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Comment by ryandrake | Hacker News Reader

We don't really know yet if the 401k experiment is going to be successful. People retiring right now are by and large the earliest beta testers of the 401k idea. My parents and their parents had typical Defined Benefit pensions, and they were all able to simply enjoy their retirements without having to lift a finger to understand the stock market and index funds and tax rules and without needing to micromanage some brokerage account. They never had to worry about contribution limits, IRAs vs. 401k, Roth vs. non-Roth, asset allocation, the right investments for pre-tax vs post-tax money, rules about withdrawing contributions vs. earnings, having to guess what year they'll die to pick the right draw-down rate. They just worked, retired, and money magically came in. You have to admire the simplicity.

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The main reason 401k wouldn't work is if people ignore and neglect it until they're 60 years old. Sadly a lot of Americans do this.

This could be solved by making contributions mandatory like Australia and Singapore. As long as you're putting money in, the rest is just math + time.

Or a custodian steals the money. Or the beneficiary selects poor investments. Or their employer doesn't do a generous match. Or the retiree switched jobs a few times and never fully "vested" in employer contributions. Or the market doesn't make the "math + time" formula work quite right. Or they couldn't contribute at various times due to family or health emergencies. Or all of these things.

Most of these points apply to pensions too. Getting laid off two weeks before your pension vests is an all too common story. Companies go bankrupt and the judge rules the opposite of what he did here. Pension plans themselves can go bankrupt, and although they're insured, it's only up to a certain limit.

And most of your 401k is going to be the money you put in, not the match anyway. So it sucks when you aren't able to vest or your employer doesn't match well, but that doesn't kill the concept.

The formula is proven to work in other countries. My point is you can't refuse to use a defined contribution scheme and then complain it didn't work.

"my retirement is safe and secure, I've invested with Crypto401K"

Defined benefit plans mostly work OK (with some bankruptcy exceptions modulo various legal protections) for people working a decade or two for a firm. Probably not great benefits but I know I wasn't even thinking about my pension early career. So now it's essentially free money from mental accounting perspective.

401ks require deliberate action which a lot of people won't do or at least put off and they may make poor investment decisions--like invest everything in their own company's stock if that's an option.

If it doesn't work, we can always go back to the pre-finance retirement model - raise lots of kids and live with them during a 'retirement' in which you continue to work as much as possible.

> We don't really know yet if the 401k experiment is going to be successful.

Wouldn't there have been some segment of the population with about 25 years of 401k by 2008? It should be possible to compare them retiring during the downturn to people living off their pensions.

Can you clarify what you’re referring to with defined benefit? I am really looking to make it so that companies don’t hold pensions hostage. I think they should be putting money into some outside thing that is independently managed

The retirement payment is based on the employee's work history, age, and earnings, rather than on investment returns.

Right. And there are some (fairly significant) protections these days. Learned recently that my pension which was farmed out to an outside benefits company at one point is now being farmed out to an insurance company TBD. I'm not especially concerned. The risk seems fairly low and I'm not really dependent. But this is the plus and minus of defined benefits versus something like a 401(k).

Retirement plans are defined benefit ("employee will be paid $X per time period during retirement") or defined contribution ("the company puts $Y per time period into this retirement vessel").

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/...

> We don't really know yet if the 401k experiment is going to be successful.

Unlikely, based on the data.

https://news.ycombinator.com/item?id=41488940 (citations from a previous comment I wrote)

401ks are great, if you know what you are doing. I consider it a miracle if a blue collar worker has a 401k, is actually putting money in it, AND has the funds allocated to an appropriate fund AND hasn't withdrawn it a few times in some cockamamie attempt at making a smart financial decision like: paying cash for a truck so they don't have a payment.

Our public school system has failed. Full stop.

Public schools successfully teach most Americans to read and do basic math. Being able to read and do math is all you need to navigate the greater part of modern society. Putting 15 year olds into a personal finance or home economics class can be productive, but we can't expect high school to teach you what to do in every possible scenario you'll encounter in life. At some point you're going to have to read and do a little bit of math.

Knowing basic math, and applying it are two different things.

The financial markets are vastly complicated. If you have exposure simply to arithmetic and not how it is applied to financial instruments, you are ill equipped.

Better to teach the basic financial instruments (Checking accounts, fees, overdraft, Credit Cards, Home Mortgages, Retirement accounts, bond and index funds, and simple allocation), and just the math necessary to understand the fundamentals. You can go a lot farther I think with the 3 R's and a solid home economics class than even things like Algebra, or higher math.

And, if nothing else, teach these people that if your employer matches, fund AT least that much. That's just free money, and you can't get a better return on your money out of the gate than that unless you're lucky at the sports book (ill-advised...).

Vanguard should be publishing ready to go lesson plans for this and giving them gratis to every high school in the nation.

I'm certainly not opposed to having a home economics class even in a college prep curriculum. Throw in some stats while you're at it and maybe some cooking lessons. But that doesn't stop people from being greedy and stupid like a lot of the tech folks during the past couple decades or so. Yeah, some won big, but so do some people who play the lottery every week. And sometimes it even makes sense to roll the dice a bit.

Pretending that successfully managing investments during 40+ years of working life so as to provide a reasonably comfortable requirement just requires "a little bit of math" is disingenuous in the extreme.

It is not disingenuous and it really doesn't even require much math. Buying target date and index funds is remarkably straightforward in 2024. Know how and where to buy them takes about an evening of reading. I know because that's how I did it. I did not have a home ec class, I did not have someone to show me how, and I am not that great at math.

I have also done this. But ...

my wife, who is perfectly capable of basic math, would never have been able to do this task, nor would she have wanted to, and in the past she was exploited by financial advisers seeking to do it for her.

I have no doubt that some people with weak/average math skills can do this, mostly because the math skills have nothing to do with it, really. Confidence about how to invest and manage your life savings is an entirely different thing, and since we don't teach people anything about this, many, many people do not have it.

I think in the end we are agreeing here. The big problem is that it's opt-in. Making this mandatory like Australia and Singapore solves the biggest problems of apathy or simply being unaware.

Social security for example only works because it's mandatory. I think having some percent of your check go into index funds automatically would work too.

We have social security in the US. If you think people should be putting more money in so they mostly automatically get more money out after they retire that's "just" a political problem. Setting up a parallel mandatory system just seems like an unnecessary complication.

There's nothing especially magical about 401ks. Yes, many companies match contributions up to some level. And there are some tax benefits but it's mostly about saving for retirement. It's not like defined benefit plans were anything like universal in the US--mostly big companies for employees with relatively long tenures.

The thing that makes 401ks magical compared to social security is decades of compound interest. The average social security payment is only $1700 a month. Not enough to live on, yet the program is almost unaffordable.

But that hasn't historically made 401ks magical relative to personal savings more broadly. Yes, many companies match up to a point and there are some tax benefits relative to just making an automatic contribution to an index fund, but most of the benefit is just saving on a relative basis.

I agree that SS by itself isn't really enough to live on for most people. But that's also just about what I get from my defined benefit pension--albeit for just about a third of my career. A nice bonus but just that.

This.

How has our public school system failed? I know mine in the 90s had all of the information on financial literacy that covered everything you listed. I think the failure is expecting every 14-18 to absorb that information and start making life impacting financial decisions for that point forward.

'My plan would work, if it wasn't for that fact it involved human beings' actually just means your plan doesn't work.

You can relay general concepts and even the details. Figuring out all of the possible combinations of details that are legal and amount to the greatest benefit is not taught, at all. It involves an intermixture of various IRS rules, state laws, financial regulations, stock market peculiarities, and business entity types...not to mention trusts.

It amounts to teaching kids how to be free vs. being trapped in debt. The mentality that money is not to be spent but to be invested and leveraged. All this shit is over the head of anyone trying to teach in our school system. They are just riding out the misery to get their pension.

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