Immune to market fluctuations. Based on years working and salary so if you worked a long time then retired and lived for a long time you may get more money than if you had a bag of cash in the market. It lasts until you die and your spouse can inherit it so it provides stability for you and your partner for the rest of your lives instead of having to guess how many more years you're going to live and dividing your savings by number of years left. Removes that stress of outliving your guess and running out of cash.
this post was submitted on 13 Sep 2024
44 points (89.3% liked)
No Stupid Questions
35723 readers
2101 users here now
No such thing. Ask away!
!nostupidquestions is a community dedicated to being helpful and answering each others' questions on various topics.
The rules for posting and commenting, besides the rules defined here for lemmy.world, are as follows:
Rules (interactive)
Rule 1- All posts must be legitimate questions. All post titles must include a question.
All posts must be legitimate questions, and all post titles must include a question. Questions that are joke or trolling questions, memes, song lyrics as title, etc. are not allowed here. See Rule 6 for all exceptions.
Rule 2- Your question subject cannot be illegal or NSFW material.
Your question subject cannot be illegal or NSFW material. You will be warned first, banned second.
Rule 3- Do not seek mental, medical and professional help here.
Do not seek mental, medical and professional help here. Breaking this rule will not get you or your post removed, but it will put you at risk, and possibly in danger.
Rule 4- No self promotion or upvote-farming of any kind.
That's it.
Rule 5- No baiting or sealioning or promoting an agenda.
Questions which, instead of being of an innocuous nature, are specifically intended (based on reports and in the opinion of our crack moderation team) to bait users into ideological wars on charged political topics will be removed and the authors warned - or banned - depending on severity.
Rule 6- Regarding META posts and joke questions.
Provided it is about the community itself, you may post non-question posts using the [META] tag on your post title.
On fridays, you are allowed to post meme and troll questions, on the condition that it's in text format only, and conforms with our other rules. These posts MUST include the [NSQ Friday] tag in their title.
If you post a serious question on friday and are looking only for legitimate answers, then please include the [Serious] tag on your post. Irrelevant replies will then be removed by moderators.
Rule 7- You can't intentionally annoy, mock, or harass other members.
If you intentionally annoy, mock, harass, or discriminate against any individual member, you will be removed.
Likewise, if you are a member, sympathiser or a resemblant of a movement that is known to largely hate, mock, discriminate against, and/or want to take lives of a group of people, and you were provably vocal about your hate, then you will be banned on sight.
Rule 8- All comments should try to stay relevant to their parent content.
Rule 9- Reposts from other platforms are not allowed.
Let everyone have their own content.
Rule 10- Majority of bots aren't allowed to participate here.
Credits
Our breathtaking icon was bestowed upon us by @Cevilia!
The greatest banner of all time: by @TheOneWithTheHair!
founded 1 year ago
MODERATORS
It's income rather than assets, so if you fall into debt due to medical issues or whatever you can declare bankruptcy and still have your pension.
401Ks are protected from bankruptcy
I genuinely did not know that.
Finances b crazy
On that note, it makes a ton of sense to take full advantage of 401k plans. At least put it enough for the company match to max out, and preferably put more in to cap out the annual limit for it. That isn't possible for everyone, but it's both tax advantaged and pre-tax money, so an extra $500/mo into the 401k is NOT $500 removed from your post-tax pay.
30 and out. Work for a single company for 30 years and you can retire by 50 with full pension. Doesn’t exist anymore, but it used too.
Wow. All my life, 65 has been retirement age. I didn't know that it had been even earlier. I expect to work until death.
Military and government can retire after 20 years. So if you're 18 when you start college, 22 when you finish, and you get a commission as an officer, you can easily hit Major by retirement age at 42, and receive like $6000-$7000 per month, plus benefits, for the rest of your life.
are you a recruiter?
No, I just know someone who did this. Then he got a cushy job as a trans-pacific airline pilot making double his pension. He's made of money now.
load more comments
(2 replies)
In theory a pension is stable, guaranteed income. The employer promises a monthly or annual payment for life, and they manage a pool of money to make sure you get that payment regardless of whether the market goes up or down. People like stability.
With a 401k you take on the market risk yourself. If the market tanks (2000 and 2008 come to mind) then your retirement funds are suddenly worth less and your payments to yourself (distributions) go down. Of course, if the market is hot you can also direct your investments to try and ride the wave. Greater risk means greater (potential) reward.
401k's also have required minimum distributions that kick in as you get older. If you live long enough you will reach a point where you have been forced to drain the whole thing into your regular bank account. Then it's time for another plan.
Yeah, I remember my parents talking about how badly they were hit in the late 00s. They were considering retirement just as the recession struck, and they lost a huge chunk of what they'd hoped to retire on.
They still haven't retired fifteen years later despite declining health.
Stocks are 293% higher today than they were at the peak of 2007. Even if they bought all of their stock at that peak right before the 2008 recession, the market had fully recovered by 2012. It isn't the market keeping them from retiring...
I've never asked, but I believe medical issues cropped up and their reduced retirement funds wouldn't have been enough, forcing them to keep working, and the situation spiraled from there.
Next plan: robot legs
At one point I got offered a choice to stay with the company pension or convert it to a special 401k that had a higher contribution percentage. I said nope to the change, as I figured the only reason they're looking to get the tenured people over to what the new people can only get is because it's better for the company.
Better for the company doesn't necessarily mean it's worse for you.
Bro you're on Lemmy lol
Likely better for the company officers if you switch so they make it better for you too
load more comments
(1 replies)
Generally true but people should be doing their own math on these tbh
The old plan was that you'd have three things in retirement: Social Security, a corporate pension, and a 401k. Each of these has problems, but if any one of them fails, then the other two are still there to provide enough.
Problem is, pensions have all but disappeared, Social Security gets fucked with, and 401k's are highly dependent on market conditions at the time you retire.
By the time you retire you should be out of volatile market investments.
The stock portion is reduced, yes, but there's almost always some kind of mix of stocks in the portfolio. That's not necessarily the main issue.
First, you may not get to choose the timing. A lot of older people got trapped in the 2008 downturn. They were planning on retiring a few years out, but they lost their jobs and never got them back. Not only was their portfolio unprepared just based on when they planned to retire, but also the stock crash killed a chunk of what they had. Double wammy of losing their job and destroying their portfolio.
Second, inflation hits hard. If there's a period of high inflation right when you retire, that can really hurt your savings regardless of how it's distributed. One of the things those forced 2008 retirees had going for them was that we had a period of relatively low inflation for the next decade. If you took out housing (older people often own their home outright), inflation was sometimes negative.
Capitalism, even when it generally makes line go up, does so in a spiky way. Those spikes cause problems that tend to hit the working class the hardest. Sometimes in ways that cannot be recovered.
There are some liberal economists, particularly of a Modern Monetary Theory bent, who do argue for policies that would flatten growth in return for predictability. Capitalism always goes for the sugar rush of high gains, though. For example, the Fed left rates at rock bottom for far too long, thus letting the market continue extremely high gains (over 20% per year of the sp500, when 7% is a typical long term average). Likewise, you have corps chasing high profits and assuming post pandemic pent up demand would continue indefinitely. Which is now leading to layoffs while major stockholders continue to sweep it in. Both of these lead to the recent high inflation.
I think the efforts to flatten it out are doomed. Capitalism can't solve its own problems.
By the time I'm ready to retire, social security is going to have a minimum age of 142.
Notwithstanding the possible typo in the title, I think the question is why USA employers would prefer to offer a pension over a 401k, or vice-versa.
For reference, a pension is also known as a defined benefit plan, since an individual has paid into the plan for the minimum amount will be entitled to some known amount of benefit, usually in the form of a fixed stipend for the remainder of their life, and sometimes also health insurance coverage. USA's Social Security system is also sometimes called the public pension, because it does in-fact pay a stipend in old age and requires a certain amount of payments into the fund during one's working years.
Whereas a 401k is uncreatively named after the tax code section which authorized its existence, initially being a deferred compensation mechanism -- aka a way to spread one's income over more time, to reduce the personal taxes owed in a given year -- and then grew into the tax-advantaged defined contribution plan that it is today. That is, it is a vessel for saving money, encouraged by tax advantages and by employer contributions, if any.
The superficial view is that 401k plans overtook pensions because companies wouldn't have to contribute much (or anything at all), shifting retirement costs entirely onto workers. But this is ahistorical since initial 401k plans offered extremely generous employer contribution rates, some approaching 15% matching. Of course, the reasoning then was that the tax savings for the company would exceed that, and so it was a way to increase compensation for top talent. In the 80s and 90s was when the 401k was only just taking hold as a fringe benefit, so you had to have a fairly cushy job to have access to a 401k plan.
Another popular viewpoint is that workers prefer 401k plans because it's more easily inspectable than a massive pension fund, and history has shown how pension funds can be mismanaged into non-existence. This is somewhat true, if US States' teacher pension funds are any indication, although Ontario Teacher's Pension Plan would be the counterpoint. Also, the 401k plan participants at Enron would have something to complain about, as most of the workers funds were invested in the company itself, delivering a double whammy: no job, and no retirement fund.
So to answer the question directly, it is my opinion that the explosion of 401k plans and participants in such plans -- to the point that some US states are enacting automatic 401k plans for workers whose employers don't offer one -- is due to 1) momentum, since more and more employers keep offering them, 2) but more importantly, because brokers and exchanges love managing them.
This is the crux: only employers can legally operate a 401k plan for their employees to participate in. But unless the employer is already a stock trading platform, they are usually ill-equiped to set up an integrated platform that allows workers to choose from a menu of investments which meet the guidelines from the US DOL, plus all other manner of regulatory requirements. Instead, even the largest employers will partner with a financial services company who has expertise on offering a 401k plan, such as Vanguard, Fidelity, Merrill Edge, etc.
Naturally, they'll take a cut on every trade or somehow get compensated, but because of the volume of 401k investments -- most people auto-invest every paycheck -- even small percentages add up quickly. And so, just like the explosion of retail investment where ordinary people could try their hand at day-trading, it's no surprise that brokerages would want to extend their hand to the high volume business of operating 401k plans.
Whereas, how would they make money off a pension fund? Pension funds are multi-billion dollar funds, so they can afford their own brokers to directly buy a whole company in one-shot, with no repeat business.
Pension funds are multi-billion dollar funds, so they can afford their own brokers to directly buy a whole company in one-shot, with no repeat business.
They’re not usually run this way. Generally pension funds are the same as your 401k, but on a bigger scale. They also usually focus more attention n managing risk and expenses….. I used to work for a company that did exactly this for some insane number of hundreds of billions of dollars
You might invest part of your 401k in a public shared sp500 index fund, a pension plan might invest part of its money in a private sp500 index plan managed solely for them, usually with lower fees
In an ideal situation you want both assets and income in your retirement. 401k is one type of asset. Pension is one type of income. It's certainly possible to plan for retirement with just assets or just income, but having both is better.
Pensions are for life so even if you like to 120 you get something. However they are generally limitited to poor rates of return so if you like a more reasonable life time you had much less money to live on.
401ks have way too much fluctuation and uncertainty. I'll take the stable pension any day. But IMO the stock market is unethical and should be destroyed.
I put a good chunk of my 401k in CDs.
Edit:
It's less than an 8th of my fund, just because I don't like where the market is sitting right now, I'm keeping something secure in case something bad happens to me while something bad happens to the world.
My point was to respond to someone who is morally opposed to stocks. There are other ways to go about it (irrespective of good advice).
Even if you were retirement age that's a bad idea
CDs nuts! Ha got him!
That's a terrible strategy. You are going to cost yourself years of retirement.
Please give this another read over
Unless you are retiring in the next decade, it is highly advisable to invest a 401k in the stock market. You get significantly higher returns over the long run. And any losses due to a recession are more than made up for by the significantly higher returns every other year.
When you are nearing retirement (5-10 years out), that is when you want to put the money into something safe and stable like bonds or CDs. That way if there is a recession as you retire, it won't affect your fund.
I remember there were some cases of pensions disappearing about 20 years ago so you're not imagining it. I can't find any stories on it but yeah there were people who went to retire their pensions were just gone.
I found this on investopia while I was looking:
"A number of situations could put your pension at risk, including underfunding, mismanagement, bankruptcy, and legal exemptions. Laws exist to protect you in such circumstances, but some laws provide better protection than others."
So maybe they all sued the out of those companies and tapped into past insurance policies to get paid and that's why it's not really talked about.
Bottom line is that if someone else has your money, it's in their control. If you have the money in your 401k, you can watch it and control it.
I'm personally with you. I prefer to manage my own money rather than hope my employer is solvent 40 years from now to pay a pension.
Some people don't want to to think about investing in their own retirement, and they see the pension as a more stable and safe solution.
In Australia, pensions are government issued, but relatively low paying. Superannuation (similar to a 401k) is paid by your employer as a percentage of your pay each year, but generally managed by a dedicated superannuation company. Those companies can and have gone bust, taking their payees funds with them
Diversity, my friend. What will you do if the 401k doesn't come through like you want? Bear in mind that the ultra rich and the big banks employ people who are really good at investing money. They have more experience and information than you. They'll bail themselves, but not you, out in case of disaster.
"Show me the money" is not a good motto for long term savings. Inflation or poor investment can make that money disappear easily enough. Of course you don't want to get scammed, so oversight is a good idea.
I think you meant desire not desite
And on lemmy, you can edit titles!
I can edit tities!??
edit: titles
Well, OP can.
Almost exactly as cool as if I could.
load more comments
(2 replies)
It isn't going to be one or the other (if they don't offer a 401k, then you can use IRAs), unless you just make a bad choice. An employer can contribute to a 401k and also provide a pension (mine used to but I've been around long enough that I get both the pension and 401k with matching) but if I had a choice, I could pick a pension for example but also put money into an IRA for retirement that would normally go to a 401k.
If you absolutely had to pick one, it isn't going to be the same answer for everyone. Amounts, what you're able to contribute, matching, risks and tax situations are going to vary from person to person and their employer.
As far as controlling your money, some 401k's allow some extra control, some don't but most have a middle ground except for their company stock which you can usually directly buy. If you're 401k allows general different 'markets' and/or 'lifecycle' buckets (they get more conservative on investment risk the closer you get to your retirement age) is, at the end of the day, all controlled by a broker and they are making the actual decision as to what to invest and how. Some plans may allow you to invest into individual stocks through the 401k's brokerage though.
At the end of the day though, if all you had was a pension offered which you aren't going to be contributing your income to, then you should invest in some sort of retirement plan yourself, be it an IRA, money market, bonds, CDs or whatever.
view more: next ›