MYTH: 401(k)-style plans are the best retirement plan for workers.

[Coventina]

REALITY: 401(k)-style defined contribution plans have failed to provide the secure retirement they promised, often offering less value at higher costs than defined benefit plans. These plans require workers to manage their contributions, resulting in inadequate retirement savings. They also expose participants to market risks, as seen during the Great Recession, when many saw their savings disappear due to stock market crashes, leaving them with insufficient retirement funds.

[mike_c]

1. I have an excellent defined benefit pension...

...that I wouldn't trade for a 401(k) under any circumstances. Who would?

[Calculating]

3. What companies even offer a pension anymore?

None that I've seen

[TheRealNorth]

4. That is the problem

Outside of the public sector, they are practically extinct. And the Republicans are working on getting rid of those, too (except for the military and police).

[Aussie105]

8. Defined benefit schemes

are a future drain on any business that most don't plan for.

Wife's relative worked for the UK Bristol Council. Which declared bankruptcy. Ooops!

[KPN]

31. And elected government officials ...

[Skittles]

13. most of them come from taxpayers now

yup

[WhiskeyGrinder]

32. Companies don't, but Building Trades unions, railroad unions and others do.

[brooklynite]

18. I have a defined benefit pension AND an opportunity to pay in to a 401k...

…AND an opportunity to pay into a 457 plan.

My wife and I have socked away money whenever we had the chance.

[Gore1FL]

21. I have both. nt

[Duncanpup]

27. Same here teamsters Union pension

[MOMFUDSKI]

29. I get a small Teamster's check each month

because my ex-husband worked 14 years as a Teamster. Each year, for years, I would get the “we are in the red zone” letter from Teamster’s Pension Fund. At one point the Teamsters told the Government that they had to cut the $$$ amount of each check. Guv said hell no. But now Guv dug up some $$$ to get Pension Fund out of the red. To me it is a small amount of money for fun but for many retired Teamsters it is their livelihood. And they were prepared to make the checks smaller and then non-existent. Lovely.

[Aussie105]

2. Oversold.

401(k) and the Australian equivalent, Superannuation, were touted as a sure investment for easy living in retirement.

The weak spot is that they both depend on investment returns from stock markets, infrastructure projects, etc.
If that investment return collapses your future fund plumets along with it.

The money needs to be invested, which props up the value of the things invested in.
Once the overevaluation becomes obvious, things can crumble.

Do I hear you mutter something along the lines of it sounding like a Ponzi scheme?

[kelly1mm]

11. You wrote:

"The weak spot is that they both depend on investment returns from stock markets, infrastructure projects, etc.
If that investment return collapses your future fund plumets along with it.

The money needs to be invested, which props up the value of the things invested in.
Once the overevaluation becomes obvious, things can crumble."

What do you think defined benefit pensions are invested in? May want to do some research on what happens when a defined benefit pension plan goes insolvent. Its not pretty.

My main problem with traditional pensions it that they are tied to long term employment at one employer (or slightly better, through a union). With the rise of job hopping as the only way to secure raises many more people will not even vest in a traditional pension, let alone qualify for the enhanced benefits which come with 15-30 years of service.

This is coming from someone who's spouse is currently drawing on a defined benefit pension (teacher) and myself who has a vested deferred defined benefit pension (USPS). Both those pensions together are significantly less than our 401k/403b balances at a 4% withdraw rate.

[MOMFUDSKI]

30. I paid in to 401K briefly.

The way I saw it was overnight people had to become smart about investing. You had to allocate what percentage of your $$$ you wanted it invested in. So your 401K $$$ was up for ground grabs because you were a damned fine electrician but didn’t know didley about financing/investing. Pigs to slaughter.

[Yo_Mama_Been_Loggin]

5. I've been told retirement funds are like a three lagged stool

401k's and or IRA's are one leg. Social Security is the second leg.

The third leg is company pensions. The sad reality is however fewer companies offer a pension these days.

[enid602]

26. Fourth leg

Add a fourth leg: the equity in your home. Unfortunately it’s no longer possible to purchase a home in many markets. I have all four legs, but younger family members often do not.

[LiberalFighter]

37. I would consider that part of your Savings leg.

[LiberalFighter]

36. In the past it was defined as...

Social Security
Pension
Savings

When I retired, 401k was in addition to my savings. Which I later converted to an IRA.

[PoindexterOglethorpe]

40. The third leg is personal savings.

401k, IRA, and pensions are all the same leg.

[MichMan]

6. Defined benefit pensions were great if you spent a couple decades or longer working for the same company

Not so good if you changed jobs a few times because you got a better opportunity, got downsized, or moved.

I worked a few places for 4-5 years before moving on to something else; good thing I had a 401k that I could roll over in the next job. Otherwise, I would have gotten nearly nothing. I would have hated having to turn down better job offers because I didn't want to give up a pension.

[TheRealNorth]

10. That is a good point

That they are not really "portable" if you change companies/jobs.

[Hugin]

24. 401(k)s aren't that "portable" either.

My SO had to actually pay to get out of hers after it had been mismanaged (actually malfeasance) by a company she had previously worked for tanked their 401(k) plan.

Yes, as a contributor to a plan an employee is on the hook to pay off their portion of a plan that goes belly up.

There’s nothing that will ever convince me that 401(k)s are not yet another way for Wall Street to rip off labor.

[WhiskeyGrinder]

38. Many unions establish multi-employer defined benefit pensions. Building Trades are the obvious example.

[BlueIdaho]

7. What's the alternative?

How else can a ordinary Joe or Jane invest in their future?

[Silent Type]

16. House, IRA, and one can open a personal investment account. All assume you have the money.

Of course, vote for Democratic. Improvements in economy, healthcare, Social Security, education, etc., are all investing in our future.

[Quixote1818]

9. I put in the maximum for my Roth and matching and put everything else into a Vanguard Index fund

Yes, 401K's suck! They are full of fees that can cost you hundreds of thousands of dollars with compound interest over the years. This video is a must watch!

[Emile]

12. They sold 401k as a supplement to your employer provided

retirement plans. It was never supposed to replace retirement plans and were promised that the 401K never would. A few years down the road employers started doing away with company pensions. If you were lucky enough to be vested you get a small pension, much less than what you would of had.

[Yo_Mama_Been_Loggin]

19. This 👆

[RobinA]

33. This Is What

I remember being told when the company I worked for, which had a pension at the time, introduced the 401k way back in the day.

To me it's always been pretty clear that a 401k isn't going to cut it unless you have a whole lot of money to put into it. I firmly believe that the average Joe can't save enough to fully fund retirement. I've put money into at least five 401ks in my lifetime. I never got a match in any of them. I have a nice sum of money saved, but nothing that could support me for any length of time. If you don't make much you can't save much. My solution was a state job where I knew I'd get a pension. With that plus SS, plus my meagre savings I should be able stay off the steam grate after I retire. God willing and the creek don't rise.

[peggysue2]

42. The company match really made the difference for us

Once it was offered we were on board. We had a small pension from the company my husband had worked for before the company he ended up with bought the first one out. The second company offered only 401Ks and meager stock options unless you were in the top management tier (they made out spectacularly, as did those at the original company, all departing with multi-million, golden parachutes).

Between the small pension, our 401K holdings and SS, we've been able to navigate comfortably. However, I'm always struck by the retirement holding studies for the majority of working Americans. Very difficult for far too many people after a lifetime of labor.

I ended up with nothing beyond SS because I started and stopped jobs as circumstances dictated, and then worked several contract jobs editing and writing from home.

But in the end, we were okay. My husband and I consider ourselves very lucky.

[Skittles]

14. I've never heard anyone say they are the best

they most certainly are not

[Silent Type]

15. We aren't going to see many more defined benefits plans. The risk is too great for small businesses.

Plus, a 401K plan is better for people who change jobs frequently.

I’d love to have a defined benefit plan, but 401K can work for most people.

[Hugin]

25. Nothing is better for people who change jobs frequently than Social Security. n/t

[enid602]

28. Changing jobs frequently

Unfortunately, changing jobs frequently is no longer just a preference for most.

[Hugin]

35. Few have changed jobs as frequently as I have...

Yet, my Social Security is always there. My 401(k)s aren’t and on those I always take a loss when I change jobs because I have to change plans.

But, that’s what Wall Street likes about 401(k)s is the “churning” and fees.

[Emile]

39. +1

[NBachers]

17. I keep lookin' at mine, and it ain't goin' nowhere.

[IronLionZion]

20. Plenty of people have lost their pensions

or not gotten nearly as much as they expected and need for retirement.

Social Security really has been a lifeline for many elderly, literally keeping them alive and out of poverty when they don't have any other options.

Like many things in life, there are people who benefit from 401K plans. They tend to be highly educated and high earning individuals. They would change employers many times and have an independent streak. It takes considerable knowledge to build a well diversified portfolio, balance it regularly, and adjust it according to age and market conditions. That knowledge can be gotten for free online but it is a barrier for folks who don't know any better.

A sizable portion of MAGA folks have no idea about any of this. They are convinced that lazy bums are getting free stuff somehow. They are the same folks who think Biden is inflating up prices for gas and groceries, I'm stealing their jobs, and school makes people soft and liberal.

"I love the poorly educated" -

[Xolodno]

22. They are also a joke.

In the past you had to work five years to be vested in the pension, understandable. Now some companies require a time on job to do a full match on the 401k, usually three years. So you put in a percentage and they only meet half of it until you are "vested". And in many corporations, they often only match up to 3-4 %....not enough.

Previous company I worked for had a pension and 401k, about 10 years before I left, they killed the pension. But for those grandfathered in, they got an extra contribution in the 401k. But guess who were targeted from random layoffs. Company I work for now, a non profit, I get a pension and 401k with 6% match, granted I have 4 more years before I'm vested in the pension.

Retirement was supposed to be a three pronged approach. You had your base of Social Security, Pensions on top of that to fill the gap and 401k's/IRA's to be more of your play money. But now, its just Social Security and 401k/IRA. Boomers don't have this problem, but Gen X and beyond do. Worse, those with lower paying jobs, don't have a 401k and can't afford much in an IRA (and there is now company contributions in an IRA). A lot of people will be working until they are at death's door.

[GoodRaisin]

23. I wasn't offered a choice. It was either 401k or nothing.

I took it and it was indeed better than nothing. Fortunately my dollar cost averaging did well over time and I was able to retire at 61.

[Johnny2X2X]

34. The best? NO

Not the best, fully federally insured pensions were the best retirement plans.

But 401Ks are the tool we have now, they are still worthy of investing in and if you bypass any matching employer contribution you're just lighting money on fire. And you don't need to know much to invest, just use a target fund for the approximate year you plan to retire, drop 10% of your income before taxes in, and don't think about it. You'll be fully vested in 3-5 years and 100% of the money in it becomes your own.

So many people in my generation (Gen X) are in big trouble with their retirements right now. People in their 40s and 50s feel hopeless that they don't have huge accounts right now. But I always say, it's never to late to improve your retirment situation, don't be discouraged by all these articles that say you'll need $2 or $2.5 Million. Even $50K in a 401K can make a big difference for you in retirment. And extra $500 a month in retirement income can be life changing for a lot of people. Get saving now, make a plan, living on just social security and nothing else is miserable.

[PoindexterOglethorpe]

41. Pensions can go away.

A company I worked at for ten years, filed a couple of bankruptcies in the '90s, and was able to dump their underfunded pension on the PBGC (Pension Benefit Guarantee Corporation). I'm getting less than 1/3 of what my pensions should be. Fortunately, I never counted on that pension to amount to much. It's the people who stayed there thirty or more years, and for whom it would have been more than their Social Security.

I have a small IRA from another job I had for about 4 years.

I know that some 401k's aren't well run. But over time the stock market goes up, so investing in a diversified portfolio of stocks or mutual funds will make money. Just don't try to buy and sell actively. Trying to time the market is a fool's game.