(Updated)Is it just me or do 401ks seem more and more like failed idea.

[brianmanahan]

5% of million is a lot.

true, but as a cumulative fee for investing your money in diversified funds consisting of 3000+ US companies, 5000+ international companies and 3000+ government and corporate bonds over the span of 50 years...

it's not too bad

 

[lupi]

401ks were invented because staying with the same job for 30 to 44 years isn't expected anymore and traditional pensions don't transfer from job to job.

while not incorrect, getting rid of pensions entirely a cost savings move for the companies at the cost of the employees. Will be interesting to see how the retirement age starts looking once those working in the post-pension world start to leave work.

 

[brianmanahan]

Will be interesting to see how the retirement age starts looking once those working in the post-pension world start to leave work.

i think it's going to result in a lot of people having to work into their 70's and even 80's

i invest 20$k per year in taxable accounts in case my parents need some extra cash to retire. hopefully i'll get enough so that i can give them 10$k in dividends every year.

 

[Exterous]

So ya, I say fuck 'em and give me my god damned pension.

The problem with pensions is that it is entirely too easy to game the system by planning on high ROI year after year. If you dig into plans a shocking amount base their funding on 7+% ROI per year with little to no cushion. The recent good years have bolstered many but I expect a prolonged downturn or even stagnation will result in a large uptick in the PBGC's take over of pensions to say nothing of devastating the Illinois state pension system

What should we do?

Well hopefully you've been in the market for a while so your -7% still leaves you up notably over the last couple of years. I would also be wary of reaching for yield

 

[Jeff7]

This year hasn't been too good. US stocks, international stocks, US bonds......nothing's doing well right now. Oh well, it happens.
Just don't sell your holdings when you know the market's down, and don't do it when you're really worried. It's a very good way to lose money.

not if you have access to low ER funds

my average ER is %0.10, so in 50 years wall street will only get about %5 of my money:

(1 - .1/100)^50 = 0.9512

Unfortunately, that "if" is often going to be the problem.

Where I work, the lowest fee, excluding the 0.00%-return money market fund, is right around 1%. The offerings are entirely expensive American Funds. Bleh.
That money market fund was started in 2009. Its total return since then has been around 0.03%. There's also no stable value fund available.

I asked for cheaper options awhile ago, but it was met with resistance all the way from the top of the company. Evidently, the seller of the 401k plan is a friend of the owner. Yeah...that kind of arrangement. Nothing is going to change in the plan unless I find another job.
(There's no brokerage option either.)
And if we got a new 401k company and it meant changing websites and logins, I'm sure I'd have at least half the company really pissed off at me for causing that kind of technical hassle.

I'm sure they don't want to change again. Several years ago, the plan was really bad, with some funds >2% ER. That was shortly before I started though. I'm told that what is available now is much better.

i think it's going to result in a lot of people having to work into their 70's and even 80's

Though you should expect that anyway, given the continuing increase in lifespan.
On the other hand, it would also be nice to see an increasing standard of living, including for people other than those already sitting on an absolutely massive pile of wealth.

i invest 20$k per year in taxable accounts in case my parents need some extra cash to retire. hopefully i'll get enough so that i can give them 10$k in dividends every year.

Maybe I should start something like that.

My parents are retired, and my dad's investments are 100% in stocks. Unless he gets damn lucky again the next time the market implodes, it won't be pretty.

 

[LegendKiller]

They were invented by Wall Street and if you are 20, about half your money will go into the hands of Wall Street.

So ya, I say fuck 'em and give me my god damned pension.

Uhh, this may be a silly question, but who manages a pension's money?

 

[OutHouse]

The entire purpose of a target retirement fund is to prevent exactly that... Making horrible decisions just because the entire market takes a dip. Looking at statements can often cause irrational behavior from some people.

I'm not talking about your savvy investor. I'm talking about OP and your average person.

i disagree, staying on top of your funds performance is vital to helping your 401k grow. if i see a fund perform poorly over 2 years im dropping it and find another offered by my 401k to sink my money into.

 

[MongGrel]

Uhh, this may be a silly question, but who manages a pension's money?

The same people that raped many of them in the not too distant past.

They are a rare thing these days, I still have a small one from one company that is just sitting there atm.

 

[LegendKiller]

The same people that raped many of them in the not too distant past.

They are a rare thing these days, I still have a small one from a small one from one place stuck away.

By and large there was no "raping" of pension plans. There was too much promised, too low returns vs what was promised, and too little paid in.

Somebody is going to have to manage the money and buy/sell investments. Returns don't fall from the sky.

 

[Exterous]

Curious how everyone's doing for the year... I'm -1% YTD. Not that aggressive with it.

Looks like I'm around 0%. I am fairly aggressive but was fortunate to have a large chunk out of the market during the large drop in August.

 

[s0me0nesmind1]

I def have not be touching my investments as I know im not savy enough to move things around and not get burned. I almost try to put in between 8% and 10% my salary since I was around 25 or so.

There is part of your problem. 401ks are a MASSIVe tax advantage that you should be trying to max out every year ($18k). 8-10% is a pathetic excuse.

I was finally able to max mine out this year, next step is both mine and my wife's (Along with Roth IRA maxing out).

Just put it in and quit worrying....



.....But don't take that as sex advice... :biggrin:

 

[s0me0nesmind1]

i disagree, staying on top of your funds performance is vital to helping your 401k grow. if i see a fund perform poorly over 2 years im dropping it and find another offered by my 401k to sink my money into.

Nope, just leads to craziness.

First and foremost, if you are properly diversified, there isn't a DAMN plan switch you could have done to prevent, fix, or increase anything.

Looking at reports of how a fund does over the years and basing that on how you should invest for the future is one of the stupidest things possible.

If you're honestly moving things around all the time, I would REALLY hate to see your return values.

 

[s0me0nesmind1]

Unfortunately, that "if" is often going to be the problem.

Where I work, the lowest fee, excluding the 0.00%-return money market fund, is right around 1%. The offerings are entirely expensive American Funds. Bleh.
That money market fund was started in 2009. Its total return since then has been around 0.03%. There's also no stable value fund available.

I asked for cheaper options awhile ago, but it was met with resistance all the way from the top of the company. Evidently, the seller of the 401k plan is a friend of the owner. Yeah...that kind of arrangement. Nothing is going to change in the plan unless I find another job.
(There's no brokerage option either.)
And if we got a new 401k company and it meant changing websites and logins, I'm sure I'd have at least half the company really pissed off at me for causing that kind of technical hassle.

So? The answer to that issue you are having is quite clear: Simply roll over your 401k balance every year into a separate IRA. The most you would get in fees would be attributed to that years contributions.

There is no real excuse.

 

[s0me0nesmind1]

true, but as a cumulative fee for investing your money in diversified funds consisting of 3000+ US companies, 5000+ international companies and 3000+ government and corporate bonds over the span of 50 years...

it's not too bad

Who the hell needs 50 years to invest anyways? You will be so close to the brink of death I don't even see the purpose.

If you can't retire after ~30 (ideally - 40 being the worst) years of work then you have simply failed and are probably never going to retire.

 

[Jeff7]

So? The answer to that issue you are having is quite clear: Simply roll over your 401k balance every year into a separate IRA. The most you would get in fees would be attributed to that years contributions.

There is no real excuse.

Except that in-service rollovers aren't allowed. I think that's generally the case unless you're 59.5 or older. Or I could do the rollover if I'd quit.

So yeah, other than that, no excuse.



I'm surprised that any 401k plans permit in-service rollovers to begin with. You'd think it'd be in their best interest to keep the money in their own funds to squeeze out more in fees.

Who the hell needs 50 years to invest anyways? You will be so close to the brink of death I don't even see the purpose.

If you can't retire after ~30 (ideally - 40 being the worst) years of work then you have simply failed and are probably never going to retire.

Are you fairly well-off?
If 30-40 years is your standard, a lot of people are going to "fail," and it's often through no fault of their own. Luck plays a larger role in life than people want to admit.

 

[boomhower]

Uhh, this may be a silly question, but who manages a pension's money?

Depends on the pension. Mine is managed by state and thankfully we have laws that prevent the politicians from raiding it. It is one of the top five in the country and very stable. It's supported by those paying into it and not tax payer funded. On top of that I do have a 401, of which my employer is required by state law to contribute 5% of my salary into, I also contribute as well. (based on my job, only profession in the state that gets the 401k bump.) My 401k options suck and am considering going to a Roth Vanguard target fund. I do my 401k contributions as Roth already.

 

[Udgnim]

assuming you retire at 60, you got 20 years to work with

provided the US / world does not go to absolute shit by then, the stock market will be higher and your 401K will have long recovered and grown beyond your -7% 2015 YTD

401K contributions get immediate growth in terms of not being income taxed + employer matching. the -7% 2015 YTD does not mean anything unless you have a near term reason to remove money out of your 401K.

if you don't believe in continuing to contribute to your 401K, your choices are find a job with a pension plan, start up your own business, or invest the money somewhere else like real estate

 

[LegendKiller]

Depends on the pension. Mine is managed by state and thankfully we have laws that prevent the politicians from raiding it. It is one of the top five in the country and very stable. It's supported by those paying into it and not tax payer funded. On top of that I do have a 401, of which my employer is required by state law to contribute 5% of my salary into, I also contribute as well. (based on my job, only profession in the state that gets the 401k bump.) My 401k options suck and am considering going to a Roth Vanguard target fund. I do my 401k contributions as Roth already.

And who manages it at the state? It isn't managed by lowly paid state employees thst buy investments from magical fairies that don't work on wall street.

 

[kranky]

Please don't be the person who dumps funds because of short-term losses, and move money to the top-performing funds. That only ensures you sell low and buy high, exactly the opposite of what you would want to do. (Assuming that you have appropriate fund choices to begin with.)

What are your 401k fund choices and how do you have your money allocated?


Let dollar-cost averaging work for you.

 

[Jeeebus]

Given that I played an integral part in wiping away the pensions of thousands of retirees who otherwise thought their pensions were secure, I'd say you're better off relying on your own retirement savings (such as a 401k or IRA) than expecting your company or government to take care of you.

All it takes is one bankruptcy filing and the pension is usually first on the chopping block.

 

[Genx87]

Get a real job with a Pension or the Railroad.
Vote out politicians who insist on replacing Pensions with 401K's.
Play the powerball, daily.

So many pensions are underfunded. That is far worse than a 401k.

 

[edro]

It is worrying how much of our retirement money is in Wall St.
There have been short term crashes that just wipe out a chunk of the market, due to computer glitches (automated buying/selling gone awry).
I could see as the percentage increases and more and more goes through Wall St, it could be more susceptible.

There really isn't another option though.
You either ride the wave with everyone else, or let your money rot in low return investments.

 

[boomerang]

Please, don't anyone count on in any way receiving a pension. That applies to both private entities and government pensions. Don't count on SS either. There will have to be massive changes made to that program if it is to survive.

It's all on your shoulders. Take advantage of every option you possibly can that is available to you. And don't be ashamed to admit that you don't know what to do with the money. You don't fix your own teeth, you pay the Dentist for that. You don't build your own car, etc. Seeking investment advice is not a bad thing. Remember that guy in HS who proclaimed that he was banging every girl in school and then you found out he wasn't getting any? That's your buddy who keeps telling you that he is flying high with his investments because he's so damned smart that he knows how to time the market. Ignore him and go with your gut. If you don't feel confident in your ability to invest wisely, find someone you trust and don't be afraid to ditch that person if they aren't working out for you and find another.

My BIL just learned that his pension is being cut by 60%. Now he and his wife both, after being retired for a number of years are looking for work. They're in their mid to late sixties. Not a good basis for finding employment. They counted on their pensions and SS to cover them. She worked in the offices of city government and knows the financial condition of the city. She knows her pension is next.

Don't let that happen to you.

You are the CEO of your destiny. You have to accept that you and only you are the only one that truly cares about your future.

 

[clamum]

My current 4901(k) contributions are all in a targeted date fund, "American Funds 2050 Target Date Retirement Fund® Class R-3." I just leave it alone. I'll glance at the quarterly statements when I get them in the mail, but I don't manage it at all. I don't know enough about investing to manage it myself and I don't really care to. However, looking at the returns, they don't seem very good:

-1.03% (YTD Daily)
-2.90% (1 Yr)
+9.26% (3 Yr)
+9.04% (5 Yr)
+4.58% (Life of fund)

Looks like their small- and mid-cap funds perform quite well though. I should probably see a financial adviser anyway, though.

 

[s0me0nesmind1]

Except that in-service rollovers aren't allowed. I think that's generally the case unless you're 59.5 or older. Or I could do the rollover if I'd quit.

So yeah, other than that, no excuse.

I stand corrected then. I have only ever rolled-over IRA funds and 401ks from previous employers.

Are you fairly well-off?
If 30-40 years is your standard, a lot of people are going to "fail," and it's often through no fault of their own. Luck plays a larger role in life than people want to admit.

I guess I'm well off? 27, married, maxing out my 401k, 2 ROTH IRA's, working on getting my wife to contribute more than 10%, and my employer also has a hybrid 401k match/pension.

I also have a 2006 car and could give two shits less. I will drive it till the wheels fall off. My wife on the other hand has a 2008 car and she feels she is the one that needs a new car. It's just more of the Keeping up with the Jones. We also live in a modest house for the area (and for our income). Hell, our home value is less than our yearly combined income.

It's not luck to start substantially contributing to investment retirement accounts at an early age instead of focusing on depreciating assets that have no real value the moment it leaves the store. People fail because it's a choice.