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Originally Posted by investingnoob
So are we saying 401k's are not as good as what we think they are?
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Quote:
Originally Posted by simpletron
in my opinion, the biggest flaw with 401Ks is the user, and not the plan itself. prevent people from taking loans and cashing out when they switch jobs, opt out instead of opt in, automatic enrollment into an age appropriate life cycle fund would go a long way to helping user do things right.
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simpletron, thanks for a great post. It supports what I was saying. I also support 401 plans, though I do think they have flaws beyond just the user. A plan that is almost totally dependent on the employee is not a great substitute for a plan that was totally independent of the employee (traditional pension). Many workers, particularly lower income workers, can't afford to contribute enough to build an adequate nest egg. Unlike most of us here, lots of people don't have the investment knowledge to make good and appropriate choices with their money (though a target fund would help with that). Loans should be banned. The penalty for cashing out should be greater to really discourage that. All plans should be required to offer at least the same basic investment options including index funds and target funds.
investingnoob, I think 401k plans are great and everyone with access to one should be participating. The standard advice is to fund the 401k to get the full match then max a Roth then go back to the 401k.