How much money is in your 401 (k) or similar DC plan?

[OttoVonBismarck]

Even pensions are invested in the market Seedy, there's not really anyway you can escape volatility if you want anything more than your principal contributions left at the end of your contribution period. Pension funds have that same problem just on a large scale, if they just invest in treasury bonds their benefit payouts would either have to be minuscule or the funds would go bankrupt (in some cases both have actually happened.)

With a 401k you can actually protect yourself from volatility though, if you're 35 years old it actually doesn't matter if your 401k is 90% in a S&P 500 index fund and the S&P 500 loses 40% of its value over night. Why? Because every time there's been a big loss like that it's rebounded at some point, sometimes years later, but it's always rebounded. The people that need to be concerned about that are the ones who don't have 20-30 years until they retire. With a 401k you can and should start moving your investments into assets which are not so volatile in the immediate years prior to retirement.

What exactly is your solution, to just infinitely raise taxes to fund retirements? The problem with that comes when your population begins to age and fewer people get born. It means you have successively smaller generations of young people paying for successively larger generations of old people. That's why Sweden went to defined contribution, variable benefit. Sweden recognized its demographic destiny was such they were making a decision between a mostly fair retirement system for the seniors and working people, or a system which basically made working people slaves to an entitlement class.

CdM's economic ideas are not Marx, they're like what Marx ideas would have been if he wrote his theories down when he was an angsty teenager. It's got all the wrong-headedness of Marx and none of the positives.

[DGuller]

3: Finally, as a matter of social policy people being "meatheads" is irrelevant; if the population as a whole are unprepared for retirement, that's an indictment of the policies and incentives put in place by policy makers, not of the population.

3. Are there *any* decisions individuals are responsible for in your universe?  If I quit my job and start smoking crack full time who's responsibility is it?

Jake has it right.  At the end of the day, you need social policy to work.  All good systems are good systems precisely because they're robust to idiot users.  If the system fails 5% of the people it's designed for because they're "meatheads", the problem is with the meatheads.  If the system fails for majority of the people it's designed for, then obviously the problem is with the system that demands more competence from people than practice shows they can deliver.

Blaming the "meatheads" can make you feel good, but at the end of the day, our goal should not be to feel good about ourselves.  Our goal should be to ensure that most of our society can have a secure retirement.

[DGuller]

With a 401k you can actually protect yourself from volatility though, if you're 35 years old it actually doesn't matter if your 401k is 90% in a S&P 500 index fund and the S&P 500 loses 40% of its value over night. Why? Because every time there's been a big loss like that it's rebounded at some point, sometimes years later, but it's always rebounded. The people that need to be concerned about that are the ones who don't have 20-30 years until they retire. With a 401k you can and should start moving your investments into assets which are not so volatile in the immediate years prior to retirement.

That's a very dangerous mode of thinking.  Just because the index always rebounded in the past doesn't mean that it will next time.  Conditions are always different, and so are the reasons for the crash.  The Nikkei 225 index is still only about a third of what it was in 1990.

[Capetan Mihali]

Hmm, just got the hire packet for my new job.  I am able to put up to $17,000 pre-tax (fed and state) and pre-Social into a Vermont "457" plan, which I have no idea about, never having been a state employee.  Given 17k will be well more than half of my starting salary and slightly less than half of my salary if I ever pass the bar, the max is not a pressing concern.

I can put up to $5000 towards medical out-of-pocket expenses pre-tax also; guessing I should do at least a grand for contact lenses and teeth cleaning until dental kicks in at 6 months of active service.

I also have to choose from 4 of their health plans, from "SafetyNet" ($88/month) up to "TotalChoice" ($146); I think the HMO plan ($122/month) is best, with no deductible and free PCP/in-plan care, but I may need to get advice and/or make a Languish poll.

[OttoVonBismarck]

That's a very dangerous mode of thinking.  Just because the index always rebounded in the past doesn't mean that it will next time.  Conditions are always different, and so are the reasons for the crash.  The Nikkei 225 index is still only about a third of what it was in 1990.

It's not actually that dangerous, no. Deflation in Japan didn't sneak up on anyone, if you see prolonged deflation just put everything in cash and you'll get richer every year. But I think in modern economies deflation is usually linked with bad economic trends (unlike in the past when it could be linked with positive things.) Deflation in Japan is mostly a product of the fact Japan is dying of old age. So if we have a generational period of deflation I'd posit we'll have more things to worry about than our 401k balances.

You either put your money in something volatile that can give you a return, or you park it in cash which may be eroded by inflation. Those are your only real options, and at age 35 you could adjust your strategy as necessary. I'm not talking about my Plan A which will always work no matter what and some other Plan. There's no risk free place to park your money. The closest you can get is something like an I-Bond, but there are hard limits on how many of those you can buy and it's not easy to get them into a retirement plan.

[DGuller]

I'm just saying that there are no financial investments which are guaranteed to not lose money in any relevant time period.  One reason is that if such investments did exist, then once publicized the overinvestment in that asset class would create a bubble.  Then the only guarantee left is that it would pop at some point.

[Admiral Yi]

Let me in turn ask you: are there any failed free-market policies where you accept that the policy was built on the wrong premise rather than blaming individuals for acting insufficiently like a perfect Randian Homo Economicus?

If you look back through the thread, you'll notice that I supported Biscuit's suggestion that 401k contributions be subject to a mandatory minimum.  There are bountious examples of people making meatheaded economic decisions.  You might also remember that I suggested limiting federally subsidized education loans to hard majors, curtailing a young person's ability to choose a meathead, non-financially sustainable major.

The point I was trying to make was not that the current system guarantees optimal outcomes, because it obviously doesn't, but that any concievable policy on retirement carries its own advantages and disadvantages.  You want to make it so that 401k money is subject to a mandatory minimum and absolutely cannot be touched, because otherswise meatheads will put all the money in the crack pipes?  Fine, but you just hamstrung your and Seedy's hypothetical hit-a-rough patch guy who needs the money for rent.  That guy is fucked.

Let's call a spade a spade, you and the other representatives of the progressive left want generous, comfortable-in-retirement DB plans to materialize out of thin air and solve everyone's problems.  That's not any more realistic than wishing that running the fryer at KFT paid 60K a year.  I sincerely doubt you'd be jumping up and down if every 401k or 401k equivalent were converted into a DB plan that paid out $250/month.  Do you want to require that all employees spend 20 years at a job before vesting?  Someone works 19 years and they walk away with bupkus?

So bottom line on our zone of disagreement: yes, if people are given the freedom to make their own choices invariably a signficant minority or possibily a majority will make meathead decisions.  Not because they lack financial sophistication, but because there are a lot of meatheads in the world.  No, if we mandate a generous DB retirement plan as a condition of employment our problems will not disappear.  Or we can tax the hell out of working people to provide luscious socialized retirement benefits but then workers will be paying out the wazoo.  There's just no free money out there that we can diivvy up and live happily ever after.

[Warspite]

Question: once the boomers are dead, does Western society move back towards a more favourable age distribution?

[DGuller]

Let's take it one thing at a time.

[Baron von Schtinkenbutt]

Wow, even here my retirement pile is in the top 50% already.

I would have been surprised if you weren't in the top 50%.  I know how engineers are.  This is why I was so surprised by my co-workers.

I expected the distribution on Languish to be slanted towards the higher numbers, which is why I was surprised.  Also, I feel like I'm behind because I lost 8 months last year where I did not have a 401k and my contribution rate has been lower than I would like due to present expenses.

[Baron von Schtinkenbutt]

Besides, vM married right.  She'll keep his ass on target.

She has no financial sense and defers to me on all those matters.

[Jacob]

If you look back through the thread, you'll notice that I supported Biscuit's suggestion that 401k contributions be subject to a mandatory minimum.  There are bountious examples of people making meatheaded economic decisions.  You might also remember that I suggested limiting federally subsidized education loans to hard majors, curtailing a young person's ability to choose a meathead, non-financially sustainable major.

The point I was trying to make was not that the current system guarantees optimal outcomes, because it obviously doesn't, but that any concievable policy on retirement carries its own advantages and disadvantages.  You want to make it so that 401k money is subject to a mandatory minimum and absolutely cannot be touched, because otherswise meatheads will put all the money in the crack pipes?  Fine, but you just hamstrung your and Seedy's hypothetical hit-a-rough patch guy who needs the money for rent.  That guy is fucked.

Let's call a spade a spade, you and the other representatives of the progressive left want generous, comfortable-in-retirement DB plans to materialize out of thin air and solve everyone's problems.  That's not any more realistic than wishing that running the fryer at KFT paid 60K a year.  I sincerely doubt you'd be jumping up and down if every 401k or 401k equivalent were converted into a DB plan that paid out $250/month.  Do you want to require that all employees spend 20 years at a job before vesting?  Someone works 19 years and they walk away with bupkus?

So bottom line on our zone of disagreement: yes, if people are given the freedom to make their own choices invariably a signficant minority or possibily a majority will make meathead decisions.  Not because they lack financial sophistication, but because there are a lot of meatheads in the world.  No, if we mandate a generous DB retirement plan as a condition of employment our problems will not disappear.  Or we can tax the hell out of working people to provide luscious socialized retirement benefits but then workers will be paying out the wazoo.  There's just no free money out there that we can diivvy up and live happily ever after.

In this particular case it's more accurate to call your spade a strawman, because while I can't speak for your rhetorical progressive left what you describe has nothing to do with my position, and definitely does not reflect what I've said in this thread. I agree with you that that providing generous, universal DB plans with non-existing money is practically impossible*.

My only point - and one which you seem to have mostly conceded - is that there's an entirely predictable hangover of epic proportions coming over the next decades as people face retirements with entirely inadequate resources at their disposal; and furthermore, that blaming that coming crisis on individual financial and moral failures - people being "meatheads" in your words - is obfuscation when it's the result of policy decisions.

I applaud you hitching your wagon to Otto's and start examining possible fixes to the problem. I don't know if any given proposal will fix the problem; perhaps the problem is to complex or it's too late and at best we can mitigate the worst results in the present and avoid them in the future. I don't know. Personally, in a Canadian context, I think the notion of expanding the CPP is worth exploring.

The point is, it's an issue of policy and it should be approached as such. It's the "it's their own fault so whatever" meathead bullshit that I think is bullshit.

*I mean, I don't rule out that masses of financially embarrassed seniors could organize politically and vote themselves wonderful benefits in the future; that could happen, and I expect that we'll both agree that that would just pass the buck and create massive problems elsewhere.

[OttoVonBismarck]

As for the complaints about how my ideas would hurt out of work people or people down on their luck by denying them access to their 401k, I respond, "so what?" Every national pension system and most corporate ones did not/do not allow you to just pull your money out because times are rough. If I lost everything and ended up in the street I couldn't go to the social security office and show how much I've paid into the system and demand they give it back to me because I really needed it. It's just not accessible.

What you're talking about is instead a discussion about how society should provide for (and to what level) the unemployed or underemployed, which is a totally separate discussion.

[Admiral Yi]

Jake:  I agree with you that a fix is needed.  Where we part ways is whether the fix is needed because people lack financial sophistication or because they are meatheads.  Sav's coworker "hasn't gotten around to it" not because of a lack of financial sophistication.

[OttoVonBismarck]

I'm not sure your vaguely defined "meathead" and my "lack of sophistication" are really delineated clearly enough for your point to be much more than the minor sort of semantic quibble that makes up the lion's share of discussion on this forum.