And when the government defaults, the value of stocks in you 401K is going to be what?
Look at interest rates. The investment community as a whole disagrees with you. If you really think the government is going to collapse you’d be well advised to forget about the 401k and invest in a shelter, a bunch of rations, and lots of guns.
Here is a cite: http://www.gallup.com/poll/141449/Six-Workers-Hold-No-Hope-Receiving-Social-Security.aspx
And while many people have had trouble finding jobs, participation in 401ks for people who have jobs is not high - for those who participate, they often don’t participate at levels that are going to ensure a comfortable retirement, or they often cash out when leaving jobs - taking the tax hit in exchange for cash. Part of it is human nature and not wanting to worry about the future plus the desire to have a vacation now rather than money in retirement. Part of this is the reality of the pattern of life. When you first start making money, your income is small, and you have a lot of expenses to catch up on (a work wardrobe, furniture, student loans), about the time you catch your breath, a new slew of expenses hit as you marry - and then you have kids and every raise you get is eaten up in kid expenses. All the time you are thinking “retirement is still decades away…next year.” By the time the kids leave home and your money is your own (ish), you don’t have enough time.
Great. Never in the history of the market has it failed to outperform social security on a long term basis.
Wrong.
As well you shouldn’t.
Sure, if you stopped taxing them 15% right off the top they might have enough money that they could.
I’d prefer not to. But I’m open to the argument that we could. Either way would be a vast improvement over the current system.
Most experts agree that about 15% of their income, over the course of their lifetime of working is enough. More if they want to retire earlier or not run down principal in retirement.
Any recipient who isn’t worried about Social Security running out of money is a fool. Most do, which is why it’s such a favorite campaign scare tactic.
If 401k and IRAs are such a failure, try to repeal them. Good luck with that. They’re probably the most popular programs in the history of the country.
It’s an accounting gimmick. We could have employers pay the whole thing, or have employees pay the whole thing. Either way the amount in your paycheck stays the same net amount. The gross amount changes based on whether you consider it a “before” or “after” tax, but there is no difference in what the person takes home.
Ah, yes. That’s exactly how it works. Social Security is a promise to pay. A 401k is an actual account of money that you own.
Maybe you should consult wikipedia and look up some of these terms?
Some overseas; all in companies with a positive balance sheet run by responsible professionals who do not overborrow.
It used to be true that it did over each ten year period. That was before the crash. No matter though - Social Security returns relatively little due to its safety.
And people don’t depend on the long term -they depend on having the money when they need it. People who retired during the crash and had to sell things bought high at low prices got screwed.
But you just said IRAs as they stand are fine. Then you say I’m right in saying they are not fine. Got a link to a legitimate economist who think 401Ks are doing great?
Sure they could. But would they? Sure they wouldn’t use that money to pay off credit card debt, or buy a new car, or put their kids through college, or for a trip?
Thaler’s work on the effect of defaults in 401K participation clearly shows that people do not save.
Not doing is basically taking money away from workers - if not now, then later. Sure it fattens up the old bottom line, but how is that a good idea when it will cause problems later. I trust you know employers are not going to give all this money to their workers as a raise. That would be nice as a short term stimulus.
And given the numbers I showed you, how many people actually do that?
I do, but my income level is high enough that I’ve got the spare cash for it. Someone making half of what I make is not going to be able to swing it, and, even if they theoretically could, are not likely to.
Campaign scare tactics are not the truth. I remember 30 years ago when people were making the same argument. Then an excellent bipartisan effort fixed the immediate problem, and I can expect my SS to start in 5 years with no worries at all. The modifications to the program needed to make it last longer are fairly clear, and the only problem will be if rabid ideologues prevent reform in order to kill it.
Not repeal, reform. Making participation at the maximum level the default will help. 401Ks as a supplement are great. But unless you think $65K is enough to retire on, even with SS, which you don’t, then you have to agree that they have not achieved their goal of retirement security.
Heck, even someone who makes $20K a year will only have $105K in raw contributions if they save up %15 after 35 years. Having more money than you start off with is not assured. For instance, if I had invested in all stocks, I would not have made money versus inflation over the past 14 years (and perhaps even lost money depending on how the dollar cost averaging works.) What little money I’ve made was in bonds.
14 years is a pretty substantial chunk of a career. And we never even entered a major depression from a business profits point of view. And there is no huge rebound of stocks in the cards. Even keeping up with historical averages is iffy, but making up all that lost time simply isn’t going to happen.
I meant 401k retirement accounts, not the 401K model produced by Sealy. My deep apologies for the confusion.
And you probably have a well balanced portfolio. Workers at Enron had their 401Ks in Enron stock and were not allowed to sell when it was tanking, and lost everything. For a better example, I have a friend who worked for IBM. He was close to retirement age and got laid off in their problem period. He had almost all his stock in IBM stock, and really got hammered. In the early days companies didn’t give the options they do now. When I was at AT&T I had half my 401K in ATa&T and half in a single “diversified portfolio.” When I left and rolled it over it turned out that the AT&T stock had out-performed the portfolio. I realized how lucky I was, and haven’t invested in my company stock since.
There are so many ways to screw this up.
I trust that none of his 401K is in bonds.
It is not all that much income when you get right down to it.
I never see much mention of the fact that SS payments max out at about $2500/month (this year). I doubt that many people hit that level.
The other thing about SS is that it markedly progressive. My wife (stay at home mom during her first marriage) has only contributed about 12% of what I have in over 40 years of employment, but her benefit will be about 44% of mine.
I am retired and one who has done better than 90% of my peers with IRA/401K’s. I would trade it all in an instant for a defined benefit pension like my father’s or brother-in-law’s. Both include full medical and will result in a higher standard of retirement living that I will get (with much more risk) from IRA/401K.
However, I doubt that my IRA broker or many on Wall Street would like to see IRA/401K’s disappear… lots of support for them there.
And their wet dream is rolling Social Security accounts to mandatory brokerage accounts. The worst of both worlds: forced risk and management fees without being able to just take it out at any time with penalties.
I thought the market crash in '08 and early '09 was enough to kill the idea of replacing social security with IRAs… but I guess the idea lives on.
Also the idea that people will save the extra money gained from not paying payroll taxes is just flat out ignoring human nature.
Regardless of who’s paying it, the money is being paid to the government, so it’s a tax paid by the private sector (you and your employer). The point is that it should be clear just how much money is being paid to the government.
My 401K contributions are invested in the ways I choose to invest them. If I wanted it all in cash, I could convert it all to cash today.
Not really the best example for your point, which was valid. I remember seeing Enron employees crying about losing millions. BS, because they didn’t contribute millions. They lost what at one point looked like millions, but only because Enron was cheating. They lost their contributions, plus maybe a reasonable rate of return on those contributions (but IIRC, contributions in company stock weren’t forced, so they could have made a reasonable return by other investments.)
I’m tired of that old dog; it just doesn’t hunt.
It is, so what’s the actual point?
The federal payroll tax is well known, and if you draw a paycheck, the amount taken out to pay for it is clearly listed. How much more clear can it possibly get? Yes, there’s some bit of confusion over the 2% rate “cut”, but the overall funding level to social security itself is the same as it ever was. None of this is confusing or even news to anybody who pays attention or has to do a payroll, including small businesses.
I just got a paycheck, and it tells me to the penny how much was deducted individually for both social security and medicare for this pay period and cumulatively for the year. My parents own a small business, and they likewise have no confusion about how much they owe in payroll taxes for their employees.
I understand Social Security funding is a contentious issue, but the rate itself and how much of it is taken from paychecks (and how clearly it’s labeled) is not. Those are matters of fact. It’s pithy but people are welcome to their own opinions, not their own facts.
You’re going to have to define your terms.
On September 3, 1029 the Dow Jones was at 381. It dropped to 41 in 1932. It didn’t hit 381 again until 1954. Thats a pretty long term period.
Oh, but that was the Great Depression, that could never happen again, right?
Operative word being “might” as in maybe
Which experts? The ones that want you to invest your money with them? It wasn’t that long ago that money managers assumed an 8-10% rate of return for equities. You can’t predict shit with enough certainty to bet your life on.
Remove the cap and it is solvent forever.
Maybe after Social security and Medicare,
If US government obligations default then all those other investments are not going to be worth much.
Yeah, but you should be investing for the long term, not a mere 900 years.
I never heard any employee crying about losing millions. However this CNN story gives the name of an employee who lost nearly half a million.
From the article, which is from 2001
The company I used to work for deliberately did not have it stock as a 401 K option - which saved its employees millions in potential losses. In fact no employee should have company stock in a 401K, as shown by my IBM example.
I’m sick and tired of conservatives who are against regulation because they claim no one will get hurt because everyone will make rational choices - and then blame the people who get screwed because they listened to people supposedly who know.
Sure Enron was cheating. Did the employees know that? Did the ones who bought stock at high prices lose only potential gains - or did they lose real money?
Social security is all about protecting the masses by taxing them when they are working so that there are more funds available to pay for current retirees who are not.
Whether or not you think that is a good idea is a matter of philosophic viewpoint.
What is incorrect is the idea that there is a separate SS “trust fund” in the same sense that someone with savings of any kind–401K or otherwise–has a fund of assets that belongs to them.
First, the SS trust fund consists entirely of money borrowed from future taxpayers. Currently, the SS trust fund is owed just under 3 trillion dollars, which is to be paid as future receipts come in. The “asset” securing this is “full faith and credit of the US government.” We are that government, so the asset securing the SS trust fund is our future tax dollars. Unfortunately, we’re running up large debts all over the place (about 16 trillion right now) and each group of government that gets elected seems to do so by reassuring the public that they are going to solve this crisis. They generally do so by planning to tax more or spend less, but every year with every party, we spend more than we take in. So the “credit” part of the full faith and credit is a bit suspect; we currently owe about 8X the total amount of money we take in. Consider that if your salary is $100K, this is a bit like owing $800K on your credit card. If you think we are going to be able to pay off that CC, you should be fine with banking on SS. Otherwise you should reduce your expectation by whatever amount you think will be able to get paid about the time you retire. As I mentioned above, a timeline beyond 20 years seems dicey to me as I crunch the numbers.
Second, your piece of the SS trust fund cannot be directed anywhere other than the US government. So if you don’t like the numbers above, you can’t say, “Hey; mind if I put my share in Exxon?” Whether or not that’s a good idea is also a matter of personal viewpoint, but it’s completely different from personal funds that I own.
But the idea that there is a “trust fund” out there separate from the rest of our obligations is naive. In other words, we aren’t collectively “saving” anything for SS in the sense that I save in a 401K (or other places) for my retirement.