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Author Topic: 401k's - Are they really broken? Should Government Take them over?  (Read 1845 times)
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WhiskeyGirl
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« on: December 13, 2008, 08:42:10 AM »

Are 401ks really broken?  Should the government "fix" them?  Roll them into a plan run by the Social Security Administration, Congress, and the President? 

Has anyone made attempts to fix Social Security, Medicare, and Medicaid?   When was the last time these programs were financially sound?


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By ANNE TERGESEN
Has the 401(k) failed?

In the wake of the stock-market meltdown, that question is on the minds of a growing number of policy makers, academics and corporate leaders -- not to mention the account holders staring in disbelief at their quarterly statements.

Why aren't account holders mentioned first?  Why don't "policy makers, academics and corporate leaders" fix the problems with the stock companies, Wall Street, regulation, and Congress first?  In my mind, that is the logical place to start. 

Why gloss over the problems?  Why not fix the source of the problem?  Why would anyone fix a symptom and not the root cause?  That just doesn't make sense.

I say no, the 401K has not failed.  It is the stock market, mortgage, and Congress that have failed.  401Ks have a number of options for investors.  Some are riskier than others.  Control and funds remain in the hands of the individual investor.

Contrast this with Social Security.  How much have workers "invested" in Social Security over the years?  Is Social Security sound?  Anyone expect Social Security to be functional in two years?  Four years?  Twenty years?


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...Alicia Munnell, director of Boston College's Center for Retirement Research. "As a major source of retirement income, it has shown itself unreliable -- a point the financial crisis has driven home."

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...Due to their reliance on stocks, these plans expose even diligent savers with the bad luck to retire during a bear market to the risk of going broke in old age.

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"There is no risk-free system," says Brigitte Madrian, a professor at Harvard University's Kennedy School of Government. "You can argue for expanding Social Security, but we will end up paying higher taxes. You can try to revive defined-benefit pension plans. But due to bankruptcies, we've seen employee pension benefits cut substantially."

Social Security is broke.

Would funds in the hands of politicians be more reliable?  I think the options for investments must be expanded.  There needs to be more regulation of the markets, banking, and investment companies.  Did those people who lost the most in the market meltdown have their money in the riskiest accounts?  How much are a lifetime of contributions to government Social Security worth today?

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Still others call for the government to do even more, by guaranteeing a modest level of return on these accounts. "The financial crisis has driven home the point that people can't be exposed to these kinds of market fluctuations," says Boston College's Prof. Munnell. "Even if the market bounces back, people who sold at the bottom will have been harmed. All of us approaching retirement have been harmed emotionally in a way that is unnecessary, demoralizing, and inappropriate in a country as rich as this one."

Should retirement programs make only 'safe' investments available?  Somehow, I imagine anything guaranteed by the government will risk being "looted" by financial adventurists.  They will find ways to skirt the law and serve no jail time.  Better to put your money in a mattress.  That is a lesson learned in the first Great Depression.  Trust no one.  Put your money in a can.  All you have to worry about are thieves that come to rob you in person.  Wolves disguised as the government or other sheep, can concentrate of liberating the assets of all these other great government programs.

Why not attack the tax benefits of private pension plans?  Convert all those existing, or the few remaining plans, depending on your point of view?  Convert the UAW VEBA Pension thing into any new government program?  Let's do the autoworkers a favor?  I imagine they'd welcome this government lifeline.


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Prof. Ghilarducci would require every working-age adult to contribute 5% of pay to these accounts. The government, in turn, would give each a $600-a-year tax credit, paid for by scrapping the current system of tax deductions for contributions to 401(k)-style accounts. (This $600 would at least partially cover the 5% required contribution for low-income households.)

Raise taxes on those that currently contribute to 401Ks?  IIRC, the tax burden for 401Ks is shifted to the point in time the money is taken out, like when someone is retired.  Current administrations may lose that money, but 401ks savers pay in the future.

With the current 401K system, what you save, what your employer might contribute is what you've got.  IIRC, the biggest advantage for 401Ks is that people save knowing Social Security will not be there.

$600 divided by 52 (weeks in a year) is $11.53846.  That's a little more than the price of two packs of cigarettes, two giant lattes, one ticket to a movie, one hour of minimum wage work..  Isn't it possible that the low wage earner can make this contribution on their own?  Learn the habit of saving?

Divide that $11.53846 by a 40 hour week at it shrinks to $.288462 and hour.  Why not just add a new tax for everyone?  $.288462 per hour?  If ANYONE wanted to avoid the forced tax to this ANY new government retirement program, they would have the option of diverting this money to a private program?  Why not make the government pay to play program funded by everyone?  Everyone contributes to their own retirement, no new Social Security programs that are bankrupt or will be bankrupted by politicians in the future?

Who will ensure that this money is not funnelled to pay for more pork programs?  Who will make sure the next administration will not use these funds like an ATM machine?
 

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These accounts would be locked up until retirement, at which point the participant could take a lump sum equivalent to no more than 10% of the account's value. The rest would be distributed in the form of an annual annuity payment that would cover both the participant and a spouse for life. If the account had any remaining value, it would transfer to heirs.

Who is calculating the remaining value?

I've been told for many years that annuities are not a good deal because people don't understand what they are buying.  They get ripped off.  Typically the company selling the annuity keeps more than the recipient ever receives.  Annuity programs make few if any losing bets--it's mostly profit.

Since the organizer of the annuity, or government, in this case determines how much the recipient gets back, someone might pay in say $400,000 over a lifetime and get only $50,000 back for their heirs.  Some may outlive their contributions, some may not.  I've read in other places that the government would only allow a small amount of money to be transferred to heirs.  READ THE FINE PRINT.

The account would show lots of money to the living, offering great expectations, but be a dud in the end.
 

Lots of interesting ideas, but if they involve giving money to the government...look out-
http://online.wsj.com/article/SB122878003437589575.html?mod=googlenews_wsj

Who would trust the government with more money?  Are they floating any solutions to fixing Social Security?  Medicare?  Medicaid?  Any changes to make these program solvent until 2080 and beyond?

Why not just seize everyones savings, bank accounts, pensions, 401ks, IRAs, houses, and all assets? Just be done with it?  Why all the pretense?

just my humble opinions
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WhiskeyGirl
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« Reply #1 on: December 13, 2008, 09:12:48 AM »

Quote
Re-inflating our 401(k)s
Wanted: Something more creative than a mandatory government solution.


Posted: 12/10/2008 10:24:25 PM PST

Have you heard about the Plot Against Your 401(k)? It's not going to go away.


Quote
Ghilarducci, and a fair number of sympathetic Democrats, believe that 401(k)s and similar defined-contribution pension plans are a disaster for middle-class Americans. Her timing is apt, since the recent market collapse has many 401(k) owners thinking exactly the same thing.

I wonder Ghilarducci and these others fall into the middle class?  Maybe they have enough salted away to cover themselves when these government plans fail? 

Quote
One flaw to the idea of government-run 401(k)s and IRAs is that there is little reason to believe government will run them better than private plans. A more obvious flaw is that there already exists a government-run retirement plan, Social Security, and it is on track toward insolvency.


http://**/opinions/ci_11190883

Who's looking out for taxpayers?  Savers?

There will always be people who make a lot and save a lot.  There will always be people who do not make a lot and save.  There will always be people who make a lot or a little and choose to spend everything and save little or nothing for the future.  Should government guarantee all of these people the same retirement income?

Should government give them the same opportunities to save?  Let the individual make those important decisions?


"It doesn't matter what you make, it's what you save that's important.  In the end, that's all you've got."

-- now government wants to take more and make sure there is nothing left to live on or to save for retirement. 

If you started with a dollar twenty years ago and invested wisely in your 401k, would you have more today than if you gave that same dollar to the government?  Would you be able to take that dollar and the related growth out of the government plan?  Move it somewhere else?  Touch it?  Feel it?  Spend it if you were terminal? 

With all the news of life spans falling due to cancer and other diseases, anyone planning to live forever?

just my humble opinions
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All my posts are just my humble opinions.  Please take with a grain of salt.  Smile

It doesn't do any good to hate anyone,
they'll end up in your family anyway...
WhiskeyGirl
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« Reply #2 on: December 15, 2008, 01:20:02 PM »

Here are some of the good things about 401k's, IRAs, and other individual funded retirement programs -

What you save is what you have to invest.  While some may have diminished over the past few months, they still remain in the hands of those that worked to put the money in there.  The owners may reinvest, change their investment options and watch their retirement funds grow.

They may be used as a source of loans (last time I looked) for downpayments on homes, cars, children's education, home improvments, and other things.  The borrower pays themselves back.  The owner of the 401K, etc., has a line of credit available.  They borrow their own money and pay it back to themselves.  What a great deal.

With a little care and management, the money should grow and be there when the owner retires.

If an individual chooses to invest nothing, they may get nothing in return.  Many have employers that make contributions to employee plans.  There seems to be a relationship between individual contributions and account balances. 


Does anyone think the money will be there if the government takes over these programs and manages the funds?  Investments?  Withdrawals?  Loans for family betterment?

Does the government have a good track record as a manager of money?  Are they good watch guards for the money that American's have invested for generations in social programs?

The best thing about 401ks, and other non-government investments/retirement programs is that the government doesn't manage the money. 

Social Security & Medicare were good programs. 

Savings Bonds were good programs.  What happened to them?  Ponzi schemes paid better and government discontinued Savings Bonds.  Why not try and rebuild faith in American government?

Why grab at money that works for so many Americans?

jmho
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All my posts are just my humble opinions.  Please take with a grain of salt.  Smile

It doesn't do any good to hate anyone,
they'll end up in your family anyway...
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