401(k)s Will be Unthinkable in 50 Years

[alfred russel]

So better gather my wood and go build a house elsewhere.

I have been gathering my wood every day. 

[Habbaku]

 

[derspiess]

If you'd speak in more than monosyllables, some of us might believe that.

I believe in personal responsibility quite a bit. I also believe in a personal responsibility to have a system that isn't guaranteed to screw over 2/3rds of the country by throwing them to the wolves and screaming "personal responsibility!" as the reason to ignore their ills.

Do you think the current system is tenable? What changes would you make, if any? Or would you just like to BOOM more?

You used to be libertarian. When was it you crossed over to the left? Was it Trump that caused it?

[Admiral Yi]

If someone wanted to alter the 401k law to make it impossible to touch the money before retirement or borrow against the money, and make it mandatory to max out your contribution up to the match, I could go along with that.

[Zoupa]

If you'd speak in more than monosyllables, some of us might believe that.

I believe in personal responsibility quite a bit. I also believe in a personal responsibility to have a system that isn't guaranteed to screw over 2/3rds of the country by throwing them to the wolves and screaming "personal responsibility!" as the reason to ignore their ills.

Do you think the current system is tenable? What changes would you make, if any? Or would you just like to BOOM more?

You used to be libertarian. When was it you crossed over to the left? Was it Trump that caused it?

He grew up.

[DGuller]

I agree with the article.  As a social policy, 401k is a disaster.  If the government has any business involving itself in retirement planning, then the purpose of it is to provide social insurance against poverty in retirement.  Social insurance must cover all the citizens almost by definition, including the ones that are poor, lacking in financial education, or lacking in personal responsibility.  Creating a system that benefits the most those that need it the least, and sets up many traps for those who need it the most, is not good policy-making.  When you take into account the fact that 401k made it easier to get rid of real pension plans, then this bad policy becomes a tragically bad policy.

[Valmy]

If you'd speak in more than monosyllables, some of us might believe that.

I believe in personal responsibility quite a bit. I also believe in a personal responsibility to have a system that isn't guaranteed to screw over 2/3rds of the country by throwing them to the wolves and screaming "personal responsibility!" as the reason to ignore their ills.

Do you think the current system is tenable? What changes would you make, if any? Or would you just like to BOOM more?

You used to be libertarian. When was it you crossed over to the left? Was it Trump that caused it?

But 401k is a government program, well I guess regulation really,  that replaced private pensions, right? Maybe I don't understand how the left-right divide works in this case. I mean you seem to be saying that the government can do no wrong because there are no failed policies just irresponsible people.

[Habbaku]

If you'd speak in more than monosyllables, some of us might believe that.

I believe in personal responsibility quite a bit. I also believe in a personal responsibility to have a system that isn't guaranteed to screw over 2/3rds of the country by throwing them to the wolves and screaming "personal responsibility!" as the reason to ignore their ills.

Do you think the current system is tenable? What changes would you make, if any? Or would you just like to BOOM more?

You used to be libertarian. When was it you crossed over to the left? Was it Trump that caused it?

I like how you don't actually answer the questions. I'll answer yours. I'm still "libertarian" in ideology, but unlike many of the "personal responsibility" zealots, I recognize bad policy when I see it.

I'm actually open to ideas that would take advantage of market economics--401(k)s do that in a way, but the outcomes have been employers washing their hands and an entire generation not saving money for anything resembling a retirement.

This is partly due to Social Security being perceived as a retirement safety net, but the reality is that its average payout is not enough to care for the least who never really earned much through their work lives anyway, and so will see a reduction in their income to something that is unsustainable.

If recognizing bad economic policy is "leftist" then I guess I'll go turn my libertarian card in. Let me know what your alternative is, unless you really think the status quo is A-OK.

[Habbaku]

If you'd speak in more than monosyllables, some of us might believe that.

I believe in personal responsibility quite a bit. I also believe in a personal responsibility to have a system that isn't guaranteed to screw over 2/3rds of the country by throwing them to the wolves and screaming "personal responsibility!" as the reason to ignore their ills.

Do you think the current system is tenable? What changes would you make, if any? Or would you just like to BOOM more?

You used to be libertarian. When was it you crossed over to the left? Was it Trump that caused it?

But 401k is a government program, well I guess regulation really,  that replaced private pensions, right? Maybe I don't understand how the left-right divide works in this case. I mean you seem to be saying that the government can do no wrong because there are no failed policies just irresponsible people.

And that's the problem with the "personal responsibility" zealots. The 401(k) plans are an accident of the tax code that encourage companies to do away with traditional pensions because of the tax advantages that companies reap from establishing 401(k)s. There is nothing libertarian about a 401(k), at its root.

[Berkut]

Uggh, the "personal responsibility" response is such a weak cop out.

Look, if your policy for how to deal with some problem is to wish that all humans exercised greater personal responsibility, then you don't have a policy, you have an excuse for not doing anything.

[Eddie Teach]

I think it's more a euphemism than a cop-out. What they're really saying is let 'em rot.

[Admiral Yi]

I'm with you Speesh.  Keep fighting the good fight!

A 40k doesn't require rocket science.  All it requires is inactivity.

[Monoriu]

I don't understand why people blame 401k for the disappearance of defined benefit pensions.  HK doesn't have 401k, and guess what, all the defined benefit pensions have disappeared, including government ones. 

[Tamas]

They have recently started a private pension scheme in the UK where there's a minimum contribution that's going to increase gradually (1% now, going to 5% or something soon) that your employer must match.

It is probably a good idea and I wouldn't mind that you can't access it until you are just about retirement age but... when you do want to access it, they basically won't let you. I mean they will let you, but most of it will remain with the account-provider. IIRC if you opt for a pension, the overall payment you can expect from it it befor you croak will also be miniscule compared to the lump sum.  Which is appaling. At the end of it, if I was forced to put the same % into long-term savings, I'd be much better off at the end of it, I think, taking that money and buying me some pay-me-monthly-till-I-die scheme.

So yeah the system is all noble intentions and better than nothing but seems to be quite well made for pretty nice profits for those running it.

But then of course a normal state pension system is just a society-wide pyramid scheme. Works great while there are new people joining paying into it, falls apart when the trend turns.

And Tyr: save for your old age FFS. It will be miserable enough without starvation and squalor.

[alfred russel]

You guys are missing a big point here...

In an era of high inflation, saving for retirement becomes considerably more challenging. You need to aggressively invest, and taxes make that considerably more challenging (if inflation is 10% and your tax rate 33%, you have to get a 15% return just to tread water).

If stocks and bonds are the primary investment vehicle and if low cost diversified funds aren't available, the problem is exacerbated. "Buy and hold" becomes a much more difficult strategy which results in significant tax costs, diversifying is quite expensive, and investors would be pushed into higher risk stocks due to their more favorable tax treatment.

The point here is that - due to government policy relating to inflation and taxes - a broadly defined middle class (not the super wealthy but with the ability to save) was facing particular challenges in saving for retirement.