401ks are great if you're savvy. They are massively inefficient for society in that they require all the people who use them to understand investing.
This is really bad policy at a society level. People need real, unbiased investing guidance.
I am so happy to meet someone who understands the concept of "society level".
Too often on the internet, I debate with people who's only concern is what benefits them or their cohort.
I find very few people think about "society" when talking policy.
Literally all you need to do is put your $1400/month in to a retirement account and not touch it. If you're upper middle class this is not hard to do (again I'm not talking about poor people here, but those with money who aren't saving).
Whenever our 401(k) report comes out at work I can tell that most people are not putting nearly the amount of money they should be into savings -- and this is a tech company so most everyone aside from interns are being generously compensated.
Another trick you can use is switch to a Roth 401(k). It means you'll be taxed on your savings today, but when you retire they'll be tax free. Now this is total speculation here, but I'm kind of assuming taxes will be pretty high in the coming decades as we try to keep social security going and pay down deficit spending, not too mention dealing with climate change fallout.
Also good for you on keeping all your money in the 401(k) accounts, some people cash them out when they change jobs which triggers penalities and taxes. If you can however, I would roll all your accounts in to one giant 401(k) so you can better keep track of what's going on.
There are several "timelimit" related aspects to 401k rollovers, neither would apply in your circumstance. You sound anxiety paralyzed like you made some "unfix-able past mistake" and there is zero reason for you to be.
> It is just sad :(
See my other comment about consolidating all of your legacy 401ks into a single robo-advisor (betterment/wealthfront/etc). It isn't hard, mainly consists of sending a few emails to HR departments and forwarding a few paper checks. Any robo-advisor will have a support team that will hold your hand through the process for free - they want to earn your business.
In the US, Roth contributions are made with "after-tax dollars", while 401K contributions are generally made with "pre-tax dollars", so if you rollover the 401K into a Roth, the IRS will see the rollover (aka "conversion") as a bump in your income and ask you to pay tax on the rollover amount, with the remainder/net going to the Roth IRA.
I still think a Roth conversion is a good idea for self-directed investments, but folks should be aware of the incoming tax bill.
[1] https://www.investopedia.com/articles/retirement/09/roth-401...
My tax rate will be higher while I'm working and earning a salary than they will when I'm retired.
Also, by keeping the base amount higher (pre tax), won't I have more growth than compared to the after-tax amount?
If you didn't work the entire year or your income was otherwise variable (bonuses or whatever other reason) then it makes more sense than usual to do roth contributions, or rollovers/recharacterization from traditional to roth, in lower-income years. Assuming you can afford to, and want to maximize what you put into tax-advantaged accounts.
The annual contribution limits are also on dollar amount that goes into the account, so if you're maxing out then you can get more out of a roth ira/401k overall. Not all companies offer the choice of roth on their 401k plans, which is a little annoying.
Buy a low cost diversified ETF. Take all your options, sort on management expense, and read the description. Not sure about your personal preferences and needs, but you're still young so you can be relatively risky. Buy 75% of the cheapest diversified stock fund and 25% of the cheapest diversified bond fund.
It doesn't have to be too complicated. You just have to not make very bad decisions (all stocks a year before retirement, or all cash for decades). And avoid high fees
A robo-advisor is a tech company in the financial space. They provide one-size-fits-all opinionated investment strategy (ie they do not let you pick individual stocks etc, you respect their overall portfolio strategy) that is not actively managed (ie they buy "the market" instead of individual stocks). As a result you will be diversified and you pay extremely low fees (many company 401k plan funds have horrible fees that completely take advantage of you).
Personally, I use betterment (https://www.betterment.com/). I approve of their investment portfolio strategy (https://www.betterment.com/portfolio/) and their fees are significantly below the fund choices I have in my company's 401k, so it is a good fit for me.
The one decision betterment does allow you to make (again the goal is simplicity), is your stock/bond allocation. Allocation strategy is a bit outside of the scope of this response, but to keep things simple I'll say anything from 70% stocks/30% bonds to 80/20 stocks/bonds is probably fine.
If you have further questions, or want a more "complicated" answer, feel free to email me directly (check my profile page). I'm an engineer, not a financial adviser, but I've been actively interested in personal finance for a long time now.
Step 2: ???
Step 3: Profit!
Seriously though, everyone has given very solid advice. As mentioned, the first thing you should do is consolidate all 401K accounts into a single IRA (or Roth IRA if you're hedging against much higher tax rates in the future).
Also, consider setting aside 10% of your IRA to play/learn/speculate with. By this I mean investing in funds or direct stocks in areas that you have an outside interest in (e.g. tech, clean energy, socially responsible, geographic region, etc). Due to your interests in this area outside of pure personal finance, you may be motivated to learn more about investing in general - which is always a good thing and will be more important as you begin to pull money out of your IRA during retirement.
That only kicks in for people with IQs >= 120 and good mental self control. So basically never.
There is no reason to assume that a target-date fund is actually any good. It's like any fund, there are good ones and there are really bad ones, and we're not even talking about whether the 401(k) account that holds the fund has its own problems (which an employee won't be able to avoid if they want to actually invest to the tax sheltered limit every year).
So the "personal responsibility" kicks in once you've educated yourself on all the ins and outs of the way the retirement system in the US can rip people off, intentionally on the part of those peddling bad products or as the result of poor decisions on the part of the investor. Something maybe half of the people out there are qualified to do, and somewhat less than 1% of the people out there are actually interested in doing.
We could fix all this with better policy (allowing everyone to do fee-free in-service rollovers of their 401ks and IRAs to the retirement funds federal workers use, which rely on low-cost index funds, might be one basis of a decent system) but we won't. Too many people are making money ripping other people off.
All one needs to do is save an extra $450/mo after tax starting at age 22, put that into Vanguard VFIAX or similar for the next 40 years. That will give you a few million at retirement...tax free assuming the market continues to act how it has acted for the last 50 years. Combine it with social security and retirement will be manageable for most. Spend the rest of your salary on hookers/blow or iPhone game microtransactions, it doesn't matter.
The problem is the lack of financial education and ethic in the population.
In indiana, that's a rent payment. A car payment. You might not even be done with school let alone getting a decent enough job to be able to afford this on top of your rent, transportation, and student loan debt. You are worse off if you didn't go to school or if you are working on a masters (or higher).
All the financial education in the world won't make these ends meet for most folks.
Well, there's your problem
Luckily, investing is not very difficult to figure out on your own. I read the book "Investing for Dummies" and I thought it did a great job at teaching basic ideas, and basic ideas are enough for the majority of people.
If society expects us to manage our own investments, then it should also equip us with the tools to do it effectively. It should be a required topic at the high school level.
Agency risk is always there when you hand over responsibility of something to someone, and it's especially acute with big pots of money. The best investment for retirement is to raise children who will raise grandchildren who all look after each other.
The poorly funded ones make the news, but there are many healthy ones that don't. It isn't agency risk that causes problems, it's a combination of increased longevity and low interest rates.
A big problem with 401Ks is predatory investment advice. "Advisors" channel money into high-fee funds and commissionable investments and often "churn" money to generate additional commissions. The Obama administration cracked down by instituting a "Fiduciary" standard for retirement funds, but Trump has delayed implementation of the rule twice.
401ks aren't perfect, but it's better than the above system. There's a reason no one sells annuities even close to what the government offers in it's pension benefits. It's ridiculously costly without using funny numbers.
It's interesting that you say this, because many VAs have embedded put options that were very valuable post-crisis. The "scam" happens when someone invests 100% of their modest life-savings in a VA.
Ben Bernanke invests the majority of his retirement savings in annuities, it's really just like buying into a pension.
EDIT: and before anyone else gets an itchy downvote finger, go look it up. Here, I’ll quote from the SSA’s own page: “Based on social insurance principles, the program provides monthly benefits designed to replace, in part, the loss of income due to retirement, disability, or death.” (emphasis mine). It’s so the old and disabled don’t starve in the streets, not a retirement plan.
The average monthly payment as of Jan 2017 is ~$1400/month: https://faq.ssa.gov/link/portal/34011/34019/Article/3736/Wha...
Depending on your cost of living that may help (maybe a little, maybe a lot) but it's not typically going to be a replacement for your own savings.
I can start collecting that amount at 67, and will statistically die at 78.
So 11 years of benefits is $185k.
Meanwhile, if I make an average of $100k for just 12 years, then I will have paid that much into the system (15% contribution). And that's not even counting the massive amount of compounding that will have occurred as I've been contributing since I was 14 years old.
I know it's quite popular for the HN crowd to talk about raising taxes for things like universal health care, social programs, etc.
But when I actually do the numbers and look at how I'm already paying about 1/3 of my income to taxes, I'm beginning to see why many conservatives don't trust the government to be fair stewards of our money.
from the SSA's own web site -- https://www.ssa.gov/history/briefhistory3.html
The key point is that one's benefits are tied to one's individual contributions.