Boomers Discover That 401(k)s are a Scam

Another big negative about 401ks that most people are not aware of is that they directly increase unemployment. When boomers have to stay in their jobs because they can't retire, an unemployed person cannot take over their job, which would be the case if everyone had enough money to retire.

how can an underfunded retirement account be a scam ? its called poor retirement planning combined with poor market returns. people are being caught off guard.

because sleazy financial advisors are steering people into higher risk investments and charging tons of fees that eat away from the value of the 401k.

The WSJ article correctly points out people put too little in, started contributing too late and borrowed against the funds, which they should not do. Done correctly 401K'S work and don't cause municipalities to raise taxes or go bankrupt.

but 401ks were never meant to be a primary retirement vehicle. They were meant to SUPPLEMENT pensions, not replace them.

And even if you got rid of pensions tomorrow, muncipalities would still be in trouble due to health care costs.

This is like saying working for a living doesn't work because some idiots spent too much and are now broke.

"because sleazy financial advisors are steering people into higher risk investments and charging tons of fees that eat away from the value of the 401k"

Yes, sleazy anonymous message board posters who steer people into stupid investments in real estate are SO much better!

no, it's like saying working for a living doesn't work because some people make too little and are now broke.

at least the anonymous message board posters don't charge fees.

This is like saying working for a living doesn't work because some idiots spent too much and are now broke.

I agree with this. Welfare is a much better system.

pensions are a thing of the past. thats just reality

welfare pays better than minimum wage. Why anyone would work for minimum wage is beyond me.

Pensions worked when life-spans were shorter. It was like funding a liability you'd never have to pay. With life span's going into the 80's or 90's and interest rates approaching zero, the present value of that liability is not findable.

My retirement plan is to start a corn farm in Iowa and live off the corn/ ethanol subsidies.

It seems that SS works out to $36K a year for the median HH, and that 401k works out to $9K. For SS, the government took 10-12% of annual income and invested it at an ROI of around 3% for someone retiring today. Given that both bonds and stocks have vastly outperformed that over the 1970-2010 period in question here, it's unclear how one gets just a return of 3% in a 401k, but let's go with that. To have just $9K of retirement income from 401k's means that the median person was just putting 2.5% of income towards retirement if ROI was 3%. The reality is probably even lower since returns probably averaged 7-8% over this period, so the median person was just putting 1-2% towards retirement.

What are you suggesting as a solution, Socialist? Should we take SS tax up to 25%, half from employer half from employee, so as to force every person to have saved enough? If we as a society feel that being fully-funded into retirement is something we want to ensure / force, wouldn't you rather have it in the hands of the govt rather than corporate pensions subject to being hit in case of bankruptcy?

"welfare pays better than minimum wage. Why anyone would work for minimum wage is beyond me."

1) You continue getting welfare; wages only cut your welfare by $0.50 on the dollar.
2) You earn SS credits without paying for it (your SS payments are given back through the EIC), thereby getting an additional $0.10 on each dollar worked.
3) You set yourself on a path to achieve more.

I think you have a very negative viewpoint on the human spirit. There is no inherent limits on mankind's ability to produce stuff. Jobs are not a finite resource. I don't think people living in Egypt are inherently only able to produce an eighth of an American because they are born lacking something. One person's producing something does not take away from another person's ability to do so.

"no, it's like saying working for a living doesn't work because some people make too little and are now broke. "

So the solution is to have those people pay more taxes to allow government mechanics to retire on $250k?

Sounds as dumb as anything else you've suggested.

You mis-read the article entirely, TOP. Boomers did not save ENOUGH. It was not the method by which they saved.

Saying 401ks are a scam is like saying math is a scam. A better title for the article would have been: Most People Don't Understand Their 401k. Especially:
- learn the Rule of 4% - with 25 years of retirement, every $40,000 in income requires $1,000,000 in cash! These boobs with $200,000 balances expecting a comfortable retirement are particularly clueless.
- learn how to invest - allocate assets by risk/return category and rebalance! DONT market time. (and read "The Investment Answer")
- don't withdraw money!
- and for most people, if you ain't saving at least 15% over your entire career, retirement won't be pretty!!

"It assumes people need 85% of their working income after they retire in order to maintain their standard of living, a common yardstick."

Very few people retire with 85% of their working income.

Most find ways of cutting back, like moving to a lower cost area. Why do you think so many New Yorkers end up in Florida?

RealEstateNY: "Most find ways of cutting back..."

Most are FORCED to cut back...

"Very few people retire with 85% of their working income. Most find ways of cutting back, like moving to a lower cost area. Why do you think so many New Yorkers end up in Florida? "

I think folks though often forget what their working income really was... or, more appropriately, should be thinking about non-work consumption.

You were contributing 10% to your 401k. That goes away. If you move to a retirement area, your taxes go down. Your house may be paid off, so no mortgage... and then with less income, further less in taxes. So, the 85% rule of thumb, while it might have some logic, is sort of useless given how different scenarios can be.

"You mis-read the article entirely, TOP. Boomers did not save ENOUGH. It was not the method by which they saved."

Alpo, not reading past the first 4 words of an article? I DON'T BELIEVE IT.

"Saying 401ks are a scam is like saying math is a scam. "

nice....

"Most are FORCED to cut back..."

Believe me, by the time you are ready to retire, you're sick of the overpriced restaurants, theater, grocery stores, rent or maintenance fees, garage fees, taxes, etc. Been there - done that.

It's no hardship to eat at home in a beautiful climate, with more space, a swiming pool in your backyard, less taxes and a general substantially lower cost of living.

Some of us would rather live near their children, grandchildren, friends and relatives most of the year and stay in Florida just for the winter.

Most boomers cannot move to a lower cost area because they can't sell their houses. Most boomers believe that if they can't their their magic price, it makes no economical sense to move and they will stay in their McMansion until death.

And in NYC, if your living in a rent controlled apt., why move to a lower cost area? If you move, most likely yoru housing costs will increase.

"So the solution is to have those people pay more taxes to allow government mechanics to retire on $250k?"

There is not a single mechanic with a $250k a year pension. Stop spreading nonsense.

There's always the option of arbing the rent. Rent out the Manhattan place and then move and rent a cheaper place down south. If you add downsizing to that mix it works even better. Plus you can depreciate based on your cost basis and make the income tax free.

so thatz your game plan.... arbing nyc rent to orlando rent... FLMAOzzzzz... get thee to the $4 nite dinner special fkatardo.

Mr. Riversider how do you intend on retiring with SS only?

A: "I will arbitrage my way into prosperity!"

FLMAOZzzzz.. .thatz the funniest thing I've read from Riversider and explainz a lot alot alot

I disagree.

401(k) plans were sold to Baby Boomers in the late '70s and early '80s as a REPLACEMENT for the pensions they were losing.

It was a scam.

Being a realtwhore making a 'living' is a scam. Arbitraging nyc rents for cream cheese in orlando is a scam. Being a board prez and feeling important is a scam.

Suckling on a bubble is a scam.

Right on, RS. Arb your dinners at Masa with the dollar menu at McDonalds. An instant $490 profit! Best part: you won't leave McDonalds hungry after 5 dollar menu items. Besides, imagine all the cream cheese you can buy with that, like a whole year's worth, with one dinner.

Matt, you are wrong. 401(k)s were created because everyone realized social security wouldn't be enough, so they were created to supplement social security.

do you have any basis for this?

85% is too high for retirement. Before retirement, you are saving for retirement, paying for your kids' education, paying your mortgage, commuting to work, eating out as you did not have time to cook etc. I would say close to 50-60% of your previous income.

They should move the retirement age to 85. 65 is absurd. I mean, there are UFC fighters in their late 40s for God's sake.

You do know that the average life expectancy in the U.S. is 78?

Socialist: I believe your life expectancy figure is the "at birth" number. For Americans who live past 30 or so the number is a good bit higher than 78.

This is the stupidest thread I've seen on here in a while. And that is saying a lot given the ridiculous nonsense the most prolific posters never tire of sharing.

No one was scammed. People were/are naive, ignorant, lazy, irresponsible. Period.
They never saved enough.
They never took the time and effort to figure out how much they needed to retire.
They never met with an independent financial advisor and for some reason thought the guy at the bank or mutual fund company who was trying to sell them something was to be trusted.
They often accumulated untenable amounts of debt.
They spend on luxuries they could not afford.

And now the chickens come home to roost and they cry foul. Please. Spare me. It isn't overly-risky investments or high fees that did them in--or at least these were only contributing factors but not the main causes. The main reason there isn't enough to retire is that people have not saved enough for decades. Buy that big screen TV. Go to Foxwoods for another weekend. Buy the RV that loses 1/2 its value in the first year. Take that home equity loan to build the extra room on the house and use what is left for a second honeymoon. And then, when the consequence of all those awful decisions come to pass, blame 401Ks. Absurd.

"They never saved enough"

They never had to before, given the previous generation with their pensions.

***
"They never took the time and effort to figure out how much they needed to retire."

They were too busy working 80-hour workweeks, raising children, putting them through college, and then taking care of their parents.

***

"They never met with an independent financial advisor and for some reason thought the guy at the bank or mutual fund company who was trying to sell them something was to be trusted."

Because, of course, everyone has $1000 to blow on an "independent financial advisor".

***

"They often accumulated untenable amounts of debt. They spend on luxuries they could not afford."

They were guilty only of trying to live as well as their parents.

Somehow having children is an excuse for irresponsible financial planning? Really? In the 18 years it takes to raise a kid there isn't a weekend you can sit down to figure out how the family you created can responsibly plan for its financial future? Give me a break.

If you work hard enough you don't have to actually have a plan for the future? Really?

A sense of entitlement that you get to live a certain way is an excuse for overspending? Really?

You can afford to choose to pay a zillion dollars in fees for silly bank-offered mutual funds but can't afford one-time fee for consultation with an independent financial advisor (if they even charge for the consultation)? Really?

Because a previous generation did something, you just blindly believe you can do it too even though things are obviously different now? Really?

If this is the reason 401Ks are "scams" then I stand by what I said: people are fools.

Blame everyone but never, NEVER take personal responsibility. Government's role to save us from ourselves and the consequences of decades of personal irresponsibility. Really?

"I believe your life expectancy figure is the "at birth" number. For Americans who live past 30 or so the number is a good bit higher than 78."

50% of those reaching 65 will live to 83.

25% of those reaching 65 will live to 90.

10% of those reaching 65 will live to 95.

"And in NYC, if your living in a rent controlled apt., why move to a lower cost area? If you move, most likely yoru housing costs will increase"

If you have a stabilized apartment, you have been subsidized by everyone else, so you should not expect your costs to go down, they are already artificially low. You are already reaping the benefits.

It's not a free deal...in exchange you pledge votes to the local politician. This is the corrupting part of the system. Large number of people who benefit from the stabilization have a built in incentive to support the candidate that pledges to keep the system going. Same reason FDR was against public unions.

The basic problem with this thread is that nobody ignored the troll until he went back und his bridge...

This thread might have been relevant if it had opened with a discussion about whether retiring boomers are sufficiently prepared for their retirement and if not, what impact that might have on real estate. instead of a flame bait diatribe on 401Ks and retriement entitlements.

I can't believe I read all the comments on this thread.

Clearly if you do your research and are an intelligent investor you can find places to get a much better return on your money than inside an awful 401k. The fees you do incur over the 30 years or more that you have one do take a huge bite out of your savings and the deferred taxes are typically going to be higher more expensive 30 years down the road then they currently are right now.

For those of you who are still drinking the cool aid and don't want to believe that 401k's are a bad investment well you are just too stubborn. I am glad I don't have a 401k. I am very glad I was enlightened and learned how to generate income without working. It's a very tough life.... =)