5 Responses to The 401K scam

  1. Shadgirl February 22, 2013 at 10:58 am #

    Time to cash out and eat the taxes?

  2. imhotep February 22, 2013 at 11:07 am #

    The stock market is, was, and will always be a scam. Some company is authorized to sell a stock to the public. It’s listed on the “big board.” It’s purchased by “investors.” Usually folks with lots of money who bid up the stocks price and create a demand for it. The public buys the stock from the original “investor” who has purchased it in bulk. The original “investor” sells it for a profit to someone who believes that he/she will also make a profit. And the game is on. Your odds of winning at Black Jack in Atlantic City are much higher than ever making money in the stock market. Most 401(K) money is invested in the stock market.

  3. ProNewerDeal February 22, 2013 at 11:49 pm #

    the US does not have lifetime employment from 1 employer for the vast majority of working people. Hence, we should disconnect tax-advantaged retirement investing from the employer.

    I have a simple solution.

    1. Eliminate 401-K employer-based annual $17.5K tax-advantage accounts
    2. Increase the annual (combo of Roth &/or Traditional) IRA limit from the annual $5.5K to at least $23K (to account for the elimination of the 401-K).

    This would also be a fairer system. IIRC, a firedoglake article showed ~50% of US workers have NO retirement/pension at work (not even a flawed direct-contribution “pension” like a 401-K). So increased IRA limit would stop randomly & unfairly discriminating against these workers.

    It would address the point of atrocious expense ratio fees. For instance, if you roll-over your 401-K/IRA to the at-cost priced, “customer-owned non-profit” Vanguard, you can use Vanguard funds which have low “at-cost” expense ratios of ~0.05-0.30% (eg annually implictly cost $5-30 for every $10K invested).

    For a person like commenter imhotep that does not want to invest in stocks, you can avoid stocks, & buy say treasury bonds (directly or through a T-Bond fund like EDV or TLT), gold ETF, etc. Or outside of tax-advantaged accounts, you can buy $15K per year in the I Bonds type of US Savings Bonds at a Treasury Direct account.

  4. susie February 23, 2013 at 10:41 am #

    Or you can turn Social Security into a national pension plan, make employers contribute, and raise the benefits.

  5. ProNewerDeal February 25, 2013 at 3:42 am #

    ^ @Susie, why not do both? Social Security is (among other things) a “defined benefit” pension, tax-advantaged investing like 401-K is a “defined contribution” pension. Some USians (esp 1%ers) “receive”/ “have access” to both DB & DC pensions; why shouldn’t all USians have access to them.

    Susie said “Or you can turn Social Security into a national pension plan, make employers contribute, and raise the benefits.”

    well the primary benefit Social Security IS such a pension, that the employer & employee both contribute to. I do agree the benefits should be raised.

    On SS, if the cap is eliminated, & applied to ALL income (including investment income like capital gains, dividends, & hedge fund hyenas’ “carried interest”), IIRC Thom Hartmann mentioned current benefits could actually be doubled & the SS fund would still be in a surplus for the future 75 yr SS actuaries’ planning window. In other words, instead of Bill Gates or Mint RawMoney paying the same SS tax on only his first $110K of income, as a median pay pharmacist or lawyer whose entire income is that $110K work income, Romney would pay 1000X (or whatever) the SS tax of that median pharmacist guy.

    IMHO it’s a mistake the 401-K in general as a scam with the specific scam of lack of decent fund choices with low & clear fees. A 401-K (for example administered by Vanguard) that has decent fund choices with low & clear fees is a great employee benefit to 99%ers. It does suck that the individual is at the mercy of their employers offering a decent 401-K plan, which is why it should be disassociated from the employer & instead as I described the individual self-directed IRA limit should be increased.

    BTW the concept of a diversified asset allocation (AA) should be part of the high school curriculum. It is criminal (no surprise given the FIRE oligarchy crime family & their PR hack pols like Obama/Boner/Bush43) to expect the population to be self-responsible with self-funded DC pension, WITHOUT explaining AA. Contract to the FIRE industry marketing bs, AA is NOT rocket science. The math is HS-level: arithmetic, the idea of an exponent for the time value of money, the idea of correlation from Statistics 101 to show the benefits of diversification across different asset classes, & the idea of how to calculate real return using the nominal return with the US CPI Consumer Price Index. Spreadsheet 101 with the free open source LibreOffice could be used as a tool for the students to do this calculations – Spreadsheet 101 should be part of HS curriculum The Permanent Portfolio (25% each stock, gold, 1 yr US-Treasury or I Bonds Savings Bonds, 30 yr US Treasury) & the John “Boglehead” (50% US or world stock index, 50% US bond index) could be cited as good example AAs. For example in the GFC 2008 year, the Perm Port was ~+1% in 2008 vs the ~-40% for the stock S&P500 index – correlation shows why this is. The existence of I Bonds Savings Bonds as a good option for short term savings/”emergency fund” should be discussed. The I Bond destroys most short term savings choices – bank CDs, savings accounts, money market funds, yet most don’t know they exist.

    Obviously we need Medicare for All, & to benchmark our costs to Canada (roughly half the US costs) by breaking the US health care cartels (insurance, pharma, med device, hospital, provider/physician). IMHO the frame we should use is that Canada rates are “fair” “market pay”, & the incremental amount over that is “protectionism”, “cartel pricing” “Corporate Welfare” “getting free stuff”. For instance, when some 1%er PR hack says 65+ yr old on Medicare are “getting free stuff”, retort that that US Senior are getting their hard-worked-for earned benefit & a human right (access to health care), & for example the generalist US physician is “the one getting free stuff & is the actual Welfare Queen, getting an annual $60K in free protectionist over-pay compared to the Canada physician (IIRC from an NYT article, median US $165K v CAN $105K)”.

    Sorry if I rambled excessively. Thanks Susie, for being a genuine Progressive & genuine journalist out here fighting for us 99%ers!

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