What am I missing??? Are IRA's really so bad...

[kite]

http://mobile.nytimes.com/2016/06/21/opinion/pension-holders-need-a-new-retirement-plan-not-stock-tips.html?_r=0&referer=https://www.google.com/

I'm reading today's NY Times OpEd, nodding in agreement at some of it.  Then BAM!  He just slams IRA's as a valid option.  If anything, I think those need to be more broadly encouraged, with more and more people in the gig & freelance economy.  Even in the defined benefit heyday, they didn't cover most workers.  That meant the majority of people were, actually, excluded. 

Am I missing something?

[dandarc]

There are bad IRAs out there.  Which is true.  There are also bad 401Ks, and good IRAs and lots and lots of other things available.

So yeah, to your point, IRAs aren't inherently bad, in fact, many people are better off in something like a Vanguard IRA compared to their 401K.  That off-hand thing at the end is like saying "The XXXXX model car is no good - it falls apart and costs a bunch to maintain.  So only use public transportation."

[aasdfadsf]

I thought the article was reasonable. There is a legitimate case to be made that, as a matter of social policy, we'd be better off with more defined benefit plans and fewer defined contribution plans. The reason is that most people suck at saving money willfully.

As for the problem of people also sucking at choosing investments, this isn't solved with pensions. It's just someone else choosing the investments, and they often suck too even when they're not being bribed by a hedge fund manager to put the money into an underperforming fund. The stories of underfunded pensions or people who never see their pensions are legion. So maybe that's not the answer. Increasing Social Security benefits, wherein you simply transfer money from working people to retired people and don't worry about investments, might be a better idea, but that's a political choice that not everyone will go for.

Still, the author points out exactly how to solve the basic problems within the current system: Use index funds, have automatic deductions with opt-out as opposed to opt-in, have 401ks be portable, etc. It's not exactly rocket surgery.

[Telecaster]

I thought the article was excellent.  IRAs are designed to help middle and lower income Americans save for retirement.  That's why there are contribution limits, RMDs, etc.  At one time was even an excise tax on IRAs that grew too large.

But the article clearly points out that lower and middle Americans need a lot more help, or at least need to be doing something different.  In other words, the IRA isn't working the way it is supposed to.   Upper income Americans are in good shape, but they don't need help saving. 

[MrMoogle]

I thought the article was reasonable. There is a legitimate case to be made that, as a matter of social policy, we'd be better off with more defined benefit plans and fewer defined contribution plans. The reason is that most people suck at saving money willfully.

There are many problems with pensions though, some of which could be fixed:
you have to work at the same company 20 years (depending on the company) to get one, when now, the average worker stays at a company 5 years
they're non-linear
many companies never offered one
existing pensions are having problems, paying less than what was promised
they are expensive for employers
a medical firm is required to be investors, why would they know any better than us
no one is going to be more invested in your performance than you will

Personally, I would just merge the 401k and IRA.  Allow anyone to put money into this merge (even if your previous company didn't have one), and allow companies to put in a match.  If you want a "pension" then you can just set up an annuity in your merged plan.

[fattest_foot]

That seemed like a very small blurb in the article, but also a strange one. I don't see why IRA's are singled out for having potentially high fees, as the same could be said for 401k's. In fact, 401k's are limited to your employers offerings and so offer less choice and unavoidable fees since you can't shop around for yourself.

My only complaint with IRA's is that the contribution limit is so low. While technically if you maxed out an IRA for 30ish years in an index fund you'd probably have enough for retirement, the limit still probably needs to be doubled.

[johnny847]

Whenever you see someone say this keep in mind that new fiduciary rules are coming into place, but only for retirement accounts not taxable accounts. So financial advisors now have an incentive to push client money out of retirement accounts and into taxable accounts

The author is a financial advisor. He is the chairman of a LLC that manages Bloomberg's personal and philanthropic portfolio. So the incentive I talked about may not be in place for him specifically. Then again he may be a financial advisor to more "normal" individuals, just not enough that he formed a company that would end up on his Wikipedia page.

Point is there is a clear incentive for financial advisors in general to push client money out of retirement accounts.