There are 3 distinct parts to the 401(k) industry. The financial advisor that suggests stocks and usually is the main contact (and is useless). The Third Party Administrator that designs the plans, does the annual calculations, creates the required tax documents generates the notices for the plan, and verified participant information before approving distributions, and the platform that either holds the money directly, or holds the account balances and sends out statements. They also apply earning and what not. That’s it. I have worked closely with advisors as both a TPA (currently) and part of the platform.
None of us have anything to do with actual retirement. We are just glorified savings accounts that can save participants a bit of money on taxes, and business a lot of money on taxes.
It’s the current recommended amount to meet your needs at retirement.
I know, it used to 5 or 6% but that was all predicated on the idea that the employer would chip in money, and that the markets would be booming most of the time. Now though, most people think the market growth will only be lukewarm, so many investors are advising 15 to 20%.
This website suggests 15%.
Nesrie
1790
That’s insane. It’s never going to happen. They might as well tell them to run out and get six figures so they can afford retirement. 20%… way to make everyone feel hopeless.
I’ve never heard this either because also nuts. The average stock return, 10-12%, was based on ups and downs not booming most the time too.
Booming is a bit hyperbolic of me, but it was based on a much more optimistic outlook on how the markets would do. And then we had the market crash in 2007-2008, and now we have to worry about global warming, so most people aren’t as optimistic.
Anyway, that 15% should include anymore you employer puts in.
If you don’t need the tax break, I would suggest Roth since it will mean taking out the money tax free (and any earnings). That should be worth a few percentage points by itself.
Personally, I just hope I stay healthy long enough not to retire any time soon. Fingers crossed.
Nesrie
1792
Those estimates take into account historical data which includes things like war, recessions and natural disasters. It’s not entirely optimistic, at least not in the way you’re describing it. It also doesn’t assume that people will sell when it’s low and buy when it’s high… aka timing the market or responding in panic.
even with a match, 15% and certainly 20 is pretty darn high. And they’re saying after tax anyway, in that one piece, whereas employer matches are pre-tax, typically.
I am not asking for professional advice. I just… I think it’s unrealistic to think even a small portion of the population is going to be able to do 15 to 20% after taxes in savings. That’s a lot higher than what I remember earlier conversations were about.
That’s very much true. A lot of proposals in the industry are to push for lower entry requirements (3 months max instead of 1 year) and making auto enrollment a safer and more appealing option, but that doesn’t help you if you don’t have 15% to save in the first place.
Some things that are helping is transparent pricing. It is making most advisors cut their fees to some extent, which means more of your savings stay in your savings, but the bottom line is people need to get paid more, if they want to be able to retire.
Nesrie
1794
Yeah and based on lack of emergency savings out there, the one that says most can’t handle a 400 or 500 dollar emergency is a lot of people.
Well at least I know this number isn’t as unique as I thought it was.
I wanted that bill to the pass, the old one that basically aid financial advisors had to act in the interest of their clients and not just … them which died somewhere on The Hill.
John Oliver helped educate a lot of people, including those who push the plans out to employees, about fee heavy employer plans which I hope helped too.
I would word that a little differently even but yeah. Employees should get more of their share of the profits. We’re not talking paying out of nowhere but … more equality.
Oh, did my industry have a bone to pick with that piece John Oliver.
I should see if I can find the talking points we where issued about that. Something about the starting costs and all that, and how, the fees only seem big because there is no money in the plan, and that established plans are less expansive.
One thing to keep in mind is that in our industry, people leave platforms, advisers and TPAs all the time. So, rarely, does anyone give a discount for starting a new plan, because there is nothing keeping you from taking your business elsewhere the next year. So, all fees are paid for the year of work, unlike other services that might give you a signing bonus or discount. Not that it doesn’t make costs expansive.
One thing that you want to check for is who or what is paying the fees. A lot of FAs have moved to a fee based system, but those fees can be paid by the employer or by the plan assets. If the fees are paid for by the employer, that can save you a bit more money in your account.
One nice thing that happened in 2016-2017, is that a lot of FAs went through their funds, and made sure that all the funds were paying the same percentage points (in fear of the rules that didn’t make it). That way, you didn’t have to worry about advise from the FA pushing people into funds that paid them more.
Nesrie
1796
Oh I am sure they did. Whenever an industry gets called out like that, the details can be… tricky. The positive is people looked after that. I moved my stuff out of employer plans anywhere there wasn’t a match a long time ago, and I know I was paying the fees because that quarterly update they give you shows you exactly what was paid, at least in that circumstance. I preferred different funds anyway.
My goal here is similar to my goals elsewhere, I just want people to understand their options and what they’re getting. It’s hard to encourage someone to save though if they think it needs to be 20% or why bother though because a lot of people will not hit 20%, but they can still do okay… especially if they have a house which can also be saving vehicle not accounted for in something like standard retirement forcaster, the ones that show sun and clouds kind of thing.
Does that site default to an income of $110,000 for everyone (and age 47), or just me?
Not sure. Well, I guess I am working until my death. Like the NPC on Outer World’s.
Timex
1799
Billions of people who have risen up beyond rushingg poverty.
Sure, but how does require more admin people as a percentage of the US economy?
If we can make 4x more widgets today per person then we could have 60 years ago, why are we still working the same (if not more) hours for the same (if not less) wages?
Income inequality is not going to tackled by people becoming more productive for less pay.
Nesrie
1801
Are you talking about the when you should claim social security thing from Fidelity, yeah it’s 110 for me too but that’s not about savings so i kind of ignored it a bit.
SlyFrog
1802
When people talk about why things are not better here, in this country, after massive productivity gains, etc., it really doesn’t give a good answer to explain how the rest of the world has caught up and there isn’t nearly so much poverty.
Yeah, that’s great, but it still doesn’t explain why, with all of the massive productivity gains, automation, etc., that people are working more hours now than they did 50 years ago.
I think the ‘less poverty’ is relative. There is a lot of poverty. I mean, terrifying poverty.
Yeah, I think that is the western capitalist failure. We’re all working for a wealthy society, yet somehow we never stop working more.
But it does, at least to some degree. There’s more competition out there, now. There’s also more income inequality/wealth distribution issues. On the competition side, one can take a protectionist/nationalist/populist approach to the problem and try to isolate our market, but I don’t think that ever leads to long-term success. Rather, we need to work to educate our workforce and maintain a competitive advantage: I think we sat on our ass too long on education/infrastructure/etc. (thanks, Boomers!). Put it another way, I don’t think we focused enough on the future 50 years ago and those took short-term gains rather than investing in the future, enough, so the rest of the world caught up with us.
The income inequality is a separate issue and I really hope something is done to address it, but not much has, at least recently.
SlyFrog
1805
My point is, when people say we have had all of these massive advances in technology, production, efficiency, etc. here, in the United States, so why are we working more hours than we did 50 years ago, it’s not really a meaningful answer to talk about poverty being lessened in other countries.
These people are saying, if we can do things so much faster, and more effectively, etc., then why haven’t those gains fallen to the worker in the sense that the worker is maintaining the same lifestyle but working fewer hours.
Saying that there’s less poverty in China really isn’t an answer for that. Because regardless of poverty in China, those productivity improvements have happened here.
I mean, I’m not even the one raising the question (in part, I think the reason we don’t work fewer hours is because we always want more - we could work fewer hours, if we didn’t need to drive BMW SUVs, need 4,000 square foot houses, etc., which were all things we didn’t have 50 years ago). I’m just saying, I understand why talking about things elsewhere seems somewhat pointless to a question about why things are easier here (from an hours worked per week perspective), when we’ve had massive productivity improvements here.
The companies have had massive productivity improvements, by sending the work to China, or forcing labor here to compete with China. But the productivity improvement gain has all been directed upward. So, shareholders richer, management richer, local employees poorer, Chinese labor less poor.
If the productivity gain wealth had been more evenly shared, then workers here would be more wealthy, or they would have better benefits, or they would work fewer hours, or they would retire younger, or all of those things.
(I mean, BMW’s market share in the US is…1.8%. And the median SF of a new house is…2400.)
Ex-SWoo
1807
Doesn’t the rise of a global economy and the death of imperialism answer that though? Americans lucked into the perfect hand the in the 50s and 60s post WW2 and was able to leverage it to outsized lifestyle gains compared to the amount of effort put in.
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