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An article in Commonweal Magazine is a bit unkind to 401k plans from the interesting perspective that asking people to save on their own takes away from other uses.
“But there’s increasing evidence that our current approach is not only economically inefficient but also a key contributor to the precarity and isolation unraveling the social fabric. “
“What was once a balanced system of collective and individual support has come to rely on a single, unreliable leg.”
The author also criticized the investment community and its influence on Congress. The basic argument is we need a better government run retirement system of some kind and it’s unfair to put the burden on individuals to save, invest and take the risk. I’m not sure how I feel about that.
A proposal by Sen Sanders would require employers to offer a pension plan. That is beyond unlikely.
I benefit from a good pension, but one based on decades of employment with the plan sponsor which is not and never was the norm. I also had a 401k beginning in 1982. Over many years I designed, negotiated and managed both plans.
I support increasing Social Security as a forced way to save, provided the program is always funded at necessary levels – meaning higher payroll taxes. I would not abandon 401k plans, but I would consolidate all current tax- advantaged programs into one design.
How do you feel about the 401k? Do you see a retirement crisis in America, especially among the lower 50% of earners.
The comments to this are very interesting, from CEO/CFO perspectives, all the way down to the “users” like me. My first employer instituted a 401(k) plan very soon after they began existence. But we had miserable investment choices, a small match, and as the company began to fail, the owner stopped making deposits into the plan (luckily this was resolved just before the company went out of business). At one point I was offered a job with a company that had a 8-year all-or-nothing vesting plan (didn’t take the job). I’m very fortunate. The three legs of my retirement stool include my 401(k) (now an IRA), Social Security, and my personal savings/investment accounts. The 401(k) plan is one of the reasons I am happily retired.
I do see a crisis ahead for younger earners. With more expensive homes, cars, and even groceries, some folks – even with decent earnings for their age – are living paycheck-to-paycheck. There’s nothing leftover for 401(k) contributions.
“we had miserable investment choices.” That was the challenge in 1978 when I began investing. With my initial 401(k), a Single K, the broker steered me into higher fee mutual funds, with loads. I got an education and by the time I began the company’s SEP I was able to steer us into appropriate investments.
I think we have to understand that everyone who responded and commented to this conversation is smart, educated, and affluent. I feel very much at home with all of you. What we’re missing in this conversation are comments and observations from poor people…single moms with 3 kids, parents with expensively handicapped children, adult children caring for parents and grandparents, Trappist monks, and ex cons to start with for perspective and insight.
As usual in the United States, the retirement system mostly benefits people who need the least help. The section 402(g) limit this year is a whopping $23,000. How can the median income taxpayer who makes $83,730 annually contribute 23% of their income to a retirement plan when they can’t afford rent and food? The billionaire political donors control the government. It is shameful.