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Comment by yucatansunshine | Hacker News Reader

Wait I might be out of the loop here, why's the 401(k) a con?

Because the entire concept is basically designed to just make the rich even richer and puts way more risk on the individual.

Instead of say, social security being significantly higher by people paying more into taxes.. we have convinced people to put money into a 401k.. which is first entirely dependent on "the market", something which is well out of peoples control. The design is that people are 'forced' to contribute this way, which will drive market prices up so the people who actually have substantial money make way more on the market going up than the little guy.

Then on the flip side, when the market does tank it hurts the little guy way more because it's basically ALL of their assets at risk on something they can't control. While the rich are able to have money in a much more diversified set (real estate, business etc).

People also get f'd if they happen to want to retire close to a big market crash and all that. Again, things completely out of their control.

Before anyone starts arguing "I would rather have control on my 401k than the government!!", if the US government couldn't pay social security you would be way more fucked in the market in that situation. We have a stable government- that stable government should be providing security for people in old age.

"Retirement" being linked to the market is so beyond dumb. It's one giant scam to pump up the market and shift risk to individuals.

I’m not saying they’re perfect, but target date funds are meant to solve exactly that. They give you exposure to market upside over a long duration (so you can collect risk premia when you have the longest horizon) and then gradually expose you less to the market as the fund approaches its target date.

My 401k is based on a portfolio of companies, each of which is valuable because of their success in the market. This portfolio changes over time as companies rise and fall.

My future social security is based on the promise that future taxpayers will fund it.

I’ll take my real value (401k) over the promise of value in the future (social security).

> While the rich are able to have money in a much more diversified set (real estate, business etc).

For the median household, most wealth is tied up in real estate (their home).

There’s nothing “dumb” with building wealth (to finance retirement or otherwise) with stocks/funds. It’s the primary mechanism the rich use to build and retain wealth.

Pensions have major issues. The government has not made a very good case for “we should manage more retirement funds” with the state of the SSI trust. 401ks are a next move to address downfalls and failures with how other options have played out. But yeah anyone can do dumb shit with money to their detriment; that’s very difficult to overcome.

Well, read up on what existed before the 401k in the US, and how retirement works in Europe for comparison. You're betting on stonks going up and then switching to bonds and safer investments closer to retirement, hoping that the caprices of capitalism won't wipe your savings when you need them. Except: https://nypost.com/2022/06/09/401ks-drop-amid-market-turmoil...

If inflation is 10%, then most places you put your money won't hold value over time.

So, in a period where the market is down like 30% and inflation is up 10%.. your argument is putting it in the market is the way to combat inflation?

I mean, I get what you mean.. but we have a -40% differential here to prove you utterly wrong at the moment.

My argument is that keeping it in savings, uninvested, or even in a mason jar in the back yard will also show diminishing returns. It will, of course, shrink slower, but the path is downhill along most axes.

-40% over what time period? The current economy is not the norm.

European pension funds do exactly the same, the money doesn't just disappear into a vault somewhere. This is good because the profits can help combat inflation over a lifetime of work. The height of the pensions is very much dependent on market factors.

I think a bigger advantage of this system is that the money isn't your responsibility. Many people lack the fiscal responsibility to manage stocks and bonds or will do the smart thing and save up for later when they receive their pay cheque. By shifting responsibility to the individual the most vulnerable of society are most at risk of financial mismanagement and poverty during retirement or even not being able to retire at all.

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