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Nonsense, during the recession a lot of people lost almost everything in their 401k, for younger employers they have recovered nicely but if you were of retirement age when that happened you were pretty much screwed. And FYI I never said an employer has a responsibility to guarantee anyone's retirement, did I? Why are you so sensitive about it, are you an employer offering some craptastic zero match 401k to your employees?
The only way people "lost" almost everything in their 401(k) was if they sold everything off at the bottom of the market. If they hung in there, they gained it all back and then some within a couple of years. No one, even retired people, should have to sell 100% of their holdings at the bottom of the market unless they retired without a meaningful amount invested to begin with.
I was still working during the crash and I lost nothing. I saw my balances drop dramatically, but since I didn't sell off during that time, I made bucks on the ride back up.
The only way people "lost" almost everything in their 401(k) was if they sold everything off at the bottom of the market. If they hung in there, they gained it all back and then some within a couple of years. No one, even retired people, should have to sell 100% of their holdings at the bottom of the market unless they retired without a meaningful amount invested to begin with.
Amen to this. I retired in 2015. My invested assets are up 33% from the low on 4/1/2020 and that's after withdrawals. The people who "lost everything" most likely had to take $X,000 out every year to meet basic expenses and $X,000 became an unsustainably high % of their savings but they had to sell anyway. I've got enough discretionary items in my spending (home upgrades, travel, charity) that I could cut back on withdrawals if necessary without going hungry or defaulting on the mortgage.
Having said that- the elimination of pensions and the (sometimes) offering of 401(k)s instead has dumped all the investment and longevity risks on the individual employee. Pensions are also a form of forced savings- you get paid less now but you collect a pension later. I'm guessing from your name that you're quantitative and understand compound interest and can make good investment decisions. I'm a retired actuary so I'm in that group as well. Plenty of people aren't. Some people could save but don't, some do save but not enough or they're too conservative or they panic and sell at the bottom. That group really needs/needed private pension plans.
I think that's a lot of it. The "work until you're 70" crowd sometimes seems that they want to go back to like it was 150 years ago-work until you die plowing the field.
While I was a teacher I was fully ready to retire at 62, my body was breaking down, heart attacks, prostate and bladder issues. We had several teachers have strokes or heart attacks while in front of the class.
When I worked in the factory I couldn't figure out why all those guys who were 50 looked so damned old. After I worked there a couple years, on swing shift, I understood.
And yes, we had guys die at the plant. One I found when he didn't return from the field at the end of the day. He was checking natural gas lines, sat down on a log to eat his lunch and died there with his Thermos. Full disclosure, he was 67 and refused to retire. His never saw a penny of his pension (which he'd worked for since 1924ish when he started at the factory when he was 12 or 14. His wife didn't see a penny either due to the way it was structured).
A former coworker of mine had 47 years in and didn't want to retire, either. Died of a heart attack, and his wife got his company life insurance, which was 3X his salary, but no pension.
Another coworker's wife divorced him after a long marriage, and he refused to retire because he didn't want her to get a penny of his pension, and they were married long enough that she was entitled to it. So he kept working and dropped dead at 70. Sure showed her, huh?
But dying ON the job is just sad. A woman I used to work with died a year and a half ago at the age of 54. Had a heart attack at her desk.
There is absolutely nothing stopping any individual from contributing monthly a percentage of their salary to an investment account consisting of a couple basic index mutual funds, maybe an REIT or two, and doing that faithfully for 25+ years, with no withdrawals, ignoring the market fluctuations. All dividends would be reinvested, the basic investment is compounding continuously. They can do this in a 401K, or an IRA, or just a taxable account. This is the way a pension is funded. As long as their salary is increasing over the years, so is their contribution amount. Just like a pension works. When retirement age rolls around they can start withdrawing at a safe withdrawal rate and, PRESTO, you have a "pension". Or at retirement date, you could take the whole investment and roll it over into a lifetime annuity. The issue is that people don't do it.
A pension is really just a forced retirement account. People act like the money comes from the pension fairy and not from just from the proceeds of the invested contributions of the employees. The funds are either deducted from the employees' salary, or are "paid by the employer" or "matched by the employer", which really means the agencies pay below market salaries compared to private sector jobs, and make up the difference by paying the employees' contribution directly to the pension fund for them.
Anybody and everybody is free to seek and apply for public sector jobs, or one of the few private sector jobs still offering pensions. There are jobs in virtually every occupation at some public sector employer, from gardeners to risk analysts, from sales to IT, medical sector jobs to cafeteria or sanitation workers, first responders, military, public office, the list goes on and on.
Pensions are a perk of public employers' "nanny mentality". They assume you won't provide for your own future, so they force you to. Apparently they are right. Private employers try to give their employees autonomy with 401Ks, etc, and many employees fail to participate, or borrow against their accounts, cut contributions whenever they want to, etc. The government tries to help with things like IRAs and Roth IRAs, and self employed retirement accounts, etc. You can lead a horse to water, but you can't make them be responsible for their own future. Complaining about the death of pensions is dumb. No one is prevented from creating their own "pension".
Last edited by TheShadow; 05-12-2021 at 12:09 PM..
There was a great show on PBS about retirement. A consultant told a story about being hired at a major company. Before he met with top management, a lowly employee would come in with coffee and water. When they left, the consultant would ask the top management if they would allow that employee to manage their 401k. They would look at the consultant like they were nuts. No way that low level flunky would touch their 401k with a 10 foot pole. Then the consultant would point out that the company forced that person to direct their own retirement.
If you study 401k's, they have an upside. But you have to do it right. You have to be in it for a long long time, pick the right investments, make regular contributions and don't touch it ever. If you do that, in 30 years or so you will be fine. But if you make mistakes, look out. People don't join the 401k, don't fund it enough, pick the wrong funds, pull out money for emergencies. And they wind up with a limited balance and a poor retirement.
That is why pensions are better, in that they take market risk for people and direct the investing. By putting the burden on employees, it is cheaper but participants get wildly different results.
There was a great show on PBS about retirement. A consultant told a story about being hired at a major company. Before he met with top management, a lowly employee would come in with coffee and water. When they left, the consultant would ask the top management if they would allow that employee to manage their 401k. They would look at the consultant like they were nuts. No way that low level flunky would touch their 401k with a 10 foot pole. Then the consultant would point out that the company forced that person to direct their own retirement.
If you study 401k's, they have an upside. But you have to do it right. You have to be in it for a long long time, pick the right investments, make regular contributions and don't touch it ever. If you do that, in 30 years or so you will be fine. But if you make mistakes, look out. People don't join the 401k, don't fund it enough, pick the wrong funds, pull out money for emergencies. And they wind up with a limited balance and a poor retirement.
That is why pensions are better, in that they take market risk for people and direct the investing. By putting the burden on employees, it is cheaper but participants get wildly different results.
As far as investments go, 401Ks are about as no brainer as you can get. Unless you are picking 100% company stock, these plans tend to offer rather standard fare mutual funds plus you get the employer's match which really mitigates any risk you are taking.
Some companies hold employee information meetings to explain how the 401K plans work and what the various investment options are - including risks of each option and how to best balance your risk based on your years left until retirement.
If you leave the company and you are fully vested in your 401K you can roll it into a 401K plan at another job or into a retirement account.
The biggest mistakes that people make are 1) Not participating in their 401K plans at all or not contributing enough to at least get the optimal employer match 2) Cashing out their 401ks on purpose or because they failed to roll the balance over into an IRA or another 401K properly.
Not quite as big a mistake is taking a loan out on your 401K that you have to then pay back. First, a loan like that depletes your balance plus any interest that you might make, and while you are repayment mode, you won't be getting the employer match. And, worse, if you suddenly leave that job for any reason the loan becomes payable in full.
That is why pensions are better, in that they take market risk for people and direct the investing. By putting the burden on employees, it is cheaper but participants get wildly different results.
So people are too stupid to take personal responsibility to educate themselves to manage their 401ks?
Investing really isn't that difficult. There are so may low risk options.
The 401k is arguably the greatest retirement vehicle ever invented but it has its flaws. 1. About half of workers, particularly with small firms, don't have access to this automatic plan. 2. Not all eligible workers put substantial money in. And 3. Upon retirement, many retirees become sitting ducks for con artists. It is not unusual for a retiree with a long career of working for large companies to have half a million accumulated. Scammers know how to scare them and steal that money.
The only way people "lost" almost everything in their 401(k) was if they sold everything off at the bottom of the market. If they hung in there, they gained it all back and then some within a couple of years. No one, even retired people, should have to sell 100% of their holdings at the bottom of the market unless they retired without a meaningful amount invested to begin with.
I was still working during the crash and I lost nothing. I saw my balances drop dramatically, but since I didn't sell off during that time, I made bucks on the ride back up.
This is a great point, every time I hear someone talking about how someone can't retire because they lost everything during the great recession I'm very skeptical. Even if they did the worst possible move in yanking their life savings which was all in the stock market out at the bottom, they lost 50%ish. It makes no sense.
Granted exceptions where people had their life savings in a single company stock that went under, but that is far from the norm.
There is absolutely nothing stopping any individual from contributing monthly a percentage of their salary to an investment account consisting of a couple basic index mutual funds, maybe an REIT or two, and doing that faithfully for 25+ years, with no withdrawals, ignoring the market fluctuations. All dividends would be reinvested, the basic investment is compounding continuously. They can do this in a 401K, or an IRA, or just a taxable account. This is the way a pension is funded. As long as their salary is increasing over the years, so is their contribution amount. Just like a pension works. When retirement age rolls around they can start withdrawing at a safe withdrawal rate and, PRESTO, you have a "pension". Or at retirement date, you could take the whole investment and roll it over into a lifetime annuity. The issue is that people don't do it.
A pension is really just a forced retirement account. People act like the money comes from the pension fairy and not from just from the proceeds of the invested contributions of the employees. The funds are either deducted from the employees' salary, or are "paid by the employer" or "matched by the employer", which really means the agencies pay below market salaries compared to private sector jobs, and make up the difference by paying the employees' contribution directly to the pension fund for them.
Anybody and everybody is free to seek and apply for public sector jobs, or one of the few private sector jobs still offering pensions. There are jobs in virtually every occupation at some public sector employer, from gardeners to risk analysts, from sales to IT, medical sector jobs to cafeteria or sanitation workers, first responders, military, public office, the list goes on and on.
Pensions are a perk of public employers' "nanny mentality". They assume you won't provide for your own future, so they force you to. Apparently they are right. Private employers try to give their employees autonomy with 401Ks, etc, and many employees fail to participate, or borrow against their accounts, cut contributions whenever they want to, etc. The government tries to help with things like IRAs and Roth IRAs, and self employed retirement accounts, etc. You can lead a horse to water, but you can't make them be responsible for their own future. Complaining about the death of pensions is dumb. No one is prevented from creating their own "pension".
What you are overlooking here is that a set pension contribution percentage is likely going to far, far outperform what the individual could have gotten for themselves privately investigating that same percentage at the same salary.
I am earning a much better than average salary now, but I'm 35 now. I didn't consistently earn more than $20/hr until I was basically 28. When you start looking at "when I had a stable adult job," I was a bit over 30.
During the early years, I couldn't contribute much to my retirement because I simply didn't have the income above subsistence. Later on, I still felt unsafe in my employment and preferred to keep more liquid cash on hand. The liquidity likely saved from bankruptcy in 2016/2017.
The person making $50k/yr as an RN in a nonprofit, nongovernment medical facility, like where I am, isn't going to end up as well an RN making the same amount with a government pension, all things equal.
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