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All that is needed to protect 401K and other retirement accounts is to make it illegal and impossible for an unethical company to touch those funds. Make them the property of the employee that the employer cannot access and the problem is solved without costing the taxpaper a single dime.
How do you protect the money from market risk? In October 2008, many 401(k)s lost 40-50% of their value.
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And man what a buying opportunity that 2008 crash was. The Dow closed at a low of 7449. It closed yesterdy right at 14,000. The average performing stock would have pretty much doubled in value if you had bought it at the 2008 low. And that's in what most of us are frustrated with as a fairly flat market lately. Meanwhile inflation whittles away at your social security investment nickle by nickle every day.
Yes, but those new collections are also invested on a daily basis. The benefits will still be paid from those investments.
Only the difference between collections and current benefits, the surplus, is invested. That surplus was created precisely because of the shortfall the actuaries predicted.
FICA collections, however, are NOT invested in anything. They are spent as soon as they are collected and anticipated future revenues are borrowed against. They aren't banked so that they even collect interest, much less invested.
How do you protect the money from market risk? In October 2008, many 401(k)s lost 40-50% of their value.
...
And man what a buying opportunity that 2008 crash was. The Dow closed at a low of 7449. It closed yesterdy right at 14,000. The average performing stock would have pretty much doubled in value if you had bought it at the 2008 low. And that's in what most of us are frustrated with as a fairly flat market lately. Meanwhile inflation whittles away at your social security investment nickle by nickle every day.
This illustrates my point. The majority of 401(k) owners don't have the market acumen to manage their 401(k)s. Their employers withhold money, give it to the 401(k) administrators and the employee trusts both of them. That trust is misplaced. The employer and the administrators are profit-seekers. They're not interested in the employee's welfare.
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All that is needed to protect 401K and other retirement accounts is to make it illegal and impossible for an unethical company to touch those funds. Make them the property of the employee that the employer cannot access and the problem is solved without costing the taxpaper a single dime.
How do you protect the money from market risk? In October 2008, many 401(k)s lost 40-50% of their value.
Over time you move your funds in the 401k from stock based funds to bond based funds and money markets. Before you hit 50 most of your $$ should be in high risk items (stocks). Over time you move money to bonds, then money markets.
At my age (38) recessions dont mean much. While I lose share VALUE, I can buy shares of the fund at a lower cost, increasing my COUNT. The key is to move out of the volatile funds near a peak to safer funds for maximum return.
It really isnt that hard.
Only the difference between collections and current benefits, the surplus, is invested. That surplus was created precisely because of the shortfall the actuaries predicted.
FICA collections, however, are NOT invested in anything. They are spent as soon as they are collected and anticipated future revenues are borrowed against. They aren't banked so that they even collect interest, much less invested.
That's not so.
FICA rates were set in the early '80s to create collections which exceed benefits. The portion which exceeds benefits, the surplus, is invested -- in interest-paying US Treasury securities. When benefits exceed FICA collections, the Treasuries will be liquidated to supplement the collections so benefits can be paid at 100%.
How do you protect the money from market risk? In October 2008, many 401(k)s lost 40-50% of their value.
Over time you move your funds in the 401k from stock based funds to bond based funds and money markets. Before you hit 50 most of your $$ should be in high risk items (stocks). Over time you move money to bonds, then money markets.
At my age (38) recessions dont mean much. While I lose share VALUE, I can buy shares of the fund at a lower cost, increasing my COUNT. The key is to move out of the volatile funds near a peak to safer funds for maximum return.
It really isnt that hard.
It is if you don't have financial background.
And the average 401(k) owner doesn't. He might drive a truck or install heating and air conditioning or do anyone of a million of other things which don't give him much time to study market trends and share offerings.
Over time you move your funds in the 401k from stock based funds to bond based funds and money markets. Before you hit 50 most of your $$ should be in high risk items (stocks). Over time you move money to bonds, then money markets.
At my age (38) recessions dont mean much. While I lose share VALUE, I can buy shares of the fund at a lower cost, increasing my COUNT. The key is to move out of the volatile funds near a peak to safer funds for maximum return.
It really isnt that hard.
It is if you don't have financial background.
And the average 401(k) owner doesn't. He might drive a truck or install heating and air conditioning or do anyone of a million of other things which don't give him much time to study market trends and share offerings.
I have an engineering background, and Im usually terrible with money. They even have funds that do the transition FOR you.
It takes a few hours a quarter to handle your investment.
This illustrates my point. The majority of 401(k) owners don't have the market acumen to manage their 401(k)s. Their employers withhold money, give it to the 401(k) administrators and the employee trusts both of them. That trust is misplaced. The employer and the administrators are profit-seekers. They're not interested in the employee's welfare.
Then perhaps that should be incentive for educators to educate people in how to manage their money? That was once taught pretty competently in U.S. schools. We learned how to balance a check book, how to calculate interest earnings, and calculate yields on other investments. We learned the difference between profit and loss.
But again, you don't HAVE to invest in the market if you own your own 401K or IRA which everybody should do. That should be mandated by law as a requisite for getting the tax deferrment. These should not be under the control of or managed by the employer which does put them at higher risk. There is nothing to keep people from putting all their retirement contributions into risk free vehicles such as interest bearing savings accounts or CDs or savings bonds. They won't yield much in such vehicles but the only risk to their value will be inflation.
And for those willing to accept reasonable risk to secure their financial future but don't feel competent to do that themselves, there are a lot of businesses with good track records who can manage those funds for them.
It all comes down to whether we have the freedom to be smart or stupid or whether we allow the government to make all our decisions for us. I prefer the freedom to be stupid if that is how it turns out.
I don't think the answer is that easy. We just say "more education" and "hire someone." The policy-makers have an affirmative duty to ensure the general welfare is served. That includes retirement security.
They can't just say everyone should be responsible for himself.
They have to take steps to ensure everyone is protected from destitution. They have to provide some minimum level of income.
This illustrates my point. The majority of 401(k) owners don't have the market acumen to manage their 401(k)s. Their employers withhold money, give it to the 401(k) administrators and the employee trusts both of them. That trust is misplaced. The employer and the administrators are profit-seekers. They're not interested in the employee's welfare.
Then perhaps that should be incentive for educators to educate people in how to manage their money? That was once taught pretty competently in U.S. schools. We learned how to balance a check book, how to calculate interest earnings, and calculate yields on other investments. We learned the difference between profit and loss.
But again, you don't HAVE to invest in the market if you own your own 401K or IRA which everybody should do. That should be mandated by law as a requisite for getting the tax deferrment. These should not be under the control of or managed by the employer which does put them at higher risk. There is nothing to keep people from putting all their retirement contributions into risk free vehicles such as interest bearing savings accounts or CDs or savings bonds. They won't yield much in such vehicles but the only risk to their value will be inflation.
And for those willing to accept reasonable risk to secure their financial future but don't feel competent to do that themselves, there are a lot of businesses with good track records who can manage those funds for them.
It all comes down to whether we have the freedom to be smart or stupid or whether we allow the government to make all our decisions for us. I prefer the freedom to be stupid if that is how it turns out.
I don't think the answer is that easy. We just say "more education" and "hire someone." The policy-makers have an affirmative duty to ensure the general welfare is served. That includes retirement security. They can't just say everyone should be responsible for himself. They have to take steps to ensure everyone is protected from destitution. They have to provide some minimum level of income.
This consistent with moving to the Teresa Guilarducci plan:
How Guaranteed Retirement Accounts work
Structure. Guaranteed Retirement Accounts are like universal 401(k) plans except that the government, as befits a large and enduring institution, will invest and manage the pooled savings.
Participation. Participation in the program is mandatory except for workers participating in equivalent or better employer defined-benefit plans where contributions are at least 5% of earnings and benefits take the form of life annuities.
Contributions. Contributions equal to 5% of earnings are deducted along with payroll taxes and credited to individual accounts administered by the Social Security Administration. The cost of contributions is split equally between employer and employee. Mandatory contributions are deducted only on earnings up to the Social Security earnings cap,2 and workers and employers have the option of making additional contributions with post-tax dollars. The contributions of husbands and wives are combined and divided equally between their individual accounts.
Refundable tax credit. Employee contributions are offset through a $600 refundable tax credit, which takes the place of tax breaks for 401(k)s and similar individual accounts and is indexed to wage inflation. Eligibility for the tax credit is extended to part-time workers, caregivers of children under age six, and those collecting unemployment benefits. If an individuals annual contributions amount to less than $600, some or all of the tax credit is deposited directly into the account in order to ensure a minimum annual deposit of $600 for all participants.
Fund management. The accounts are administered by the Social Security Administration and funds are managed by the Thrift Savings Plan or similar body. Though funds are pooled, workers are able to track the dollar value of their accumulations, as with 401(k)s and other individual accounts.
Investment earnings. The pooled funds are conservatively invested in financial markets. However, participants earn a fixed 3% rate of return adjusted for inflation, guaranteed by the federal government. If the trustees determine that actual investment returns have been consistently higher than 3% over a number of years, the surplus will be distributed to participants, though a balancing fund will be maintained to ride out periods of low returns.
Retirement age. Participants begin collecting retirement benefits at the same time as Social Security, and therefore no earlier than the Social Security Early Retirement Age. Funds cannot be accessed before retirement for any reason other than death or disability.
Retirement benefits. Account balances are converted to inflation-indexed annuities upon retirement to ensure that workers do not outlive their savings. However, individuals can opt to take a partial lump sum equal to 10% of their account balance or $10,000 (whichever is higher), or to opt for survivor benefits in exchange for a lower monthly check. A full-time worker who works 40 years and retires at age 65 can expect a benefit equal to roughly 25% of pre-retirement income, adjusted for inflation, assuming a 3% real rate of return (see Table 1). Since Social Security provides the average such worker with an inflation-adjusted benefit equal to roughly 45% of pre-retirement income, the total replacement rate for this prototypical worker will be approximately 70%.
Guaranteed Retirement Accounts: Toward retirement income security | Agenda for Shared Prosperity
The government is going to go after the capital saved by private citizens in 401Ks and IRAs...under the pretext of savings us from the financial services industry.
I would not have a problem with a competent review board who would rate financial investment firms as 1) Honest and transparent 2) Competent. Wait. We already have that with Morning Star and other rating systems.
All the government has to do is educate the public on how to access those ratings and encourage them to invest only in the most solid and conservative ones if loss of their savings is a big issue.
And that is ALL the government should do.
This illustrates my point. The majority of 401(k) owners don't have the market acumen to manage their 401(k)s. Their employers withhold money, give it to the 401(k) administrators and the employee trusts both of them. That trust is misplaced. The employer and the administrators are profit-seekers. They're not interested in the employee's welfare.
Then perhaps that should be incentive for educators to educate people in how to manage their money? That was once taught pretty competently in U.S. schools. We learned how to balance a check book, how to calculate interest earnings, and calculate yields on other investments. We learned the difference between profit and loss.
But again, you don't HAVE to invest in the market if you own your own 401K or IRA which everybody should do. That should be mandated by law as a requisite for getting the tax deferrment. These should not be under the control of or managed by the employer which does put them at higher risk. There is nothing to keep people from putting all their retirement contributions into risk free vehicles such as interest bearing savings accounts or CDs or savings bonds. They won't yield much in such vehicles but the only risk to their value will be inflation.
And for those willing to accept reasonable risk to secure their financial future but don't feel competent to do that themselves, there are a lot of businesses with good track records who can manage those funds for them.
It all comes down to whether we have the freedom to be smart or stupid or whether we allow the government to make all our decisions for us. I prefer the freedom to be stupid if that is how it turns out.
I don't think the answer is that easy. We just say "more education" and "hire someone." The policy-makers have an affirmative duty to ensure the general welfare is served. That includes retirement security. They can't just say everyone should be responsible for himself. They have to take steps to ensure everyone is protected from destitution. They have to provide some minimum level of income.
And 40k per year when you are 65 will be worth what then?
3 months living expenses?
And 40k per year when you are 65 will be worth what then?
3 months living expenses?
And 40k per year when you are 65 will be worth what then?
3 months living expenses?
Thats based on current dollars or a general understanding of inflation.
A better thing to look at is what your plan says should be your calculated payout per year (using a standard interest plus x% principal withdrawral rate) and see what you are on target for.
For example at 38 years old I have $142k in my 401k, and my anticipated yearly withdrawl amount at retirement is $112k a year. Thier suggested target is $66k, so I am well ahead of what I should be doing.
Again, it isnt that hard.
