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The idea that most of America can fund a retirement even coming close to what they'd get if they had a pension is laughable. As posted, median income is $52k and you're seriously suggesting people can live on 2/3 of their available pay? That is a joke and I don't blame anyone for not maxing out their 401ks at lower incomes. The reality is most of America can't retire comfortably simply because they didn't earn enough to do so.
If you only bring in 52K per year, you don't need to save 2/3 of your take home pay to retire decently. That's the beauty of it.
If you manage it though, a 2/3 savings rate will get you to financial independence (aka "retirement") in about 10 years, give or take a year or two either way.
A more modest 15% (after tax) savings rate will get most people there by their 60s...earlier if they get any kind of employer matches on top of that. The chart in the article above doesn't include benefits like Social Security, which should be around in some form provided we don't have a complete economic collapse (which if we do, this whole discussion won't matter).
Keep in mind there were originally "three legs" to the retirement stool. The 401k was never intended to be the significant contribution toward retirement. Pensions, SS and 401k were supposed to work in concert together.
The 3 legs were spoken about before 401K's even got created.
The 3 legs were SS, pension and personal savings. The 401K replaced the pension.
Workers do not stay at companies for 30 years anymore. The average is 5 years and then they job hop.
A pension would do them no good where a 401K you keep.
That's the biggest part of why I think pensions are still good :S
The money part, while nice, my 401k "should" provide more. But it's the health insurance that I can carry into retirement that is what makes having it good to me. Though kind of off subject for this thread about "retirement money"
The thing is, America wastes a huge amount of money on health care. We use the health care system as a substitute for poor nutrition. It's not working. It's never going to work...regardless of what kind of health care system we have. If we don't get serious about healthy eating and exercise, our health care costs will bankrupt us as a nation.
Quote:
Originally Posted by eyeb
Without the politics, wasn't ACA suppose to help with this some? Not entirely sure how ACA works since I don't shop on that market.
That what we're told so it can be sold to us. It's always some version of "it will make you more secure with little or no effort on your part". The result pretty much always fall far short of what we're told.
It also doesn't help that most people with 401ks are still subject to the emotional turmoil of market swings. Many people will sell their 401k investments and move to straight cash when the market drops significantly and won't buy back in until the market is significantly higher than it used to be.
IMO that is one of the main reasons pensions are more successful. You are forced to contribute and you don't have a say in how your money is invested. I want neither of those, but I do understand that for most people it is the best option.
That's why they came up with target date funds as the default option. Not perfect, but a generally good idea.
Agreed. There's nothing that stops high income individuals from saving and investing their excess income far above what's the max 401k contribution. They just can't get tax breaks for doing so.
Heh, I have to agree with you on this one. Holy crap, NJBest complaining about "only" being able to tax shelter 53K a year! That's more than I made last year, and I live in a high cost area.
I used to feel like you but have changed my mind. I personally believe, as long as the company 401k match is relatively high and vests quickly (federal law should make it vest immediately, IMO) I prefer a 401k over a pension from a private corp. If you want a pension, you need to go work for the state or federal government.
My reasonings are many:
It allows portability. Often, in private industry, people can maximize their raises and income potential by switching employers every few years. A pension "locks you in" to that employer.
Similar to the above, if you are vested with your employer pension plan, and the company has financial difficulty, it's possible your pension could be frozen or lost altogether. Also, the company could come after you for pay cuts in order to stay afloat, and with no backup plan you'd be forced to accept. Once the 401k money hits your account, it's yours not theirs. Bankruptcy cannot take it away from you.
You can live anywhere you want. This is huge for us. I couldn't imagine being held down to a location because of a job. You have so much flexibility when you can move about the country as you desire.
401k's can potentially outpace a traditional pension in returns. If you start at an early enough age and set aside a large amount at first, your 401k can grow to a sizeable amount after 30-40 years.
401k's can be passed down to your heirs, pensions go away when you die.
There are certainly some pitfalls and these company match programs with pittance matches (ie 50% match up to 6% or something ridiculously low) need to change. Also I've personally seen 401k plans that had only high fee funds as choices, and the administrator was a board member on the company (ie getting a kickback). It would be nice if 401k plans went away completely and the tax code was overhauled to allow IRAs at the 401k level, with company contributions direct deposited into the IRA similar to your bank account. That way you could purchase any fund you wish, you wouldn't be beholden to the plan your employer dictates.
^^THIS^^
Starting the second you get your first job, a good match and good funds, is the key. I've heard of 401K plans with no match. What good is that?
That's why they came up with target date funds as the default option. Not perfect, but a generally good idea.
I'm not really sure how a target date fund can stop you from looking at your 401ks value at the end of each day and deciding to sell it all into cash when the market plunges unless you are about to hit the target date when that happens.
I prefer 401ks, I'm 32 and my wife is 30, if the companies we worked for had pensions we wouldn't even qualify for one yet, but we have managed to save a very large sum in our 401ks so far. The idea of spending your entire career with one company is one of our parents generation. I also know people that hate where they work, want to leave, and can leave and make significantly more money, but they are "vested" in their pension and so they won't leave. It becomes a sunk cost fallacy.
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