The possible real purpose of 401k?

I have been reading about and loosely studying boom and bust cycles on the stock market for a long time.

The last and possibly worst bust was in 1929. There have been others, but none quite like that in how it effected entire nations. It turned many millionaires into bums over night.

So from that time until the 1980's alot of companies bought into huge pension plans that lumped everyone into the same big funds. If those funds croaked, then so did the pension. No pension equals very unhappy people.

Then in the 1980's, most corporation shifted into 401k's. The deal as sold as "more personal choices" and compared to alot of pensions that used to exist, that is very true.

So my thoughts are that the 401k was "invented" to diversify stock options into so many varieties that the hits the market takes are more distributed and therefore less likely to cause mass panic. For instance, a 401k owner may or may not even be paying attention to the market. He or she may just let the money sit there losing without even knowing and therefore not panicking and selling everything.

This is no serious study on my part, just a thought as I sit here thinking about finances.

That certainly may be one reason, but it is a bit more complex than that. First of all, a 401K is a personal account, but you may very well be invested in a larger account, i.e.: Most people use mutual funds in their 401k such as Vanguard as an example. Well, there you are right back in the big funds game. Though in theory you have control personally, in reality you have ceded control to the mutual fund manager, who can do a better job than you can anyway. Secondly, a very good reason to have a 401K is for your own ability to take a 401K with you when you change jobs. You don't have to "vest" your funds, nor are they dependent on a single employer's ability to stay in business.

a reply to: Fools

I've always believed the 401Ks are an insurance fund for the global investors and the "haircuts" in countries the World Bank has instituted austerity in have generally proven that. If the US ever goes truly belly up, the IMF will seize private Americans retirement funds.

Only real downsides of a 401k is that you may be limited in the funds you can invest in and some of the fees of said funds might be less than competitive. The other issue is that too many people aren't disciplined enough to take advantage of 401ks when offered by their employers. With pensions, you don't have to be responsible for your own retirement. Pensions also generally provide more benefit than actually earned by the retiree.

The best thing wife and I did was start maxing out 401ks at 22...

In general, I think government rules have made 401ks not as beneficial as they could be. Govt should be doing everything possible to encourage people to take control of their own retirements and financial well being.

originally posted by: burdman30ott6
a reply to: Fools

I've always believed the 401Ks are an insurance fund for the global investors and the "haircuts" in countries the World Bank has instituted austerity in have generally proven that. If the US ever goes truly belly up, the IMF will seize private Americans retirement funds.

They will come after any money kept in banks / brokerages. Believe dat.

Nothing you can really do about it though.

a reply to: Fools

That could be one reason. But the major reason is that companies no longer need to have a retirement fund, thus all earnings can go to CEO salaries.

originally posted by: kelbtalfenek
a reply to: Fools

That could be one reason. But the major reason is that companies no longer need to have a retirement fund, thus all earnings can go to CEO salaries.

Except that CEOs don't generally make huge salaries (all things considered).... their income is mostly stock options.

originally posted by: kelbtalfenek
a reply to: Fools

That could be one reason. But the major reason is that companies no longer need to have a retirement fund, thus all earnings can go to CEO salaries.

That's not even remotely true. Companies still pay into the "pension fund," it's just that it is controlled by the employee instead of the employer. In theory, there is no difference at all between company contributions. With most pensions, both employee and employer make a contribution to the pension.

a reply to: Edumakated

Sure there is. Get out of that disaster(401k), take the hit on taxes, and diversify into tangibles like physical gold/silver.

The dollar is going to flop along with every 401k and then some.

Why anyone is still attached to one is proof of either willfull ignorance, complacency or cognitive dissonance.

Most likely, a mental cocktail of all three.

And then some....

Lately it seems in my neighborhood he 401k is a trigger for divorce. 2 Friends both getting to retire with a few million have suddenly had their wives hit the road and take half and try to take it all. Maybe a local phenomenon hard to tell. A year from retirement and your life gets cut in half.

The switch to 401ks from pensions was to remove the liability of pensions off the employers backs.

Most 401k's are worth participating in, particularly if the company offers any kind of a match. Almost all 401k's offer investment options that range from very conservative to very aggressive. I also know from personal experience that most 401k participants do not interact with the plans advisor and as such usually have poorly crafted allocations.

Another point that is in payroll deduction savings plan like 401ks you are much more likely to keep investing when the markets are low. If one had to personally direct the money each month, most people would not invest after market falling 40% and would wait until the market has gone up multiple years in a row. I guarantee there are hundreds of folks on this site that have done just that and have missed out on much potential appreciation.

So if you have a 401k, participate. if the 401k has an advisor, call them for direction unless you are certain, you can do much better by yourself. And never let a falling market make you stop contributing.

Its scam keep your money and put it into an asset that creates a value

a reply to: mikell

I can totally see that. So many women these days are so disloyal. The most recent I have seen is the gal leaving a fairly successful man, take half, move in with some biker dude and party on.

Seems very sad and stupid to me.

originally posted by: toysforadults
Its scam keep your money and put it into an asset that creates a value

It's a "scam" why, again? You don't have a choice in most cases. The employer will contribute his percentage to a 401K. Getting it out requires some finesse and, of course, a tax liability and perhaps penalties. The employee contribution, on the other hand, is somewhat controllable, i.e.: You can contribute a variable amount in terms of percentage.

a reply to: sligtlyskeptical

Yeah, I am old enough that I have 3 that I have set up on my own after I left each company. I should retire somewhat reasonably at 60 making enough to live on. House and property all paid off - all that good stuff.

Then again you never know....

My current employer matches 100 percent on 4 percent. That is helping things rise pretty quickly in my favor.

a reply to: EternalShadow

I have diversified, need to buy some land for production value. Maybe lease some for cattle or something. Not there yet but getting closer.

Silver has got me out of many binds in my life. Was a coin collector since I was a kid. Still have a decent amount but nowhere what I did 5 years ago.

originally posted by: schuyler

originally posted by: kelbtalfenek
a reply to: Fools

That could be one reason. But the major reason is that companies no longer need to have a retirement fund, thus all earnings can go to CEO salaries.

That's not even remotely true. Companies still pay into the "pension fund," it's just that it is controlled by the employee instead of the employer. In theory, there is no difference at all between company contributions. With most pensions, both employee and employer make a contribution to the pension.

Hmmmm Maybe some of the companies you deal with...

When 401Ks started, "matching" used to be 20-50 cents on the dollar. Now the norm for "matching" is a dime. That's not "paying into the "pension fund," that's "oh it makes me more of a tax write-off."

My folks retired on 90% (father) and 60% of their incomes, on top of 401K. That isn't the norm anymore.

a reply to: schuyler

your way better off owning something of value than you are having money in companies and assets you can't see taste or touch

but that's ok, you'll believe me more when the next correction wipes you out

originally posted by: Edumakated
With pensions, you don't have to be responsible for your own retirement.

Nor does anyone else... no deposit no return. As has been proven time and again a pension can be yanked out from under you.

Sure as heck like a 401K option rather than depend on politicians taking money out of my check, promising to match my contribution plus provide for my retirement and every other retiree. They don't have a good track record.

The key to saving is first to actually save. The next key is to diversify and never invest all your money in one area. Most 401K's offer a variety of high, medium, and low risk investments. Also a variety of different sectors from tech to energy. Most also provide options for gold, silver, bonds, and you always have the individual choices of investing some money in real estate, art, or free energy products if you are a real risk taker. 😁

I believe 401K's came about as the alternative to private companies bankrolling entire retirement plans so if a bankruptcy resulted you wouldn't be out in the cold, and with the controls now in place on the market like the "circuit breaker" I don't think we will see another crash like the one in 1929 and if we do, it will not matter as it will be from some catastrophic event and will not matter in the least