401(k)s Are a Negligible Source of Income for Seniors

[haele]

70. I put in the max of 15% when I was single, 20 years ago.

Right now it's 1% because of the cost of living where I still have a job and my spouse's chronic disability.

We aren't talking having expenditures "we go out to eat every night, bought a vacation time-share we go to every summer, got a contractor to remodel our kitchen with high end appliances, and got a 70" TV, and a third lease vehicle, and an X-Box for the kids" type of spending.
We're talking "is there enough food in the pantry to last for everyone when we get to the end of last week's paycheck so we can maybe take the car in for the long over-due alignment and tire rotation so we don't have to buy a new set of tires this year." We're talking doing all the home repairs ourselves - and it's f'n hard crawling under the double-wide to fix 50-year old plumbing and wiring and doing the yearly maintenance on the support piers when you're a 56 year old woman with a bad back, knees, and only 65% use of her right leg doing it pretty much all by herself. Saves a ton of money, though $10 of supplies on the maintenance and 4 hours vice paying someone $600 a year to do it for you.

Now, our "dumb stuff" spending is insuring that we pay the bills that keep the roof over our heads and the $250 a month Student Loan (under the 10 year payment); that my husband gets the type of food he needs (no cheap junk food or just "rice and beans and water&quot - and can get to his therapy sessions and doctor's appointments to keep from getting worse; and that my pregnant stepdaughter (still under our insurance, and having a lot of problems) and the grand-daughter we had to get guardianship of for insurance purposes have enough healthy food to eat and adequate medical coverage because son-in-law frankly can't get his act together and seems to think that they can both make it working full-time for allowance money at his tea-bagger family business (BTW - he doesn't have insurance, because his dad doesn't believe in "Obummer-Care" and won't get it for him; since he also works pretty much under the table, there is no federal or state tax record for him to be able to apply for Covered CA by himself).

Well, those things and the cable bundle that includes internet and phone (we still need a land-line for the gate in the complex where our double-wide is located), the cell phone account where half is paid by my employer because I also use it for work, and basic Netflix.

The situation is not unusual for a lot of older workers with adult kids who don't seem to be able to get decent jobs in this area. I'm certainly not alone.

The 5% of the pay I could possibly save is going to an HSA that pays for the medical expenses for everyone under my insurance; it covers the deductible and has enough carry-over that we don't get hit out of pocket at the beginning of the year for doctor's visits, expensive therapies and medications - or for the upcoming birth of grand-child #2, which unless the other grandmother decides to apply for guardianship to cover under her insurance, we'll have to also shell out $800+ to do so again next year.

So, where will I be able to come up with money to save more for a 401K that would never have gotten over $150K even if I had maxed out all my investments during my civilian working life? I can do the compound interest figures- there were only two years I could have put in the (at the time) max of $8K fully matched by an employer before I had to roll that munificent $26K in the 401K from that employer into a IRA, which now has a whopping ~$46K in it; unless interest rates go up significantly before I retire around 70 (if I can keep working that long), I might end up with a whole $70K in it.

I have two other IRAs that were 401Ks from two other employers that have currently have around $18K and $22K respectively. My current 401K has ~$20K in it, still recovering from the $12K loss the company experienced 2008/2009. In fact, my employer just split the company stock; they halved the amount it was worth during the split instead of dropping it only by 1/3 when they split, so there is absolutely no change other than perhaps an increase if the company stock has the potential to continue it's slight improvement; which looks less promising as they lost two major customer contracts and didn't pick up enough to make up for that loss. In all actuality, I'm probably going to be getting notice to find another employer in around 6 months; the contract I'm tasked under goes into re-compete next year, and it's probably going SBA, which means it's going bye-bye. I've worked here 10 years. So, it will go into another IRA with no chance to get matching funds for the next 14/15 years I might have been able to work with this employer. And I'm certainly not going to "qualified" enough be an executive any time soon, so my chances of getting a 6 figure job where I can live frugally and save the max are getting smaller and smaller the older I get.

Fact is, most people no longer work for the same employer for more than 5 - 10 years. That means most 401Ks do not provide the return rate that is advertised, because the advertised benefit still assumes 25 years of employment with wages that increase on a yearly basis and no significant life changes that might impact the amount of money an employee may require to spend for even the basics. Just tell someone they can't buy a house, or get married (or divorced and have to pay child support or maintain two households) 5 years after they start a 401K.
Just inform people they have to concentrate less on doing good work, and more on the competition with their peers; to kiss up to the boss and his/her buddies or learn to "network" properly, so that they can get a higher paying job and live well enough so they can retire without worries.

Look, I've seen how the shell game with 401Ks is played.
In 1991, when my first company (after active duty military service) went to a 401K vice a pension system, it was sold as "12% return with full matching dollar for dollar after 5 years vesting- and you have control over your investments, so you can get the plan you need". That we didn't have to worry about the failure of Social Security and those corrupt and failing Union-run Pensions, or if we were eligible for military benefits that might not be there as the "Peace Dividend" took affect and people would get together singing "Kumbaya" in this new Flat World.
That we could could retire at 65 with up to well over two Million in our account if we maxed out our investment every year with that company match. We could "own" our future. Sounds great, doesn't it?
That is:
- If you could manage to work your way into one of the increasingly rare recognized management or supervisory positions.
- If you could stay with an employer for over 5 years and not find yourself in the group that got the pink slip after the company holiday party because "our stockholders need us to cut expenses".
- If you remained working full-time - and didn't have to take a month or two worth of "temporary lay-off" between billable tasks.
- If you got regular wage increases - and didn't end up working 4 years without a raise with the added financial burden of an increase "personal responsibility" for your benefits - as health insurance premiums went up and up with less coverage available.
- If your company didn't cheat and not match funds because the owners are using it as a personal ATM, and plan to bankrupt it before people notice they haven't been paying premiums or matching funds...

So, since I'm not the owner of my own business, or independently wealthy, or a trust-fund baby - what "dumb expenses" should I stop paying to throw more good money for a potentially poor return?

BTW, my pre-tax HSA - which I am maxing out on at $425 a month - has been doing better than my 401K - 3.85% return in interest over 2 years since I began it, vice a total 2.75% return from my 401K over the same time.
And the HSA account, as limited in use as it is, is far more portable and can potentially last me longer than a 401K, which I'd have to stop putting into and start removing from when I'm 72.
Also, unlike the 401K, I'm not going to be charged any fees when I or my dependents use it . Because we all reached the ACA personal deductions, I'm maintaining an average of $3K -$4K in it now, barring the occasional nickel/dime co-pay and a dip at the beginning of each year after starting out with the $500 the company seeded it with back in January 2013 when they started it. By the end of next year, barring an ambulance ride or other such emergency, and even after paying for the birth my next grand-daughter, I should be able to maintain between $4K - $5K in it. Enough to save up for braces, dentures, or other medical issues as time goes on.

Haele