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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.
Yes, well, what can I say? Nothing's perfect. I do think that a lot could be done around the issue of "leakage" where people cash out when changing jobs.
Quote:
Originally Posted by mizzourah2006
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.
I would just add that it doesn't have to be either/or. Most people in public sector jobs have access to pensions as well as 401ks (Ok, they're called 403b plans or 457 plans, but function in a similar way). The good (and bad) thing about my 457 plan is you can take the money out without penalty if you leave your employer, regardless of age.
The key to all of this is you need to contribute a healthy chunk of your income to whatever plan you have and not just rely on the pension to carry you. Unfortunately, I work with a lot of people doing the latter.
To me, it just seems like 401(k)s are just a big Ponzi scheme...
I'd rather just have a defined pension plan to be quite frank, but that's just me though...
Actually most defined pension plans are more like Ponzi schemes. The 401K program is excellent for those getting a company matching. Once you have gotten your company match, it's no longer a great deal except for those in the highest tax bracket betting that they will pay a lower rate when they draw it out which may or may not turn out to be correct.
Here is why I think the 401K is great, it's yours and you aren't dependent on others paying in the future to receive it. We see in Detroit and in Greece that even government pensions are only as good as the ability and will of future generations to pay. Even our social security pensions have already changed from what we were promised as the date o my FRA is now almost 2 years beyond the 65 that I was promised the first few decades I worked.
I see the 401K as an additional boost and fallback plan if social security and other defined pensions plans go bust. It has allowed wife and I to retire in upper 50's rather than wait until 67 because we had the financial discipline and means to access the 401K plan. I do realize that it primarily is a tool to make the Wall Street bankers rich and it has but it also has helped plenty of average joe's and Jane's.
I could see how someone might view an underfunded pension as a Ponzi scheme. If the pension fund can't pay out everything owed without more people paying in, isn't that Ponzi-ish?
A 401k is different, since you are responsible for your own investments. Whatever your returns are, are yours.
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.
I actually was almost one of those workers. I still work there very part-time (and almost fully vested), but have since started a new job that is so much more satisfying.
My 403b is liberating. It is MINE. I can control where the investments are (mine is in a Vanguard Target 2050 fund, and I have no plans on selling), I don't have to stay at a company I don't like, and I can always roll it over to my Roth IRA once/if I leave.
My only gripe is that my employer's match/contribution is pathetic (2% match, plus another annual contribution based on age and years of service...for me it is an additional 2%). What is up with that?
I actually was almost one of those workers. I still work there very part-time (and almost fully vested), but have since started a new job that is so much more satisfying.
My 403b is liberating. It is MINE. I can control where the investments are (mine is in a Vanguard Target 2050 fund, and I have no plans on selling), I don't have to stay at a company I don't like, and I can always roll it over to my Roth IRA once/if I leave.
My only gripe is that my employer's match/contribution is pathetic (2% match, plus another annual contribution based on age and years of service...for me it is an additional 2%). What is up with that?
If your match is 4% it's not pathetic, it's above average.
The most important thing to note is that cutting your spending rate is much more powerful than increasing your income. The reason is that every permanent drop in your spending has a double effect:
- it increases the amount of money you have left over to save each month
- and it permanently decreases the amount you’ll need every month for the rest of your life
The most important thing to note is that cutting your spending rate is much more powerful than increasing your income. The reason is that every permanent drop in your spending has a double effect:
- it increases the amount of money you have left over to save each month
- and it permanently decreases the amount you’ll need every month for the rest of your life
I think some of what MMM writes about has to be taken with a grain of salt. The first effect is a fair statement, the second is truly a YMMV situation. For many people, financial needs change over time. Add kids, medical needs, etc, and that "permanent decrease" isn't so permanent anymore.
The 401K program is excellent for those getting a company matching. Once you have gotten your company match, it's no longer a great deal except for those in the highest tax bracket betting that they will pay a lower rate when they draw it out which may or may not turn out to be correct.
Hmroo? If you're contributing to a company 401K then you are getting matching (at most companies, there's always some out there who don't match). At the point you leave the company, you can roll over the 401K into a self-directed IRA -or- you could choose to rollover into a Roth IRA or do a backdoor Roth IRA if you need to, and pay the taxes at that point instead of waiting until you start drawing on those funds in retirement. To my mind a 401K is always a good thing.
I think some of what MMM writes about has to be taken with a grain of salt. The first effect is a fair statement, the second is truly a YMMV situation. For many people, financial needs change over time. Add kids, medical needs, etc, and that "permanent decrease" isn't so permanent anymore.
Well nothing is 100%, but if, for example, you cut out cable TV (saving let's assume $80/month), you'll get to the point that you may not miss it at all and you've just added $960/year to monies you can invest for the future.
And if you've got a Starbucks habit and you decide to cut that down to just a few per year and make your own at home, that could be another $1000 you save and have to invest.
Those kinds of things add up over time.
For myself, I did give up satellite TV in 2010 (saving that $80/month) and last Nov when my cell phone contract ended, I switched to Tracfone (BYOP/bring your own phone) and instead of spending $70/month, I'm spending less than $10/month and I'm still on the exact same cell network! My usage is light and I use a lot of wifi and that allows me to save $$$. So just right there I'm saving $150/month I was otherwise spending and I don't miss it. And yes, I am diligent enough to actually put those monies to work for me in my investments.
Figuring out what your priorities in life are and then not spending $$$ on things that really are not priorities allows you to leverage your income better and allows you to put more towards savings and investments.
Our economic system is just one huge Ponzi scheme IMO...
How much of the population really wants to spend the time and energy needed for retirement planning and research, which stock market investing seems to require??? Get real, people...
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