The possible real purpose of 401k?

originally posted by: Ksihkehe

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.

Yes, it can and that is one of the draw backs of a pension. Also, you can't pass wealth on to your heirs.

I was just saying that a 401k requires a little more discipline. You have to sign up for it and figure out how much you want to contribute. A pension just requires you warm a seat for X number of years.

Pensioners also usually get back far more than they actually put in / contribute which is a big reason most pension plans are practically insolvent.

I think far too many people don't give enough thought to retirement planning whether finance or even insurance. I'm amazed at the number of people who don't even keep a basic life insurance policy.

originally posted by: kelbtalfenek

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."

There are any number of ways employers "match," but BY FAR the most common is an equal match In other words, if you choose to contribute 4% of your salary to the 401K, the company will match that with 4% also. I have never encountered a 10% match anywhere. The Bottom Line here is that it is far better for you to be in charge than the company. Ask yourself, would YOU rather be in charge of your pension fund, or would you rather the company to hold and manage those funds itself? And BTW, you expect a company to be beholden to you, but you're not beholden to a company. You can quite any time you want and start your own business and pay both sides of the equation. My guess is if you do that you'll try to find every tax write-off you possibly can.

originally posted by: toysforadults
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

NOT MY POINT! I SAID you often do not have the choice in the matter. Your company has a 401K. You participate and get the company matching, or you do not. Your choice. Leave the money on the table and buy tangibles with your own money if you want. No matter what you do, my position is secure no matter what happens. (Well, except maybe an asteroid)

originally posted by: Fools
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.

I took my 401 with me when I left one job. That comp. has had nothing to add or take back away. It's been sitting in my name with no more matching funds or adds -contribution.

It's mine, controlled by me and diversified with a extremely lg variety of stock and real estate.

Since 1998..its made $32,000 in yearly interest total. I never open it, use cash from it... Just read how much it's earned yr to yr.

I should roll it... But I've just let it gain over the last 20 yrs... Guess I should consider that... And it was payable 5yrs ago... I just leave it be. Former employer has no control over what I do.. Or don't.

a reply to: Fools

The 401K was put in place as a future slush fund for the government to tap.

No second line needed... they've already admitted it.

a reply to: schuyler

if you choose to contribute 4% of your salary to the 401K, the company will match that with 4% also. I have never encountered a 10% match anywhere.

One of my best friends works as an accountant for a private college here in New England. Their benefits are pretty crazy... he can put up to 10% of his salary in retirement and his employer will DOUBLE his match (putting 20% of his salary into his retirement).. so he is stashing 30% of his salary annually into his retirement. Pretty nuts, huh?

originally posted by: Edumakated
The best thing wife and I did was start maxing out 401ks at 22...

That's a good move, but it's not realistic for most people. I'm 35, this will be the first year I can max out or for that matter put anything into my 401k. Take the median wage of $31,000/year and median houeshold of $54,000. That suggests an average household contribution of $32,000/year to max out (54/31*18.5). $54,000 is going to be around $42,000 after taxes in most areas. That leaves just $10,000/year to live on and that won't cut it.

I fully agree that people should max out their 401k's, and failing that make a savings heavy budget and put what they can towards it, but the reality is that few can afford that. Anyone between 10 and 40 right now is going to become part of a huge retirement crisis in old age. What's the statistic, 69% or so of Americans don't have access to needing an unexpected $400 between cash and available credit. When the typical financial situation is that precarious, retirement savings are a pipe dream.

originally posted by: sligtlyskeptical
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.

I'm a big fan of the 401k system over pensions. Pensions are too invested in the company remaining, and in them not screwing over workers. There have been way too many stories of pension funds being cut in order to keep a company a float. With 401k's being more decentralized that risk is greatly reduced and that means more people doing better in retirement.

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

That's what 401k's are. Value creating assets.

Crashes don't wipe anyone out except for the people withdrawing at that moment. For everyone else it's an opportunity to readjust your risk portfolio and buy some assets at a discount.