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It’s really not simple when you layer on lack of access to 401ks through employers, lack of financial education, lack of desire to save so far into the future while struggling today, and in some cases an outright lack of means.
What employer doesn’t have a 401k plan? Even McDonalds, Walmart and Starbucks have 401k plans.
Young people are inclined to talk about all kinds of ways they spend their money, travel to places and splurge on things. How often do you go to a party where people discuss their retirement accounts? It is not considered to be the sexiest topic of conversation.
Those are large, sophisticated employers even if they have large amounts of low paid employees. Most people are employed by small business; not blue chip fortune 500s. Probably at least a third of the population or more doesn’t have access to a 401k with their employer.
What employer doesn’t have a 401k plan? Even McDonalds, Walmart and Starbucks have 401k plans.
Young people are inclined to talk about all kinds of ways they spend their money, travel to places and splurge on things. How often do you go to a party where people discuss their retirement accounts? It is not considered to be the sexiest topic of conversation.
Lots of employers don’t offer a 401k. Depending on what article you read it’s somewhere between 40-50% do not offer a 401k plan
The simple answer is that financial literacy and discipline is severely lacking in the USA and many other countries. IF they have the money, they spend it, If they don't have it they put in on credit. Between housing, cars (big one), superfluous consumer goods, eating out etc, the saver is almost a freak of nature.
My company was just bought by another so I have 2 401k's this year. I asked how to set it up to max out my 401k without going over and HR and the provider did not have a clue and it is like I am some sort of freak of nature. I ended up having to manually calculate my contributions made thus far, subtracting them from $19500 then dividing by the number of remaining pay periods. They were not set up for that.
If your work doesn't offer a 401k, then there's always the option of a traditional or Roth IRA.
Maybe even better would be a taxable brokerage account. While no match, there is no contribution limits. Also long term capital gains are currently taxed at 0% if filing married filing jointly and making about 100k including the standard deduction.
A lot of people don't have the financial literacy to even know all their options. Then they'd have to have the fortitude to make the sacrifices to contribute to it long-term. I've had a Roth account before I had access to a 401k. I started off contributing just $50 monthly. The account is large enough that now it makes more money than I can make conventional contributions. My TAP account is similar. Annually it grows many multiples compared to what I can contribute to it. Last year it grew over 100k, 2021 it's at 93k with several months left.
I'm hoping to teach my kids financial literacy early on and that's why I've opened UTMA accounts for them.
If you start at 25-30 and you invest say 6K a year in a 401K plus get another 2K in match - you'll have around 1.3 million dollars at 60
so why do so few people have million + in a 401K?
We did exactly that and reached our investment goals, but it was harder than you give it credit for.
Here are a few reasons why so many do not:
1. Wife had the 401K account and it was made clear to her at age 58 that the higher-ups wanted her out of her supposedly secure local government job. In order to have a thirty year retirement she was forced to take about $150,000 out of her 401K account and purchase a five year service credit. This substantially cut into the 401K. Fortunately, we also had a large account with Vanguard and by age 58, the $150,000 didn't dent us too badly. Plus, the service credit allowed her to obtain a pension in excess of $45,000 a year.
2. It makes no provision for the inevitable expenses of raising children.
3. Most people who purchase a home have no idea how much home maintenance will cost. Unless you have really good carpentry and plumbing skills you will shell out a lot of money over the years to get things fixed.
4. Housing costs are soaring in this country and the amount necessary to obtain even rudimentary lodging has probably increased by 25% to 50% in the last few years.
5. It makes no allowance for a health or medical crisis and even if you have health insurance you will learn rapidly in America that much of your medical care is not paid for if a truly serious event occurs.
6. One fact that is almost always missing from this notion that "anyone can save enough to be rich" is that this usually only works for a single person or working couple with a substantial income. Expenses eat up the income of those who have an income in the bottom 70% of people in this country. If husband works in a box factory and earns only $5 an hour more than minimum wage and if wife earns $10 an hour working as a hostess at IHOP saving $6,000 a year is not practical even if a 401K is available. I'm not saying no one situated in that manner has succeeded. I'm saying it is highly unlikely.
I think saving and investing is great advice and I have both my kids doing it now and beginning at early ages. However, plenty can go wrong even with great plans and sticking to those plans.
Last edited by markg91359; 08-16-2021 at 09:19 AM..
In order to have a thirty year retirement she was forced to take about $150,000 out of her 401K account and purchase a five year service credit. This substantially cut into the 401K. Fortunately, we also had a large account with Vanguard and by age 58, the $150,000 didn't dent us too badly. Plus, the service credit allowed her to obtain a pension in excess of $45,000 a year.
How much bigger was the $45K than what she would have received without the $150K buy-in? My first reaction was that's a great deal but I'm assuming she would have gotten maybe $35K or so without the buy-in?
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