This is a false equivalence. Poker is a zero-sum game. Investing in the market is not.
Your alternatives to investing in the broad market of company stocks and bonds is putting your money in real estate, starting your own business, or personally invest in people who start businesses, or trading risk for return with annuities or life insurance, or keeping it in cash/money market which might not even match inflation. Alternatives to have significantly more risk, less growth, or require significantly more time or expertise, and may not have a tax advantage. Alternative pensions may essentially force you to stay in a job you don’t want, and are at the whims of the CEO or governor who may just decide to not fund it, or depend on whether the company will actually be around when you retire. No thank-you.
Isn’t that when & where the PBGC steps in? (I’m not sure they cover all pensions, or whatever’s left of 'em)
The company I work for keeps changing hands, but for a minute, they actually had an option whereby one could invest in stocks, ETFs etc. as with a personal brokerage account. I didn’t put in the effort to try it before the company was bought out, and the 401k provider changed with it.
True, but you’ll work until you die, unless you are completely self sustaining, ie, independently wealthy or live in an ‘off the grid’ subsistance manner. You’re always in the game. You’ll never escape… Batman!
It is true that we 401K participants are at the mercy of what our companies offer but nobody I know in American businesses has a plan that doesn’t offer a low fee S&P 500 fund.
Seems odd to rail against 401K’s as a breed, claiming it only provides liquidity to the stock market. More money, by an order of magnitude, is in the bond market. We don’t get the sweetheart deals that Buffett swings either.
I will gripe as much as anyone about the reduction of companies offering passive pensions (defined benefit), including the one I work for (who still has a pension accruing for our UK employees, grrr).
Haven’t read the NYT article, but one thing confuses me (well, many things, but only one thing here). Even defined benefit pensions are paid from a fund that is invested… right? Or am I missing something?
I understand that “defined benefits” are anathema to those who believe that only they should get the moneys, and that this “middle class” is a bunch of arriviste upstarts. But I don’t see how the difference is in the medium of investment. JUST READ THE ARTICLE
Oh. Wow. Pension funds offer bargaining power, while 401(k)s do not. I get it. Wow.
Warren Buffet just won a 10 year bet that index funds would beat hedge funds over the long haul, and most of those years were bull markets.
The main thing here is how much time and energy you want to put into tracking the market, Moving in and out of sectors as indicators change can allow you to beat index funds, but it does take work. If you are not willing to spend the time to keep on top of the markets, index funds are a low cost, and great way to invest, but what do I know I bought TEVA at 28.
If you like the bait and switch from pensions to 401ks, watch how companies are gradually pulling out of health insurance plans and moving to health savings accounts. In both cases, you have control over your money in narrowly limited ways. In both cases, the company pays less and you receive less. Best of all, when you come up short, you can blame yourself for not investing more wisely or pulling more money off the money-tree to stuff in your health savings account.
The only way to beat the 401k is to put up exactly the amount your employer will match, and no more. Then, immediately upon leaving the company, roll it into a real IRA.
Unfortunately, not even this works all the time, as many of the companies I left would only contribute matching funds in their own stock, and I was usually leaving as the result of a failing business and crashing stock value. It’s basically a way of pretending to give a benefit, but the company never really has to pay anything.
One of them laid me off when their stock was at $29, then refused to release the 401k until the stock was half that. Another laid off 100 of us when the stock fell from $23 to $14, then immediately went bankrupt and emerged a year later with no debts.
Not according to what I’ve read, and I used to do this for a living. Fact is, your crystal ball doesn’t work. Even the pros only beat the market 50% of the time - and then you can subtract their fees.
It’s actually not that hard. For most Americans, something like one low-fee index fund investing in the US stock market, another in the Eurozone, and a third in the Asian market or emerging markets, would be enough, with something like 50% / 30% / 20% split. As you age and retirement approaches, you start moving money from those into fixed-income funds, to secure your gains.
There’s a lot of material available online about investing in index funds, which really is the best way to go for vast majority of small investors. The thing is, you have to know it’s there to look for it and find it.
I seem to remember reading that because institutional investors like pensions have an effectively infinite investing timeline they can avoid that last step and maintain a constant stock/bond balance, so as a result they need to invest much less to provide a given benefit than 401k and IRA investors do.
My 401k costs me less than 1%, gives me 100% return on my contribution and then averages 6% return over the life if I just use an index…where else in the savings world do you get this? If you have half a brain you can run a retirement calculator that will give you a decent expectation for where you can be if you save. Won’t make you rich but should make retirement more comfortable. This author is just trying to be controversial.
Exactly - a pension would force me to stay at one company for 30+ years or whatever the requirement is. And then there’s no guarantee that the pension would actually be there - look at GE’s pension liability. Or the State of California’s pension. Those people are all screwed. On the other hand, my 401k is doing just fine.
If a broad index fund with low fees is good enough for Warren Buffett, it’s good enough for me.
You’ve worked at bad companies. Regardless of the match, it’s tax deferred, so you still come out ahead - especially if you can be at a lower tax rate when you withdraw the money.
