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REKENTHALER REPORT Jason Zweig's Proposal to Scrap 401(k)s
I agree with at least one change. There is no point having several different defined contribution systems. 401k, 503b, 457 and Trift Savings Plans. Laws should be simplified and unified.
I also think employers should be freed from the burden of providing retirement plans.
Employee's retirements savings should go to his/her account hosted somewhere else just like direct deposits to a bank account. It should be as simple as that. Employee should be able to chose his/her account holder irrespective of where he/she works.
It's an employee perk one of the few left. It's like health insurance. It's a company offered retirement plan that they control. Company's would rather do this than give employees extra money. It's what is done to keep good employees as long as it follows federal mandates. A lot of company's have gutted retirement plans which I don't feel is right. That's the way I look at it.
Everyone read "The Great 401k Hoax" right? Regardless, hapless employees should still invest at least that much amount in their 401k for which they are getting match from their employer. Because that's the best they can do, and the probability of Social Security not existing in few years is significant.
It is almost funny how my 401k tells me I'm XX % on track for retirement based on projections that include Social Security benefits.
It’s hard to protect people against themselves, human nature being what it is. Here’s what I’m getting at:
“Frequently, 401(k) plans are criticized for leaking assets, because employees withdraw monies before they retire. This, writes Zweig, is very much the case. According to figures from the Federal Reserve and IRS, over the seven-year period from 2004 through 2010, on average taxpayers under the age of 55 removed between $0.29 and $0.41 on each dollar they owned of retirement assets.”
I suppose laws could be passed to prevent people from withdrawing their invested retirement funds prior to a certain age. That’s problematic - as there are legitimate reasons they should be able to do so (ie: disability, need for expensive medical care, terminal illness, loss of home thru natural disaster, etc.). So it likely ends up in the courts. Even if they can’t take the money out, they still might use it as collateral for borrowing - in effect emptying the nest egg years ahead of time. Again - that’s for the courts.
Supposing they do leave the money intact until a set age, than you need additional legal / regulatory framework to insure they withdraw it according to Monte Carlo or some other pre-tested plan. This, of course, will vary according to the health of the individual and other factors. Heck, maybe the law should go even further and dictate which types of funds or other assets they may invest in after age 50 so that some some don’t squander their nest eggs on risky investments late in life. Considering late life issues like dementia, the issue is not a superfluous one.
Some kind of government sponsored plan might work - requiring all employers and employees to contribute to an investment pot during working years, investing the money according to sound actuarial practice, and eventually distributing the funds (along with built-in cola) during retirement. (Sounds kind of like something FDR might have proposed).
Can’t help commenting that during my post-college working years - beginning in 1969 - I’ve seen an erosion of workers’ rights and their ability to organize - accomplished through both court rulings and legislation. Unions and other employee organizations were big promoters of 401 K and similar plans. They have the resources to work securing the best plans for employees and informing / counseling membership about them. To the extent unions helped raise wage levels in past years, workers had more money to contribute. Reducing the expense of your workforce is a great way for business and government to improve the bottom line and increase profits and efficiency. So for some in society that has been beneficial. For others it has affected both standard of living and prospects for a decent retirement. Couple that with longer life-expectancy and you’ve got trouble in River City.
@hank I agree that people are doing themselves the biggest damage.
During the era of pensions people did not have to worry about learning about investing, the pensions were invested in professionally (well at least on the paper) and neither people could withdraw monies (easily) but it turned out too burdensome for companies. So, it is out except for one.
Social security is the only pension that is there for most people as some sort of safety net (and obviously largely inadequate for surviving) and there are some in congress that even want to get rid of that safety net instead of strengthening it. But, it will change. We are heading to a crisis in slow motion due to short term interests of the few.
What they forget that these people with inadequate resources will still be voting. They will vote for whoever that basically puts a mean in front of them and provide shelter. The burden will be on the shoulders of Gen X/Y/Z.
As a nation we have forgotten what it means "common good", we have turned into a collection of selfish individuals without care for each other and we will pay for that.
Comments
Employee's retirements savings should go to his/her account hosted somewhere else just like direct deposits to a bank account. It should be as simple as that. Employee should be able to chose his/her account holder irrespective of where he/she works.
It is almost funny how my 401k tells me I'm XX % on track for retirement based on projections that include Social Security benefits.
“Frequently, 401(k) plans are criticized for leaking assets, because employees withdraw monies before they retire. This, writes Zweig, is very much the case. According to figures from the Federal Reserve and IRS, over the seven-year period from 2004 through 2010, on average taxpayers under the age of 55 removed between $0.29 and $0.41 on each dollar they owned of retirement assets.”
(The above doesn’t even cite the 30+% who are eligible to participate in a plan but don’t.
https://www.financialsamurai.com/the-401k-participation-rate/)
I suppose laws could be passed to prevent people from withdrawing their invested retirement funds prior to a certain age. That’s problematic - as there are legitimate reasons they should be able to do so (ie: disability, need for expensive medical care, terminal illness, loss of home thru natural disaster, etc.). So it likely ends up in the courts. Even if they can’t take the money out, they still might use it as collateral for borrowing - in effect emptying the nest egg years ahead of time. Again - that’s for the courts.
Supposing they do leave the money intact until a set age, than you need additional legal / regulatory framework to insure they withdraw it according to Monte Carlo or some other pre-tested plan. This, of course, will vary according to the health of the individual and other factors. Heck, maybe the law should go even further and dictate which types of funds or other assets they may invest in after age 50 so that some some don’t squander their nest eggs on risky investments late in life. Considering late life issues like dementia, the issue is not a superfluous one.
Some kind of government sponsored plan might work - requiring all employers and employees to contribute to an investment pot during working years, investing the money according to sound actuarial practice, and eventually distributing the funds (along with built-in cola) during retirement. (Sounds kind of like something FDR might have proposed).
Can’t help commenting that during my post-college working years - beginning in 1969 - I’ve seen an erosion of workers’ rights and their ability to organize - accomplished through both court rulings and legislation. Unions and other employee organizations were big promoters of 401 K and similar plans. They have the resources to work securing the best plans for employees and informing / counseling membership about them. To the extent unions helped raise wage levels in past years, workers had more money to contribute. Reducing the expense of your workforce is a great way for business and government to improve the bottom line and increase profits and efficiency. So for some in society that has been beneficial. For others it has affected both standard of living and prospects for a decent retirement. Couple that with longer life-expectancy and you’ve got trouble in River City.
During the era of pensions people did not have to worry about learning about investing, the pensions were invested in professionally (well at least on the paper) and neither people could withdraw monies (easily) but it turned out too burdensome for companies. So, it is out except for one.
Social security is the only pension that is there for most people as some sort of safety net (and obviously largely inadequate for surviving) and there are some in congress that even want to get rid of that safety net instead of strengthening it. But, it will change. We are heading to a crisis in slow motion due to short term interests of the few.
What they forget that these people with inadequate resources will still be voting. They will vote for whoever that basically puts a mean in front of them and provide shelter. The burden will be on the shoulders of Gen X/Y/Z.
As a nation we have forgotten what it means "common good", we have turned into a collection of selfish individuals without care for each other and we will pay for that.