Actually Americans have generally been saving more since the recession. Still has a ways to go but its headed in the right direction
The market share the big firms (Vanguard, Fidelity, Black Rock etc) have that offer low fee options is enormous and covers the majority of assets invested in 40x plans. Even if we look at the 1% ER that is estimated to be the average among 401k plans you are still comparing that to an annualized, dividend reinvested return of 7.27% for the DJIA over the last 10 years. That also allows plenty of wiggle room before we even get close to "eliminate most of those gains over those years"
We could discuss the makeup of funds (obviously my example above isn't the lower bond return) and investing habits that lead to actual returns but if a 401k isn't returning very much its not because of the structure of the 401(k) system and an article saying 401(k)s aren't returning very much is misleading.
You might want to double check what is actually being charged. I believe the listed ER for the 'parent' fund is required to be the total ER charged regardless of whatever ER fees are for any other funds it includes. I know in practice I have a fund that contains others funds and the 'parent' ER is the only ER that is charged and should, therefore, reflect whatever ER is required to go to its included funds (if any)
Well - this thread is about the massive monetary shortfalls that pensions are facing so that would seem to indicate the pensions and pension like systems are not without some pretty significant problems. Sure there haven't been any big defaults and non-covered failures yet but the pressure is only getting worse. To me it looks far more likely that 401k assets will be available than pension assets. You argue that the individual has to pay more attention for 401k plans but that is clearly the case for pensions as well. Just take a look at the fraud cases where people have gone to jail for complete and utter mismanagement of pensions. If someone is fucking up your pension its a helluva lot harder to get them to stop
The people in charge of the pensions were already lulled into that notion. There is a well established history of that.
Honestly I'm skeptical of anyone doing their job and start with 'trust but verify'. While there are obviously plenty of professionals who are excellent at their jobs I have seen far too many people who are bad at their jobs to just trust someone else implicitly to look out for my best interests.
All good points. I didn't mean to defend pension funds as somehow being incorruptible (like you, I believe that their inherent "closed" nature, managed by a board of trustees that are subjected to endless marketing wizards trying to convince them of terrific! funds within which to toss that giant pot, is potentially much worse than a 401k class investment, where you at least have individual choice to re-balance and transfer investments, and the information regarding fees and management is there, even if you have to dig for it)
I mention them only because they were, for a very long, the primary model of retirement that created "the american dream" that was, for several decades, the Norman Rockwell idea of the Great Middle Class. For 2 or 3 generations, you have employees with a very-well established plan that if you work for this company for 3 decades, which was very common, you can retire with x amount of money, and here is how it works.
Simple...and it worked. Underlying corruption and failed investments, geopolitical and internal economic forces that may have been problematic beneath that model, really didn't matter because it still worked for the vast majority of people, for a very long time. No one needed to understand even the simplest tools of finance underlying Pension funds (now mutual funds, Stock Index funds, etc), because it simply worked for so long. It is because of this that I think the idea is so embedded in the American psyche--it is very likely just as mythical and improbable as the "bootstraps" meme that never seems to die.
But these kind of issues happen with massive paradigm shifts that began in the mid to late 80s with the erosion of that Pension model (S&L scandal being part of that, right?) being replaced, i large part, by 401ks.
Finance was never a part of the common curriculum, and it still isn't. Not beyond learning a few simple formulas like compound interest, though that rarely being applied to real-world use. I mean, all I recall being taught is that this is the Shampoo formula! Hey, that's easy to remember...OK,
so what is the point? Why do I need to learn this crap; is it a real tool?
Individual savings and investment management is simply not something that we are raised to believe as being a fundamental skill, even though we have effectively "decided" that it is a fundamental skill in the real world. I was still being taught how to write in cursive when I was in 3rd grade...and parents today complain that this is being phased out...why? Do you think your kids need that tool as some fundamental real world use? lolno.
Outdated tools like that are always replaced, and math and stats need a core finance curriculum beginning ~6th grade at the latest, because when you look at the posts and links above, how the vast majority of Americans fail to save in alarming numbers, you can't really see that as anything but a fundamental failure at educating us for contemporary life skills. Our parents simply didn't need to learn this stuff, because it truly was taken care of for them. Now, at the same time, we have dozens of adds running every evening for ETrade and Merryl Lynch, Scotttrade and Prudential and all of these retirement and investment tools that convince us that the skills needed to invest are for the elite: these super smart fund managers that you should really trust to do this for you. Don't worry, we have low fees! and will carefully guide you through these scary glass houses with the easiest of care and your money i safe! Just give us that meager 1% for this super smart manager on top of our 1.5-2% fund fees because we said it's cheap--just trust us! That's a small number!
--and yes--like I said earlier, those fees can be tolerable if the returns actually justify it (but after inflation, and the fact that plenty of these jokers are actively investing in shitty hedgefunds, on top of illegal practices like
churning), it's a bit of jungle that one has to wade through to make proper decisions for themselves. Most employer-sponsored plans absolutely do offer wonderful, low-fee funds as you said--but these are never the default option on boarding. Which goes back to my learned behavior problem--A skill that is fundamentally required of primary education, yet all of the marketing wizards out there are currently working their asses off for these firms to convince us that these skills are just too darn hard to learn.
