Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
How would they 'do it right' if they have very little disposable income what do they use to fund a 401k?
Most low wage jobs don't even offer a matching 401k. I know many low income people and most, if not all of them have to spend every penny they take in on living expenses.
Thanks, I guess what I'm getting at is that most that would offer something like a pension but no longer do would have a match.
McDonalds workers for example probably don't get a match but also probably didn't get a pension either.
Since we are comparing the two we have to make a reasonable assumption that we aren't comparing a job that would historically come with a pension to a job that wouldn't and then cite that the latter doesn't offer 401k matches.
Defined benefit pensions are common in the public sector and cover many low wage workers. There are also companies like Coca Cola which provide defined benefit pensions to all full time employees regardless of salary. Of course the pension benefit varies according to length of employment and salary, but for a lower wage worker who earns 30k a year, a 10k defined benefit pension is a lifesaver when combined with social security benefits.
The comparison between the two on a fair basis would have the company contributing something to the employees 401k.
It's not fair to give an example of a company spending money on a db plan but then to compare it to a 401k where a company puts for no money towards it because it skews any meaningful comparison.
I think we should add a third option to the discussion which is a defined contribution plan.
This is where instead of promising you a future retirement plan they instead put money into a retirement account for you each year that you work there and you own the balance. At the end you can convert the money into an annuity or take lump sum etc etc.
For public sector (assuming for now that they can't cut your pension) it's not an improvement over DB but for private sector they can't ********* with having a pension plan running out of money.
A lot of people do not know how to manage them effectively. I pretty much took over managing the 401K's for most of my family members. I would ask what their returns were and see they were getting 1-2% a year. basically, they would just put the money in, and never learn about their investment choices, or even pick a target date fund.
They have a fix for that called Target Date funds. They work fine.
A good pension is better than a 401k, a bad one is not. The best plan would be what Australia has- a superannuation plan. The employer puts in 9% and you can add to it but you get that 9% automatically. You control the investments.
A 401k with a full match can be better than a pension in cases where you are really knowledgeable about investing. However few people are, and since the plan is optional most people either don't put in or don't put in enough then they get screwed when retirement comes around.
Yes, I agree we should go to something like what Australia has....but I don't think people should be allowed to control the investments. They should go in target date funds like the ones in the federal governments TSP plan.
Thanks, I guess what I'm getting at is that most that would offer something like a pension but no longer do would have a match.
McDonalds workers for example probably don't get a match but also probably didn't get a pension either.
Since we are comparing the two we have to make a reasonable assumption that we aren't comparing a job that would historically come with a pension to a job that wouldn't and then cite that the latter doesn't offer 401k matches.
The problem is that it's not just Mc Donald's employees who aren't likely to get a 401k match, my husband retired from a Fortune 500 company that offered no 401k match. And I'm not against 401k's they are great for well paid employees who want portability but I think that it's a shame that so many employers offer them with no match, it makes it nearly impossible for lower paid employees to accumulate a reasonable retirement income.
And I'm not claiming that there are no options to defined benefit pensions for lower paid employees, there definitely are. One that I'm very impressed with is the ESOP for Winco employees. Each year the company sets aside an amount equal to about 20% of each employee’s pay, in the form of stock Forbes Welcome
Forgive me if someone mentioned it already but another major benefit of the 401k for anyone here that remembers the 1970's is that you can structure it to be more inflation proof.
Even if you have a guaranteed rock solid govt. pension it can still be blown to crap by a period of high inflation.
So, consider the catastrophic "oh crap I have to eat catfood" risks to retirement situations:
1. Private Pension: Underfunding\plan bankruptcy, high period of inflation, getting laid off around age 50 after being there 25 years.
2. Public Pension: Mostly just the high inflation, some risk of bankruptcy or other fund shenanigans if it's at a lower level of government
3. 401k: Investment Risk like big stock market collapse but that can be mitigated
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
