A generation ago, retirement investing didn’t worry Americans because most had a defined-benefit pension plan that pooled investments by professional outside managers to ensure a fixed payment based on salary and years of service. Now defined-contribution plans like 401(k)s, 403(b)s and 457 plans are the dominant form of employer-sponsored programs. They were never meant to be mainstream pensions.
Not only are they more expensive for participants, but neither employer nor worker contributions are mandatory in 401(k)s and are much smaller than under the old-style pensions. And unlike Social Security or private annuity payments, nothing is guaranteed in 401(k) land. You’re handed a lump sum at retirement and you’re on your own nearly every step of the way.
“The financial crisis has dramatically demonstrated how a collapse in equity prices can decimate retirement savings,” writes Alicia Munnell, director of the Center for Retirement Research at Boston College, in an upcoming book. “The crisis has also highlighted the fragility of existing retirement system, where 401(k) plans serve as the primary supplement to Social Security.”
They aren't any good. That's the bottom line, despite some idiotic comments following the article from people who have utterly no clue as to how much money people would have to save to be able to keep the same standard of living on top of Social Security.
At least one person commenting there had a clue:
(1) Never in all of human history have any but the top 5% been able to ‘retire’ as we understand it. The other 90-95% either
(a) worked until they died
(b) or if unable to work were
(i) supported SOLELY by their younger relatives (yeah, clueless txgadfly, do YOU personally want to pay all the bills for all your parents, grandparents and aunts and uncles?) or
(ii) died in a ditch or went to the county poorhouse (19th century)
Social Security and its offshoot Medicare are merely the second option with the burden spread across all the younger population. That keeps 1 person from having to support 3 or 5 or more elderly relatives while the person next door has no such responsiblities because all theri older relatives died.
My grandparents worked and paid in and their money went to my great-grandparents. My parents paid in and their money went to my grandparents and great-grandparents. I paid in through working and my money went to my parents and grandparents.
It is an INTERGENERATIONAL CONTRACT – so you clueless txgadfly won’t have to pay all your parents living expenses or heart surgery.
Then in the mid-70s the amount paid in was raised (the % of payroll tax) and I paid in more and it was set aside to help cover the bulge of those born between 1946-64/65 aka ‘the trust fund.’ Unfortuantely the conservatives beloved nitwit Reagan raided the trust fund and gave other politicians the bright idea of borrowing the money and giving Soc Sec Treasury bonds. Time to pay it back.
Soc Sec can never end unless an entire generation stops breeding or working.
(2) Here is why 401ks really can’t work.
(a) 50% of workers are offered NOTHING in the way of retirement benefits – neither a 401K or pension
(b) average worker makes $32,000. And they are supposed to save out of that – an amount that can’t pay the necessities?
(c) Assuming someone is making the average wage at age 66/67 of $32,000 or after taxes about $28,000. They would get the average Soc Security of $1200 or $14400 a year. They would need at least another $13000 + the heavy costs of Medicare of around $5500 a year per person.) That means they need another $18,500 a year. (After all on $32,000 a year it is doubtful they own a house would still have rent)
$18500 a year for 25 years adjusted for inflation over that time means they would need to have $658,000……
$658,000 would be equal to every penny in their take home pay of $28,000 for 23 1/2 years .
Like I said, you'd have to be a millionaire to be able to retire decently with a 401(k).
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