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Forum Post: 401k system is a failed experiment

Posted 1 year ago on April 28, 2012, 8:10 a.m. EST by flip (5057)
This content is user submitted and not an official statement

“People have income shock, like divorce or loss of a job or a health crisis,” and those crises tend to drain retirement accounts, she said.

But even putting income shocks aside, she said, most human beings lack the skill and emotional wherewithal to be good investors. Linking investing and retirement has turned out to be a recipe for disaster.

“People tend to be overconfident about their own abilities,” said Ghilarducci. “They tend to focus on the short term rather than thinking about long-term consequences. And they tend to think that whatever the current trend is will always be the trend. That is why people buy high and sell low.” Financial advisers — at least the good ones — are forever telling their clients to be disciplined, to create a diversified portfolio and to avoid trying to time the market. Sound as that advice is, it’s just not how most humans behave. That data starkly backs up Ghilarducci’s contention. According to the Employee Benefit Research Institute, for instance, only 22 percent of workers 55 or older have more than $250,000 put away for retirement. Stunningly, 60 percent of workers in that same age bracket have less than $100,000 in a retirement account. Ghilarducci told me that the average savings for someone near retirement in America right now is $100,000. Even buttressed by Social Security, that’s not going to last very long.

What, then, will people do when they retire? I asked Ghilarducci. “Their retirement plan is faith based,” she replied. “They have faith that it will somehow work out.”

I laughed, but it’s not funny. “The 401(k),” she concluded, “is a failed experiment. It is time to rethink it.”

16 Comments

16 Comments


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[-] 1 points by elf3 (2044) 1 year ago

Simple answer - no such thing as retirement. 401k is a guise to get the average workers money into the stock market to share risk for the people who gamble on it. You won't make anything. The real question is if you do invest do you know where you are putting your money? We vote with our dollars since the company will use those dollars to influence our government and economy. Who are you voting for? Anyone under 40 will not retire... There is no such thing as retirement - you will die on the job. You will work until your body gives out. Cold, hard, truth. Are we going to take it? Or are we going to change it? Jobs back in America - end outsourcing - economy fixed. Go overseas, stay overseas policy. We don't need you, we don't need monopolies, we just need innovation; a fixed monopoly market stifles and kills innovation so let's send monopolies overseas, dis-band or take by eminent domain that which should be for the common good - broadband lines and radio waves to start!! We can be innovative again. We can make things in this country with a conscience - we can pay it forward and stimulate the economy which in turn stimulates the wealth of everyone and business.

[-] 1 points by gestopomillyy (1695) 1 year ago

i dont see how that is bad. thats 100k more than if they did not have a 401k. without companies forcing people to put in what the do.. that would be 0k at retirement. how is that bad? the reason they only have 100k is because that is all that they have earned during life. you forget that the average wage is 25k. how much can a person save living on that?

[-] 1 points by flip (5057) 1 year ago

i think the point was we need a different retirement system - no?

[-] 1 points by gestopomillyy (1695) 1 year ago

no, i think if you change it, there will be less put into retirement. average people do not think about 'investments', derivatives, etc. they will just end up with nothing at all. like they did before 401k

[-] 2 points by jbgramps (159) 1 year ago

Well, If I’m any indication then 401K’s suck. I am retired. I had both a 401K and a very good employer sponsored retirement plan. After investing in the 401 for years it was mostly wiped out by the market. While my employer system never even bounced.

Unless something is done my generation will be the last to be able to retire.

[-] 2 points by epa1nter (4650) from Rutherford, NJ 1 year ago

First, companies never forced anyone to pay in to 401K plans.

Second, defined pensions pay out far more and aren't subject to the same fees for banksters that 401K are. They are mostly gone because of the destruction of unions.

[-] 1 points by flip (5057) 1 year ago

i was thinking more along the lines of beefing up social security - there are many good ideas out there. or going back to defined benefit plans like we had before wall street was given the gift of the 401k

[-] 1 points by DemandTheGoodLifeDotCom (3213) from New York, NY 1 year ago

If we had a flat 8% pension tax on 100% of your income with no deductions, that would raise enough money to pay everyone 65 or older a $30,000 per year pension.

($15.2 trillion GDP * 8% tax / 40.5 million age 65 or older = $30,000)

[-] 1 points by gestopomillyy (1695) 1 year ago

isnt that what FICA is already?

[-] 1 points by DemandTheGoodLifeDotCom (3213) from New York, NY 1 year ago

No. FICA only taxes wages and it only taxes them up to roughly $110k (I forget what the exact number is).

All wage income above $110k is exempt. And all income you earn outside of wages like profit, rent, interest, dividends and capital gains is exempt.

[-] 1 points by TechJunkie (3029) from Miami Beach, FL 1 year ago

A totally flat tax like you're talking about would eliminate all tax incentives. Tax incentives for education. Tax incentives for environmental protection. All of them.

[-] 1 points by DemandTheGoodLifeDotCom (3213) from New York, NY 1 year ago

Yes, you are correct.

[-] 1 points by penguento (362) 1 year ago

True. But no politician in the country has the courage to suggest such a thing. They like to promise people free stuff, and are afraid to point out that if you want everyone to have a good retirement, everybody's got to chip in to pay for it.

[-] 1 points by DemandTheGoodLifeDotCom (3213) from New York, NY 1 year ago

You wouldn't need courage to suggest this idea.

All wage earners who make less than $110k per year already pay it. But people who make more than that amount or who earn income from interest, rent, profit or dividends do not.

So all you need to do is suggest that the rich pay the same as everyone else. That would be very popular.

[-] 1 points by beautifulworld (20499) 1 year ago

Most definitely. Wait until all the folks with tiny 401(k) balances and no real pensions start retiring. That ought to be interesting.

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[-] 0 points by hchc (3297) from Tampa, FL 1 year ago

Force them into the market. Same as record low bond rates.