Streams

Underfunded 401Ks

Tuesday, February 22, 2011

Wall Street Journal stock market reporter E.S. Browning, reports that boomers with 401K retirement plans are starting to discover they haven't saved enough. 

Guests:

E.S. Browning

Comments [28]

Eric from SF

Do we really need 85% of our income in retirement? 30 to 40% of our income goes to a mortgage, another chunk to raising our kids. My retired parents who live in a much lower cost area than NY or SF live happily on less than 30% of my family's income.

Feb. 23 2011 11:39 AM
Caitlin

I'm with Edward, I've never had an employer match, even at full time salaried jobs. Is there any point in enrolling in this case, or is it better to put funds into an IRA that won't be connected to your job?

Feb. 22 2011 01:58 PM

The Hypocrisy lives on. People are told to put 12% iinto savings, not 3% AND keep spending to drive the economy because consumer spending is 70% of it. And if the economy doesn't pick up, there will be more layoffs. Nice.

Feb. 22 2011 11:59 AM
Elizabeth Kenney from Carroll Gardens, Brooklyn

I was the caller who's been putting money in my 401K since I went to work full time and in an IRA before that. For the past 13 years I made the maximum contribution allowed by law - or 'maxed out'. Amy from Manhattan is correct. Being unemployed now, it's a huge security to know I at least have funds for retirement. As a supervisor, I always advised my new hires to at least do the match. Then, above that, try putting an additional percentage in incrementally until they felt they did not have enough to live on. I also gave them an article on not overextending one's finances from Harpers Magazine called, "Who'll Stop the Drain? Reflections on the Art of Going Broke" by Vince Pisaro. http://www.harpers.org/archive/1998/08/0059656. It's the hardest thing to start these good habits at any age - the crucial thing is to do it and believe in it. As you then see the positive outcome, it becomes easier to expand and continue because the tangible results are visible. Above all, don't be tempted to touch it unless there is a clear benefit (i.e. buying a first home - then you pay it back and still keep contributing) Even if you go bankrupt, lose your home, creditors cannot touch your 401K. Good luck!

Feb. 22 2011 11:19 AM
shelly from nyc

Hello - is anybody home?? Expenses are rising, and salaries for those who still get them are either flat or lower. Since Reagan, only the very rich are seeing prosperity. The rest of us are struggling just to survive!

Feb. 22 2011 11:03 AM
Brian from Hoboken

Where is the discussion about taking responsibility for one's retirement? Stop buying flat screen TVs and lining up for the newest iPhone when you have one in yur pocket and start saving. Anyone who doesn't put at least the matching amount in a 401k is leaving
Money on the table from the employer and uncle sam given that contributions are pretax. The overwhelming consumerism and following entitlement mentality in this society has reached unsustainable levels.

Feb. 22 2011 10:53 AM
Dan from Manhattan

Wall Street the Financial Community and the Media have sold us all a bill of goods with the IRA S & 401K plans. To have retirement funds be at the mercy of the market is like being behind the 8 ball. Of course the Financial planners are loving these programs because they are the people who are really making money off of them. Pensions are still the best way to provide for retirement but if one suggests that it is called, as your guest put it, a return of the nanney state.

Feb. 22 2011 10:50 AM

Mr. Browning wasn't explicit enough about the safest long-term investments.

No-load index funds have low mgt fees. His age-specific funds have lately been found wanting as far as returns & are subject to higher mgt fees.

Your return & nest egg are reduced by these mgt fees. Go No-Load - Vanguard & others

Feb. 22 2011 10:50 AM
Amy from Manhattan

I don't think those 2 callers were saying they weren't panicked about being unemployed because their 401(k)s were going up, but rather that because they'd been putting money in 401(k)s for a long time beforehand & leaving it there, they weren't caught without enough funds when they lost their jobs.

Feb. 22 2011 10:49 AM
Beatrice from Brooklyn

How does one find a reputable financial planner?

Feb. 22 2011 10:48 AM
Edward from NJ

I've never worked at company that matched contributions. Are fewer companies matching these days?

Feb. 22 2011 10:45 AM
Hubert from nyc

401-k s are doing well because the Fed is printing money and menipulating interest rates which is making stock prices go up..

Soon this dance will end...

Feb. 22 2011 10:45 AM
Jo from NYC

Can we talk about people who don't earn enough money to max out their 401K and also have savings for emergencies?

Feb. 22 2011 10:45 AM
IMHO

NO! Don't "max out" your contribution. Only contribute up to the level that is matched by the company.

After that, pay down your credit card debt and then start building your rainy day fund...six months to a year of living expenses in CASH.

Feb. 22 2011 10:44 AM
bob from huntington

what about the observation by felix salman last week to brian that you can't earn money in the market as you once could because so much of the action in the economy these days is in areas that are privately held?

Feb. 22 2011 10:43 AM
freestuffffff from downtown manhattan

Was thinking the same thing -- the move to give Social Security as a windfall to Wall Street brokers and bankers is insane, except of course for Wall Street brokers and bankers. There is never enough money for most people. Can't we learn from the social democracies of Europe and organize our society? What are we paying millions of government experts six figures (plus generous pension) each to do?

Feb. 22 2011 10:42 AM
jgarbuz from Queens

Wall STreet is pure speculation, period! After the Great Depression and WWII, most of the masses were OUT of Wall Street. I remember US Savings Bonds, Christmas Clubs, Lay away plans, etc.,when people KNEW they had to consistently put some money away on the side to get what they needed or wanted. Then came the '60s, credit cards, and the Wall Street hucksters seeking to pull the fools's monies into their sucker's game.

Remember, companies are born, and companies die, just like people. Countries rise and countries fall too. Nothing is fool proof. You have to diversify and stay clear eyed.

Feb. 22 2011 10:42 AM
IMHO

The best reason to invest in a 401K is the matching funds from one's employer. Otherwise, you're leaving money on the table.

My employer is trying to get everyone up to 6% of pre-tax income...they auto-enroll as the guest just said and bump you up 1% a year until you are at 6%.

Feb. 22 2011 10:40 AM
c

Hmmm. Blame the victim. Who wants to trust wall street with their senior lives. 401Ks...they're only tax free...until they're taxed. Idea: Teach financial ideas in school like saving and NOT giving money to speculation unless you are an expert and can actually understand the game.

Feb. 22 2011 10:37 AM
Dumm Joe from nyc

Financial planning is the problem?

No, the problem is that people nature does nto coinside with Jimmy's theories.

Most people do not choose to save.

Feb. 22 2011 10:37 AM
Amy from Manhattan

You can't blame an inanimate object, but people structured 401(k)s. So is there anything about the way the law requires them to be or about the way companies set them up that might have caused the problems, or is it all on the people who have their money in them?

Feb. 22 2011 10:36 AM
dana

Now the 60 and 70-somethings without enough saved to retire have to continue working and take up a position that should go to a younger worker. This will only exacerbate unemployment.

Feb. 22 2011 10:35 AM
Mr. bad from NYC

Vanguard is a good example of a decent 401K but this guest is a tool of the industry, most 401K are PREDATORY. The fees are completely opaque, ONLY high cost, low performing mutual funds are available (no INDEX ETF's!) for most consumer plans and most mutual funds (over 50%) UNDERPERFORM the market in any given year - add the fees and costs that Insurance Companies (so called Annuity 401K's) and financial companies offer and your money doesn't grow - for most people they'd be better off over time to be in a CD!

Feb. 22 2011 10:34 AM
Sarah from LES

Do we know anyone that has actually retired solely on a 401k?

Feb. 22 2011 10:34 AM
Edward from NJ

For years a certain phrase invariably appeared in stories about the virtues of 401k's: "assume 7% annual growth". While we're assuming, lets just assume that I win the lottery.

Feb. 22 2011 10:31 AM
Leung Johnson from cheap part of NYC - thats a joke

Are you saying that people are not choosing to save thier money for retirement?

This is very shocking... How can it be?

I think we need to privatize Social Securoty and let people borrow against thier Social Security benefits....

And let's throw some tax cuts for the well to do... maybe they will hire some of these 75 plus year old poor savers...

Feb. 22 2011 10:17 AM
Norma from Manhattan

Now that we know this problem exists, isn't it time for the Republicans to back down from their policy of pushing privatizing social security?

When we get to the issue of what to do with social security, this clearly will be part of the Republican agenda.

Will the press keep them honest, esp. WSJ, when this issue comes up?

Feb. 22 2011 10:12 AM
gregeb from NJ

There are two main reasons for this shortfall.

The first is we simply save too little- you have to set aside at least 20% of all income to retire comfortably. Since that 20% includes 12% social security, for most people this means at least 8% every year in a 401k. Closer to 15% if you include a buffer for health care problems and other unknowns.

Equally important, you have to plan for a real return (e.g. inflation adjusted) of only 3% a year. This gain is driven by the GDP growth per person, which ultimately limits interest rates. Unfortunately, most public and private pension plans plan on a fictitious yield closer to 6%, which is why we are in the middle of a slow-motion train wreck.

see http://www.genuineideas.com/ArticlesIndex/pension.html for more details

Feb. 22 2011 10:07 AM

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