs to be a law that says:
  • All W-2 employment, including part-time minimum-wage jobs, must offer some form of deferred compensation plan (401(k), 403(b), 457, SIMPLE IRA, defined-benefit pension -- whatever), for which the employee is eligible to participate in immediately upon hire and in which the employee is vested immediately upon hire. It should not be possible to work in any way without being eligible for at least $23,500 (in FY 2015) in deferred compensation contribution allowances.
  • All W-2 employees must be enrolled in said plan by default, with the default contribution amount set to no less than 15% of total compensation.
  • Employees' default asset allocation must be 100% in a diversified lifecycle fund with the target date set as close as possible to the year they turn 65. Said fund must have no loads and an expense ratio of 0.5% or less.
  • Employees remain free to change their contribution amount and asset allocation as they see fit, but must first sign an affidavit stating that they are aware they are taking their retirement into their own hands, which might very well be dangerous or stupid, and that they accept responsibility for the consequences.


zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: CNBC Making the Call 401k's are a failure
« Reply #6 on: March 23, 2015, 08:33:49 AM »
http://www.cnbc.com/id/102496157?trknav=homestack:topnews:1

main reasons why

1. its optional so people choose not to invest
2. its hard to pick the right investments by yourself
3. 401k fees(this is a real issue at some places - may be the only legit argument)
4. only rich people with disposable income can afford to put extra money away
Let's translate those into their logical equivalents for the restaurant industry:

1. Not everyone decides to eat out (some cook at home, some starve).
2. There are too many options on the menu!
3. Food is occasionally overpriced.
4. Only rich people with disposable income can afford to eat out.

Therefore, the restaurant industry is a failure. Better all go home and learn to fucking cook. ^_^

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
Re: CNBC Making the Call 401k's are a failure
« Reply #7 on: March 23, 2015, 08:37:00 AM »
http://www.cnbc.com/id/102496157?trknav=homestack:topnews:1

main reasons why

1. its optional so people choose not to invest
2. its hard to pick the right investments by yourself
3. 401k fees(this is a real issue at some places - may be the only legit argument)
4. only rich people with disposable income can afford to put extra money away
Let's translate those into their logical equivalents for the restaurant industry:

1. Not everyone decides to eat out (some cook at home, some starve).
2. There are too many options on the menu!
3. Food is occasionally overpriced.
4. Only rich people with disposable income can afford to eat out.

Therefore, the restaurant industry is a failure. Better all go home and learn to fucking cook. ^_^

can i favorite this ... this is fucking awesome ... well done

TrulyStashin

  • Handlebar Stache
  • *****
  • Posts: 1030
  • Location: Mid-Sized Southern City
Re: CNBC Making the Call 401k's are a failure
« Reply #8 on: March 23, 2015, 08:40:14 AM »
My take on why 401k's suck:

The amount you can contribute is limited annually?  WTF?  If I want to contribute 75% of my salary, why can't I?
My investment choices are limited to those chosen by my employer?  WTF?  Only one index fund among the choices?
Negotiating employer's contribution to 401k is impossible because employers give the same for all employees.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
Re: CNBC Making the Call 401k's are a failure
« Reply #9 on: March 23, 2015, 08:41:53 AM »
My take on why 401k's suck:

The amount you can contribute is limited annually?  WTF?  If I want to contribute 75% of my salary, why can't I?
My investment choices are limited to those chosen by my employer?  WTF?  Only one index fund among the choices?
Negotiating employer's contribution to 401k is impossible because employers give the same for all employees.

you can do 75% of your salary assuming you make 24k a year. 
federally set low cost index funds as choices with max fees would be incredibly beneficial

crazyworld

  • 5 O'Clock Shadow
  • *
  • Posts: 96
Re: CNBC Making the Call 401k's are a failure
« Reply #10 on: March 23, 2015, 08:46:28 AM »
My take on why 401k's suck:

The amount you can contribute is limited annually?  WTF?  If I want to contribute 75% of my salary, why can't I?
My investment choices are limited to those chosen by my employer?  WTF?  Only one index fund among the choices?
Negotiating employer's contribution to 401k is impossible because employers give the same for all employees.

On that last comment (not negotiable ER match) - that is so employers do not give large matches to top execs (ie, themselves), while leaving the staff employees with low matches.  Though, IMO, the whole % match circumvents this to some extent.  4% match to my salary, is way lower than 4% match to a top execs salary.  I have not figured out a way to change IRS rules though so...

I'm a red panda

  • Walrus Stache
  • *******
  • Posts: 7901
  • Location: United States
Re: CNBC Making the Call 401k's are a failure
« Reply #11 on: March 23, 2015, 09:03:31 AM »
I'd say 401ks are a failure.

The VAST majority of Americans who have to rely on them for retirement are not prepared for retirement.

Yes, that may be their fault, but it completely changed the retirement system, in a way that companies no longer had any responsibility to the employers who made them succeed.

Quite honestly, I max out my 401k, and I'm still terrified I'm not going to be prepared for retirement with "side gigs". (If I'm working, I'm not retired.  Maybe I can figure out how to get a successful blog going that brings in massive income...)  We make a lot of assumptions- and if the market crashes at just the right time, it could easily screw someone over in their 'golden years'.

Cpa Cat

  • Handlebar Stache
  • *****
  • Posts: 1564
Re: CNBC Making the Call 401k's are a failure
« Reply #12 on: March 23, 2015, 09:04:33 AM »
http://www.cnbc.com/id/102496157?trknav=homestack:topnews:1

main reasons why

1. its optional so people choose not to invest
2. its hard to pick the right investments by yourself
3. 401k fees(this is a real issue at some places - may be the only legit argument)
4. only rich people with disposable income can afford to put extra money away

I kind of agree with them. Don't get me wrong... I love 401ks, use my 401ks, think they're generally wonderful...

But I used to audit 401k plans.

A 401k audit requires that you pull random samples to check on various things:

1. The right % deferral is being taken from the paycheck.

We never found a problem with the paperwork... except that people often neglected to contribute up to the match. 

2. The plan was invested exactly how the owner had requested.

No problems there. Except that what people chose to "invest in" were Money Market Funds (because it was labelled as Conservative in the informational brochure) or Gold Funds (because... you know. Gold.). I sometimes see people complain that their 401ks never recovered from the recession or that 401ks are a scam and I used to be bewildered by this. But then I remember... it's because they're invested in Money Market Funds and Gold Funds.

3. Ensure that the safe-harbor is met for highly-compensated employees.

So the deal with 401ks is that a certain number of workers have to participate in order for highly-comped employees to be allowed to use 401k plans. That's to prevent abuse and discriminatory practices within a 401k plan. It was -routinely- a problem. We were constantly recommending that businesses automatically enroll workers and make safe-harbor contributions.

When you hear people say that their 401k plan gets employer contributions regardless of the % that the employee contributes - that's a safe harbor contribution. It's needed because plan participation is so low that the highly comped employees were running into problems contributing. Same deal for employers who auto-enroll you and then increase your contribution automatically on an annual basis unless you opt out.

4. Check the details of 401k loans.

We never had problems getting an adequate sample for this one! It turns out that lots of people use their 401k like a bank. Need a new car? There's "free" money in your 401k! Kid having a birthday party? Woowoo! It's raining 401k money! Just paid off one 401k loan? That means you have extra available for a new house!

But shoot... then they lose their job. Oh well. That 401k loan was so far in the past, how can they possibly remember it? They like to assume that the 1099-R they receive was an error - because they know they didn't get a distribution. So they leave it off their tax return (ok, this one is from being a tax preparer, not a 401k auditor).


The reliance on 401k as a retirement planning tool is a fail. Not because the 401k plan is a failure, but because people are failures. But the 401k plan needs personal responsibility and participation in order to be successful. It doesn't get that from most people.

Truly Stashin points out a couple of other failures: Investment choices sometimes stink (not that it matters... most people prefer stinky investment choices). Although the match can't be negotiated because the 401k plan is a legal document that is required to be equal to everyone. Highly compensated employees would negotiate their match every time if they were allowed to. ;) The limit on % salary is another rule designed to avoid a plan becoming "top heavy" - see #3 above.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: CNBC Making the Call 401k's are a failure
« Reply #13 on: March 23, 2015, 09:06:30 AM »
My take on why 401k's suck:

The amount you can contribute is limited annually?  WTF?  If I want to contribute 75% of my salary, why can't I?
My investment choices are limited to those chosen by my employer?  WTF?  Only one index fund among the choices?
Negotiating employer's contribution to 401k is impossible because employers give the same for all employees.
How can contribution limits and lack of participation both be proof of failure, when they are essentially opposite things? I realize you didn't cite the low participation yourself, but everyone else does.
Re: only one index fund, your employer's poor implementation of the 401k concept doesn't invalidate the concept, it just means your employer sucks.
As for company match, sure, it'd be nice if everything was negotiable, but my guess is they just don't want the accounting burden.

I'm a red panda

  • Walrus Stache
  • *******
  • Posts: 7901
  • Location: United States
Re: CNBC Making the Call 401k's are a failure
« Reply #14 on: March 23, 2015, 09:13:54 AM »
Re: only one index fund, your employer's poor implementation of the 401k concept doesn't invalidate the concept, it just means your employer sucks.

But the concept then requires your employer to not suck for it to work.
And there are just way too many cases where that isn't true for the 401k concept to be successful.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: CNBC Making the Call 401k's are a failure
« Reply #15 on: March 23, 2015, 09:19:10 AM »
I'd say 401ks are a failure.

The VAST majority of Americans who have to rely on them for retirement are not prepared for retirement.
We are dangerously close to blaming the system for operator error. Yes, you are factually correct; the real question is, why the lack of preparation.
Quote
Yes, that may be their fault, but it completely changed the retirement system, in a way that companies no longer had any responsibility to the employers who made them succeed.
The reason defined-benefit plans went away is that rising life expectancy made total costs unpredictable and often produced overruns, leaving those companies less competitive. 401(k) works great for anyone who uses it consistently over time; if the company owes employees anything, it's more education and more active encouragement to participate.
Quote
Quite honestly, I max out my 401k, and I'm still terrified I'm not going to be prepared for retirement with "side gigs". (If I'm working, I'm not retired.  Maybe I can figure out how to get a successful blog going that brings in massive income...)  We make a lot of assumptions- and if the market crashes at just the right time, it could easily screw someone over in their 'golden years'.
I feel your pain there.
I too am highly risk-averse, and when I first started 'Stashing it was not in the interest of FIRE, but rather a direct response to all the hysteria I had heard about Social Security going tits-up someday. If uncertainty and fear are what drives you, keep saving and keep crunching numbers until the level of certainty reaches your comfort zone. And fer gads sake, diversify. The stock market could tank tomorrow, sure. That's why you might also want a paid-off house and some rental property (which, like an IRA or 401(k), also confers significant tax advantages).

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: CNBC Making the Call 401k's are a failure
« Reply #16 on: March 23, 2015, 09:25:44 AM »
Re: only one index fund, your employer's poor implementation of the 401k concept doesn't invalidate the concept, it just means your employer sucks.

But the concept then requires your employer to not suck for it to work.
And there are just way too many cases where that isn't true for the 401k concept to be successful.
If employers aren't generally implementing the concept in ways that benefit their employees, maybe the rules need a revision.
Even a shitty 401(k) with a high expense ratio and lame investment options can be a good investment compared to the after-tax alternatives... especially in today's work environment where people move around so often. Take the match, let the matching vest, then roll it over when you leave. I've done it three times... half of my IRA came from those rollovers.

Bob W

  • Magnum Stache
  • ******
  • Posts: 2947
  • Age: 60
  • Location: Missouri
  • Live on minimum wage, earn on maximum
Re: CNBC Making the Call 401k's are a failure
« Reply #17 on: March 23, 2015, 09:27:18 AM »
Couldn't agree more that 401Ks are a complete failure.  They were never really designed as a retirement vehicle in the first place.   Employers figured out that instead of funding a retirement for workers that they didn't need to.   So then they said,  "hey fund your own retirement buddy"    Very few employers other than the Gubment fund retirements.  We are really in a boatload of shit when in 15 years the majority of the old people population has no retirement pension. 

I'm a red panda

  • Walrus Stache
  • *******
  • Posts: 7901
  • Location: United States
Re: CNBC Making the Call 401k's are a failure
« Reply #18 on: March 23, 2015, 09:29:39 AM »
I'd say 401ks are a failure.

The VAST majority of Americans who have to rely on them for retirement are not prepared for retirement.
We are dangerously close to blaming the system for operator error. Yes, you are factually correct; the real question is, why the lack of preparation.


Systems that are so susceptible to operator error are not well designed.  In most good systems, huge feats of engineering take place to make sure that human operators can mess them up as little as possible.

There are lots of things that do require skilled operators, but the retirement system that most of the population  will have to depend on shouldn't be a skilled operator system. It should be fool proof. Because lord knows there are a lot of fools out there.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: CNBC Making the Call 401k's are a failure
« Reply #19 on: March 23, 2015, 09:42:34 AM »
Systems that are so susceptible to operator error are not well designed.  In most good systems, huge feats of engineering take place to make sure that human operators can mess them up as little as possible.
Absolutely. I guess what this comes down to is, is this a concept that would work if it were implemented better, or would something totally different work better?

Quote
There are lots of things that do require skilled operators, but the retirement system that most of the population  will have to depend on shouldn't be a skilled operator system. It should be fool proof. Because lord knows there are a lot of fools out there.
Truer words were never spoken.
So what do we do?
Corporate America would tell you that returning to defined-benefit plans would require lower wages, possibly substantially lower. The feds would say SS is tapped out and can't be increased - will probably have to decrease under present conditions unless we raise SS taxes. Making 401k work via compulsory participation would amount to a wage cut as well, and that'd go over like a fart in church.
From a macro standpoint, letting the system fail isn't an option - we who prepare will end up somehow carrying those who don't - so what now?

kite

  • Pencil Stache
  • ****
  • Posts: 584
Re: CNBC Making the Call 401k's are a failure
« Reply #20 on: March 23, 2015, 01:29:25 PM »
My take on why 401k's suck:

The amount you can contribute is limited annually?  WTF?  If I want to contribute 75% of my salary, why can't I?
My investment choices are limited to those chosen by my employer?  WTF?  Only one index fund among the choices?
Negotiating employer's contribution to 401k is impossible because employers give the same for all employees.

On just how much of your income should you be able to defer income taxes?   

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
Re: CNBC Making the Call 401k's are a failure
« Reply #21 on: March 23, 2015, 01:34:12 PM »
My take on why 401k's suck:

The amount you can contribute is limited annually?  WTF?  If I want to contribute 75% of my salary, why can't I?
My investment choices are limited to those chosen by my employer?  WTF?  Only one index fund among the choices?
Negotiating employer's contribution to 401k is impossible because employers give the same for all employees.

On just how much of your income should you be able to defer income taxes?

all income

kite

  • Pencil Stache
  • ****
  • Posts: 584
Re: CNBC Making the Call 401k's are a failure
« Reply #22 on: March 23, 2015, 01:51:19 PM »
My take on why 401k's suck:

The amount you can contribute is limited annually?  WTF?  If I want to contribute 75% of my salary, why can't I?
My investment choices are limited to those chosen by my employer?  WTF?  Only one index fund among the choices?
Negotiating employer's contribution to 401k is impossible because employers give the same for all employees.

On just how much of your income should you be able to defer income taxes?

all income
So if you're a Warren Buffet or a Taylor Swift,  and you earned enough last year to support yourself forever,  you'll ask.....with a straight face.....for a law to enable you to defer income taxes indefinitely into the future?   From whom should the government get their revenue,  then?  Those poor schmucks living paycheck to paycheck,  or how about a VAT or increased property taxes? 

TrulyStashin

  • Handlebar Stache
  • *****
  • Posts: 1030
  • Location: Mid-Sized Southern City
Re: CNBC Making the Call 401k's are a failure
« Reply #23 on: March 23, 2015, 01:55:46 PM »
My take on why 401k's suck:

The amount you can contribute is limited annually?  WTF?  If I want to contribute 75% of my salary, why can't I?
My investment choices are limited to those chosen by my employer?  WTF?  Only one index fund among the choices?
Negotiating employer's contribution to 401k is impossible because employers give the same for all employees.

On just how much of your income should you be able to defer income taxes?

all income

+1

I should be able to divert 100% of my pay into a 401k.   It's not as if it's tax-free forever.  The taxes are simply deferred.   Granted, if everyone did this it might be a problem but that is almost certainly not going to happen.  Even among those who chose to do this, they are unlikely to do it indefinitely. 


voidmain

  • 5 O'Clock Shadow
  • *
  • Posts: 20
  • Location: Bay Area
Re: CNBC Making the Call 401k's are a failure
« Reply #24 on: March 23, 2015, 02:02:50 PM »
They are more than just deferred though, you are saving taxes over investing in a taxable account (in which you would have to pay income tax on the contributions plus capital gains). IMO it seems pretty reasonable to limit them (And I say that as someone who would take advantage of a higher limit if there was one)

TrulyStashin

  • Handlebar Stache
  • *****
  • Posts: 1030
  • Location: Mid-Sized Southern City
Re: CNBC Making the Call 401k's are a failure
« Reply #25 on: March 23, 2015, 02:11:40 PM »
They are more than just deferred though, you are saving taxes over investing in a taxable account (in which you would have to pay income tax on the contributions plus capital gains). IMO it seems pretty reasonable to limit them (And I say that as someone who would take advantage of a higher limit if there was one)

Not that I necessarily agree . . . But for sake of argument, what should the limit be, then?   The current limit is WAY too low.  And the "catch up" limit for people over 50 is laughable. 

Midwest

  • Handlebar Stache
  • *****
  • Posts: 1326
Re: CNBC Making the Call 401k's are a failure
« Reply #26 on: March 23, 2015, 02:19:12 PM »
its just a complainypants article though.  the 401k system works fine its people making poor life decisions that lead to them having no money for retirement. 

Nevertheless, when making poor life decisions is normal then there's a problem. I, for one, do not relish the thought of having a bunch of destitute Gen-Xers fucking up the economy in 20 years!

IMO, there needs to be a law that says:
  • All W-2 employment, including part-time minimum-wage jobs, must offer some form of deferred compensation plan (401(k), 403(b), 457, SIMPLE IRA, defined-benefit pension -- whatever), for which the employee is eligible to participate in immediately upon hire and in which the employee is vested immediately upon hire. It should not be possible to work in any way without being eligible for at least $23,500 (in FY 2015) in deferred compensation contribution allowances.
  • All W-2 employees must be enrolled in said plan by default, with the default contribution amount set to no less than 15% of total compensation.
  • Employees' default asset allocation must be 100% in a diversified lifecycle fund with the target date set as close as possible to the year they turn 65. Said fund must have no loads and an expense ratio of 0.5% or less.
  • Employees remain free to change their contribution amount and asset allocation as they see fit, but must first sign an affidavit stating that they are aware they are taking their retirement into their own hands, which might very well be dangerous or stupid, and that they accept responsibility for the consequences.

Isn't social security available for those that make poor life decisions?  Granted, it won't lead to an awesome retirement but if you spend all your money on a shiny i-phone and the premium cable package, there should be consequences.

voidmain

  • 5 O'Clock Shadow
  • *
  • Posts: 20
  • Location: Bay Area
Re: CNBC Making the Call 401k's are a failure
« Reply #27 on: March 23, 2015, 02:36:41 PM »
They are more than just deferred though, you are saving taxes over investing in a taxable account (in which you would have to pay income tax on the contributions plus capital gains). IMO it seems pretty reasonable to limit them (And I say that as someone who would take advantage of a higher limit if there was one)

Not that I necessarily agree . . . But for sake of argument, what should the limit be, then?   The current limit is WAY too low.  And the "catch up" limit for people over 50 is laughable.

Way too low for who? Its true, the FIRE crowd here is probably saving a lot more than the average person. But for a single person, 30 years (say 35-65) of contributing the 401k max + Roth IRA Max (23500 and assuming it increases w/ inflation), 4% real return, would leave $1.37m in current dollars, or 54800 of income in retirement at 4% (Most but not all of that being taxable) + SS, which should be more than comfortable. A couple gets twice the limits to play with, but can probably have less than 2x expenses in retirement (thanks to housing savings)

It might be worth allowing someone to increase their contributions to cover a lack of them in previous years. But overall, the current limits seem reasonable to me. I have a lot of issues with our 401k system, but the cap isn't really one of them. Pretty much every country has limits on contributions their tax-advantaged retired plans.
« Last Edit: March 23, 2015, 02:38:59 PM by voidmain »

TrulyStashin

  • Handlebar Stache
  • *****
  • Posts: 1030
  • Location: Mid-Sized Southern City
Re: CNBC Making the Call 401k's are a failure
« Reply #28 on: March 23, 2015, 02:46:16 PM »
They are more than just deferred though, you are saving taxes over investing in a taxable account (in which you would have to pay income tax on the contributions plus capital gains). IMO it seems pretty reasonable to limit them (And I say that as someone who would take advantage of a higher limit if there was one)

Not that I necessarily agree . . . But for sake of argument, what should the limit be, then?   The current limit is WAY too low.  And the "catch up" limit for people over 50 is laughable.

Way too low for who?

Way too low for people whose lives have not traveled a straight course:  People who were single parents for all of their 30's and worked 3 jobs to get by -- with no money to spare for a 401k.  People who changed careers from a low-paid one to a high-paid one and who now have to make up for all the years when they were unable to contribute more than $100 a month.  People who got divorced in their mid-40's and find their 401k savings decimated and now they have to rebuild.   In other words, lots of people....

Paul der Krake

  • Magnum Stache
  • ******
  • Posts: 4459
  • Age: 11
  • Location: USA
Re: CNBC Making the Call 401k's are a failure
« Reply #29 on: March 23, 2015, 03:15:45 PM »
I think the current contribution limits are fair. As much as I would love to deduct 80% of my salary, I understand why we can't do that. What really gets me are companies choosing shitty plans to pass the costs onto their employees, and lack of availability for people who don't have one at work.

As a social policy, CNBC is right, they are a complete disaster. They are widely misunderstood, can be easily raided by people in distress, and generally difficult to navigate. We can drum up the personal responsability angle and act smug all day, but in the end, the government chose to hand out sharp chef knives when plastic spoons would have sufficed.

gimp

  • Handlebar Stache
  • *****
  • Posts: 2348
Re: CNBC Making the Call 401k's are a failure
« Reply #30 on: March 23, 2015, 03:38:50 PM »
This is true. 401ks are needlessly complex yet at the same time not good enough for most people.

Problems are as follows, IMO.

- Many plans have very little choice, usually pushing high cost plans and over-complicated plans. I suspect there are more than a few employers who get kickbacks for this.
- The idea of shifting the social safety net of retirement benefits to each individual, allowing them to make choices, is great, except most are not nearly knowledgeable enough to even understand that they don't understand the choices, let alone to understand the choices.
- They allow people to borrow money against them, which is often done for dumb-ass reasons, and there are no checks to ensure people aren't fucking themselves (see above).
- They give the most tax breaks to people who don't need them (like myself.)
- There's no education about them - not at the corporate level (usually), nor in standard education.
- They've become political-ized.
- People are not encouraged to use them; default is opt-out at many places. Default opt-in might be as low as 3%, often rising 1% a year until a maximum of just enough to get employer match if any.

And so on.

I absolutely utterly love the idea of allowing people to have control over their retirement accounts. But I believe that the default should be bog-standard, government run; and the government should be mostly invested in total market stock funds with some government bonds and cash on hand to smooth over dips; perhaps less aggressive that I do today (100% stocks), but more aggressive than most people do at age 60 (often 40%, 60%, or even more bonds, and lots of cash.) It should be uncoupled from where you work - corporate 401k, government 403b, etc. If someone wants to take it into their own hands, they can, but must jump through a fairly simple hoop (basically sign a paper outlining the risks of self-management, and sign that they understand what they're doing.) It should also default to something like 10% pre-tax salary, minimum 5% (unless doing it yourself), with a maximum of $xxxxx or yy% (whichever is greater).

My opinion.

With that said, the current system works fantastically well for the savvy investor, especially one who starts early.

voidmain

  • 5 O'Clock Shadow
  • *
  • Posts: 20
  • Location: Bay Area
Re: CNBC Making the Call 401k's are a failure
« Reply #31 on: March 23, 2015, 04:02:14 PM »
They are more than just deferred though, you are saving taxes over investing in a taxable account (in which you would have to pay income tax on the contributions plus capital gains). IMO it seems pretty reasonable to limit them (And I say that as someone who would take advantage of a higher limit if there was one)

Not that I necessarily agree . . . But for sake of argument, what should the limit be, then?   The current limit is WAY too low.  And the "catch up" limit for people over 50 is laughable.

Way too low for who?

Way too low for people whose lives have not traveled a straight course:  People who were single parents for all of their 30's and worked 3 jobs to get by -- with no money to spare for a 401k.  People who changed careers from a low-paid one to a high-paid one and who now have to make up for all the years when they were unable to contribute more than $100 a month.  People who got divorced in their mid-40's and find their 401k savings decimated and now they have to rebuild.   In other words, lots of people....

Fair enough. Like I mentioned earlier, I think the solution for those cases is to allow extra contribution for folks who have under-contributed in the past (or haven't at all), rather that a blanket increase in the limit.

r3dt4rget

  • Stubble
  • **
  • Posts: 182
Re: CNBC Making the Call 401k's are a failure
« Reply #32 on: March 23, 2015, 04:04:51 PM »
1. Retirement didn't exist a century ago. For thousands of years men worked until they died. Since life expectancy has increased rapidly in the last century, the original retirement vehicles (pensions and social security) are unsustainable. These vehicles were never intended to supply income for 20 years of retirement.

2. People need to start working longer. Those that plan for retirement can retire sooner, but generally the retirement age for SS and retirement plan benefits should be indexed to the average life expectancy. Retirement at 65 was established by social security in 1935 when people died at age 61 on average. As we keep living longer and expect to keep retiring at the same age of 65, costs will continue to skyrocket no matter who bears the burden. Remember, companies and the government have never really tried to offer people 20 years of income just because they are old. If physically able people should work for income. Retirement is not a right or an entitlement, it has never been that way. It's either a privilege you earn by saving money, or when you have to stop working because you are near death.

3. If we don't change our definition of retirement to reflect our longer lives, the younger generations of workers will bear the cost. Nothing is free. 20 years of retirement income is a hefty expense. Only a combination of individual savings, social security, and company contributions make it possible today. But as this article points out, people don't save enough and can't plan long term. They just expect to stop working at 65 and have someone take care of them.

401k's aren't broken. Our definition of retirement is broken.

Recon

  • 5 O'Clock Shadow
  • *
  • Posts: 35
Re: CNBC Making the Call 401k's are a failure
« Reply #33 on: March 23, 2015, 04:51:33 PM »
Fair enough. Like I mentioned earlier, I think the solution for those cases is to allow extra contribution for folks who have under-contributed in the past (or haven't at all), rather that a blanket increase in the limit.

Spitballing here...but what if you had a TOTAL limit equal to the sum of the limits during all your working years?  As in, if you worked from 20 years old to 29 and hadn't contributed a penny, but the limit was 18K for those 9 years, your limit for your age-30 working year is theoretically 180K?  (9 years of accrued under-contribution plus that year's limit)
« Last Edit: March 23, 2015, 04:53:23 PM by Recon »

One Noisy Cat

  • Stubble
  • **
  • Posts: 220
Re: CNBC Making the Call 401k's are a failure
« Reply #34 on: March 23, 2015, 06:20:49 PM »


     Just using some numbers from a job I had starting in 1987 until the company went bankrupt in early 1994. They opened a 401(k) in late 1989, no match.  In the 4 1/2 years I set aside $14,000 that was worth $19,000 when I rolled it into a Fidelity account, with four actively managed funds. Today it is worth $170,000, or $6,800 annual 4% SWR.
    Would this company, a small struggling electronics company, have offered a defined benefits pension in any pre-401(k) era? If so, what would it be paying, on a salary that was maybe $30,000 at its height?

     I used the tremendous financial knowledge that I picked up from reading "Playboy" articles by Andrew Tobias in the early 1980s and the money section of "USA Today".  I told quite a few coworkers over the years about IRAs and other saving devices. Maybe a one-third nodded their head yes.

     I wouldn't mind some kind of mandatory contribution plan as long as you can keep politicians from using it as their piggy bank. There should be an educational and advertising campaign extolling the power of compound interest. But I have zero sympathy for people who could have saved but wanted immediate gratification.

TrulyStashin

  • Handlebar Stache
  • *****
  • Posts: 1030
  • Location: Mid-Sized Southern City
Re: CNBC Making the Call 401k's are a failure
« Reply #35 on: March 23, 2015, 08:12:30 PM »
Fair enough. Like I mentioned earlier, I think the solution for those cases is to allow extra contribution for folks who have under-contributed in the past (or haven't at all), rather that a blanket increase in the limit.

Spitballing here...but what if you had a TOTAL limit equal to the sum of the limits during all your working years?  As in, if you worked from 20 years old to 29 and hadn't contributed a penny, but the limit was 18K for those 9 years, your limit for your age-30 working year is theoretically 180K?  (9 years of accrued under-contribution plus that year's limit)

This is brilliant.  And the data for each individual is already collected by the Social Security Admin so it shouldn't be hard to calculate the total allowable "catch up" contribution.

burly

  • Stubble
  • **
  • Posts: 151
  • Location: East
Re: CNBC Making the Call 401k's are a failure
« Reply #36 on: March 23, 2015, 08:27:16 PM »
Not that it'll ever happen... But, we can all change our direct deposit in a heart beat to a different bank... It'd be nice to  have a 401k at the provider of our choice and just provide the ACH info for our match and contribution....

The employer will still need to be audited on contributions but that shouldn't be that difficult...

JetBlast

  • Bristles
  • ***
  • Posts: 331
Re: CNBC Making the Call 401k's are a failure
« Reply #37 on: March 23, 2015, 08:51:27 PM »
I wouldn't 401k's a failure. I'd call financial education in America a failure.

There are lots of things that do require skilled operators, but the retirement system that most of the population  will have to depend on shouldn't be a skilled operator system. It should be fool proof. Because lord knows there are a lot of fools out there.

I agree that a great deal should be done to make the system easier to understand but I don't think it will ever be fool proof.  People will always find a way to screw it up. Douglas Adams put it well when he wrote "A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools."

kite

  • Pencil Stache
  • ****
  • Posts: 584
Re: CNBC Making the Call 401k's are a failure
« Reply #38 on: March 24, 2015, 05:59:46 AM »
Declaring 401k plans to be a failure because they don't provide everyone with a comfortable retirement,  is a bit much.  That's not their purpose.   It's a means for highly compensated individuals to defer income taxes.  As such, they are perfect.
 Among the ccommenters, we've got some extremely well compensated individuals who want to shield an increasing percentage of their income from taxes.  No surprise there, but it's outrageous that some think the cap should approach 100%.   They're essentially saying,  "I've got these earnings I don't actually need, therefor I shouldn't have to pay income tax on them until later."  I wonder if these folks realize that a tax policy to shield them from taxes increases the tax burden on the working class and lower middle class.  Every single loophole concocted to evade taxes in the short term gets exploited by those with the most means to pay.  This is how you wind up with Mr. Buffett's secretary paying a higher effective tax rate than the billionaire himself.   
I work for one of the big financial services firms.  More money invested in 401ks are good for my bottom line.  But, hey, if you max out your 401k and have more to defer income taxes on,  there are options......
Which brings me to the biggest problem with this article. ..
You can't seriously discuss one tool people use for retirement planning in a vacuum and term it either a sucess or a failure.   Measuring retirement readiness while omitting the value in IRA, Roth, HSA & real estate is ignorant. 

golden1

  • Handlebar Stache
  • *****
  • Posts: 1542
  • Location: MA
Re: CNBC Making the Call 401k's are a failure
« Reply #39 on: March 24, 2015, 06:01:09 AM »
Quote
This is true. 401ks are needlessly complex yet at the same time not good enough for most people.

Problems are as follows, IMO.

- Many plans have very little choice, usually pushing high cost plans and over-complicated plans. I suspect there are more than a few employers who get kickbacks for this.
- The idea of shifting the social safety net of retirement benefits to each individual, allowing them to make choices, is great, except most are not nearly knowledgeable enough to even understand that they don't understand the choices, let alone to understand the choices.
- They allow people to borrow money against them, which is often done for dumb-ass reasons, and there are no checks to ensure people aren't fucking themselves (see above).
- They give the most tax breaks to people who don't need them (like myself.)
- There's no education about them - not at the corporate level (usually), nor in standard education.
- They've become political-ized.
- People are not encouraged to use them; default is opt-out at many places. Default opt-in might be as low as 3%, often rising 1% a year until a maximum of just enough to get employer match if any.

And so on.

+1 

My biggest problem with 401Ks is that almost everyone is expected to get retirement income from them now, but there isn't much education in our school system regarding something so important. 

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: CNBC Making the Call 401k's are a failure
« Reply #40 on: March 24, 2015, 07:13:59 AM »
401k's aren't broken. Our definition of retirement is broken.
Just like our definitions of "want", "need", and "deserve".
You can't seriously discuss one tool people use for retirement planning in a vacuum and term it either a sucess or a failure.   Measuring retirement readiness while omitting the value in IRA, Roth, HSA & real estate is ignorant. 

Absolutely true. Paid-off housing is like earning untaxed income - in some cases, tens of thousands. (MMM's example: his 25k lifestyle would be 40k if his home were financed)
And the tax code on rental property is so advantageous to landlords that I'm convinced it was written by them.

There are some really good points above about sub-optimal aspects of the program, and in most cases the solutions are readily apparent. So, let's solve the problems.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
Re: CNBC Making the Call 401k's are a failure
« Reply #41 on: March 24, 2015, 07:31:11 AM »
401k's aren't broken. Our definition of retirement is broken.
Just like our definitions of "want", "need", and "deserve".
You can't seriously discuss one tool people use for retirement planning in a vacuum and term it either a sucess or a failure.   Measuring retirement readiness while omitting the value in IRA, Roth, HSA & real estate is ignorant. 

Absolutely true. Paid-off housing is like earning untaxed income - in some cases, tens of thousands. (MMM's example: his 25k lifestyle would be 40k if his home were financed)
And the tax code on rental property is so advantageous to landlords that I'm convinced it was written by them.

There are some really good points above about sub-optimal aspects of the program, and in most cases the solutions are readily apparent. So, let's solve the problems.

It would be 40k and he would probably be coming out farther ahead if his home were financed.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: CNBC Making the Call 401k's are a failure
« Reply #42 on: March 24, 2015, 09:07:49 AM »
It would be 40k and he would probably be coming out farther ahead if his home were financed.
This tradeoff is discussed pretty often here.

Financing the home and investing elsewhere does generally mean higher investment return, as well as higher liquidity. Paying it off means lower risk and in some situations lower taxes (via lower income requirements); that's what makes it pertinent in a discussion of tax-advantaged investments.

I will generally leave my rentals financed because the interest is 100% deductible and I can beat the return of a principal payment by just buying more; that also increases my depreciating asset base, adding tax mitigation. Contrast this with my primary residence: I don't pay enough interest to itemize deductions, and the payment costs $7K a year, which means if I pay it off I can retire on $7K less annually. My math puts the ROI over 5% between interest and tax savings, which is enough for that fraction of the total portfolio, in light of the lower risk and the intangible benefits.

Obviously the results will vary, but the important thing is to do the analysis.

Drifterrider

  • Handlebar Stache
  • *****
  • Posts: 1119
CNBC Making the Call 401k's are a failure AND they are WRONG
« Reply #43 on: March 24, 2015, 09:19:21 AM »
My 401K is a tremendous success. 

It takes my money from me before I can spend it.
It give me 100% instant return on the first 5% of my annual salary and allows me to defer taxes into the future.
My fees are lower than other 401s.
I can choose from a range of zero risk to "roll the dice".
It is a PART of my retirement plan, not my total retirement plan.  Another PART of my retirement plan is the mandatory savings (OASDI).  Another part of my retirement plan is rental property. 

As to people not being "able" to contribute more:  two thoughts.

1.  When I was first eligible to contribute I contributed 17% of my annual salary.  My salary then was $16,200 PA.  I didn't have cable TV, internet, new car, consumer loans BUT I had just bought my first house.  I made choices.

2.  There are only two types of people in the world:  those that make things happen and those that watch things happen.

YMMV

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: CNBC Making the Call 401k's are a failure AND they are WRONG
« Reply #44 on: March 24, 2015, 09:31:08 AM »
My 401K is a tremendous success. 

It takes my money from me before I can spend it.
It give me 100% instant return on the first 5% of my annual salary and allows me to defer taxes into the future.
My fees are lower than other 401s.
I can choose from a range of zero risk to "roll the dice".
It is a PART of my retirement plan, not my total retirement plan.  Another PART of my retirement plan is the mandatory savings (OASDI).  Another part of my retirement plan is rental property. 

As to people not being "able" to contribute more:  two thoughts.

1.  When I was first eligible to contribute I contributed 17% of my annual salary.  My salary then was $16,200 PA.  I didn't have cable TV, internet, new car, consumer loans BUT I had just bought my first house.  I made choices.

2.  There are only two types of people in the world:  those that make things happen and those that watch things happen.

YMMV
I don't think anyone here questions that 401(k) plans work great, used properly; the complaints about contribution limits are kind of a red herring because the big-picture problems with the program are at the opposite end of the scale. Instantly doubling the first 5% is great (I get the same in TSP); the truly sad thing is that so many people could get it and don't, because they either don't know they could, don't think they can afford it, don't understand how important it is, or just don't care.
Having your own shit together is all fine and good, and that's what we're here for - to reinforce our desire to do so, and to learn more and better ways of kicking ass financially - but the nagging issue is, those who don't (regardless of your opinion on their failure) could become a burden to us someday, if their destitution makes them wards of the state. So, we should not merely take advantage of this great option, but look to effectively incentivize others to do so.

Apples

  • Pencil Stache
  • ****
  • Posts: 853
Re: CNBC Making the Call 401k's are a failure
« Reply #45 on: March 24, 2015, 09:32:07 AM »
http://www.cnbc.com/id/102496157?trknav=homestack:topnews:1

main reasons why

1. its optional so people choose not to invest
2. its hard to pick the right investments by yourself
3. 401k fees(this is a real issue at some places - may be the only legit argument)
4. only rich people with disposable income can afford to put extra money away

Let's translate those into their logical equivalents for the restaurant industry:

1. Not everyone decides to eat out (some cook at home, some starve).
2. There are too many options on the menu!
3. Food is occasionally overpriced.
4. Only rich people with disposable income can afford to eat out.

Therefore, the restaurant industry is a failure. Better all go home and learn to fucking cook. ^_^

Five Stars!  Well done!  This is awesome!  I went out to eat twice and to two bars this past weekend, and it was an exploding volcano of money.  I also had two airport meals.  (I learned on my return trip that you can take food to the airport.  But I had only planned one meal, until I had two flight cancellations and was flying standby.)  Total cost?  $75, including tip.  Exploding volcano for the rich.  The restaurant industry is a failure; I'm going home to my cooking :)

Drifterrider

  • Handlebar Stache
  • *****
  • Posts: 1119
Re: CNBC Making the Call 401k's are a failure AND they are WRONG
« Reply #46 on: March 24, 2015, 09:36:52 AM »


YMMV
I don't think anyone here questions that 401(k) plans work great, used properly; the complaints about contribution limits are kind of a red herring because the big-picture problems with the program are at the opposite end of the scale. Instantly doubling the first 5% is great (I get the same in TSP); the truly sad thing is that so many people could get it and don't, because they either don't know they could, don't think they can afford it, don't understand how important it is, or just don't care.
Having your own shit together is all fine and good, and that's what we're here for - to reinforce our desire to do so, and to learn more and better ways of kicking ass financially - but the nagging issue is, those who don't (regardless of your opinion on their failure) could become a burden to us someday, if their destitution makes them wards of the state. So, we should not merely take advantage of this great option, but look to effectively incentivize others to do so.

The incentive is to match contributions and defer taxes.  Having government "take" your/my money in order to "protect" you/me from the future is already happening.  OASDI.

I don't trust your government to protect me:  that is MY responsibility.

Just who was touting "privatization" of Social Security in 2007?  The government.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: CNBC Making the Call 401k's are a failure AND they are WRONG
« Reply #47 on: March 24, 2015, 09:51:34 AM »
The incentive is to match contributions and defer taxes.
Those incentives already exist and are less effective than expected. That is literally the reason why this thread exists.

Quote
Having government "take" your/my money in order to "protect" you/me from the future is already happening.  OASDI.

I don't trust your government to protect me:  that is MY responsibility.
I couldn't agree more; I'm just not sure how this relates to a discussion of the effectiveness of the 401k concept.

Quote
Just who was touting "privatization" of Social Security in 2007?  The government.
Conflating one portion of one political party with "the government" is a bit disingenuous. If "the government", in a monolithic sense, had supported such a thing, it'd be law now. Most of the government was opposed to it, including the ones in a position to actually do it, so it didn't happen.

netskyblue

  • Pencil Stache
  • ****
  • Posts: 628
  • Location: Midwest USA
Re: CNBC Making the Call 401k's are a failure
« Reply #48 on: March 24, 2015, 10:10:59 AM »
My biggest beef with the 401k system is the EMPLOYER gets to choose which funds are and are not included.  Far better to let the employees choose their own funds - ideally from any brokerage they choose, but at least from all funds offered by the employer's chosen brokerage.

r3dt4rget

  • Stubble
  • **
  • Posts: 182
Re: CNBC Making the Call 401k's are a failure
« Reply #49 on: March 24, 2015, 12:33:17 PM »
My biggest beef with the 401k system is the EMPLOYER gets to choose which funds are and are not included.  Far better to let the employees choose their own funds - ideally from any brokerage they choose, but at least from all funds offered by the employer's chosen brokerage.
This is up to the employer. For example, my 403b allows me to pick from a variety of Vanguard funds. Or you can select auto-pilot and they pick funds based on your risk level, which looks very similar to the portfolio used by Betterment. Employers have the option to pick low-fee retirement plan services that give employees lots of control.