Was the 401(k) a Mistake? How an obscure, 45-year old tax change transformed retirement and left so many Americans out in the cold.
Was the 401(k) a Mistake? How an obscure, 45-year old tax change transformed retirement and left so many Americans out in the cold.
How an obscure, 45-year-old tax change transformed retirement and left so many Americans out in the cold.
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Maybe don't encourage people to save in a currency that's purposely depreciating throughout their entire lives?
Is there a currency that doesn't depreciate?
Even if there was, there's no currency that is guaranteed to not depreciate in the future.
Apple stock
Ammo
Land
Lentils
Beanie babies
Bitcoin
Beets, beans, Battlestar Galactica
A lentil based economy...you sonofabitch, I'm in!
Lentconomy if you will.
Real estate?
Yes, non fiat currencies like...gold and silver.
As more precious metals are mined the amount in circulation increases.
Yes, but at a steady, predictable rate that is not controlled by a government.
"The influx of gold purchases by central banks is currently propelling gold prices to unprecedented levels." - https://www.livemint.com/market/stock-market-news/explained-why-are-central-banks-like-rbi-pboc-accumulating-gold-in-large-quantities-gold-prices-today-gold-rates-11714963880948.html
How many loaves of bread could you buy with an ounce of gold in 1978, and how many today?
Good luck retiring on it.
Gold... Okay, well technically it inflates by 1.8% per year, but at least that's steady and predictable. Where some years the dollar inflates by 3% a year and some years it inflates by 10%.
So the solution to 401k inequity is employer-sponsored gold reserves? I think just returning to a pension system probably works...
(Nor are any of the issues with 401ks mentioned in the article related to inflation)
I don't know if a pension system would work as it seems like pensions were primarily for people who stayed for 20 years at one single job and nobody really does that anymore. But employers giving their employees gold wouldn't be a bad thing. The article did not mention inflation, but it is a serious downside to a 401k. As an example, in 40 years, any money you save now will be worth 20% of what it currently is worth. If you save $100 at age 20 in a 401k, then by the time you are 65, that $100 would be worth something like $10 in today's purchasing power. That's an incredibly dumb thing to save in.
Except that 401ks are invested. By default they tend to be invested in a relatively stable, diverse portfolio along the standard long-term investment guidelines of ~60/40 balance of stocks and fixed or cash holdings. Mine made 15% last year invested even more conservatively than that, and it's a no-name 401k provides by my small employer. I would have made significantly less with gold.
If you think people's 401ks are just sitting there in a low-interest checking account, I don't think you understand how they're actually structured.
Oh, I understand. I get that the money is invested in things that will grow over time, but you're still having to take risk in order to get that return. Otherwise, what happens is you lose your money to inflation. At least with gold, it's a steady rise and will not fluctuate a whole lot. Gold holds your purchasing power with very little risk at all.
You'd find very few financial advisors or experts who would recommend putting your retirement portfolio entirely in gold.
Okay, well technically it inflates by 1.8% per year, but at least that's steady and predictable.
Where are you getting that info from? The price and value of gold is insanely volatile, its value often changes based on people's confidence in fiat currency.
Gold doesn't have an inherent value, and is just as easily manipulated by governments as fiat currency. FDR changed the value of gold to print more money to sustain the recovery after the depression.
World gold council
That's... just not true. Gold fluctuates quite a bit. Check out this site and put it at 15 years, you'll see a period from 2013 to 2016 where it consistently lost value relative to the US dollar. It's a speculative investment.
If you want something that doesn't lose value to inflation, look at treasuries. I-bonds are the "best" here because they match exactly the government's inflation number, but they're limited to $10k/SSN/year. Or you can get t-bills, which aren't guaranteed to match inflation, but they are usually somewhat close. Or get TIPS, which track inflation, but work a bit differently.
But that's solving the wrong problem. For retirement, you want growth, not value protection. Check out this graph of the S&P 500 vs gold value. Play with the numbers, and you'll see that, over any interesting term, stocks outperform gold. So don't but gold, buy a diversified portfolio of stocks (e.g. an S&P 500 fund is a good option). Stocks will fluctuate more than gold (in most cases), so you may want to buy a more stable investment to help level out the growth. Most people use bonds for this, but if you like gold, you can have a little gold of you like as well. If you're risk averse (i.e. you're likely to sell if your portfolio drops significantly in value), so something like 60% S&P 500, 30% bond fund, and 10% gold (again, if you like gold, otherwise just increase the bond position).
Pensions worked the same way. The difference is personal responsibility and inequity of employment and wage. But who's 401k deprecates in value over the long term anyways? If you select a target fund that should be fine.
Yeah the comment treats 401ks like they are checking accounts rather than investment accounts. Outside of a major recession, a 401k should outperform inflation. And if it grows at 5% (conservatively) during a 30-year career and then you happen to have to retire during a 2008-scale recession, you'll still have way more than your principal investment in there.
Is it possible that commenter is putting money into retirement accounts but not putting that money into any funds, etfs, or bonds? But even then, I would hope it's in a money market type core position where they are getting some return. But I rolled over all my stuff into a target fund at my new employer 9 years ago. I'm up 21% on my cost basis.
I mean maybe, but 401ks almost always require you to set a target fund or indicate a preferred risk level just to set an account up. So unless the commenter went out of their way to not allow their 401k to be invested, it would almost certainly be invested in, at least/lowest risk, an interest bearing cash equivalent, like a MMF as you mentioned. And MMFs were crazy last year, some earning like 7% with essentially no risk and great liquidity.
Yeah, it's a bit of a stretch. I know folks forget to do this when setting up IRAs, but kind of hard to do with 401k. Who knows.