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Doing some research I found that when 401k plans were introduced they were to supplement retirement and not a complete package. Somewhere along the line the supplement turned into (by marketing hype?) a full fledged plan.

Was anyone around when all of this 401k stuff started? I really dislike having a plan where I cannot control where the money is invested and some company has to keep taking fees out along the way.

http://www.newsmax.com/Finance/StreetTalk/401k-saving-retire...
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Personally, I'm pretty happy with my 401(k). I know that they haven't worked for some people... Only 55% of people have access to 401(K)s, which is unfortunate. BUT: of the people who have access, only about 70% actually participate in them. So a lot of them are missing out on matching when available, compounding, etc.

Some 401Ks aren't good with high fees... but when they work, I think they work really well.., but you have to participate.

401(k)s originally started in the late 70's were targeted at the time at higher income workers, and then over time they gradually took off and pensions went away.

I've pretty much always had a 401(k) and have always participated since about 1989. It's definitely paid off for me, and I feel that I have plenty of choices, and low fees, with Vanguard. (And yes, I realize that all are not so lucky).
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I was around when 401k's came in abt 1977. Before employers had had employee savings plans, but I'm not sure abt how taxes were handled. Before that profit sharing plans were common at some large employers. Sears was the number one retailer in the US for something like 50 yrs. Employees routinely retired on their company stock, which kept going up year after year.

I don't recall discussions of 401k's as supplemental. They did not want us to depend on Social Security which back then was already worrying about Baby Boomers retiring one day. Major companies had pension plans but many employers did not. There was also concern abt low savings rates in the US vs other developed countries.

401k's were adopted to make the plan available to many more employers and their employees and to encourage savings with some tax incentives (that deferred taxes due but did not eliminate them making the plan not very expensive to the US treasury).
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I really dislike having a plan where I cannot control where the money is invested and some company has to keep taking fees out along the way.

Except for employers match, investing in a taxable account in the long term buy and hold style is a better deal mathematically. You pay taxes only when you sell and then at capital gains rates. But most fail to pull it off successfully. They are forced to sell from time to time as when investment trends change or stocks tank. Then the 401k with the ability to move funds around tax free and to roll over to an IRA and even convert to a Roth becomes more attractive.
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Exxon had a 401k when I joined them in 1981. Most people seemed to be in 100% company stock, but the 2 or 3 mutual funds Exxon offered actually had much lower fees than Vanguard.

The other places I worked after leaving Exxon had 401k plans with higher fees.

While 401ks worked out well for me and a lot of financially-savvy people who frequent TMF, overall it's been a bust for most workers.

http://www.forbes.com/sites/mitchelltuchman/2013/06/04/pensi...

Towers Watson, the global human resources consultant, found that pension-style plans beat 401(k)-style offerings by nearly 3 percentage points in 2011, the latest study year. Pensions made investment returns of 2.74% while defined contribution plans lost money, banking -0.22%.

</snip>


If you are taking a 3% per annum hit in reduced performance with a 401k, you'll need to save 2 or 3 times as much money for retirement to make up the difference.

intercst
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overall it's been a bust for most workers.

But this is mostly about when you do the comparison. There was a while there when the S&P 500 would give you 30%+ return year after year. If you were in the market at the time you did well. And many managed not to over indulge and lose it all in the big correction that followed.

Recent times have been tougher for investors. But stay in the market and pay attention. When good times return, be sure you are there to participate. Too many get their fingers burned and turn away. Or get back in too late.

Make hay when the sun shines!!
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pauleckler writes,

But this is mostly about when you do the comparison. There was a while there when the S&P 500 would give you 30%+ return year after year.

</snip>


It's been bad for the average person holding a 401k for the past 30 years. The problem isn't the period you select for comparison, it's the fact that most 401k investors are falling far short of the S&P 500 annual return. (High fees and bad behavior by poorly informed investors are cited as the proximate cause.)

Dalbar has the definitive study on this.

http://www.marketwatch.com/story/how-retirement-investors-hu...

In 30 calendar years (1984 through 2013), the Standard & Poor's 500 Index SPX, +0.33% compounded at 11.1%. In that same time, the average mutual fund investor (as defined above) achieved a return of only 3.7%. In other words, actual investors actually earned barely more than a third of what they could have earned.

</snip>


Of course, you can solve this problem by purchasing a low fee index fund and not touching it for 30 years, but few are savvy enough to do that.

intercst
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found that pension-style plans beat 401(k)-style offerings by nearly 3 percentage points in 2011, the latest study year. Pensions made investment returns of 2.74% while defined contribution plans lost money, banking -0.22%.

I actually have a pension plan, too (cash balance plan, which is a quasi pension plan--but I'll take it!). If I were to retire at 55 (my goal, after 15 years with the company), my monthly payments are projected at $350 a month, starting at age 55. If I wait to retire at 65 (25 years with the company), my projected payments right now are about $1000 a month. That's about $3K a month, when combined with anticipated social security.

But my question is: what do/did traditional pension plans typically pay? I assume some percentage of your prior income?

Also, from my reading, it seems that the "golden age of pensions" is nostalgic, but not necessarily realistic. Very, very few people had pension plans prior to the Depression, and my understanding is that during/after the Depression, pension plans were offered as an incentive to pay workers less with a promise to pay for the future. At the peak of pension plans being offered (60's to early 70's), according to what I've read, only about a third of Americans had them.

So... only about 1/3 of employees had pensions at their peak, and 55% of employees have access to 401(k)s now.

Me? I'd rather my retirement funds aren't so tightly wrapped up with my current employer (like health insurance was/still is to an extent). I like the portability of the 401(k) versus a pension. Sure, I'm happy that I have my pension, too, and vesting and protections have changed, but... still.

I think there's a good argument--because we see it--that traditional pensions while nice for the worker, are fraught with problems. We are having a huge issue in my town--Memphis--about pensions for cops and firefighters. The money's just not there. We saw this in Detroit, too. How do private sector pensions impact companies? Can private companies be as successful and agile with huge pension liabilities on the books? Plus all the other pitfalls/issues we're aware of.

I'm not advocating for 401(k) over pension or anything... All I know is that it's going to be MY retirement, and I'm the one who's going to have to pay the bills. I like having my money in my hands.
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Was anyone around when all of this 401k stuff started? I really dislike having a plan where I cannot control where the money is invested and some company has to keep taking fees out along the way.

My experience with 401k was extremely positive.

After graduating from college in 1978, I worked for a company from 1979 to 2006 and I think they started with the 401k a year or two after I started there.

I don't ever recall it being a problem. Initially, we had maybe a half-dozen mutual fund choices, including one that mimicked the S&P 500. I'm not sure if it was run by Fidelity from the start, but they were the plan managers for most of my career. I don't recall any large fees. As I recall, we paid the normal expense fees. I remember comparing them between funds. Our company stock was also available -- I think without any transaction costs. But I don't recall any loss of capital when I would do "rebalancing" between the funds.

But it was a different time, too. In the 80's, I opened up an IRA with Piper Jaffrey. I remember it sometimes costing me $200 or more simply to buy some shares of stock in a company. I had opened an account at a "discount" broker, which only charged $40 per transaction. So trading costs were higher back then.

In any case, after a while, Fidelity offered more than a dozen choices. And at one point, you could even convert it into a self-managed account, where you could buy and sell stocks and ETFs.

The 401k my company offered typically matched 50 cents on the dollar for the first 6% of our salary that we invested (so a 3% annual "bonus"). I always maximized my 401k contributions, which allowed a 15% contribution in most years.

For a few years, we got profit sharing, and could put 50% to 100% of it into the 401k account, allowing us to receive up to 50% of it in cash. One year, it was nearly 20% of what our salary was. A nice chunk of change. I left all of mine in the 401k.

Around 2001, they changed the defined benefit plan and offered us the option to go to a lump sum payment instead. Based on what I saw, I took the lump sum option. So when I quit in 2006, I moved both the lump sum payment and my 401k into my IRA account. IIRC, my 401k amount was nearly three times that of the lump sum payment.
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I started work for Motorola in 1968. They had a 'saving plan' but I left after 3 years and got some money back out of it.

Then worked for GE. GE had a pension plan and a stock plan where you bought company stock. This 1971. I left in 1983. Same thing. Left money in pension plan. Didn't cash in GE stock.

then went to work for MCI. MCI had a stock purchase plan. You could buy at 85% of market - price set twice a year. Bought my 15%. Had pension plan - had to work 25 years to get it.

About mid 80s, feds changed rules on pensions. Many companies then scrapped pension plans for those not yet 'qualified' (I missed by two years in the formula of age plus years of service) and dumped any money you had contributed into a 401K.

saved my 10% in the 401K plan. Matched 50% up to 6%, or 3% a year.

Left MCI/WCOM in 1998. Moved the 401K to an IRA with Vanguard. Never touched it till this year when have mandatory RMD.

done well.

- --

It was the fed, and pension 'funding regulations' that convinced most companies to drop pension plans (or for new hires) and adopt 401K plans. That would allow them to control their annual expenses, not have any 'top off's required by the feds to bring 'funding levels' for pension into compliance due to uncertain market returns, etc.

t.
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A lot of good info here in this thread, thanks for the replies!

When I tried to start my 401k back in the day I was too young. Had to be 21. I do and have participated over the years.

The employer match is wonderful if you have one. This helps significantly however I bet if they did not do the match you would simply make a little more money, not sure.

I still think it would be ideal if we could purchase with our 401k money what we want. Stocks, Bonds, Funds and so on. There are a lot of rules and I feel like they are setup so the controlling institution (Fidelity, T Rowe, Vanguard, etc.) never have to give up the money and can make a steady stream of income off of the stock pile of money.
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I still think it would be ideal if we could purchase with our 401k money what we want. Stocks, Bonds, Funds and so on.

There are 401(k) plans that offer a brokerage option. There can be an extra cost to the employee to participate in this option, like a monthly, quarterly or annual charge and brokerage commissions. Companies that offer this option can also restrict the money that can be directed to this option, like only x% of the total value, or only employee contributions, not matching. They usually also do not allow trading in any securities issued by the company. Due to the fact that it's a retirement plan, there are also restrictions on short sales, etc. that are usually restricted in retirement accounts.

That said, if your company does not offer this option, and you would like it, you should ask your HR about the possibility of adding it.

AJ
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But this is mostly about when you do the comparison. There was a while there when the S&P 500 would give you 30%+ return year after year. If you were in the market at the time you did well. And many managed not to over indulge and lose it all in the big correction that followed.

Recent times have been tougher for investors. But stay in the market and pay attention. When good times return, be sure you are there to participate. Too many get their fingers burned and turn away. Or get back in too late.


For you and me and most who post here, that's true. The 401(k) has provided us with a way to build up an investment nest egg that probably works better than any pension plan we might have had access to.

But it still doesn't make the 401(k) a good or reasonable replacement for defined benefit plans for the country. What you need to do to invest for retirement is not that complicated. Most people would be well served just putting some fixed percentage of their income in a Vanguard LifeStrategy fund and letting it ride. They would get low fees, automatic rebalancing and great diversification without making another decision. But understanding risk and reward, the value of rebalancing, the importance of low fees and diversification is required to understand why choosing the easy LifeStrategy solution and sticking to it makes sense for them. That requires that they spend some time learning about investments, economic history, financial alternatives, etc. And that is not so easy to learn in a financial environment where people selling investment access and investment choices are all clamoring to get people to buy and trade. How many blue collar workers are likely to read the Trinity Study or have a clue how the 4% rule came about or even how to apply it or what it means?

How is it efficient for our economy to require every worker in every field to learn about investments and retirement requirements? Why should every coal miner and office worker and plumber and technician and truck driver in America have to spend time learning how investments work? I don't see how that can be viewed as an efficient use of America's workforce.
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sad to say, but that is where we are at. i think a lot of it goes back to our education system. if the parents do not have an interest/ desire to educate their children then maybe it should be learn in schools. at less some of the basics ,ie - this is a check book - this a credit card [ when you over charge this the interest you will paid - info on the stock market - etc. not every student will care, but it's start. we all know how student loans will change peoples lives. what ever you do just don't tell how much we are in debit, they might not come back to school.
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canonian,

You wrote, I still think it would be ideal if we could purchase with our 401k money what we want. Stocks, Bonds, Funds and so on. There are a lot of rules and I feel like they are setup so the controlling institution (Fidelity, T Rowe, Vanguard, etc.) never have to give up the money and can make a steady stream of income off of the stock pile of money.

My current employer pays all the adminstration costs of our 401(k) plan and the plan includes a brokerage window. If I so chose, I could sweep all of my 401(k) into that window and invest as I please. The costs would be identical to using an IRA. The plan is with Fidelity.

While this might seem like a great deal, I personally only use that window to hold some bonds. I do buy and sell individual issues, but I still do that outside my 401(k) because I already have funds in a Roth and regular IRA as well as taxable accounts that more than suffice for for the portion of my holdings I'm willing to place in individual issues.

Also ... a lot of our "standard" funds in our plan are an even better deal than buying funds or ETFs directly from Fidelity's brokerage window. Our standard plan includes 22 funds. My single largest holding is in the S&P 500 index fund. That fund is the Vanguard S&P 500 Index Trust. That's the institutional version of VFINX - not the investor or even admiral shares. The expense ratio for that fund is 11.3 cents per year per $1,000 invested. By comparison, admiral shares of VFINX and the ETF VOO have an expense ratio of 50 cents/year per $1,000.

So I can attest that if your employer is reasonably large and takes its employees' benefits seriously, it is possible to have a 401(k) plan that is at least as good as what you can get in an IRA...

- Joel
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EBITDA107,

You wrote, sad to say, but that is where we are at. i think a lot of it goes back to our education system. if the parents do not have an interest/ desire to educate their children then maybe it should be learn in schools. at less some of the basics ,ie - this is a check book - this a credit card [ when you over charge this the interest you will paid - info on the stock market - etc. not every student will care, but it's start. we all know how student loans will change peoples lives. what ever you do just don't tell how much we are in debit, they might not come back to school.

I have my own speculations on all this. It's based solely on anecdata. I think it has to do with personal motivations plus the prevalence of bad 401(k) plans.

I've known a lot of people in one of two camps when it comes to their own 401(k):

1. Invest everything in the riskiest fund available, or
2. Invest everything in a money market fund.

Both at some point get disappointed with their returns and decide to cash out either when they change (or lose) jobs or later (after changing jobs) when they go back and look at a statement and see how badly it's done over some period.

The risky investor gets really excited when they happen to luck into a growth spurt. I've seen that happen not long ago. Young coworkers investing in a biotech fund...

I also know one person that is kind of split - she puts some of her money in a biotech fund and the rest goes into some really low-risk fund that gives her next to nothing in returns. She's single, younger than me and professes an unrealistic ambition to retire soon despite the obvious obstacle that she's not saving nearly enough given her hyper-aggressive, hyper-conservative allocations. (I think she was probably 20%/80%.)

I think people like this tend to drag down the average performance of 401(k) plans significantly. Ironically people that tend to make bland well-reasoned investment choices do better over the long run. But that's not what most people do.

In any case, I think there are other factors at play here besides poor choices by employees.

Quoting the article, The Employee Benefit Research Institute estimates the median amount in U.S. 401(k) accounts is a paltry $18,433 and almost 40 percent of workers have less than $10,000 in those instruments.

Did you also know the average US worker changes jobs every 4.6 years on average? If they only contribute to get a match (and not every plan gives a match) and cash out at the end of every job, it would easily explain the less than $10,000 number. It would mean the average employee + employer contribution was around $5K/year.

Also I've worked at a lot of smaller (sometimes startup) companies. These 401(k) plans tend to be atrocious. It's hard to blame the employer for that. The 401(k) plan offerings available to small companies is atrocious. But in those companies I've tried to accumulate as much as I can in my 401(k) knowing I'm just going to roll it out to an IRA when I leave. My investment choices in those plans have always been focused on fees; but not everyone sees that. Instead they just see that their 401(k) is performing much worse than the market and feel they've been cheated.

So they pull it out. Some cash out and take the tax hit. Others put the money into an IRA in the hopes of doing better on their own. Very few roll into another 401(k). The point being that this greatly affects the number being quoted here - because that's just based on 401(k) balances. On average people are contributing probably about 1/3rd of what they legally and contractually could contribute. This figure gets pulled way down by the large population of bad plans, plans with no match and workers that feel they can't afford the contributions for one reason or another. And finally most workers don't leave their 401(k) in place when they leave an employer - which is like once every 4.6 years...

So these low figures are not all that surprising once you think about it.

Want to make 401(k) participation more universal? I think the biggest problem that needs to be addressed are the crappy plans used by small to mid-sized companies. Small companies need to have access that doesn't cost a fortune. There are details there to iron out; but reducing the risks and amount of paperwork would be key to improved competition in small 401(k) plans.

Note: There is a 3rd group that is actively planning for retirement and making use of their 401(k) along with reasonable, rational investment choices; but we're not fun to talk about. And we're probably not even the largest group of employees ... by far.

- Joel
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As for failing to contribute -- you can't keep some folks from eating their seed corn.

As for failing to make gains due to trading in and out or buying stupid investments -- you can't stop some people from rolling dice or drinkng their check every payday.

Safety nets are good, foolproofing systems is good but some folks just want to watch the world burn and are apparently destined to serve as object lessons for those with the sense to learn the law of the jungle.


Harsh? Sadly, it really is a jungle out there.
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NozRydr,

You wrote, Safety nets are good, foolproofing systems is good but some folks just want to watch the world burn...

I don't think we should fool-proof personal investing. Such attempts invariably lead to reduced performance for those that would otherwise make smart decisions. I don't want mediocre. I will accept it; but I don't want it forced on me.

As for watching the world burn, yeah I know the type. Doomsayers, one and all. "Things are messed up for me! So screw you all!" More often than not, those people did it to themselves and often don't deserve what they get and are ungrateful for it to boot.

- Joel
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How is it efficient for our economy to require every worker in every field to learn about investments and retirement requirements? Why should every coal miner and office worker and plumber and technician and truck driver in America have to spend time learning how investments work? I don't see how that can be viewed as an efficient use of America's workforce.

No different from having to take a required Civics class in high school. IMHO, high schools should have a required home finance/budgeting class. Some will get it and other won't. And then let the chips fall where they may.

You can lead a horse to water...

JLC
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No different from having to take a required Civics class in high school.

It seems like there's a very big difference to me. Democratic representation in government only works if the voters are well-informed. Otherwise your government is susceptible to the election of demagogues and tyrants.

The regulated capitalist economy can function just fine without every person in it understanding banking regulations, investment options, currency fluctuations and the global economy.

high schools should have a required home finance/budgeting class.

This came up in another one of the comments. Home finance/budgeting is not the same as investing for retirement. Not even close. While I do believe that our education system should be teaching personal finance principles (which is needed from almost all citizens to create an efficient capitalist economy) that is different than teaching people how to invest for decades and end up with enough to live for a similar number of decades from that investment.

And then let the chips fall where they may.

Just remember that when the chips fall on all your neighbors, the value of your investments are going to be diminished too. High rates of poverty will impact the entire economy, not just the non-savers. And if you think your pot of money will be safe from government taxation and regulation when there are no other pots of money to tap into, you are being naive. Your wealth will be taken from you one way or another if that's what is needed to address political issues. Bet on it.

You can lead a horse to water...

Your neighbors are not horses.
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JLC,

You wrote, IMHO, high schools should have a required home finance/budgeting class.

I took such a course in middle school when I was a kid. That class was actually more about teaching kids how to do things like budgeting, balancing a checkbook and the fundamentals of starting and running a business. We didn't cover legal issues for a business other than the concept of a contract and we didn't get very involved in accounting principles. It was mostly just the principles and process for running both a household and a small business. For instance, we covered exploring new product ideas, creating a product, focus testing, production, sales, supply and demand. This was actually a required course in my school at the time. It was the late '70s and I was probably 12 or 13.

After I got married and my (now ex) wife went back to college to get her degree, I insisted she take a personal finance course at the junior college. I audited some of that course while she was in it. I was sorely disappointed with it's content. I thought my middle school teacher did a better job nearly 10 years before - though this class did cover some issues around consumer debt that really weren't covered in my class.

Neither class addressed retirement planning other than perhaps some passing lip service that I don't recall.

In fact I have to wonder how many colleges teach anything about retirement planning? There are probably some colleges that teach it as course material for someone working on an investment-related or a financial planner type curriculum - but I'm not sure that any undergraduate degree is actually specific to that career field. Perhaps accounting? For a masters, I suppose you might get a degree in Finance or an MBA? But there doesn't seem to be much in the way of undergraduate courses available as I suppose it isn't considered a career path...

- Joel
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I could see home and personal finance as a high school course or part of general education at the college level.

I'd include topics like budgeting, what are credit cards (hint - not a magic source of money for buying stuff, but a cash flow management tool), using credit in general, saving money for major purchases and retirement, very basic individual income taxes, things like that.

We manage to have classes where students carry around a "baby" for a semester, how about one where they live like an adult for a semester? Perhaps start out with a couple thousand dollars and a job with a paycheck, then start making choices. Find a place to live, pay for the necessities of life - however they define them, but with a few requirements (gotta eat enough calories per day, gotta pay for things they might easily skip - utilities, insurance). Make them go out and find out how much things really cost, but also make it a bit of a game. Give them choices, throw them some curve balls (lost your job - have to live on savings and unemployment for six game months) (oops, birth control failed - you're a parent!!) and have some fun while learning. Maybe try to run through 10 or 20 years and see how things turn out.

--Peter
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joelcorley writes.

In fact I have to wonder how many colleges teach anything about retirement planning?

</snip>


I took a 3-day course in investing and financial planning my Freshman year at WPI way back in 1975. It was taught by the Army Captain that ran the ROTC program at the school. The Captain brought in an insurance agent, mutual fund salesman, estate attorney, and stock broker and had them make a pitch selling their services. Then after they left, the Captain picked apart the sales pitch and described the "7 ways from Sunday" that they were trying to screw you.

Needless to say, it was by far the most valuable course I took in engineering school. I'm currently shopping for an airplane to soak up the excess cash flow I've accumulated by not letting a Financial Advisor rape me over the past 40 years.

intercst
(retired in 1994 at age 38)
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The Captain brought in an insurance agent, mutual fund salesman, estate attorney, and stock broker and had them make a pitch selling their services. Then after they left, the Captain picked apart the sales pitch and described the "7 ways from Sunday" that they were trying to screw you.

Don't know anything about him, but I know after reading this that that dude was awesome. Great stuff.

Draggon
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It's been bad for the average person holding a 401k for the past 30 years. The problem isn't the period you select for comparison, it's the fact that most 401k investors are falling far short of the S&P 500 annual return. (High fees and bad behavior by poorly informed investors are cited as the proximate cause.)

My "stash" (401k + IRAs) is worth 10x my current annual salary (so, MUCH more than 10x my salary when I started). I've been at it about 32 years. In retrospect, my biggest mistake was doing the "smart" diversification. When I started, our 401k had only an S&P500 index fund for "stock." Once they broadened that, and I also transferred my IRA to Fidelity, I diversified to include foreign stocks. That might be good in the 100 year view, but in the ~20 years since I've owned foreign stock funds, they've underperformed the S&P500.
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There are 401(k) plans that offer a brokerage option. There can be an extra cost to the employee to participate in this option, like a monthly, quarterly or annual charge and brokerage commissions.

I moved about half my 401k into a brokerage account within the 401k. The fee is, IIRC, 0.025% per year, assessed quarterly. The commissions are $7.95 for some things, 0 for others (buy mutual funds that are "in the family" of the administering company). For the $7.95 times two (once to buy and, eventually again to sell), I have some ETFs whose fees are like 0.15%. All told, I'm saving money on fees compared to the 1% and even 0.3% on the mutual funds within the "regular" 401k choices.

I'm happy with a couple of the "regular" 401k choices. Also, it's useful for the semi-monthly deposit. You could kill yourself paying a brokerage commission twice a month time four or so funds each time.
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How is it efficient for our economy to require every worker in every field to learn about investments and retirement requirements? Why should every coal miner and office worker and plumber and technician and truck driver in America have to spend time learning how investments work? I don't see how that can be viewed as an efficient use of America's workforce.

Alternative 1: Everyone takes care of himself; some do well and some don't. They also have to learn the ins and outs of investing...which really would take an hour to get the stocks/bonds/asset allocation part.

Alternative 2: Everyone takes care of himself; either learn how to do it, or pay an advisor to handle your money. It's just like you pay a mechanic or dentist or home contractor. But, then the chore is: How to find one who's good and who's not dishonest.

Alternative 3: Let the government do it. For a guide to how that would work, see social security. There was a surplus for decades, but instead of investing the money, it was used to pay for other government expenditures, and we STILL ran up a deficit.
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....There was a surplus for decades, but instead of investing the money, it was used to pay for other government expenditures



To be fair, the surplus was, and still is, 'invested'. They are invested in instruments similar to treasury bonds. For 2015, the annual effective interest rate earned by the trust fund was 3.37%.

https://www.ssa.gov/oact/progdata/fundFAQ.html#&a0=2


Jim
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The regulated capitalist economy can function just fine without every person in it understanding banking regulations, investment options, currency fluctuations and the global economy.

So, let's keep them ignorant, so that they can fall prey to the demagogues and tyrants in Government, who tell them that Social Security is such a great deal that it needs to be expanded, despite the real return to people of just 1%, after taking 12% of worker income for their entire career. And leaving out mundane topics like saving and investing leaves that much more education time for learning how to protest the lack of transgender bathrooms. I think we understand where you're coming from.

High rates of poverty will impact the entire economy, not just the non-savers. And if you think your pot of money will be safe from government taxation and regulation when there are no other pots of money to tap into, you are being naive. Your wealth will be taken from you one way or another if that's what is needed to address political issues. Bet on it.

In case you hadn't noticed, we've spent TENS OF TRILLIONS on poverty over the last 50 years, and we have a record number of people on food stamps AND a record number of people that are 'disabled'. The money is ALREADY being taken, and it hasn't solved the problem, only made it worse. I think it's you that are naive, or just not tapped into reality.
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Of course, you can solve this problem by purchasing a low fee index fund and not touching it for 30 years, but few are savvy enough to do that.

So, call me one of the savvy ones then because that's exactly what I've done.

I have a 403(b), not a 401(k) (non-profit of course) but from the moment I started working full time I invested in it, maxing out the matching (which is $2 for $1 up to 5%/10% of my income, as in I put in $1 and they put in $2... total no-brainer there!) and 100% invested in an S&P 500 index fund. Started it in 2000, haven't touched it since. Low fees (Fidelity FUSEX in case anyone cares).

The only thing that shocked me was how many people told me "I can't afford to do that." IT IS FREE MONEY! How could someone NOT afford to do that?!? Hell, with the $2 for $1 matching even if you picked a lousy plan (and there are lousy options, like TIAA-CREF annuities in a 403(b), rather redundant risk aversion there which hampers returns of course) it's pretty much impossible to not come out ahead and if you start from day 1 you never miss the money because you never had it to begin with!

But... a lot of people don't do it. I don't get it.

Then again I found TMF before I started working full time, hence how I became savvy enough to realize it was a no-brainer. My boss is still working well past when he could have retired (and, wanted to) because he waited until they made him join the plan (which they do eventually, age 35 or something like that, I dunno, it didn't apply to me!) and thus missed out on YEARS of compounded growth and matching fees. I don't even want to think about how much money he left on the table, it could be over a million bucks by now!

So, my only question is how do we encourage more people to become savvy enough to realize these opportunities. I don't think fear-mongering about the stock market (as Dems are wont to do in my experience) or government programs that only encourage financial dependence upon the federal government (like Social Security) are good things in this regard, quite the opposite. All they're encouraging is ignorance on this subject, not education and savvy. Yet I keep getting called "mean" for pointing this out.

It's the same reason you don't feed wild animals man. They become dependent upon the handouts and forget how to feed themselves and eventually starve. We're just bigger, somewhat smarter animals (though sometimes I'm not so sure about the smarter part). The same motivations apply really. I can't in good conscience support the handouts even if they're given fancy names like "Social Security." Not when I compare that to my retirement (which costs me less than I'm paying for SS even BEFORE you count the portion my employer has to match but is all but certain to be worth FAR more when I retire decades hence... I just turned 38).

I don't see the compassion in turning people into government-dependent sheeple, basically.
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Of course, you can solve this problem by purchasing a low fee index fund and not touching it for 30 years, but few are savvy enough to do that.

So, call me one of the savvy ones then because that's exactly what I've done.

I have a 403(b), not a 401(k) (non-profit of course) but from the moment I started working full time I invested in it, maxing out the matching (which is $2 for $1 up to 5%/10% of my income, as in I put in $1 and they put in $2... total no-brainer there!) and 100% invested in an S&P 500 index fund. Started it in 2000, haven't touched it since. Low fees (Fidelity FUSEX in case anyone cares).

The only thing that shocked me was how many people told me "I can't afford to do that." IT IS FREE MONEY! How could someone NOT afford to do that?!? Hell, with the $2 for $1 matching even if you picked a lousy plan (and there are lousy options, like TIAA-CREF annuities in a 403(b), rather redundant risk aversion there which hampers returns of course) it's pretty much impossible to not come out ahead and if you start from day 1 you never miss the money because you never had it to begin with!

But... a lot of people don't do it. I don't get it.

Then again I found TMF before I started working full time, hence how I became savvy enough to realize it was a no-brainer. My boss is still working well past when he could have retired (and, wanted to) because he waited until they made him join the plan (which they do eventually, age 35 or something like that, I dunno, it didn't apply to me!) and thus missed out on YEARS of compounded growth and matching fees. I don't even want to think about how much money he left on the table, it could be over a million bucks by now!

So, my only question is how do we encourage more people to become savvy enough to realize these opportunities. I don't think fear-mongering about the stock market (as Dems are wont to do in my experience) or government programs that only encourage financial dependence upon the federal government (like Social Security) are good things in this regard, quite the opposite. All they're encouraging is ignorance on this subject, not education and savvy. Yet I keep getting called "mean" for pointing this out.

It's the same reason you don't feed wild animals man. They become dependent upon the handouts and forget how to feed themselves and eventually starve. We're just bigger, somewhat smarter animals (though sometimes I'm not so sure about the smarter part). The same motivations apply really. I can't in good conscience support the handouts even if they're given fancy names like "Social Security." Not when I compare that to my retirement (which costs me less than I'm paying for SS even BEFORE you count the portion my employer has to match but is all but certain to be worth FAR more when I retire decades hence... I just turned 38).

I don't see the compassion in turning people into government-dependent sheeple, basically... especially when EVERYONE is fully capable of doing no worse (and, likely far better) on their own with just a little bit of education on the subject. Hell, thanks to TMF I taught myself! A large contingent on these boards think I'm an idiot yet even this moron can do it! Miracles do happen!
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No. of Recommendations: 2
How is it efficient for our economy to require every worker in every field to learn about investments and retirement requirements? Why should every coal miner and office worker and plumber and technician and truck driver in America have to spend time learning how investments work? I don't see how that can be viewed as an efficient use of America's workforce.

Easy, you teach them these basic (they aren't complicated!) lessons BEFORE they become coal miners or office workers. In other words... in school. You know, that place where we send young skulls full of mush to learn life skills and such. I know, crazy idea! I have a bunch of them, don't worry!

Admittedly it may take away from some "learn to worship trees" time but I think we'd survive that too.
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No. of Recommendations: 6
This came up in another one of the comments. Home finance/budgeting is not the same as investing for retirement. Not even close. While I do believe that our education system should be teaching personal finance principles (which is needed from almost all citizens to create an efficient capitalist economy) that is different than teaching people how to invest for decades and end up with enough to live for a similar number of decades from that investment.

Really? Because intercst summed it up in one sentence up thread:

Of course, you can solve this problem by purchasing a low fee index fund and not touching it for 30 years,

---

It really is THAT simple. You don't have to know jack squat about currency fluctuations or how the government regulates markets or stuff that bores people to tears. All they have to know is that compound growth works, free money is good (matching), low fees are good and leaving it alone for a LONG TIME is good. NOT HARD CONCEPTS!

"What about those who don't listen?" Hey, that's on them. Really. If you give someone all the tools they need to do something and they simply refuse to do it then you just walk away and don't waste your time on them anymore. They're not your responsibility. You are your responsibility. They are their responsibility. Tough love man. It works.
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"What about those who don't listen?" Hey, that's on them. Really. If you give someone all the tools they need to do something and they simply refuse to do it then you just walk away and don't waste your time on them anymore. They're not your responsibility. You are your responsibility. They are their responsibility. Tough love man. It works.

Well, now, how are you going to raise a good mob of people to believe that their lack of success is someone else's fault, with thinking like *that*?
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No. of Recommendations: 97
the demagogues and tyrants in Government, who tell them that Social Security is such a great deal that it needs to be expanded, despite the real return to people of just 1%, after taking 12% of worker income for their entire career.

This analysis, so popular with wingnuts, always ignores the disability insurance that Social Security provides each and every year of the recipients life - and that once that is figured in, the "discrepancy" completely disappears.

It's hard to know whether that omission is deliberately dishonest, or just sheer ignorance, but since it has been debunked dozens, if not hundreds of times on these very boards, I'm going to go with "dishonest."

It's also disheartening to know that there are simple facts about Social Security which are completely ignored: like the fact that prior to its existence half of elder Americans lived in poverty, and now that number is in single digits (*and those mostly from the few still not covered).

In case you hadn't noticed, we've spent TENS OF TRILLIONS on poverty over the last 50 years, and we have a record number of people on food stamps

It's true that there are many people using food stamps. Who are they? Nearly half are children. 10 percent are seniors, and the rest are mostly people working in minimum wage jobs, waiting for the trickle down to trickle. I understand that in the Randian universe they would be left to die in the street, although even someone as BSC as Donald Trump doesn't want to see that happen (it would make the entrances to his buildings so messy, after all.)

I think it's you that are naive, or just not tapped into reality.

Here's reality: every first world country on the planet has some form of Social Security, nearly always a government program which transfers from the working population to the elderly and with near universal participation. Nearly every third world country on the planet does not.

Here's reality: if the minimum wage (not the average wage, mind you, just the minimum) kept pace with worker productivity, it would be $22/hour. But it hasn't, because workers have little bargaining power and there is always a surplus of hungry mouths.

Here's reality: prior to the advent of Social Security, nearly half the country lived on farms. With grandma and grandpa in the attic and the kiddies helping out with the harvest. That is no longer true, and unless people want to go back to living with ma and pa, it isn't going to be again, so we have Social Security to provide those elders some small income stream when corporate America decides it no longer has use for them.

Here's reality: before Social Security half of seniors lived in poverty. If Social Security disappeared tomorrow, half of elders would again - but they don't here in "reality", so it is safe to conclude that the program has altered outcome, but not behavior. Those who became rich, or who saved enough still do. Those who did not or could not still don't. And therefore:

The "reality" that the program inspires seems to be dishonesty, ignorance, or mental illness on the part of those who refuse to see "reality". EOM.
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No. of Recommendations: 9
This analysis, so popular with wingnuts, always ignores the disability insurance that Social Security provides each and every year of the recipients life - and that once that is figured in, the "discrepancy" completely disappears.

You mean the disability program that currently being abused and defrauded by millions, and is on the road to insolvency? That one?
https://www.ssa.gov/policy/docs/chartbooks/disability_trends...

Anyone with a functioning brain and the least bit of memory of how Obamacare 'drove down costs' while 'letting us keep our doctors' (snork!) will understand that any projections from the Government are far rosier than reality. The fact that the Government itself is admitting insolvency tells us in the thinking universe that they've known this for a while, and are just getting around to telling us.

It's hard to know whether that omission is deliberately dishonest, or just sheer ignorance, but since it has been debunked dozens, if not hundreds of times on these very boards, I'm going to go with "dishonest."

Wow - 'these very boards'. You sound almost stately and regal. I guess Time Magazine didn't get the memo: http://business.time.com/2012/08/07/social-security-now-take... I don't think Time is that great in terms of honesty and accountability, frankly, but they're enough to blow you out of the water. Your bloviations are just that - hot air with no substance. A fact-free reality. But that's okay, just go along with what the voices in your head tell you. It's safer that way.

Here's reality: every first world country on the planet has some form of Social Security, nearly always a government program which transfers from the working population to the elderly and with near universal participation. Nearly every third world country on the planet does not.

Logical FAIL. Countries became First World and *then* do-gooders decided that they knew how to spend other people's money better. Turns out they can't, but that won't stop them. You don't really understand logic, do you?

The "reality" that the program inspires seems to be dishonesty, ignorance, or mental illness on the part of those who refuse to see "reality". EOM.

I couldn't agree more. People like you, for instance, will argue that any paltry return from SS is 'risk free', because you don't have to invest. Well, any such return is only 'risk free' if you don't understand the word 'risk'. There is the slight issue of 'insolvency', which is what happens when people are taking out at a faster rate than they are putting in. Oopsie! So, it's a *guarantee* that either we'll have to raise taxes, cut benefits, or a combination. But no risk, there, right? I suppose in your world, it isn't risky if it was designed to fail, like every other social program.
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No. of Recommendations: 20
Math:

"You mean the disability program that currently being abused and defrauded by millions, and is on the road to insolvency? That one?
https://www.ssa.gov/policy/docs/chartbooks/disability_trends...

I can't find where your cite it says that the disability program is "being abused and defrauded by millions and is on the road to insolvency."
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No. of Recommendations: 3
TheBreeze,

You wrote, I moved about half my 401k into a brokerage account within the 401k. The fee is, IIRC, 0.025% per year, assessed quarterly. The commissions are $7.95 for some things, 0 for others (buy mutual funds that are "in the family" of the administering company). For the $7.95 times two (once to buy and, eventually again to sell), I have some ETFs whose fees are like 0.15%. All told, I'm saving money on fees compared to the 1% and even 0.3% on the mutual funds within the "regular" 401k choices.

I'm happy with a couple of the "regular" 401k choices. Also, it's useful for the semi-monthly deposit. You could kill yourself paying a brokerage commission twice a month time four or so funds each time.


I'm sure my own employer is probably paying something similar on my behalf so we can use the brokerage window without an extra charge.

As for your second point about semi-monthly contributions, I had a similar concern when I had a brokerage option. My 401(k) is at Fidelity. They have a list of commission-free ETFs, which I've confirmed are still commissions free in our brokerage window. Does your 401(k)'s broker have anything similar? Given the commission your broker charges ($7.95), I have to wonder if you're not also at Fidelity...

- Joel
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No. of Recommendations: 25
There is the slight issue of 'insolvency', which is what happens when people are taking out at a faster rate than they are putting in. Oopsie! So, it's a *guarantee* that either we'll have to raise taxes, cut benefits, or a combination. But no risk, there, right? I suppose in your world, it isn't risky if it was designed to fail, like every other social program.

I don't see any problem with that. There are no systems or programs that will last in perpetuity with no adjustments or corrections. iTunes needs to be updated about 10 minutes. That doesn't mean it was designed to fail. It means there are now security issues that need to be addressed or new features the programmers want to include.

I rebalance my own retirement portfolio once a year, not because it was designed to fail, but because things change and the portfolio balance needs to be changed as well.

I'm really happy I live in a country where our seniors have health care and at least a basic income to survive on. I'd hate to live in the kind of place where those things don't exist. Helping each other is hallmark of successful human groups. I'm glad the group I live with has that successful trait.

SS has worked just fine for decades. At some point there will need to be some adjustments made, just like your car needs some adjustments after so many miles. I don't see any problem performing some maintenance from time to time.

Coming back to this comment:

Logical FAIL. Countries became First World and *then* do-gooders decided that they knew how to spend other people's money better. Turns out they can't, but that won't stop them. You don't really understand logic, do you?

But it is still something that all first world countries did. 100% of them. People who want to strive for those values is what makes a first world country in the first place. It is a hallmark of success, not a character flaw.
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No. of Recommendations: 4
Here's reality: if the minimum wage (not the average wage, mind you, just the minimum) kept pace with worker productivity, it would be $22/hour. But it hasn't, because workers have little bargaining power and there is always a surplus of hungry mouths.

Here's some more reality: http://www.cato.org/publications/commentary/socialism-has-cr...

Margaret Thatcher’s dictum that the problem with socialists is that “they always run out of other people’s money” faced a unique challenge in Venezuela: during the course of a decade and a half, the government received nearly $1 trillion in oil revenues— the equivalent in today’s money of more than seven Marshall Plans. This was enough to mask the effect of hundreds of expropriations, stifling economic controls, and otherwise running the private economy into the ground.

Part of the windfall was spent on social programmes, which temporarily improved some social indicators and made the regime popular among poor Venezuelans. But a couple of years ago, the then minister of education admitted that the aim of the regime’s policies was “not to take the people out of poverty so they become middle class and then turn into escuálidos” (a derogatory term to denote opposition members). In other words, the government wanted grateful, dependent voters, not prosperous Venezuelans.


$1 trillion, wasted/stolen by the Government, and now *everyone* is starving and dying from lack of medicine. But by all means, let's crank up more social programs that will fail later - it'll be someone else's problem by then.
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No. of Recommendations: 21
Using a strong man government which uses the name of socialist to pretend to be something other than what it is as evidence of the evils of socialism is just plain silly.
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....There was a surplus for decades, but instead of investing the money, it was used to pay for other government expenditures


To be fair, the surplus was, and still is, 'invested'. They are invested in instruments similar to treasury bonds. For 2015, the annual effective interest rate earned by the trust fund was 3.37%.

https://www.ssa.gov/oact/progdata/fundFAQ.html#&a0=2



From the link's Q&A Section:

Were the assets of the Social Security Trust Funds depleted in the past?

The assets of the larger trust fund (OASI), from which retirement benefits are paid, were nearly depleted in 1982. No beneficiary was shortchanged because the Congress enacted temporary emergency legislation that permitted borrowing from other Federal trust funds and then later enacted legislation to strengthen OASI Trust Fund financing.


So, the people who were due benefits still got them, but they were paid with borrowed money.
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Given the commission your broker charges ($7.95), I have to wonder if you're not also at Fidelity...

The Brokerage Window is Fidelity, and Fidelity also manages the 401k. Some of the 401k funds are not mutual funds, but comingled funds that are specific to my company's 401k (although it is administered by Fidelity). Regular mutual funds have certain requirements plus a lot of people looking at them for any sign of funny business. The comingled funds don't have that, so I'm a little leery of them.
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Margaret Thatcher’s dictum that the problem with socialists is that “they always run out of other people’s money” faced a unique challenge in Venezuela

I guess you and Margaret Thatcher should be glad you don't live in Venezuela.
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The assets of the larger trust fund (OASI), from which retirement benefits are paid, were nearly depleted in 1982. No beneficiary was shortchanged because the Congress enacted temporary emergency legislation that permitted borrowing from other Federal trust funds and then later enacted legislation to strengthen OASI Trust Fund financing.


So, the people who were due benefits still got them, but they were paid with borrowed money.



I'm sorry, but you lost me. You lamented that SS should invest their surplus and I showed that they are investing their surplus.


Jim
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I'm sorry, but you lost me. You lamented that SS should invest their surplus and I showed that they are investing their surplus.

"Paying back" with borrowed money isn't getting out of debt.
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Here's reality: if the minimum wage (not the average wage, mind you, just the minimum) kept pace with worker productivity, it would be $22/hour. But it hasn't, because workers have little bargaining power and there is always a surplus of hungry mouths.

It hasn't kept pace because it isn't the worker that is increasing their own productivity. It's the capital improvements paid for by the owner of the business. So it's the owner that should reap the result of the productivity increase. It's the process that has become more productive, not the worker. Without the new technology, the worker's productivity doesn't improve much.

The other reason is that if all the competitors have the same productivity improvements, it hasn't increased their competitive advantage. Supply and demand of the entire market will determine where the new equilibrium will be. Fewer workers are needed, so their value decreases. Simple supply & demand.




The cashier at the grocery store can check out a whole lot more people because every product has a bar code on it that can be scanned. That's a lot quicker than what we used to do when I worked in a grocery store in the early 70's. Each product had to have a price tag on it, and the cashier had to find that price tag, then accurately punch the correct price into the cash register. And if a price change occurred, a stocker had to go out and physically mark up the price on each product on the shelf. Now, they just change the price on the computer, so the scanned product comes up at the new price.

And now, because the cashier can easily scan the bar code, they can also place the product into bags. So my job, bagger-carryout, got obsoleted.

They even have self-checkout lanes, where a single cashier can oversee a dozen checkout lanes. If we paid based on productivity gains, she'd be paid 12 times as much as a single cashier.
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Here's reality: prior to the advent of Social Security, nearly half the country lived on farms. With grandma and grandpa in the attic and the kiddies helping out with the harvest. That is no longer true, and unless people want to go back to living with ma and pa, it isn't going to be again, so we have Social Security to provide those elders some small income stream when corporate America decides it no longer has use for them.

That's not the way my farm family worked.

When my grandparents retired from the farm, they passed it on to the eldest son and they bought a house in town. Although my uncle worked the farm, the farm income was shared with my grandparents and father and two other siblings.

When my uncle retired from the farm, he passed it on to his son and he and my aunt bought a house in town. Again, everyone shared in the farm profits.

My cousin is now in the process of retiring, but we've been off the farm all my life and I no longer am privy to how it is operated. When my grandfather died, each of the kids got a portion of the land (my uncle getting the biggest share, of course). A few years ago, after my father died, my mom sold the remaining parcel of land we owned.

From my perspective, farming has always been a very lucrative business. But I was never involved in the day-to-day operations, and only heard about business decisions second-hand.

But nobody lived in the attic. :)

Most of the helping out with the harvest each fall used to be kids from the local college. Not so much in the last few decades. Productivity increases. :)
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This analysis, so popular with wingnuts, always ignores the disability insurance that Social Security provides each and every year of the recipients life - and that once that is figured in, the "discrepancy" completely disappears.

Ok, let us do the math.

Let us take the worst case scenario, minimum wage grosses $15,000 (7.5 x 2000). FICA et al takes $1875 (yes, both sides, employer and employee).

Hard to get a quote without filling in a bunch of garbage and being inundated with emails/calls, so this link will have to suffice.

http://www.affordableinsuranceprotection.com/disability_prem...

So for $454 a year you can get $30,000 benefit. Don't know it would safe to assume $227 would get $15,000 but let us go with it. Keep in mind, this would still be an over estimation since (at least in my case) my disability benefits would be tax free because I pay my own premium.

That leaves $1648 for health insurance. Again, hard to find quotes but did find one for a $70/mon premium with a $2500 deductible for an HSA account. So the premium would be $840/yr and leave $808. Not going to cover the deductible. But being an HSA account, after 3 years and a little interest, you'd have $2500.

Admittedly a precarious position.

It wouldn't be until you made $30,000/year that the numbers work out. Now is that an argument to double minimum wage like so many are calling for? Another thread. But it does show you how little it would take to get the government out of the way.

So where would retirement come from? Not exactly a God given right to retire at 65 (or any age) nor guaranteed in the Constitution.

So let us do some more math.

Say you were unlucky enough to only make $7.50/hr for 50 years. To reproduce that income for a 25 year annuity payout, you would need a starting principle of $270,000. To accumulate that amount would take $2350/year for 50 years at 3% compound interest. Or $196/mon.

http://www.moneychimp.com/calculator/compound_interest_calcu...

Add up all the expenses and it comes to $285/mon. Very precarious for someone at minimum wage.

Still shows how low the bar is set to do better than the government.

JLC
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I couldn't agree more. People like you, for instance, will argue that any paltry return from SS is 'risk free', because you don't have to invest. Well, any such return is only 'risk free' if you don't understand the word 'risk'. There is the slight issue of 'insolvency', which is what happens when people are taking out at a faster rate than they are putting in.

So something needs to be done to close that gap. Boomers are certainly taking money out at a faster rate than the current generation of workers can pay into the system.

Oopsie! So, it's a *guarantee* that either we'll have to raise taxes, cut benefits, or a combination. But no risk, there, right? I suppose in your world, it isn't risky if it was designed to fail, like every other social program.

Not necessarily. SS is taken as a percentage of the employee's wages, yes? Raise the amount of pay the employee is getting and even if the percentage withheld is the same, more money will flow into SS. So it would appear that raising the minimum wage and wages in general, would help more than just the current employees who need the money. It would also help those who are currently retired be assured of stability in their income.

One story about private investing for retirement:

When I first went to work in education 30 years ago, we paid into the Teacher's Retirement System. A pretty straightforward investment in which both the employee and employer placed money. In the mid-1990s, someone got it into their heads that allowing employees to take greater risks with their income could give them a better return for retirement. So we had a one-time offer: you can keep your money in TRS, or you can move your funds to OAS and take on the greater risk in hopes of greater rewards. A lot of faculty and staff opted to do that. I did not. My boss at the time did.

For a few years things were looking very rosy for those who opted to handle their own wealth, and those of us who opted to stay with TRS were viewed as being "behind the times". Then came the dot.com collapse. Turned out, OAS had invested pretty heavily in tech firms and a lot of money was lost. A lot of employees suddenly found their pensions were worth only a fraction of what they had been before the move.

What we sometimes miss when looking at taking risks is despite disclaimers like "past performance does guarantee future returns" many people have the idea that even if it stops gaining it won't fall as hard and fast as it sometimes does.

My boss was really quite thankful for social security when he was forced into retirement in 2009. He still hadn't recouped the money he lost from the dip a decade earlier. If he didn't have the SS to supplement, he would have had to find another job, a tough thing to do when you are older and not trained for anything beyond what you've done for almost 40 years.

My little retirement savings might not be as risky, and I might not get massive returns, but at least I haven't ever lost anything from it, and can retire in 18 mths to start career 2.0 fairly comfortably.
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No. of Recommendations: 41
It hasn't kept pace because it isn't the worker that is increasing their own productivity. It's the capital improvements paid for by the owner of the business. So it's the owner that should reap the result of the productivity increase. It's the process that has become more productive, not the worker. Without the new technology, the worker's productivity doesn't improve much.
The other reason is that if all the competitors have the same productivity improvements, it hasn't increased their competitive advantage. Supply and demand of the entire market will determine where the new equilibrium will be. Fewer workers are needed, so their value decreases. Simple supply & demand.
The cashier at the grocery store can check out a whole lot more people because every product has a bar code on it that can be scanned. That's a lot quicker than what we used to do when I worked in a grocery store in the early 70's. Each product had to have a price tag on it, and the cashier had to find that price tag, then accurately punch the correct price into the cash register. And if a price change occurred, a stocker had to go out and physically mark up the price on each product on the shelf. Now, they just change the price on the computer, so the scanned product comes up at the new price.


This is all true - but wasn't it also all true in the 1910's when Henry Ford invented the production line? And yet his workers went from making $2.50 a day to $5 within a few years. Wasn't it also true in the 1920's when unions got some muscle and forced the business owners to fork over part of the "increased productivity" to the working class and thereby created the great American middle class?

Wasn't it also true in the 1950's, when the "middle manager" arose in great American corporations, and when salaries jumped and the middle class grew even more, to the point of dominating the American economy? Wasn't it true in the 1970's, when the minimum wage was increased to keep up with inflation?

Yes, productivity has increased thanks to a lot of things, but now we find corporations taking the extra income and stashing it in accounts overseas, not spending it on further productivity enhancements, and continuing to grind down workers - who often have to turn to food stamps or other means to get by.

Look, I'm not trying to turn this into some communistic paradise, heck, I'm a member of the "owner" class myself. But it's clear that we are hollowing out the middle class, and that boomerangs against us because more and more people have less and less money to fuel the economy and drive growth - growth as we came to know decades ago.

They even have self-checkout lanes, where a single cashier can oversee a dozen checkout lanes. If we paid based on productivity gains, she'd be paid 12 times as much as a single cashier.

And I'm not asking that she be paid 12 times as much, just as nobody asked Henry Ford to pay his workers 50 times as much simply because they were producing 50 times as many cars. I do think that generally speaking, a reasonable "minimum wage" should be a "living wage", not a "poverty wage", which is exactly what it is today.

Yes, this presages an entire conversation about competing with slave wages in Indonesia, and international competition, and NAFTA, and Irish taxation policies and a raft of other things, but it's clear to me (at least) that the minimum wage ought to be re-evaluated in light of today's economy and costs of living.

Of course there are those who counsel "no minimum wage at all", and who apparently don't want to consider what happens to actual people when those wages fall in half, or worse - as they surely would, but I choose not to engage with them because they are beyond reason.

(I find much to compare with the early American economy of the South, where wages were non-existent for slaves, and where precious little productivity growth ensued, and in the North, where advances in technology were encouraged by the invisible hand of productivity and where economies thrived. Hence cotton mills in Massachusetts vs. cotton plantations in South Carolina. Yes, that's right, I think a "minimum wage" helps drive productivity forward, whereas cheap-to-free labor does not. "McDonald's" as a concept is "productivity" [more burgers with fewer workers]; Howard Johnson's was not, see?)
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TheBreeze,

I wrote, Given the commission your broker charges ($7.95), I have to wonder if you're not also at Fidelity...

To which you replied, The Brokerage Window is Fidelity, and Fidelity also manages the 401k. ...

But do you have access to the 70 commission-free iShares ETFs? Most of those have pretty low expense ratios. If so, something like a mix of IVV and AGG would make for a good, balanced portfolio and you should be able to make regular, bi-monthly purchases.

Of course you might not be able to automate those purchases, which could make the strategy a bit of a pain. But it would give you frequent opportunities to effectively re-balance.

Finally, Some of the 401k funds are not mutual funds, but comingled funds that are specific to my company's 401k (although it is administered by Fidelity). Regular mutual funds have certain requirements plus a lot of people looking at them for any sign of funny business. The comingled funds don't have that, so I'm a little leery of them.

I don't have much to say about this topic. I can't tell you to avoid them or use them. And I agree that these are a potential problem assets.

There are a few in my employer's plan as well - though they're not the majority of offerings. I originally signed up a small portion of my contributions for the Fidelity Contrafund when I started here. A little while back they switched that to a comingled pool with a similar name and objective. The pool is fairly new. I assume it has fewer reporting requirements, which is part of what makes it cheaper. (And it may also have more predictable cash flows, being restricted to 401(k) plans - though I don't see how this significantly differs from having institutional shares.) So far the expense ratio has remained below the publicly traded FCNTX and it has slightly out-performed FCNTX (both are down over that period, though I've had good results from FCNTX in the past). So I've not removed it from my allocation. Yet.

- Joel
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I guess you and Margaret Thatcher should be glad you don't live in Venezuela.

Yeah, especially since she died 3 years ago... ;->
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Goofy:"Yes, productivity has increased thanks to a lot of things, but now we find corporations taking the extra income and stashing it in accounts overseas, not spending it on further productivity enhancements, and continuing to grind down workers - who often have to turn to food stamps or other means to get by."


typical whine of the progressives....and false.

Those corporations made those profits they keep overseas ......from OVERSEAS operations. They can't stash any money overseas from US operations.

- ----




Goofy:"And I'm not asking that she be paid 12 times as much, just as nobody asked Henry Ford to pay his workers 50 times as much simply because they were producing 50 times as many cars. I do think that generally speaking, a reasonable "minimum wage" should be a "living wage", not a "poverty wage", which is exactly what it is today."

As you raise the cost of production, more and more of it will become automated, and less and less will be produced in the US since labor overseas is much lower cost.

The fact we live in a world wide economy, where factories literally shift from country to country for a 10% advantage......makes high price low skill labor a thing of the past for many industries.

Yes, you still need a janitor to clean up the mess.....but soon robots will replace half of them. You still need some sales clerks...but internet sales have obsoleted many of them as well.

- -- ----

Goofy:"Yes, this presages an entire conversation about competing with slave wages in Indonesia, and international competition, and NAFTA, and Irish taxation policies and a raft of other things, but it's clear to me (at least) that the minimum wage ought to be re-evaluated in light of today's economy and costs of living."

It simply gets passed on through the chain. The good folks in OR are discovering their $14.75 minimum wage is going to cut college jobs for students by over 10%, tuition will rise to cover the tens of millions of additional labor costs...... and everything will be passed on to tax payers and tuition payers. Likely they'll add another level of 'fees' for college students as well.

-- -------

Of course there are those who counsel "no minimum wage at all", and who apparently don't want to consider what happens to actual people when those wages fall in half, or worse - as they surely would, but I choose not to engage with them because they are beyond reason.

Goofy:"(I find much to compare with the early American economy of the South, where wages were non-existent for slaves, and where precious little productivity growth ensued, and in the North, where advances in technology were encouraged by the invisible hand of productivity and where economies thrived."

What you forgot to mention is soon all those mills and factories up north got shut down as industry after industry moved to factories in the south to take advantage of lower production costs. Most of New England turned into factory ghost towns in the 1920s and 30s and 40s. The 11 breweries and 10 movie theaters in Troy NY closed one by one as the shirt industry, the shirt collar industry, the 'glove' industry and most apparel making companies moved to VA, NC, and points south.

- - ----



Goofy: Hence cotton mills in Massachusetts vs. cotton plantations in South Carolina. Yes, that's right, I think a "minimum wage" helps drive productivity forward, whereas cheap-to-free labor does not. "

Heh heh...those cotton mills started in New England because New England had lots of water power.

Once Rockerfeller and others invented the oil industry, Edison and others invented the electricity industry, factories were no longer tied
to water power. they moved south as fast as you can say 'lower cost production and no pesky unions'.

THAT was a technology driver. Geography didn't matter - the jobs went where the prices were lower.

In the 70s, the US gave giant tax breaks to Puerto Rico. For a decade, jobs moved there - tons of factories..... - then Asia and Mexico became more profitable with less hassles...and those jobs simply moved.

Industry ain't dumb. Now, entire factories can be relocated in 30 days....from Vietnam to Malaysia to Bangladesh....who ever has the best deal for the next 18 months.

t.
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but wasn't it also all true in the 1910's...
Wasn't it also true in the 1950's...

I would say no. Because our economy was being completely overhauled. We moved from an agrarian economy to an industrial economy to a service economy. Automation and technology redefined the value of labor in each transition. The move to a global economy even further devalued labor.

The family farm my grandparents lived on is significantly different than the family farm my cousin is currently retiring from. It was handed down from father to son for several generations, but my cousin had no sons, and both daughters married non-farmers, so it will no longer be in the family.

I don't know what the next economy is, when even the menial jobs (e.g. cashier, burger flipper, etc) and non-menial jobs (e.g. truck driver, cab driver, delivery service, etc.) of the service economy can be automated. They say the next step is an information economy, but that doesn't seem right to me.

a reasonable "minimum wage" should be a "living wage", not a "poverty wage", which is exactly what it is today.

Of course there are those who counsel "no minimum wage at all", and who apparently don't want to consider what happens to actual people when those wages fall in half, or worse - as they surely would, but I choose not to engage with them because they are beyond reason.

I'm in the camp of "no minimum wage at all". Mainly because I think it should be the market that is setting prices. Once you start with price controls, where do you stop? How do you get supply and demand to match up with artificial prices?

What happens to all of those minimum wage jobs when automation becomes cheaper than the minimum wage?

Besides, you're talking to someone that was an avid practitioner of LBYM, because I originally had planned to retire before the age of 40. The lifestyle I led could have easily been supported by minimum wage. Not so hard to do if you don't need a lot of living space, don't need a car, don't have kids, etc. So your definition of a "living wage" would be far different from mine.

I think the future will be a more socialist one, requiring a "basic income" because we simply won't need many people to be employed. We already have taken many steps to the "basic income" model, with welfare, food stamps, tax credits, and the like.
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But do you have access to the 70 commission-free iShares ETFs?

That's a good idea. I'll look into it. Thanks!
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The assets of the larger trust fund (OASI), from which retirement benefits are paid, were nearly depleted in 1982. No beneficiary was shortchanged because the Congress enacted temporary emergency legislation that permitted borrowing from other Federal trust funds

So, the people who were due benefits still got them, but they were paid with borrowed money.




I'm sorry, but you lost me. You lamented that SS should invest their surplus and I showed that they are investing their surplus.



It's not a _surplus_ if it's borrowed money.
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It's not a _surplus_ if it's borrowed money. 



The full quote from your post was:


The assets of the larger trust fund (OASI), from which retirement benefits are paid, were nearly depleted in 1982. No beneficiary was shortchanged because the Congress enacted temporary emergency legislation that permitted borrowing from other Federal trust funds and then later enacted legislation to strengthen OASI Trust Fund financing.



The borrowing was temporary. They are not borrowing now.

I don't know if SS paid back the funds they borrowed (likely) but they've been running a surplus since that point. (and investing it.)


Jim
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(and investing it.)

Let's be honest about this point.

The so-called investing is nothing more than an accounting gimmick based on the government's nearly unlimited ability to print and borrow money.

SS bonds are not really invested and earning interest in a manner that is advantageous to SS recipients. The bonds that they are buying are not corporate bonds where the interest earned is potentially coming from an entity other than taxpayers. Those bonds they buy are being sold by the federal government where SS recipients are the ones, via income and other taxes, paying the interest - basically to themselves.

In other words, the interest rate on the bonds really does not matter that much because even if the interest rate was 20%, that would just mean that taxpayers would have to pay more taxes to pay the interest on those bonds.

SS and the fed is taking it from your left pocket and putting your right pocket. SS recipients are no more wealthy because of such a practice.
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" I really dislike having a plan where I cannot control where the money is invested and some company has to keep taking fees out along the way"

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

401K plans are optional.
You do not have to use them.

There are pluses - e.g. company matching funds where offered and tax-free growth. However, as you note there are disadvantages.

The plans developed as replacement for pension plans - basically
pension plan funds have the risk of being underfunded and overcharged -
do you recall what you said about 401K plan problems? Same thing.

Howie52
Some plans are run by good companies with their employees best
interest at heart.
Some plans are run by thieves.

Generally, you can tell the thieves by listening to their
promises.
If they promise anything other than doing the best they can
managing the money, they are thieves.
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No. of Recommendations: 28
Let's be honest about this point.

The so-called investing is nothing more than an accounting gimmick based on the government's nearly unlimited ability to print and borrow money.
SS bonds are not really invested and earning interest in a manner that is advantageous to SS recipients. The bonds that they are buying are not corporate bonds where the interest earned is potentially coming from an entity other than taxpayers. Those bonds they buy are being sold by the federal government where SS recipients are the ones, via income and other taxes, paying the interest - basically to themselves.
;

I understand how you can make this point and convince yourself that it's true.

But then I have to ask, are these not the same bonds that the US government is selling to individuals through brokerages and banks around the country. Do individuals in other countries also purchase these same bonds because of their safety, or their interest, or for whatever reason?

Don't foreign governments buy these bonds, and don't corporations park money in these sorts of things? Aren't there privately run bond funds which put their money into these same bonds?

So why do they magically become such a scam when the US government parks excess monies from one program into them, to be used at a later date by another - or the same - program?

I think you have convinced yourself of something with infallible logic, except that it's completely wrong.
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The so-called investing is nothing more than an accounting gimmick based on the government's nearly unlimited ability to print and borrow money.

SS bonds are not really invested and earning interest in a manner that is advantageous to SS recipients. The bonds that they are buying are not corporate bonds where the interest earned is potentially coming from an entity other than taxpayers. Those bonds they buy are being sold by the federal government where SS recipients are the ones, via income and other taxes, paying the interest - basically to themselves.

In other words, the interest rate on the bonds really does not matter that much because even if the interest rate was 20%, that would just mean that taxpayers would have to pay more taxes to pay the interest on those bonds.

SS and the fed is taking it from your left pocket and putting your right pocket. SS recipients are no more wealthy because of such a practice.





But the federal government is going to borrow from someone.

If they did not borrow from the SS, they'd borrow from someone else. Since SS has its own funding/taxing mechanism, from the Fed's perspective, borrowing from SS is essentially no different that borrowing from a hedge fund, sovereign country or other large entity.

Investing in the bonds has allowed SS to remain solvent years longer than they would have otherwise.

And I'm not comfortable with SS investing their surplus in the open market. Volatility does not serve the program well.

Of greater concern to me is that the federal government's tax receipts should more closely match their expenditures.


Jim
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But then I have to ask, are these not the same bonds that the US government is selling to individuals through brokerages and banks around the country.

No, they are not actually.

Sometime around 1970 or 1980, they switched from bonds that could be bought and sold on the secondary market to bonds that are not marketable. They can only buy bonds sold by the Treasury.

Do individuals in other countries also purchase these same bonds because of their safety, or their interest, or for whatever reason?

Nope. No one but our federal government sells them the bonds and pays the interest.

Don't foreign governments buy these bonds,

Again, nope.

https://www.ssa.gov/oact/progdata/fundFAQ.html

By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds.

In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash.

I understand how you can make this point and convince yourself that it's true.

I don't understand how you can try to make a point without taking the 30 seconds it would have taken you to educate yourself before posting.

I think you have convinced yourself of something with infallible logic, except that it's completely wrong.

You're funny.
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"Note: There is a 3rd group"

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Actually, every individual has their own unique situation.

And one one approach suits everyone to a tee.

Howie52
Always check what people are trying to sell you when they
propose a change in 401Ks or any other program - or change in
program.

The sellers typically are the ones who make out like bandits.
There is a good reason for this.
They tend to be bandits.
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But then I have to ask, are these not the same bonds that the US government is selling to individuals through brokerages and banks around the country.

No, they are not actually.



Agreed, that they are not exactly the same, but they are materially the same in that they have the same level of safety. And in fact, according to your link/post, they are an even better deal in that they can always be redeemed at face value.

But the point remains, if the government didn't borrow from the trust fund, they would just borrow from someone else.

I really don't see the problem here. What would you recommend SS do with the current surplus while maintaining the same level of safety and near zero volatility?

Jim
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No, they are not actually.

Sometime around 1970 or 1980, they switched from bonds that could be bought and sold on the secondary market to bonds that are not marketable. They can only buy bonds sold by the Treasury.


Yes, and thank you for making such a fine distinction which actually has no difference. The bonds are issued by the government. They are guaranteed by the government. They are backed by the future revenues of the government. They rest solely on the faith and credit of the government.

So yes, I can see how you think they are "different", except that in no material way are they.
 
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