401 (K) S Aren’t ‘bullshit’
Hello friends. A friendly reminder that while our financial lives can seem like a disaster and we all worry about a lack of money, one of the few financial instruments that truly benefits the people who use it is 401 (k).
In this story about a study that reported 66 percent of millennials saved $ 0 for 401 (k) s, Vice writes, “It’s worth noting, however, that 401 (k) s are generally bullshit .” (Underline them.)
Where to begin. Yes, I understand that 401 (k) is not magic . You need money to save money, not everyone has access to it (especially since freelancers and gig economy workers make up an increasing proportion of the workforce), and it can be overwhelming or seemingly impossible to think about saving for retirement when you have many students. loans and your rent eat up half of your paycheck. Employers are much less generous than they used to be, and our retirement crisis shows that saving money is difficult for all people of all age groups. Defined benefit plans (also known as pensions) were good when they existed and were properly managed. Ideally, people would get more money . I don’t argue with any of this.
But there is a general cynicism that pervades certain areas of the web / culture that basically seems to say, well, we all screwed up, so why even bother trying? I don’t think it was the intention, but I cannot help but see this as a consequence, and it’s irresponsible. If a bunch of publications you trust tell you 401 (k) is bullshit and you don’t know better, are you going to contribute to your retirement account in the first place? You can be angry with the system, but you can also encourage people to do what is in their best interest, namely to save money for retirement.
Here are some of the study’s other findings:
- Most working people between the ages of 21 and 32 who are saving for retirement saved less than $ 20,000.
- The average balance is USD 67,891.
- 83 percent of working Hispanics and 70 percent of African Americans saved nothing
- Only 55 percent of millennials are eligible for an employer-sponsored retirement plan, compared with 77 percent of Gen X and 80 percent of baby boomers.
- This puts them on a par with other generations, according to other studies: Two-thirds of Americans across generations do not invest in their 401 (k)
I’m not trying to preach about 401 (k) s and argue that they are the perfect and ultimate financial product, or that you need to pull yourself up and do better. Research shows that workers may not even be able to take advantage of one of them, as our employers become increasingly stingy. And I can’t get you to save – especially if you don’t have the money to save – but I will say this: the system can be bullshit, but 401 (k) s is not.
Publications that draw attention to the growing inequality and the dangers of continuing to work and working in the gig economy – which they absolutely need – should also take the time to educate people about what they can do to improve their finances, especially if employers and government are not. You can put your hands up and say it sucks, but in the end, you need money. This is not something to be neglected. So if you are fortunate enough to have access to 401 (k) at work and the ability to contribute, then do your part. Even just a little bit.
I’m not talking about striving for the maximum (for 2018, it’s $ 18,500). But even if you contribute one or two percent of your salary, it is exponentially better than doing nothing at all. This is true for many reasons:
- If your employer offers 401 (k), they will likely offer an employer match. And you should think of this money as part of your compensation. Would you agree if your employer paid you $ 49,000 instead of $ 50,000 when you agreed to the latter? Not? It’s the same with your 401 (k) match. All of a sudden, your two percent contribution turns into four percent. They have to give you money anyway, but they made it a requirement, so you have to do it anyway. If you don’t put in enough money to get a match, you are effectively missing out on some of your paycheck.
- This lowers your taxable income, meaning you pay less taxes and therefore take more money home.
- Commissions are usually lower than if you invested on your own, and you can access high-value stocks that would not otherwise be possible (for example, the world’s Amazons and Facebook).
- Difficult! Interest!
Please do something for yourself, especially when you are young. “If you go back and look at this historically, people who have invested in 401 (k) have retired money,” says Kevin Dixon, senior market analyst at Market Traders Institute. “These are incredibly smart cars. In fact, it is not difficult.
So: get angry. Understand that maxing your retirement account alone, probably still will not be enough to live off retirement, and that many of us will be working for a long time after we’d like. Fight to keep the safety net in place and push our government to expand it rather than quietly demolishing it piece by piece. Understand your entire financial picture , beyond investing in retirement, and what needs to be done to put you in the best possible position. The study suggests lobbying legislators to loosen the restrictions on ERISA (Employee Retirement Benefits Act) and support a union in your workplace. Require politicians to establish a fiduciary rule.
But don’t be fooled into thinking it’s better to tweet about how we all screwed up than investing some money in your 401 (k). It may seem painful and fruitless now, but you will be better off. Use cynicism to demand more and better, but don’t let it hurt your future finances in the meantime.