Schafer: Booming stock market isn't enough to fix 401(k) problems

  • Article by: LEE SCHAFER , Star Tribune
  • Updated: May 11, 2013 - 9:09 PM

It’s going to take more than a strong stock market to fix America’s broken self-directed retirement finance model.

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wickeywackeyMay. 11, 13 9:52 PM

Good article, Lee.

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garagewineMay. 11, 1310:30 PM

"Beefed-up" social security, huh? Nowhere in this article did you mention that most of those who failed to save enough for a "comfortable" retirement still have social security supplementing their retirement accounts. Nor is the possibility suggested that if these people were not forced to pay into social security in the first place, earning them negative real returns from their hard-earned dollars, that they might be able to save and invest toward a more comfortable retirement.

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woodenickelMay. 11, 1310:30 PM

I got my first "real job" with a salary at age 22, but couldn't afford funding my 401K until almost age 27. When I finally did, I timed it when I got a raise and set my contribution at 6% to get the company-match. The chunk out of my paycheck pinched a bit at first but like when gas went to $4+, we seem to make adjustments in our priorities, and I dealt with it. Each year, my contribution to it was set to increase by 1-2% until it got to the current 15%. Bluntly, I don't even know it's going into my 401k, and I manage my current financials based on what I'm bringing home now, but know I'm setting a good foundation for my future. I check it monthly to make sure everything is ok, and chat with Fidelity who helps me manage it regarding the aggressiveness of my portfolio and adjust accordingly. Looking at the big picture, over the entire existence of the stock market, over any given 40-year time period, as a whole it's never gone down below your starting basis. I'm 34 and in my opinion, I don't trust that social security will be there for me when I retire. If it is, great. If not, how can I best manage my current situation to help set the stage for later in life? If that means I live in a slightly-smaller-but-comfortable house, not opt for the extra $5K in options on my next car(that I can live without), buy a Caribou 1 day a week instead of 3, or many other small but compoundable differences, there are choices I can make that as a whole, don't cause any detrimental effect to my quality of life, yet still put me in a position to be secure in my future.

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jcinmnMay. 11, 1310:49 PM

"Given how many have proved that do-it-yourself retirement saving doesn’t work, for most workers some sort of pension that takes the saving and investment decisions out of their hands would be a lot better. A beefed-up Social Security system, which is a sort of defined-benefit plan for all workers, may be better." There's only one problem with that. The Social Security Trust Fund is tied to the federal budget so the politicians use it to fund projects (like wars) that they don't have the courage to budget for themselves. Every dollar taken from American workers has been borrowed to fund every war from WWII to Iraq. The money is never really paid back. When the note comes due another "loan" is taken out of the trust fund and a vicious cycle continues. The politicians blame the retirees for being a burden on the countries finances when it was they themselves who are the problem.

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jcinmnMay. 11, 1310:56 PM

Are financial planners pushy enough? Are they thorough enough? Does the average John or Jane Doe understand that a contribution to a 401K or 403B actually lowers their taxable income so, in essence, the treasury department is helping them contribute to their future financial security? It took me and my wife's financial planner 4 years to convince her to "try" a minimal monthly contribution (deducted from her paycheck) before she would finally agree. Had we not both contributed to our own plans our monthly income would be half of what it is today even though we lost 50% of our fund four years ago. Had I not pushed her and her financial planner to make this decision we would not be retiring comfortably.

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rayk1800May. 12, 1312:57 AM

Well, my wife and I lived cheap and saved. Worked hard and now have a decent sized account after many years in the market. People need to control and be responsible for their own retirement. If you don't, we'll read about it in the newspaper. I've read rumors where the government wants to take over 401k's for the good of all and give you 3% return. That's sounds like a crappy deal to me.

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chlyn001May. 12, 13 3:11 AM

Maybe every job should include a deduction for retirement beyond what is taken our for Social Security. Maybe the state taxing department could manage these accounts too, as workers move from job to job, if they do. Even a few dollars taken out might cause workers to really think about their future and what it will take to grow old. Call it a pension if you like, but everyone would benefit, including possibly the corporations since fairly compensated workers make good companies even better. At least they, the higher ups, would be expected to put something in the pot too, for all our sakes.

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texas_technomanMay. 12, 13 4:22 AM

I started contributing to a 401k in the early '80's...and within a few years was contributing the max. My company had a match, based on annual financial performance, that contributed up to 50%. In addition they had (and still have) a defined benefit plan. I put two daughters through college, drove used cars until I was in my mid-50's...weathered a divorce, and still had enough of a nest egg to retire at age 58. The problem with most folks is they don't save. Instead they get themselves into houses that are more than they need, and they go out and buy $20k Harley's, $50k boats, and $40k trucks to tow them...all on credit. I waited until I retired to do all that.....paid cash. (except no Harley).

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nopolpartyMay. 12, 13 7:38 AM

texas technoman is spot-on. It's about personal responsibility folks. I couldn't "afford" to max my 401(k) contributions for most of my 20s, but I did it anyway, and sacrificed. The problem is not the system, it is US. I coach young employees frequently who tell me they can't afford to put 6% in the company match. It is not rare to do so while they have a Starbuck's Latte in their hand while heading out for a smoke break. If we need change, it would be to get rid of maximum contributions -- if I want to put 100% of my salary in a tax-deferred account, Uncle Sam will still get their share at some point - allowing catch-up contributions after the age of 50 is illogical -- let us contribute more while younger, so the amount (thus taxes paid) can grow as well.

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roscoe2511May. 12, 13 7:43 AM

Major crashes of 2001 and 2009 have done great damage to savings of many and have left many gun shy of the market.

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