It seems to me that the employer will fund it either way. Maybe I’m misremembering stories of pensions being mismanaged and lost. I think the most important thing is that the employer actually does something to fund a retirement, in my way of thinking the 401k approach puts me in control of the money so I don’t rely on someone else to not fail.
Whether it’s promised bonuses, stocks, or retirement funds, my motto is always “show me the money”, and I’ll believe it when it’s in my hands.
Immune to market fluctuations. Based on years working and salary so if you worked a long time then retired and lived for a long time you may get more money than if you had a bag of cash in the market. It lasts until you die and your spouse can inherit it so it provides stability for you and your partner for the rest of your lives instead of having to guess how many more years you’re going to live and dividing your savings by number of years left. Removes that stress of outliving your guess and running out of cash.
It’s income rather than assets, so if you fall into debt due to medical issues or whatever you can declare bankruptcy and still have your pension.
On that note, it makes a ton of sense to take full advantage of 401k plans. At least put it enough for the company match to max out, and preferably put more in to cap out the annual limit for it. That isn’t possible for everyone, but it’s both tax advantaged and pre-tax money, so an extra $500/mo into the 401k is NOT $500 removed from your post-tax pay.
30 and out. Work for a single company for 30 years and you can retire by 50 with full pension. Doesn’t exist anymore, but it used too.
Wow. All my life, 65 has been retirement age. I didn’t know that it had been even earlier. I expect to work until death.
Military and government can retire after 20 years. So if you’re 18 when you start college, 22 when you finish, and you get a commission as an officer, you can easily hit Major by retirement age at 42, and receive like $6000-$7000 per month, plus benefits, for the rest of your life.
Even before, people would often work later into life. Many people are fucking terrible with money and if spent poorly, you may need a job even with the pension.
In theory a pension is stable, guaranteed income. The employer promises a monthly or annual payment for life, and they manage a pool of money to make sure you get that payment regardless of whether the market goes up or down. People like stability.
With a 401k you take on the market risk yourself. If the market tanks (2000 and 2008 come to mind) then your retirement funds are suddenly worth less and your payments to yourself (distributions) go down. Of course, if the market is hot you can also direct your investments to try and ride the wave. Greater risk means greater (potential) reward.
401k’s also have required minimum distributions that kick in as you get older. If you live long enough you will reach a point where you have been forced to drain the whole thing into your regular bank account. Then it’s time for another plan.
Yeah, I remember my parents talking about how badly they were hit in the late 00s. They were considering retirement just as the recession struck, and they lost a huge chunk of what they’d hoped to retire on.
They still haven’t retired fifteen years later despite declining health.
Stocks are 293% higher today than they were at the peak of 2007. Even if they bought all of their stock at that peak right before the 2008 recession, the market had fully recovered by 2012. It isn’t the market keeping them from retiring…
The old plan was that you’d have three things in retirement: Social Security, a corporate pension, and a 401k. Each of these has problems, but if any one of them fails, then the other two are still there to provide enough.
Problem is, pensions have all but disappeared, Social Security gets fucked with, and 401k’s are highly dependent on market conditions at the time you retire.
The stock portion is reduced, yes, but there’s almost always some kind of mix of stocks in the portfolio. That’s not necessarily the main issue.
First, you may not get to choose the timing. A lot of older people got trapped in the 2008 downturn. They were planning on retiring a few years out, but they lost their jobs and never got them back. Not only was their portfolio unprepared just based on when they planned to retire, but also the stock crash killed a chunk of what they had. Double wammy of losing their job and destroying their portfolio.
Second, inflation hits hard. If there’s a period of high inflation right when you retire, that can really hurt your savings regardless of how it’s distributed. One of the things those forced 2008 retirees had going for them was that we had a period of relatively low inflation for the next decade. If you took out housing (older people often own their home outright), inflation was sometimes negative.
Capitalism, even when it generally makes line go up, does so in a spiky way. Those spikes cause problems that tend to hit the working class the hardest. Sometimes in ways that cannot be recovered.
There are some liberal economists, particularly of a Modern Monetary Theory bent, who do argue for policies that would flatten growth in return for predictability. Capitalism always goes for the sugar rush of high gains, though. For example, the Fed left rates at rock bottom for far too long, thus letting the market continue extremely high gains (over 20% per year of the sp500, when 7% is a typical long term average). Likewise, you have corps chasing high profits and assuming post pandemic pent up demand would continue indefinitely. Which is now leading to layoffs while major stockholders continue to sweep it in. Both of these lead to the recent high inflation.
I think the efforts to flatten it out are doomed. Capitalism can’t solve its own problems.
