Author Topic: 401(k)s will be considered unthinkable 50 years from now  (Read 1615 times)

Offline Smurf Hunter

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401(k)s will be considered unthinkable 50 years from now
« on: April 03, 2019, 12:00:37 PM »
https://www.vox.com/2019/3/27/18174385/retirement-savings-401-k

Is this socialist drivel, or an accurate indicator of trends?

Offline Mr. Bill

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #1 on: April 03, 2019, 02:00:41 PM »
Is this socialist drivel, or an accurate indicator of trends?

Both?

Buried amongst the socialist stuff is the unfortunate reality that lots of people are not prepping for when they can't work anymore -- or if they are, they're not knowledgeable enough to direct their investments.

At some point, these people will need public assistance, and I forecast it will be funded by a tax on 401(k) and Roth IRA assets.

Offline FreeLancer

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #2 on: April 03, 2019, 02:31:33 PM »
It’s a lot like healthcare.  Individuals more frequently prefer the immediate rewards over planning for future rainy days. And in a society that demands people not be abandoned to die in the gutter, the consequences of individual decisions (or bad luck) become the responsibility of the rest of us.

Offline David in MN

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #3 on: April 03, 2019, 02:39:27 PM »
I spent a decade studying finance. I like the 401 and IRA because savvy people like me can optimize savings vs. mortgage. But it's unfair that a "freer" system that allows a couple of engineers to optimize their money after one spent so long studying finance. Some people just can't do what I do. I understand why a "guaranteed" government retirement sounds better than spending years reading and hours daily studying. I had the panic at 24 that the latter third of my life was controlled by investment. I get the terror that brings. I sympathize with those who don't fall into finance neck deep.

Offline Smurf Hunter

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #4 on: April 03, 2019, 04:25:16 PM »
I spent a decade studying finance. I like the 401 and IRA because savvy people like me can optimize savings vs. mortgage. But it's unfair that a "freer" system that allows a couple of engineers to optimize their money after one spent so long studying finance.

Maybe I'm an elitist privileged snot?  I feel that some people have failed as adults. This is on various levels, ranging from not starting fights in bars, to paying your car insurance.
Everyone has an excuse, and they convince themselves there is no other course of action available. I'm not going to pick on 20-somethings, I'm talking to people +/- 5 years of my own age.

I think the reality is that most people are not taking advantage of modern retirement vehicles. If only they listened to Dave Ramsey, they'd be far better off. No formal finance or math degrees needed.  10-15% of income saved annually into boring mutual funds is almost a full proof way to avoid dying in poverty.

This is yet another example of where we have to trade some freedom for the greater good.  Sure, I'm responsible enough to <insert topic of debate here>, but most people struggle. The socialists will say we can't make an exception for just the smart/competent/responsible people to do it, as that wouldn't be fair to those who are lazy/stupid/etc.

While we don't allow professional race car drivers a higher speed limit on public roads, I also predict it wouldn't lead to measurable increase in highway accidents either.


Offline surfivor

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #5 on: April 04, 2019, 02:44:33 AM »
Jack mentioned Dave Ramsey recently and that he disagreed about not getting out of the market at certain times. He had also mentioned before that many people no longer trust the stock market.

I don’t know if anyone can guarantee that they won’t suffer medical bills, health problems, fraud, lawsuits or other misfortunes later in life or that they could live for a long time to an advanced age and as well as be prevented from earning much of a wage in old age due to age discrimination. The problem with the elderly is unique in that it may be hard to say that they are unwilling or unable to work as in the same as a younger person. I find also that economic conditions seem ever unpredictable and uncertain but often doubtful and very gloomy at times. Perhaps it can seem worse than it is but it seems difficult to predict

There is many cases of fraud in banking and also in medicine and the drugs people take that doctors give out that the system is supposed to help promote etc. The cost of health care of potentially even health insurance is potentially very crazy and could easily do serious damage to ones finances and things like Obamacare can make it worse. You can even be charged lots of money for services you really don’t want. I don’t even think I would take a ride in an ambulance if I could avoid it. I could see being very sick and wishing to take an Uber instead because who knows how much they would charge for the ambulance these days and you hear crazy stories. Gary Null thinks the medical system should tell you up front what the costs may be

Perhaps one thing is that retired people may be forced to live a very frugal life and do things like gardening and live some place cheaper but you may still need some social security money to get by. Ayn Rand apparently needed to collect SS


« Last Edit: April 04, 2019, 03:09:55 AM by surfivor »

Offline surfivor

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #6 on: April 04, 2019, 02:58:31 AM »
Both?

Buried amongst the socialist stuff is the unfortunate reality that lots of people are not prepping for when they can't work anymore -- or if they are, they're not knowledgeable enough to direct their investments.

At some point, these people will need public assistance, and I forecast it will be funded by a tax on 401(k) and Roth IRA assets.

Jack does not seem to recommend putting money into a 401k/IRA and especially if it’s not matched by an employer because it’s locked up and he doesn’t trust the government to not pass further rules or taxes against it or say if there is a massive market crash etc. That analysis is echoed by others and seems to cast some serious doubt on 401ks

Offline David in MN

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #7 on: April 04, 2019, 08:26:58 AM »
As a case study we'll make up Tim and Tom:

Tim puts 20% in a target date fund and thinks no more of it. What we were all told to do.

Tom optimizes his 401 for company match, uses a Roth and Trad IRAs, and sets up CDs that auto rollover when the savings get too full. Tom does some homework weekly and reads acouple magazines and blogs on finance.

Tim believes he is perfectly diversified because he is holding a basket of auto-selected large cap 100% American stocks while Tom has stocks based on dividend strategies, bond holdings, international investments, option trades, and puts a portion aside to risk speculating on Biotech startups. In his 40s Tom pulls the principal out of his IRA to pay off the mortgage earlier. Tom even puts together a mastermind group with an investment focus to better suss out opportunities.

Rational people look at this and think Tom really put his back into saving and played the game better than Tim who really didn't. But we live in a world where Johnny Politician can tell Tim he did what every financial planner would recommend (kind of because he did) and he's a victim. I realize the people reading this skew more Tom but we live in a Tim world. And as much as I hate it "put in the work" never quite competes with "free shit" or "we'll take care of you".

Offline Smurf Hunter

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #8 on: April 04, 2019, 12:26:38 PM »
Jack does not seem to recommend putting money into a 401k/IRA and especially if it’s not matched by an employer because it’s locked up and he doesn’t trust the government to not pass further rules or taxes against it or say if there is a massive market crash etc. That analysis is echoed by others and seems to cast some serious doubt on 401ks

I'm a lot smarter than I am disciplined. I have bad habits and need to construct silly things for me to behave properly.  I won't behave rationally if you set $100,000 in cash on my kitchen table and told me to make "good choices" with it.  If instead it's in a brokerage account, then it feels more "business" and somehow I'm responsible.

If we were non-emotional robots, Jack's advice is sound.  However the reality is, automatically withholding from your paycheck is psychologically easier for me.
If 15% of my pay check is auto-deposited, I don't think of it as my liquid cash at all.  If I were to manually contribute the same into an account, once in a while I might make an "exception" to my rule and buy something else.

Likewise my family uses an FSA.  We have relatively high out of pocket medical expenses.  But it's not just the tax savings, it's a budget tool as well. Each paycheck $N are held in that FSA account.  I also prepay for my routine veterinarian care, for a small discount.  I envy people who can save 6-9 months of living expenses in a savings account and resist the temptation to buy a new cordless drill, firearm, ham radio or whatever they are into. For me, keeping that money in a CD, or even a brokerage account is just enough barrier to remind me, it's not play money.


Offline Mr. Bill

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #9 on: April 04, 2019, 01:52:20 PM »
...Tim believes he is perfectly diversified because he is holding a basket of auto-selected large cap 100% American stocks while Tom has stocks based on dividend strategies, bond holdings, international investments, option trades, and puts a portion aside to risk speculating on Biotech startups. ...

Someone is going to misunderstand what I'm about to write, and assume I'm suggesting socialist wealth distribution.  I'm not suggesting a solution, I'm just pointing out a really difficult issue.

Half of people are of below-median intelligence.

In addition, half of people (regardless of their innate intelligence) reach age 18 having received a below-median education.

Combining those two, we have a very large fraction of the population who lack the ability to understand investments.  They're not currently able to deal with "dividend strategies, bond holdings, international investments, option trades", and for many this cannot be fixed by hard work and study.  These are the people most vulnerable to following bad advice from predatory so-called experts.

I don't have a solution to propose.

Offline Smurf Hunter

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #10 on: April 04, 2019, 02:37:28 PM »
Someone is going to misunderstand what I'm about to write, and assume I'm suggesting socialist wealth distribution.  I'm not suggesting a solution, I'm just pointing out a really difficult issue.

Half of people are of below-median intelligence.

In addition, half of people (regardless of their innate intelligence) reach age 18 having received a below-median education.

Combining those two, we have a very large fraction of the population who lack the ability to understand investments.  They're not currently able to deal with "dividend strategies, bond holdings, international investments, option trades", and for many this cannot be fixed by hard work and study.  These are the people most vulnerable to following bad advice from predatory so-called experts.

I don't have a solution to propose.

That's not socialist.  That's an astute observation.

I looked up the rate on 10 year US treasury notes over the past 50+ years. 

There was a huge stretch of time where you could almost guarantee 5% or better.  There was also a time when my parents were young, that a savings account paid close to double digit interest.

Today there are few (none?) investment vehicles that guarantee any reasonable rate of return. 

In any case, Tim still has to opt into the boiler plate basket option.

Offline surfivor

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #11 on: April 04, 2019, 10:14:49 PM »

Here’s what I noticed .. Dave Ramsey says go with a financial adviser that he recommends. I guess there is a website for that but I hadn’t found it. What about just using Charles Schwab? I have a schwab account and it looks like you can do investing right through their website. Otherwise I have to make an in person visit to the bank or to someone’s office

Dave Ramsey clearly says put your money into a 401k plan. My sense is that not everyone follows all of his advice on that type of thing ?

Jack actually has some kind of finance guy that is constantly managing his money. If there is a market change this guy may call him on the phone and tell him he is selling the investments and going to cash holdings. That doesn’t seem typical or it sounds like it may cost a good deal extra to have someone like that ?

Offline David in MN

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #12 on: April 05, 2019, 08:48:41 AM »
Today there are few (none?) investment vehicles that guarantee any reasonable rate of return. 

In any case, Tim still has to opt into the boiler plate basket option.

Well nothing is guaranteed but I've owned the Zweig Total Return Fund (ZTR) for a while and it's currently paying a 12% dividend. It's not all that hard to find a 5-10% dividend paying stock or trust in industries like timber or retirement housing. I do these things because I manage my retirement myself. It's not that hard but you need to know what you're doing.

And I do sympathize with Tim. He's not diversified, not getting a dividend income, not following any sort of strategy, doesn't know what a call is. We could debate growth versus value or charts versus dividends but he's not getting any of those. At best he's getting a basket of low risk relative to age as assessed by Morningstar. Tim might  be a brilliant doctor, lawyer, or engineer but he's just not passionate about money. If I'm blunt my wife, a brilliant engineer, is lost in the world of finance.

And remember these are the well to do. The true poor among us don't get retirement funds and it's a real sales pitch to Steve (who we just made up and is broke) that Tim at least gets a 4% match from his employer.

When you realize the "winners" in our society are blindly picking investment funds they don't understand... It's doomed to fail.

Offline Smurf Hunter

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #13 on: April 05, 2019, 09:09:24 AM »
You can debate pre-tax vs post-tax just like 9mm vs .45acp.  That all said, within the pre-tax sphere, a 401K gives you a much large annual contribution limit compared to a traditional IRA.  IIRC in 2019 401K max is $19,000, traditional IRA is $6000. You NEED an employer with a 401k plan, else you are limited to < 1/3 of the money you can save tax deferred.

I think coupling this benefit with specific forms of employment is precarious over the long term.

Offline iam4liberty

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #14 on: April 05, 2019, 09:43:22 AM »
Well nothing is guaranteed but I've owned the Zweig Total Return Fund (ZTR) for a while and it's currently paying a 12% dividend. It's not all that hard to find a 5-10% dividend paying stock or trust in industries like timber or retirement housing. I do these things because I manage my retirement myself. It's not that hard but you need to know what you're doing.

I have virtus (new name for ZTR) in portfolio too.  It has been a good choice.

Harry Browne was a friend of mine and I use his system.  It is very easy.  You divide your investments into two piles, permanent and speculative.  The permanent portion is highly diversified to weather the different types of economic conditions.  It grows at 5%+ per year on average and virtually never has a large correction (e.g. 2008 saw a decline of only 0.7%). All this can be done by investing in a handful of ETFs. The second speculative portion is where you put your picks for high growth.  This can be the Dave Ramsey simple growth stocks+real estate formula or more individual picks based on knowledge. Currently i have a mix of growth mutual funds, cyber-security, robotics, and gaming.

All this can be wrapped in a tax advantage account (I use both traditional and roth IRAs to the limit) hosted by a low cost provider (Vanguard is awesome), and set for automatic contributions.  I like to have the contributions added to a cash settlement account and then use that money annually to rebalance the portions of the permanent portfolio.

Again, none of this is tough to understand except for the financial and legal lingo. It is purposefully obtuse IMO.

Offline Mr. Bill

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #15 on: April 05, 2019, 10:48:02 AM »
Harry Browne was a friend of mine and I use his system.

Lucky you!  I never met him, but he always seemed like a nice guy, and very sensible, and a really good explainer.  His "Permanent Portfolio" concept has treated my wife and I very well.  We didn't get the full benefit of all the investment booms, but we also didn't suffer the full disaster of the investment busts that nuked a lot of people's savings.

Offline FreeLancer

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #16 on: April 05, 2019, 01:23:33 PM »
Tim might  be a brilliant doctor,

More likely Dr Tim lives paycheck to paycheck and will die with a student loan balance.  No way in hell he's saving 2% of his income in his 30's and 40's, let alone 20%.  Creating additional anxiety over optimal investment vehicles, asset allocation, and trading is a distraction that only further compounds his problem.

Doctors and lawyers can't save for shit because their lifestyle expectations are too high. 

Offline David in MN

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Re: 401(k)s will be considered unthinkable 50 years from now
« Reply #17 on: April 05, 2019, 03:55:53 PM »
More likely Dr Tim lives paycheck to paycheck and will die with a student loan balance.  No way in hell he's saving 2% of his income in his 30's and 40's, let alone 20%.  Creating additional anxiety over optimal investment vehicles, asset allocation, and trading is a distraction that only further compounds his problem.

Doctors and lawyers can't save for shit because their lifestyle expectations are too high.

I regret to say that's actually my experience with medical and legal people. There's even a bad joke about people wwith too many investments to track that goes "engineer or accountant?" But it does hint at the bias those who studied numbers have for investing.

I have virtus (new name for ZTR) in portfolio too.  It has been a good choice.

Harry Browne was a friend of mine and I use his system.  It is very easy.  You divide your investments into two piles, permanent and speculative.  The permanent portion is highly diversified to weather the different types of economic conditions.  It grows at 5%+ per year on average and virtually never has a large correction (e.g. 2008 saw a decline of only 0.7%). All this can be done by investing in a handful of ETFs. The second speculative portion is where you put your picks for high growth.  This can be the Dave Ramsey simple growth stocks+real estate formula or more individual picks based on knowledge. Currently i have a mix of growth mutual funds, cyber-security, robotics, and gaming.

All this can be wrapped in a tax advantage account (I use both traditional and roth IRAs to the limit) hosted by a low cost provider (Vanguard is awesome), and set for automatic contributions.  I like to have the contributions added to a cash settlement account and then use that money annually to rebalance the portions of the permanent portfolio.

Again, none of this is tough to understand except for the financial and legal lingo. It is purposefully obtuse IMO.

I always forget ZTR had a name change. With my trader friends we always use the ticker symbol and it gets goofy with things like Virtus or Altrea. Anyhow ZTR is one of my favorites because it's the odd combination of high risk and high dividend. I don't know why but I just really like that.

A little envious that you knew Harry Browne. He's one of those like Art Laffer or Nassim Taleb who I'd like to get a coffee with and discuss some of their work. But it's just about the same envy I have that mom studied under Milton Friedman. I'm jealous but happy that there are such people out in the world.