People will be relying on their SS benefits. Threatening to cut them is viewed as thievery.

I like Bernie's plan to lift the cap.

SS was the best idea yet!
The cap needs to be lifted and the government needs to pay back what they taken from that trust fund.

There's nothing new about the fact that small employers rarely offer 401(k) programs... and it isn't as though many of them used to offer traditional pension plans either.

The headline should have been "small businesses don't offer any type of retirement plan to most workers". But people like spinning the story into 401k=bad!!

At the end of the day, we do need SS. 401k's and pensions should be thought of as extra money that allows you to take a vacation or 2 after retirement

That will come as news to many here who see 401ks as inherently evil.

Vulnerable to the market. Unlike traditional retirement pension plans, the 401K is market driven to a point and therefore poses a risk that was not perceived with the pension plan.

My retirement consist of a mix of pension plan and 401K, the company froze our pensions a few years back but matches some of our contribution to a 401K.

My fear is that the 401K will not have enough to supplement the loss of the contributions to the pension plan through the rest of my career.

I am putting as much as I can in to the 401K but we have only had the 401K for 5 years now.

But they're the only form of retirement savings many people have ever known, and you can choose as much (or little) volatility as you want.

The biggest mistake I've ever seen people make with them is not participate at all out of fear, even when they could spare the money.

A defined-contribution plan is subject to a different set of risks.

(Yes, there's the PBGC insurance program, and the first thing it does after a bankruptcy is cut defined-benefit plans.)

Plus defined-benefit plans are much worse for industries with high turnover -- I've never stayed at a shop long enough to vest in their pensions, personally, even if they had them (not that places I've worked have). Whereas my IRA money is still there.

When the government doesn't require businesses to actually pay employees enough to live on while working, much less to retire on, of course employees won't be saving.

How many have the extra cash to save? Not many. 401Ks came about because business didn't want to be in the pension business. That's fine, but the answer is not throwing people to the wolves. Expand SS to an amount a normal person can exist on and pay for it by removing the cap.

Without a 401k, you still have the IRA/Roth IRA, HSAs, savers credit, and of course taxable investment accounts. You still have several options just a few clicks of a mouse away.

so a safety net, aka Social Security, is absolutely necessary. The choice of a voluntary Social Security is absolutely the worst thing that could be given our retirement-bound worker.

From the article . . .

"The lack of plans is fueling a retirement-savings crisis. Few workers save anything outside of employer-sponsored plans. Only 8 percent of taxpayers eligible to set aside money in an IRA or Roth IRA did so in 2010, according to the IRS."

The subject of the article is a perfect example - 56 yo, $20K in savings, started an IRA in his 40's, first 401K last month. He will be totally dependent on Social Security when he retires.

How many people with Roth IRA use it just to shield current income from taxes and are putting away money in regular investment accounts anyway and don't really need the Roth IRA?

just the earnings are not taxed, and the withdrawals are not taxed. A traditional IRA allows you put aside money tax free, but it is taxed when it is taken out.

I do think 401(k)s and IRAs are an incentive to save. To develop the political will to offer them, they extend the benefits to too high an income level in my opinion. Early in my career I came up with 15% of my pretax income to my 401(k) because that was what the tax code allowed at the time. Now 30 years later I have a considerable nest egg saved. Our family has always been a single income family. I am a mid-level engineer (actually two levels up from a starting engineer). It took me 25 years to reach this level, and it is doubtful I will go any higher (I don't want the management responsibility).

About six years ago I scaled back on the 401(k) contributions and did 529s for my daughters. Again the tax advantages were an incentive (state tax free on income going in, no taxes on earnings which is not a big deal since I have it all in money market).

I don't know if it was entirely fair for me to have the tax advantages which I have had, but I do hear lots of folks with two incomes complaining about paying for their children's education. I think I have already saved enough so both can get degrees without any loans (I actually will be able to after scholarships pay all their tuition, books, and room & board).

Since the U.S, median family income is $51K, I do know that lots of families need help. I am shocked how many two high income family members are unaware of how truly wealthy they are.

Should I have paid more in taxes and taken less ownership of my own life? The tax code has helped me to behave responsibly. My 401(k) contributions will be taxed when they are withdrawn. The income from that will also be used to calculate taxes on my Social Security.

You wrote;

It is more accurate to say that a Roth IRA is contributed to with money that has already been taxed - what I call "Checkbook money".

Inside the Roth it can be invested in any number of ways and, like a 401(k) and a traditional IRA, the earnings are not taxed on an annual basis. (I know you know this)

Upon withdrawal, ALL of the distribution, both principal and earnings are distributed tax free.

A Traditional IRA is contributed to with money that has YET to be taxed, OR you take a deduction on your 1040 for the annual contributions.

Upon withdrawal, ALL of the distribution, both principal and earnings are taxed as ordinary income.

but those that recognize and take advantage of Roths also recognize and take advantage of 401Ks and IRAs - to your point.

That's not how they work.

A Roth IRA is contributed to with money that has already been taxed.

. . . unless the funds you're invested in somehow have no significant drops or you're the most amazing prognosticator on your floor, the math just doesn't add up. 401(k)s aren't going to make you a millionaire over time unless you're earning about $100,000 a year or more, contribute the max amount and have been participating in them for at least two to three decades. At best, you could hope they supplement your social security and whatever else. I'd be saving them for the future out of pocket medical care you're going to need (yet another sore spot that America needs to take care of and FAST).

401ks are a savings tool designed for those with hefty incomes. Nothing wrong with that, and I think anyone earning a six-figure salary should be contributing to one -- if they don't, they're foolish. But you're right: the best way to end up with a sizeable 401k is to earn a lot of money in your lifetime.

401ks started out as part of the "three-legged stool." Don't know if you're old enough to remember that. But it was supposed to be 401k, pension, SS. Then 401ks were sold to the general public as a replacement for pensions, and the public fell for it, hook, line and sinker.

I'm one of the lucky ones. I'm going to have the three-legged stool. But like you I'm worried about medical costs, and so I'm going to sit on my savings and hope I'll have enough to cover my out-of-pocket in the future. It'll make for a modest retirement, but at least I've also paid off my house, so I should be fairly stable.

401ks are a savings tool designed for those with hefty incomes.

Not at all. In fact, the top earners are capped in how much they can contribute. It's a large figure for low-moderate incomes, but top earners can't put as much in (as a percentage of their income). In fact, even those limits are reduced unless less-compensated employees are taking advantage of the plan.



But you're right: the best way to end up with a sizable 401k is to earn a lot of money in your lifetime.

"Sizable" is a relative term. Low/moderate incomes can accumulate comparatively sizable balances. It's hardly beyond "capt obvious" levels to point out that those with high incomes can save more.

Let's take an example. 20 year old worker without any college experience is making $15 in a normal full-time job without overtime. She can place 6% of her pre-tax earnings into the 401(k) and the company matches half of that. Depending on her tax bracket, that starting amount of almost $3,000/year reduces her annual take-home pay by less than half of that amount.

Assuming salary increases and promotions that only match long-run inflation levels and a total investment return of 7%/year... and she retires at 65 with comfortably over a million dollars in the account. I think that most people making $15/hr now would consider $1.25 million to be "sizable".

Then 401ks were sold to the general public as a replacement for pensions, and the public fell for it, hook, line and sinker.

That really isn't true. 401k plans became popular because traditional pensions were already failing younger workers. When you jump from job to job (and even career to career), you never build up a pension benefit (even if all of the employers offered them).

Any look at the history of the 401k will tell you that it was originally DEVISED as a savings tool for high income earners. As for "comparatively sizeable" balances, one needs a REALLY sizeable balance in order to have enough to retire. In order to generate the kind of income a pension would bring. "Comparatively sizeable" just won't cut it.

Maybe you're not old enough to remember this, but there used to be talk of the three-legged stool. A retiree would have a pension, a 401k, and SS: three legs. Made sense, even to me. I'll be retiring on a three-legged stool myself: pension, self-funded investments (I'm self-employed), and SS.

No, pensions were not failing younger workers. I know folks who were young at the time 401ks were first being offered, and they have all ended up retiring on pensions -- they're all doing very well, thank you. They've all been able to retire much earlier than those relying on 401ks, too.

Look, I'm not saying 401ks should be eliminated. They're a great tool. I've set up my own version of them: there are certain investments the self-employed can take advantage of: instead of an employer match, you're playing both roles. I'm sort of contributing and matching, taking both roles: a simplified explanation. I've been at this awhile, so I don't think I'm an idiot when it comes to investing.

But I'm also realistic enough to know that for most people, the 401k and SS alone are not going to be enough to support the stool. The only alternative is employment, which is probably why all the stores around here have elderly people working in them. The young kids around here can't get jobs anymore, but that's another story. I agree with someone up thread that it'd be impossible to force companies to offer pensions. Someone else mentioned an expanded government benefit. Maybe that's the answer, maybe not. But something is going to have to be done.

I know that you think you need to buy food and gas each month, and you probably splurge on such luxuries as water, heat and electricity. What you really need to do, though, is take the pressure off of employers and set aside money that you don't have, on the off chance that some market disaster completely outside of your control won't irretrievably destroy decades' worth of saving and investment.

I worked for an asshole years ago who reminded us each week that "you can't retire on a million dollars." In short, since the average worker is paid shit wages in the first place, with no way to generate $1,000,000 in retirement savings, then the average worker simply can't retire.

But that won't stop pundits and their apologists for blaming those freeloading "workers" for their failure to win at a hopelessly rigged game.

http://wallstreetonparade.com/2014/10/wall-street-journal-wealth-inequality-is-your-own-dumb-fault/

They pushed the 401k program VERY aggressively, which they would manage, of course, in their own mutual fund products. They would match the employee contributions to a certain level, but if, as you note, they're skimming 2/3 of that, they'd get back even more than they contribute!

I opted not to participate because I literally couldn't afford it, but I received several unsubtle hints each month that they really wanted me to drink the Kool-Aid...

I know many folks, myself included, who have no access to company sponsored 401k plans. Instead, we use IRA accounts. Same benefits as a 401K but the employer is not involved.

Looks like Egan did not bother to take the hour or so to set one up. As each of our kids turned 18, we walked them down to one of our many local brokers and banks and helped them get an account set up. As an added inventive we gave each $150 as an initial deposit.

Both kids are now in their upper 20's and have quite a nice nest egg as the result of regular contributions. One daughter only deposits the money she gets when returning cans and bottles. The other works as a waitress and dedicates one day's worth of tips per month.

The article is spin, there is no crisis that I can see

Methinks no. Then after decades in the business you'd think he wouldn't be blaming the latter vehicle for his plight then...

The Wagon Wheel Diner is still going 40 years from now and has enough cash flow to pay out monthly benefits to people who haven't worked there for 20 years. Kind of ridiculous, and a pretty ridiculous story.

It was not supposed to be INSTEAD of a good pension.

But retirees were supposed to have a three-legged stool to "sit on": one leg pension, the second 401k/savings and the third leg SS. Then companies found that 401ks were a great way to save money and so pushed them as a better alternative to pensions. And the worker bought it.

and now he pays the price. Many of us who have been saving since we started working have built a pretty nice nest egg merely 15-20 years later, with 15-20 years to go.

And we're particularly bad at seeing that immaturity as a root cause for later suffering.

Apparently not in a high-end one that had big tippers either, either. He was a manager, which meant he was paid perhaps 15% more than the senior server, line cook, or chef, if they had a chef? During a time where lower-end wages were stagnant. I'm sure he spent his munificent-just-above-minimum wage with little to no benefits on frivolous things like medical, a place to live in, utilities, a vehicle, and maybe the occasional beer with his buddies. If he had a family, even if his spouse worked, there are costs associated with school for the kids, etc.

I'm sure he had, maybe an average of $50 after paying all the necessary bills each month. Which he probably kept in the checking or maybe put in savings instead of in retirement, because there were always things like buying a suit at the thrift store for a family member's funeral, or having to catch a bus to head out there, or fixing the car, or moving, or even just having 6 months wages set aside incase he lost his job and had to make due until he found a new one, because the restaurant business is so stable.
Between 1997 and 1999, I had a rent-mate who was a night manager at Denny's with child support payments and a second job working the Arco across the street; she could barely afford the "rent" I charged of paying utilities and her own phone bill along with her car payment, her own medical insurance and child support - guess she should have gotten a better lawyer during the divorce.

What financial gurus pushing "Retirement Strategies" tend to forget is that the first thing anyone who works for a living should do - the first thing they taught us in home economics back in the 1970's, and what my parents taught me - is have 6 months worth of wages rainy day fund for emergencies.
(Christmas accounts and "big ticket entertainment" accounts are not the same as the emergency account) A "rainy day" account is a separate dedicated savings account where 1) it's liquid and 2) doesn't cost anything to remove from to tide you over if something happens now.
Then you can start saving for retirement, because your basic needs - like shelter and food, in a costly emergency situation are covered.

Problem is, if you're not being at least 400x minimum wage - as in, you can actually get to the end of the month with $200 or more in your pocket - that rainy day fund usually starts getting dipped into before enough is saved up.
Example: During the 1990's I was making a good salary, from $45K to almost 6 figures, it took me 3 years to build an emergency fund; however, one paid-for vehicle repair (f'n head gasket and oil pump!) a couple months later emptied it; took another 5 years to build it back, because sometimes, I had to take a couple weeks unpaid "leave" while we were between contracts. I bought a house right after that (got $2K from an uncle who had passed, and used that to pay for fees on a VA loan). A year after that, I got pink-slipped as the company "re-structured". I spent a few months job hunting and waiting to start work again for almost six months. Another 4 years to build it back, because I had to switch employers twice during that time.
Of course, with the money I was making, I was soon able to put in the company 401K and had my medical and dental taken care of pre-tax, which knocked my "income" down, reducing tax liability over the years.
But still, that "rainy day" fund was critical, and there were more a few times during that period where I stopped putting money in the 401K to make sure that I could last long enough to have options available prior to possible foreclosure if I couldn't find a decent-paying job quickly enough should something happen to the job market.

I was single for most of the 1990's and making pretty decent money at the time - twice that of an average restaurant manager. I could afford a rainy day savings account, a home/vehicle repair account, and a 401K at various times during that period.
I could have had a halfway decent nest egg.
But...my spouse became disabled, and I got seriously injured, and since our income went way down and our critical expenditures went way up, I had to sell the house at a "fire sale" price before we got foreclosed on. I ended up starting over as a "Program Manager's assistant" at less than half what I was making before, but, hey - I admit it, I screwed up in my life choices, bought a house when I thought I could, got married to a sweet guy, my best friend, who became disabled and took 4 years to get SSDI while racking up medical bills, and then I just had to go and slip 30 ft. off a floating dry-dock ladder way in the rain after working a 12 hr. shift, then got hosed big time by Traveler's Insurance as they took two years to close out my claim.
I was so-o-o-o foolish.

At least I didn't dip into the IRAs that I had to roll all my diverse 401K accounts into over the years. So I've got around $76K in closed IRAs right now, along with the 401K I'm contributing to, all just waiting for me to turn 65. My rainy day fund got depleted when our engine blew up in May, but it's about halfway back again, so we should be good by Feb. Just cross fingers that we don't get hit by some other emergency.

So y'know - maybe I wouldn't be too hard on a guy who works 45 years at a job he was comfortable with and could get just because wages in his field went flat from the late 1980's on and he ended up struggling to make ends meet.
The problem is that when life is monetized, money becomes the priority over people. The bottom line becomes more important than the people who actually make your business run to give you a bottom line.
This man's employers did not maintain a sense of value in the work a manager providing to them, so they didn't pay him the equivalent amount he was worth over time. When wages are stagnant and jobs are scarce, it can be difficult for someone who has something s/he needs to provide for to make the decision to jump from one field to another.
The reality is that changing jobs or relocation in itself is an investment of both time and money that may not pay off - from the 2000's on, there was no guarantee anyone would have had a job after "re-training" or moving to a cheaper place to live, while there was a guarantee of a job that paid at least a little over minimum by staying in a field that one had both experience and (presumably) a good reputation.
The issue is not simply"why didn't the fool save for the future", the issue is "why weren't his wages rising commiserate to the work he was doing for his company to make it money so he could save for the present and the future?"

There was once a time within the memory of some of us between boomer/X'ers, when managers at retail and grocery stores and small "family" restaurants could make enough money to put 20% down on a house, or pay cash for a new family car after a few years of hard work. A time when they could take 2 weeks of family vacation every summer, and still have enough saved up for "rainy day" funds, for college funds - and for just all around "savings" to roll into a retirement.
I suspect this gentleman was, like myself, trained to think financially about securing the immediate future before securing the far off future. And with flat wages, there was very little way to get ahead.

Haele