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Comment by spiralpolitik | Hacker News Reader

Two market crashes and badly managed 401k accounts won’t help. Most trust that their 401k is correctly managed. This is often not the case.

The merry-go-round of debt ceiling and budget confrontations in congress doesn’t help. Any gains from this year are probably going to be wiped out by that continuing drama.

Finally the increase in cost of living expenses and cost of long term medical care will quickly eat into your 401k once you stop contributing.

The math looks ugly once you sit down and figure it out.

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Yep, so even if you do make it to retirement at say 65, if you’re reliant on daily nursing care, all your money/assets will be gone, usually within a few years. Ballpark, it’s $100-150k/year to have a nurse come in every day and take care of you. The nurse is going to be on their phone most of the time, English probably isn’t their first language, and the opportunity for elder abuse is sky-high. For what they get paid after their boss takes their cut of your $100k, they will probably steal. Heck, there are often arrangements where the nursing home gets “whatever you have” when you pass away in exchange for providing care. Conflict of interest, yeah? They are incentivized to let you die where possible.

I wish assisted suicide was more popular. I think it will be more popular as time goes on, especially in the US. If you worked your whole life to have say $2 million in assets, would you rather piss it all away on a boring, painful, purposeless existence in a retirement home, or would you rather your kids have a shot at owning their home?

What do you mean by "trust that their 401k is correctly managed"? Those 401(k) plans are self managed. In most plans the investment selection defaults to a low-cost retirement date fund. There's no one to trust.

If you start at a company today the default setting would be for the 401k money to be invested in something like LifePath N or similar ETFs that are designed for retirement funds. Most people, lacking the knowledge to do otherwise will stick with that.

So you are working on the assumption that LifePath or similar ETFs are going to be correctly managed for their cohort (shifting into safer investments as the retirement date approaches).

Somehow the "safety" of bonds were not adjusted as yields reached and sometimes went below zero. A multi-year zero interest bond is not a very safe investment. I did have that default setting on a retirement account and got out of those LifePath type ETFs over a decade ago.

You appear to be confusing safety with investment returns. As an asset class, bonds with high credit ratings have a lower risk of losing capital than stocks. Those bonds will lose some value as interest rates rise but they very rarely go to zero. For investors approaching retirement age it's more important to preserve capital than to worry about interest rate risks.

Total market index funds don't go to zero. You would have a bond fund and stock fund and rebalance to more stocks as you get nearer retirement. Sure, but maybe not when there have been very low interest rates for a long time. Holding cash in that case seems better than bonds to me. No upside in bonds, just downside.

Bond funds generate higher risk-adjusted returns than cash over most historical periods. You have to factor in income from coupon payments. You can cherry pick a few brief periods when this wasn't true but no one has the ability to reliably predict when that will happen in the future so it's a foolish approach to retirement planning. Most target date mutual funds do include some cash and equivalents in the portfolio as the target date approaches.

Peter Lynch’s mantra is to not bother with bonds, and his arguments are compelling enough for me to only stick with low-expense-ratio index funds.

Nevertheless, I find target retirement date funds pull out of stocks and move to bonds way too early. I’d probably only start moving out of stocks 2-3 years before retirement, based on how long recessions/crashes of the past lasted.

Historically, it looks like the risk of being in stocks as you approach retirement is pretty low. Let’s say you planned on retiring in 2009 at age 65. 2009 hits, stocks fall 50%… if you just continued working for 2-3 more years, your retirement account would be back at fresh all time highs AND you’d be collecting a larger SS paycheck each month when you retired at 67-68. Not exactly tragic.

What happens if, in the recession, you can't find a job?

I'm no expert, but I thought that was one of the big problems with recessions.

Major passive target date funds are all correctly managed. Periodically rebalancing between the various component index funds to match a set ratio is not exactly rocket science. You can just read the prospectus and latest audit.

The real problem is money printing at the fed and deficit spending. The nominal 401k value goes to but purchasing power goes down

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