Was the 401(k) a Mistake?
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- čas přidán 19. 05. 2024
- The first generation to be fully reliant on 401(k) plans is now starting to retire. As that happens, it is becoming clear just how broken the system is.
Michael Steinberger, a contributing writer for The New York Times Magazine, explains.
Guest: Michael Steinberger, a contributing writer for The New York Times Magazine who writes periodically about the economy and the markets.
Background reading:
• How an obscure, 45-year-old tax change transformed retirement (www.nytimes.com/2024/05/08/ma...) .
• What to do when your 401(k) leaves something to be desired (www.nytimes.com/2024/04/19/bu...) .
For more information on today’s episode, visit nytimes.com/thedaily (nytimes.com/thedaily?smid=pc-t...) . Transcripts of each episode will be made available by the next workday.
I’ve been contributing to my 401k for years, but now I'm wondering if it was a mistake. Given the current economic situation, is my 401k still a good investment for my retirement?
I think it depends on how your 401k is allocated. With global economic uncertainty, some investments might underperform. Diversifying within your 401k, focusing on stable, income-generating assets, might help.
You should definitely review your 401k with a professional. I adjusted my allocations with the help of an adviser and saw a significant improvement. My portfolio grew by 20% last year despite market fluctuations.
My 401k has also been underperforming recently. I'm considering shifting some funds to more stable investments. Any recommendations on advisers who can help with this?
You're not doing anything wrong; the problem is that you don't have the knowledge needed to succeed in a challenging market. Only highly qualified professionals who had to experience the 2008 financial crisis could hope to earn a high salary in these challenging conditions.
I tried a few in the past years, but I've been with Eric Paul Elmer for the last five years or so, and his returns have been pretty much amazing.
There is a HUGE hole in your coverage: You failed to mention that in the 70’s when several large companies were (1) prosecuted for raiding their pension plans leaving nothing of the employees’ guaranteed’ benefits, and (2) when companies were sold, bought out, or otherwise taken over, often, the pension plan (and funds) disappeared in the process. The malfeasance of the company’s executive was not, to my memory, held to account; but it did result in congressional action and laws covering pension plans were passed, again, as memory serves. All of which, of course, made ‘defined benefit’ plans even less palatable to company executives.
State and Fed govt too 🤪
Ask Mitt Romney about that
If I’m understanding the history correctly, saying this was a “mistake” is incorrect bc there was definitely intent…. This was the plan by companies who wanted a way to stop pensions and that part went really well. Workers got screwed, but helping workers wasn’t really why the 401k was developed anyways.
This is a much bigger topic, but glad it's being covered.
Some of what is not mentioned is that not all 401ks are or were created equal. Some 401ks in the past had bad investment options, investments with high fees in them, or dangerous options included in the plan, or lots of company stock.
Then you had things like vesting periods where people might have lost money because they didn't stay at the company long enough. There's lots of things that can go wrong.
So even if you did have access the plan might have been working against you.
Then, let's recognize what we're asking people to do. Investing takes a lot of skill. We're asking regular individuals to do something that is really a professional activity. Then we blame them when things go wrong. Some people might get this right, but what we see is they are the exception.
I think the 401k has a place in retirement, but we should have set this up so it was only making up maybe 1/3 of your expected retirement income. With the other 2/3 coming from social security and possibly a pension.
You did not touch on this until the very end, but much of the success or failure of a 401k plan is the individuals choices or “discipline” to consistently contribute to the plan. Thirty years ago in my early 20’s I started contributing to a 401k at my factory job. I was broke and needed every dime to make ends meet, but I still made the choice to make sacrifices and pay myself first in my 401k. No plan is perfect, but to blame the plan and not the individual misses the real problem in my opinion,
I don’t think it’s about trying to placate individuals but looking at if this is the most optimal thing for society.
Is about outcome, and objectively if boomers can’t do it, then no other generation is going to be able to even match the boomer’s outcome. If it’s bad for the boomers, it’s worse for everyone else.
So what you're saying is you were never broke in your life. Understood.
"Well, it worked for me 👀".
Sir, your survivors bias is showing. Investment is a full-time job. Are you expecting a mom of three kids to be an investment banker? That wasn't skill, you were lucky.
I started investing in a Roth when first started working because the first two jobs I had didn't offer any retirement plan. I got lucky that I stumbled onto Suzy orman, who always talked about a Roth IRA, so I knew this existed (and knowing something exists is a big part of the battle). I got even more lucky about having the ability to live with my mother, so I only paid the rent. This left me with a sizable amount to invest. You say you were broke but still reminded disciplined. Great for you, but it's clear your lived experiences left you with a big blindside, so now you think it's all individual actions. And I agree that individuals with means and disposable income need to build up saving habits. I literally spent over 6 years stirring my best friend to save because we have similar incomes and her husband works. My male best friend is the complete opposite. Investing for him would mean having to pay essentials on credit. If he was in this position because he was making bad financial decisions, ok, but that's not the case at all. The number of people in this country who are on the same boat is uncomfortably high and looking at them struggle and saying to myself, "well, they should have made better decisions", is not going to improve their situation or our society. We live in the same society, is this really what we want for ourselves?
Are we just going to ignore the IRA exists at all?
Many people do.
Especially the NYT
Good point...you should do both.
This is almost a brainless retirement vehicle. I’ve maxed out on my 401K since I was 22 years old. Needless to say despite growing up a working class kid, I have a small fortune saved. It just took sacrifice.
Agreed.
As a young employee, I was saying I couldn't afford to contribute to a 401(k). Thankfully, a colleague said, "You can't afford not to." I took that advice and I'm on track toward retirement in about a decade.
«It just took sacrifice.»
The problem is: how much sacrifice? Of what? What if to keep contributing to, and not withdrawing from, your 401(k) meant sacrificing your health? Your kid’s health? Your kid’s life? Being homeless? Not everyone is choosing between eating out and retirement savings; some are making much harder choices.
@@natbarmore long stints of unemployment...through no fault of your own....no choice being made there.....the 'choice' is made by others.....
some are lucky enough to avoid such financial catastrophes. some aren't so lucky.
@@natbarmore I started contributing to my 401k when I was making $8 an hour and it was the minimum that my company required before they would add matching funds. I think it was 3%. If you don’t take advantage of that, you are literally throwing money away that your company is offering you. As you earn more, you contribute more. There is no way out. You must do this.
My dad’s 401k cratered right as they retired. It came back slowly but never totally recovered. It had a big impact on what they could do in retirement. He was a blue collar guy
Umm … a government-sponsored retirement plan? Like … Social Security … ? 🤔
Social Security has never been meant to be a retirement plan.
@@Pafemanti What did you think it was to be?
@@pageredmon8167 a backstop, bare-minimum program to keep old folks from having nothing. It'd be nice if there was some kind of guaranteed retirement, but SS was always more of a poverty-mitigation scheme than a retirement plan, at least as I understand it.
@@PafemantiYou're correct, it was meant to cover roughly 1/3 of retirement, with another 1/3 coming from individual savings and mostly family (multi-generational houses), and the final 1/3 from a pension.
The social contract has changed drastically in the last century and it is reasonable to look at a more European approach.
My wife and I are fortunate to each have a pension plan through the State Teacher Retirement System of Texas. We also have over $200,000 in combined 403(b) accounts and around $165,000 in our Roth IRAs. So we love the 403(b).
However, for those who only have a 401(k) and no pension, it was a mistake. It’s a phenomenal supplemental retirement plan but a horrible primary vehicle.
That’s lunacy. It all comes down to saving. Choosing to take some of your money and put it away for retirement. If people don’t save for retirement, it’s their own fault. A 401k is a great vehicle for savings and retirement. In addition to having a large nest egg set aside for retirement, I’ve also been able to borrow from my 401k to put a down payment on my home, and later to buy a new heating system for that home. A 401k is a great financial tool if you know how to use it.
Flat wages, astronomical health care costs. And we continue to blame the workers and not the owners.
Fat bellies, sedentary lifestyles, bad diets. Don't blame the owners for that.
@@chrisoconyhas nothing to do flat wages
Note that the government offered "401 plan for all" is a sweet cost shift for the employers. It shifts the cost of the matching from the employers to the taxpayers. The employers who benefited from not offering retirement plans need to be the ones paying for the fix.
The change that's really needed is for everybody to be paid enough that they can afford to contribute enough to have a decent retirement. If that was done, people would get about twice as much social security too. Getting by would be a heck of a lot easier.
This is what happens when employees can decide to opt out, withdrawals are allowed during and in-between employment, and employer contributions are inadequate.
It's much harder to withdraw before retirement in similar retirement accounts in other countries.
I saved into my 401k for 6 years, then was able to take the whole thing out to put a down payment on a house. Were it not available as a financial tool, I would have had a much more difficult time getting a house before I was 40. Later, I was also able to take an $18,000 loan from my 401k to buy a new heating system for my house and pay myself back the interest instead of a bank. And my 401k balance has quadrupled in the last 8 years. Just because some people don’t know how to use the tool, doesn’t mean it’s a bad tool that should be thrown away.
@@WhyTheHorseface You need roughly ten times your final year's income around age 65-67 to have enough to supplement Social Security payments.
If you aren't on track to reach this, then you have not contributed enough and any withdrawals or loans made so far have only served to limit your final balance. But congratulations on the house, I guess.
@@o_o825 We will assume you’re correct. I’m on track with that. Sorry you’re not. But that’s no one’s fault but your own. I agree we need a better system in America, and better education on how to use the system we have, but the 401k is a great tool, contrary to the implications of this Daily Barbaro show.
My husband has paid into a 401K for his entire adult life. Multiple times the people running it have caused the amount to go to zero. There is no way to take that money out and invest elsewhere without paying huge fines. He would have more retirement funds if he stuffed cash in an old sock.
Your husband hasn’t managed his 401k investment well. He listened to people tell him he should follow a diversified plan, or a retirement date based plan, or any number of plans that are more volatile than the market overall. If he had simply invested in an unmanaged, low fee S&P500 index fund, he would have reaped the benefits of the over 3000% (yes, three thousand percent) growth the S&P500 has seen since its inception in 1984. I transferred all of my 401k funds from various plans and programs into an S&P500 index fund after seeing John Oliver’s episode of “Last Week Tonight” focused on 401k’s a couple years ago, and I’ve almost quadrupled my retirement savings. czcams.com/video/gvZSpET11ZY/video.html
Will your husbands 401k allow him to self manage?
you're hallucinating. none of this works like that. just be quiet.
I think he's lying to you.
I still have a pension and annuity. Thank god for unions. Bc of the employer contributions my wife and I can max out her employer 401k. We will be able to retire with dignity thank god
I was fortunate to only work in situations where I had a pension. I never worked anywhere with a 401K plan. So I ended my career with two pensions and no 401K. I also never contributed to an IRA. My wife, on the other hand, had a 403B plan.
I will point out that while I was working I contributed to my pension plan. Yes the company also contributed. The only difference between my pension plan and a 401K is that my pension provides a fixed monthly payment while a 401K doesn't provide any guaranty of what you will get in retirement. My pension pays 2% of my final salary for each year I worked with a ceiling of 60%. The company bore the risk of providing my pension while a 401K passes that risk to the worker. Another difference is that my pension contributions were mandatory while 401K (and 403B) plans generally do not have mandatory contributions.
The 401k program did not fail people. People failed to participate. It is maddening to get irate at the plan when the fault lies primarily with the individuals. Stop treating people like simpletons.
People are simpletons. That’s why there’s many automatic programs that you don’t notice that we use
Yes it did. It relied on individual companies to offer it. Those who worked for companies that did not offer it are out of luck.
i have co workers that retired happy with 401k, the problem is americans don’t set aside enough, so far i started with target date fund and had grown substantially the past 25 yrs.
Wait till many in USA and EU find the way underfunded pensions can’t deliver . NJ , CT , IL, CA and many cities
In high tax California, that 401k distribution is eaten up in taxes
It cracks me up when I hear people say, "I stay out of the stock market because it's a rigged casino." The reality is that it IS rigged ... to go UP! Yes, there are corrections and crashes. But if you stick with it, you will end up WAY ahead.
Agreed. It's amazing, however, how human psychology is so geared towards buying high and selling low.
Worked brilliantly for me, an admitted Mustachian. Maxed out from 2005 through 2018, retired at 54 in 2019, managed to withdraw 31K a year since (5 year SEPP) and now have almost $900K in there. Plus Roth IRA...
Also, the life events. I had to move 21 times to get better jobs. That lost opportunity cost is what should be taught.
If the result is a new government program for the ones left out, could you modify Social Security to allow contributions that are tax free or some other modification for those that do not have 401K access?
The people that will get the most benefit out of 401k are the ones that need it least- they would save just as much without it but just pay more taxes
This makes sense but It's also a bit of a contradictory statement. Yes, they benefit a lot but since they would've been doing it anyway, not so much. You could say it's the people that wouldn't have saved anything but then do because of the 401K that really benefit the most.
If the boomer generation…the most easiest lived generation to build wealth couldn’t save for the 401k, then what hope is it for generations that have it 10x harder to save wealth?
I love how you guys ended this conversation bc as an immigrant to the US, one of the most shocking and saddening things I see is old people working when they should clearly be retired due to a lack of financial stability.
The Overton Window for human welfare is so pushed to the right in the US by years of extremists that people saying "people shouldn't have to work until they die, their governments should be set up to support them" is considered crazy in the US.
Funny enough, this is exactly the reality for millions around the world in more supportive governments.
In the end I think it boils down to "do you want the opportunity to potentially make more and definitely worry more, or potentially make less and definitely worry less?" Vote based on that and stop falling victim to fake narrative and outright lies about "socialism"
The pension system by private companies was doomed to fail. Automatic participation, as launched in CA, is the simple solution to this problem. People just need to participate and the rising tide will lift all boats.
Realizing that some consider Ghilarducci the most dangerous woman since Mother Jones, if her proposal became law, the stock market could soar!
The only way to save money for retirement....is to SAVE money for RETIREMENT. There is no plan that will help people that do not save. Full stop.
Yes. Full stop.
yes
Yikes, having the federal government contribute to 401k is the genius solution!? We keep taking the responsibility further and further away from corporations and top executives.
Bring on the socialism. I'm done believing capitalism will work. I'm ready for democratizing the workplace and having employees decide what to do with revenue and profit. It's time for economic freedom and economic democracy.
Human right to food, clothing, shelter, internet, gas and electric, cell phone and retirement. Why did I spend most of my life going to work and taking orders from my stupid boss? Let's all make youtube videos and contemplate the universe.
ummm, to eat?
My husband and I built a house on his family's land in Africa for just under 50k.
Watch us have more financial security than people who saved 5x as much.
Enjoy Africa! This is a show about an American problem.
Africa is the solution to the retirement crisis.
@@shoshanakirya-ziraba8216 ok enjoy Africa! Thank you!
Absolutely agree.
Is the climate crisis a problem for your new house in Africa?
Here in States we are having issues.
No mention of the mess that is social security, the government's other attempt to address this issues.
Social security was created to reduce senior citizen poverty, not be a retirement solution.
Companies began seeing it as a way to shed responsibility for their worker’s retirement.
In the early 80s, there was a concerted effort on the part of companies (again) to raid the overfunded pensions (know as the “Pension Problem”…).
The Thrift program proposed will also be seen by companies as a way to offload their 401k matching responsibilities …
@@christopherkelley1999 Hmm, I can understand why you think that given the way it has evolved in the ensuing politics, but according to this and other sources "social security was implemented as insurance, not a welfare program." czcams.com/video/cdE_EV3wnXM/video.htmlsi=MNCWCIOAU5Nt0mhc
And as the tide starts to go out with global baby boomers retiring the market will start a long decline.
Time to go to bed thank you for the meditation
Q: "Who would give up pensions?" A: boomers lol
My understanding is that companies started to lay off older employees near retirement, in order to avoid the pension obligation, and many companies with onerous pension liabilities/ obligations - went bankrupt which left no pension. Companies stopped offering pensions to new employees. Ergo tax think tank devised the employee’s self funded, managed tax deferred retirement plan. The matching was offer to induce participation (by the least paid employees) because a company plan did NOT qualify if only the highly paid executives took advantage of the tax deferrals.
This discussion is shallow, obviously politically correct, what you expect from nyt woke pokes.
It doesn’t discuss the UGLY TRUTH
The DELIBERATE DUMBING DOWN of the middle & lower class
Typical warped nyt discussion
What about IRAs!!! Blah blah! BS
Retirement is not a right! Not a privilege! It’s a RESPONSIBILITY, which libs are destroying! Look at student loan forgiveness! REWARD IRRESPONSIBILITY!! Welfare! Reward laziness & scofflaws !
2 Corinthians 4:3-5 (NA27 w/o morphology): 3 εἰ δὲ καὶ ἔστιν κεκαλυμμένον τὸ εὐαγγέλιον ἡμῶν, ἐν τοῖς ἀπολλυμένοις ἐστὶν κεκαλυμμένον, 4 ἐν οἷς ὁ θεὸς τοῦ αἰῶνος τούτου ἐτύφλωσεν τὰ νοήματα τῶν ἀπίστων εἰς τὸ μὴ αὐγάσαι τὸν φωτισμὸν τοῦ εὐαγγελίου τῆς δόξης τοῦ Χριστοῦ, ὅς ἐστιν εἰκὼν τοῦ θεοῦ. 5 Οὐ γὰρ ἑαυτοὺς κηρύσσομεν ἀλλὰ Ἰησοῦν Χριστὸν κύριον, ἑαυτοὺς δὲ δούλους ὑμῶν διὰ Ἰησοῦν.
401Ks are a huge mistake that reflects the typical one-market-under-god mindset of the 1980s. Through corporate profit-maximization (which they rebrand as "cost-cutting measures", pensions and retirement security via "the company" have largely disappeared. It (401ks) worked... for a while, but the beneficiaries (BOOMERS, that fell for it hook, line, and sinker), had a significantly greater amount of job security based upon a very different kind of economy (translation: full time jobs across multiple skill levels that offered benefits, such as: a 401k). It is no coincidence that corporate profits have skyrocketed over this same time period, while retirement security has largely disappeared for many middle class Americans. For now, technocrats continue to reap the benefits of 401ks, but their position, too, is becoming more precarious, as many high-end jobs fall prey to new technologies (such as AI). One has to wonder: Will the highly educated classes react differently to this challenge to their financial security?
you're as brilliant as your argument is succinct.
these lgbtqawer podcasters have got the bottom feeders excited! bottom feeders thinkin they get mo free stuff!!!!
Bob, your uncle
... And then there was inflation... What would give the greatest amount of financial security to the greatest number of citizens is the creation of safe, attractive affordable (income-based) housing for families nested into every community in the country.
Tell me about how inflation affects your 401k?
It’s AI
America is broken
Yes, but not because of the 401k.
Nah, it's a great place to live.
Then the rest of the world is shattered as the USA sits atop it.