That was a good segment, and while it certainly has a lot of good information that can be very helpful to a lot of people, I got to say, it ignores the biggest issue here, which is that 401k (and defined contributions in general) is a terrible way to do retirement. Wall Street borderline scammed the American public with that shit.
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Last Week Tonight with John Oliver: Retirement Plans
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Deleted member 13876
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I think Meesman.nl is a Dutch company that offers index funds investments.
Amory
Member
Defined contribution is the best way for the system to work in today's world. People aren't staying with the same company for 30-40 years anymore, they're switching employers every 5 years or so. Pension plans are largely outdated. But there should be laws setting some kind of standard for 401k matching. Companies shouldn't get away with paying nothing toward their employees' retirement.
That said, it's still about a 60/40 split between defined contribution and defined benefit in the US, so it's not like pensions have disappeared here. In Australia, meanwhile, the split is 85/15. (Source: Towers Watson study)
Plinko
Wildcard berths that can't beat teams without a winning record should have homefield advantage
Bingo. So many people are going to be screwed when they hit 70 and still don't have enough to live on for 10 years.
Grimm Fandango
Member
I use Financial Engines through my work. Says they are a fiduciary on their website. Their fees through my job:
I guess the fees aren't terrible but I currently have no real desire to invest outside of this.
I guess the fees aren't terrible but I currently have no real desire to invest outside of this.
Fallout-NL
Member
Haha, yeah I found them as well when I was looking just now.
Maybe I'll give them a ring.
I'm not saying the old system is perfect for today's workforce, but 401k (or similar programs) are really not the right solution.
There is an inherent problem with defined contribution retirement plan - you just can't know how much money you're going to need in retirement.
And I'm not talking about the case of people who are unable or unwilling to do that calculation (although in practice it's a big problem as evident by the sad amount the average American family have saved for retirement) even if you're super knowledgable about that stuff and do all the research that needs to be done, without a crystal ball, it's literally impossible to know how much money you're going to spend between your retirement and your death, it's a curve of probabilities.
So the prudent thing is to oversave, i.e. make sure that it's 90%-95%-99%-whatever chance that you'll die before you spend all your money, and that's not a good thing. On the personal level on average people will save more than they'll need, so they'll have less money to spend while they're alive (sure, you might get "lucky" and have a ton of expenses in your retirement, but on average if everyone saved enough money so it's very unlikely they'll run out of money, they'll be saving more than they need) and on the macro level, this is a wealth transfer from (mostly) working people to the financial sector (something I personally think is not good for the economy or society).
It's like running an insurance for one person, you're not spreading the risk. Now consider a system where everyone put money into a single pool (which in general how defined benefits plans works) in that case everyone only have to save the average* amount needed for retirement and as a whole, people on will have more disposable income that way.
* yeah, it's probably not exactly average, this depends on how you want to distribute the benefit and to what level you want to tie them to lifetime earning, I'm simplifying things a bit here, but as a whole it's undeniable that you'll have to save much less under such programs.
Based on the above, wouldn't you consider pension plans even more of a wealth transfer to the financial sector than 401k? The majority of 401ks are nowhere close to being funded enough for retirement, however an adequately funded pension plan (which is getting rarer and rarer these days) would have enough for retirement.
So on average the balance of a pension plan for 10 people would be much higher than the balance of 10 peoples 401ks, leaving more money being handled by the financial sector.
I agree you have to put in much less with defined benefit plans, but I disagree that it's because everyone is putting money into a single pool. The majority of the balance is being paid by the employers, which is why in the private sector they are continuing to move further and further away from defined benefit and towards defined contribution.
HawthorneKitty
Sgt. 2nd Class in the Creep Battalion, Waifu Wars
I'm putting it on my resume.
Fallout-NL
Member
A mandatory pension plan for everyone based on a combination of index funds and this insurance thing Chichikov has in mind, monitored by an independent body that does not have a very compromising conflict of interest at its heart, would probably be a great idea. Yes.
thechristoph
Sir!
My retirement plan is to die in my early to mid 60s while I'm still employable. I'm going to stop exercising to help speed that process.
Randolph Freelander
Member
In the spirit of the ribbons in the video, for far too many people, if they were to retire at 65, their ribbons would end at 65.
Just don't get laid off at 57, that might ruin your plan.
Just don't get laid off at 57, that might ruin your plan.
kiunchbb
www.dictionary.com
It will depend on what they do, if they trade stocks it will a good deal. If they don't buy bonds, index, index/bond ETF, the rate is a bit average.
I don't think you can use the fact that people don't save enough to live comfortably in retirement as a positive of the 401k.
Okay, let's take a simple (and even simplistic) example here, let's say you need somewhere between 0 (you die before you retire) and $1000 dollars to live comfortably during retirement. If you're doing it on your own (which is what you do in a defined contribution plan) you need to have as close to $1000 as you comfortably can (that depends on the odds of you needing that money).
Now consider the case that you put it in a pool with a 1000 people, now you all only need to put in the average amount money you'll need in retirement, which is less than a 1000.
Also more broadly, I don't think we need to get stuck up on the products currently on the market, for example, annuities are defined benefit plans but the stuff you can get in the US is pretty terrible. I'm not making the claim that every defined benefit retirement product is great, far from it, I'm saying there is inherent problem in the defined contribution plans that benefits the financial industry at the expense of would be retirees.
Amory
Member
As far as over-saving goes, to me that's not really a big problem. Most people want to have a decent chunk of money left over after they're gone to leave to their family, or a favorite charity.
Putting an "average" amount away for retirement is nice for me today, but it's also only going to benefit me in the long run. If I wanted to put something aside for my kids, I'd have to set up a separate account and contribute to it on a post-tax basis.
And this kind of ignores that we're all required to pay into a """defined benefit""" retirement fund, social security, which has failed to the point where anyone under say, 40, probably shouldn't count on it at all.
What would make more sense though - a system where everyone gets a defined benefit and then they can save extra if they want something aside for their kids versus one where everyone has a high potential of undersaving or oversaving? And in the case of oversaving, what if that isn't what you want?
I'm having trouble trying to figure out what is the right amount to truly save and still live my life the way I want to while I'm young. I've been very fortunate to be on the right track but I do see a lot of issues with the system we have now. Although, I would say that the concerns about pension and social security solvency can be legitimate but I haven't studied it enough to discuss properly.
I'm definitely not arguing that as a positive of the 401k. It's clearly one of the biggest negatives. I was just saying I don't agree with your point that the defined benefit plan benefits the financial industry at the expense of would be retirees any more than the defined contribution plan does. In fact I believe it's the opposite.
Are you saying they benefit the financial industry due to the fees charged on the products offered? Because it that's the case the financial industry is making even more fees off the products being offered to defined contribution plans, it just isn't the worker making the elections of what to invest in.
Amory
Member
The right amount to save is obviously going to vary depending on a lot of factors. If your company offers 401k matching, you should at least be contributing enough to take advantage of their match (e.g. if they match up to 6%, you should at least be contributing 6%). If you can comfortably put 10% aside and still have the money to do the things you want to do in life, then put 10% aside. If you can do more than that, more power to you.
Beyond that, there are a ton of different forecasting tools you can take advantage of, likely offered directly through your broker.
My company uses T Rowe Price and they have a tool that projects your current funds, with their expected returns and fees, and lets you choose a retirement age and desired yearly income upon retirement. Then it tells you how much you should ideally be contributing to hit that target using your chosen funds.
Is it an exact science? No, but it's not floundering around in the dark either.
First of all, over-saving is really not desirable, I mean it's better than under-saving, no doubt about it, but this is money that you most likely aren't going to use, this is money that you could've used right now. This is net positive for you, the economy, and really, anyone but the financial sector.
2nd of all, if you want to put something aside for the kids, nothing stopping you, in fact, if you could put less into your retirement plan. There are much better ways to leave money for your kids and/or loved ones than a 401k, which is a problematic vehicle for such things.
And lastly, social security, like all defined benefits plan can fail, it fail if you underfunded it, just like your 401k can, the thing is, as a whole, this program will run cheaper (also, social security is not close to being bankrupt, but that's a different discussion).
Randolph Freelander
Member
And if the market falls, they'll get it right back when it recovers. Broad-based index funds are the right play, unless you think you can consistently pick winners and losers, be that individual stocks or sectors. If you can, then you should be on Wall Street running your own Berkshire Hathaway. (Incidentally, Warren Buffett says get into an S&P 500 index fund and forget about it for 20 years.)
Doesn't matter.
It is a retirement fund, not a next year fund.
Given the poor track record of people trying to time the market, it is always better to just put the money in index and keep it there, even if it means buying at a peak.
Fallout-NL
Member
its an index that follows the 500 biggest American Companies. It is a much better indicator of the American stock market than the Dow Jones, sine the Dow Jones only follows like 10-20 huge American companies.
It does matter. If you put 10k in and lose 25% fast you think average joe is going to stick it out? That's my point. Right now that's bad advice. Horrible advice actually.
demosthenes
Member
To add: You invest in a S&P index fund hoping it mirrors that S&P 500. Over the last 80 years while the S&P has gone up and down and done some huge swings on the whole it has gone up a good amount over that 80 years. So while you invest money in it now, 30 years from now it will have grown.
Randolph Freelander
Member
And your alternative is what, exactly? Leaving it in cash? Gold? Buying some sector? You have no idea if and when the market is going to slide. And if it does, it does not matter. And if it doesn't slide, you've lost ground. We know the long-term direction of the market: up. And you're playing the long game, so it kind of works out nicely.
Keep investing in your retirement account, paycheck after paycheck. The short-term direction of the market is immaterial. If the market falls, that only means your next contribution will be at a discount.
Wellington
BAAAALLLINNN'
Aren't you describing what Social Security was supposed to be?
But what about those that want to retire early? It becomes a matter of not if you'll have enough but when you will and contributing as much as you can helps reach the goal
The losses you are describing are short term, based on market fluctuations. The cost of expense ratios are long term and permanent, and they decimate returns, which they noted.
Short term fluctuations of the market, which should not matter to retirement investors, are far preferable to vastly truncated long term returns and a smaller retirement balance.
Caddywompus
Member
I just got done watching John Oliver and came to check if it was mentioned in the How to Invest for Retirement thread (then saw this dedicated thread instead which it really deserves, great episode)
I wish that thread existed a few years earlier, it's such a helpful tool. And all the users there from Piecake, Cyan, Randolph Freelander, so many more, thanks for sharing all your knowledge it's really appreciated.
It's a retirement fund, you can't take it out anyway, if there is any place to make a commitment to the long term that is it.
Besides with the absolutely shitty rates on bonds these days, the dividends on a stock fund outperform them anyway.
There simple is no viable alternative investment, your only suggestion is for people to try the market when we know that that doesn't work at all.
I suspect this segment might have lost some people by not actually defining fiduciary for people not already familiar with that concept. I kept waiting for him to break it down, because the plain English version is such a common sense thing for people to want when it comes to someone advising or overseeing their investments and it becomes a shocking revelation to learn who is not in fact acting in your best interests.
VTSAX is only 0.05% so I'm good with that
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