Finance and Economics > The Money Board

401(k)s will be considered unthinkable 50 years from now

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surfivor:
Jack mentioned Dave Ramsey recently and that he disagreed about not getting out of the market at certain times. He had also mentioned before that many people no longer trust the stock market.

I don’t know if anyone can guarantee that they won’t suffer medical bills, health problems, fraud, lawsuits or other misfortunes later in life or that they could live for a long time to an advanced age and as well as be prevented from earning much of a wage in old age due to age discrimination. The problem with the elderly is unique in that it may be hard to say that they are unwilling or unable to work as in the same as a younger person. I find also that economic conditions seem ever unpredictable and uncertain but often doubtful and very gloomy at times. Perhaps it can seem worse than it is but it seems difficult to predict

There is many cases of fraud in banking and also in medicine and the drugs people take that doctors give out that the system is supposed to help promote etc. The cost of health care of potentially even health insurance is potentially very crazy and could easily do serious damage to ones finances and things like Obamacare can make it worse. You can even be charged lots of money for services you really don’t want. I don’t even think I would take a ride in an ambulance if I could avoid it. I could see being very sick and wishing to take an Uber instead because who knows how much they would charge for the ambulance these days and you hear crazy stories. Gary Null thinks the medical system should tell you up front what the costs may be

Perhaps one thing is that retired people may be forced to live a very frugal life and do things like gardening and live some place cheaper but you may still need some social security money to get by. Ayn Rand apparently needed to collect SS


surfivor:

--- Quote from: Mr. Bill on April 03, 2019, 02:00:41 PM ---Both?

Buried amongst the socialist stuff is the unfortunate reality that lots of people are not prepping for when they can't work anymore -- or if they are, they're not knowledgeable enough to direct their investments.

At some point, these people will need public assistance, and I forecast it will be funded by a tax on 401(k) and Roth IRA assets.

--- End quote ---

Jack does not seem to recommend putting money into a 401k/IRA and especially if it’s not matched by an employer because it’s locked up and he doesn’t trust the government to not pass further rules or taxes against it or say if there is a massive market crash etc. That analysis is echoed by others and seems to cast some serious doubt on 401ks

David in MN:
As a case study we'll make up Tim and Tom:

Tim puts 20% in a target date fund and thinks no more of it. What we were all told to do.

Tom optimizes his 401 for company match, uses a Roth and Trad IRAs, and sets up CDs that auto rollover when the savings get too full. Tom does some homework weekly and reads acouple magazines and blogs on finance.

Tim believes he is perfectly diversified because he is holding a basket of auto-selected large cap 100% American stocks while Tom has stocks based on dividend strategies, bond holdings, international investments, option trades, and puts a portion aside to risk speculating on Biotech startups. In his 40s Tom pulls the principal out of his IRA to pay off the mortgage earlier. Tom even puts together a mastermind group with an investment focus to better suss out opportunities.

Rational people look at this and think Tom really put his back into saving and played the game better than Tim who really didn't. But we live in a world where Johnny Politician can tell Tim he did what every financial planner would recommend (kind of because he did) and he's a victim. I realize the people reading this skew more Tom but we live in a Tim world. And as much as I hate it "put in the work" never quite competes with "free shit" or "we'll take care of you".

Smurf Hunter:

--- Quote from: surfivor on April 04, 2019, 02:58:31 AM ---Jack does not seem to recommend putting money into a 401k/IRA and especially if it’s not matched by an employer because it’s locked up and he doesn’t trust the government to not pass further rules or taxes against it or say if there is a massive market crash etc. That analysis is echoed by others and seems to cast some serious doubt on 401ks

--- End quote ---

I'm a lot smarter than I am disciplined. I have bad habits and need to construct silly things for me to behave properly.  I won't behave rationally if you set $100,000 in cash on my kitchen table and told me to make "good choices" with it.  If instead it's in a brokerage account, then it feels more "business" and somehow I'm responsible.

If we were non-emotional robots, Jack's advice is sound.  However the reality is, automatically withholding from your paycheck is psychologically easier for me.
If 15% of my pay check is auto-deposited, I don't think of it as my liquid cash at all.  If I were to manually contribute the same into an account, once in a while I might make an "exception" to my rule and buy something else.

Likewise my family uses an FSA.  We have relatively high out of pocket medical expenses.  But it's not just the tax savings, it's a budget tool as well. Each paycheck $N are held in that FSA account.  I also prepay for my routine veterinarian care, for a small discount.  I envy people who can save 6-9 months of living expenses in a savings account and resist the temptation to buy a new cordless drill, firearm, ham radio or whatever they are into. For me, keeping that money in a CD, or even a brokerage account is just enough barrier to remind me, it's not play money.

Mr. Bill:

--- Quote from: David in MN on April 04, 2019, 08:26:58 AM ---...Tim believes he is perfectly diversified because he is holding a basket of auto-selected large cap 100% American stocks while Tom has stocks based on dividend strategies, bond holdings, international investments, option trades, and puts a portion aside to risk speculating on Biotech startups. ...

--- End quote ---

Someone is going to misunderstand what I'm about to write, and assume I'm suggesting socialist wealth distribution.  I'm not suggesting a solution, I'm just pointing out a really difficult issue.

Half of people are of below-median intelligence.

In addition, half of people (regardless of their innate intelligence) reach age 18 having received a below-median education.

Combining those two, we have a very large fraction of the population who lack the ability to understand investments.  They're not currently able to deal with "dividend strategies, bond holdings, international investments, option trades", and for many this cannot be fixed by hard work and study.  These are the people most vulnerable to following bad advice from predatory so-called experts.

I don't have a solution to propose.

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