The problems with 401k statistics

[Broken Arrow]

Depends on who your 401(k) provider is.

My last one was horrendous, but my current one is with Fidelity and they're great.

[disneysteve]

Originally Posted by Scanner

Never having one, I am not sure if fees are hidden in them even if the funds don't have a load on them.

The only "hidden" fees are funds that have higher than average expense ratios. If you are paying 1.5% on your 401k fund when you could be paying 0.25% for a comparable fund to Vanguard, that's a problem.

[Thrif-t]

You know what my problem is with the 401k plan. I got in at my first job in 1990 my match was 6% and now 19 years later the match is still 6%...why doesn't the match ever increase every so many years? Maybe because of the limits on the amount you can save in them? Well I'm one of the lower wage earners, it can go up to 20% and I still won't reach the limit.ha

[disneysteve]

Originally Posted by Thrif-t

You know what my problem is with the 401k plan. I got in at my first job in 1990 my match was 6% and now 19 years later the match is still 6%...why doesn't the match ever increase every so many years? Maybe because of the limits on the amount you can save in them? Well I'm one of the lower wage earners, it can go up to 20% and I still won't reach the limit.ha

The match is determined by your employer. They aren't required to provide any match at all so don't complain. Of course, you are earning more today than you earned 19 years ago, so that 6% equals more money in actual dollars than it did back then.

[Thrif-t]

Originally Posted by disneysteve

The match is determined by your employer. They aren't required to provide any match at all so don't complain. Of course, you are earning more today than you earned 19 years ago, so that 6% equals more money in actual dollars than it did back then.

uh, not...but I am only working part time now. And if this is to be our retirement (replacing pensions) why aren't they required to match? I think they should as well as raise the match every so many years. I mean people who only make 20k-25K/yr aren't going to get anywhere putting 10% or 15% of their pay away without a substantial match.

[disneysteve]

Originally Posted by Thrif-t

I mean people who only make 20k-25K/yr aren't going to get anywhere putting 10% or 15% of their pay away without a substantial match.

Actually, putting 15% of your pay into a retirement plan works regardless of how much you earn. In fact, the lower income workers have an advantage because social security makes up a much larger percentage of their pre-retirement income than it does for higher income workers. Remember, there is a maximum cap on SS benefits regardless of how much you earned while working.

I agree with you, though, that all employers ought to match the contributions. I don't think it is necessary to steadily increase the match rate, though. Where would that extra money come from? And there would have to be some limit on the match or eventually it would reach 100%.

[am_vanquish]

Originally Posted by Thrif-t

uh, not...but I am only working part time now. And if this is to be our retirement (replacing pensions) why aren't they required to match? I think they should as well as raise the match every so many years. I mean people who only make 20k-25K/yr aren't going to get anywhere putting 10% or 15% of their pay away without a substantial match.

It makes sense that the overall effect of a 401(k) should match that of a pension plan, but it's just too difficult to get this to happen. Unfortunately, employers are more concerned with their bottom line than they are about the financial security of their employees. Therefore, most often they "back into" the matching % based on their budgets ... not based on how well it will help their employees prepare for retirement.

BUT, you'd be suprised at how close a full 6% match on 401k contributions will come to the average Pension benefit. A full 6% match is generous by today's standards and does quite well at replacing the benefits of a pension plan over an employee's "life-cycle." Plus, you have to factor in a premium for the mobility of 401(k) plans, the ability to choose your own investments, and generally lower vesting requirements. In your example of working for the same employer for 19 years, you're correct that a pension benefit would be better. However, that's not the standard any more. These days, people move around quite often ... and for them the 401(k) benefit is better.

Regarding people at the lower end of the salary scale ... they don't have to sock away 10-15% of their income. The rest of society is compensating for their inability to save for retirement through Social Security. A person earning 20k when they turn 65 can expect Social Security to cover about 69% of their pre-retirement income. Meanwhile, a person earning 70k will only get about 42% of their pre-retirement income from Social Security. That's just the way Social Security was designed ... for better or for worse!

[disneysteve]

Originally Posted by am_vanquish

Regarding people at the lower end of the salary scale ... they don't have to sock away 10-15% of their income. The rest of society is compensating for their inability to save for retirement through Social Security. A person earning 20k when they turn 65 can expect Social Security to cover about 69% of their pre-retirement income. Meanwhile, a person earning 70k will only get about 42% of their pre-retirement income from Social Security. That's just the way Social Security was designed ... for better or for worse!

SS was designed as a safety net, not a primary income source for retirees. It was also designed at a time when the average lifespan was 62 and the benefits age was set at 65 meaning many people would never live to collect or only collect for a short time.

[disneysteve]

Originally Posted by quidam01

realistically how much should we have at retirement in our nest egg to live comfortable say in the year 2020???

That depends on your budget. I think you should be shooting for 80-100% of your pre-retirement income. If you are earning 100K when you retire, you'll want your investments generating 80-100K/year in the first year of retirement. Using the 4% withdrawal rate, that means you'll need a nest egg of $2.0-$2.5 million. That assumes no other source of income. If you have any pension, that would reduce the amount needed. If you count social security, that would further reduce the amount needed.

[momula]

Ahhh!! 401k's are stressing me out lately. I really do want to count on them but not sure its safe