Reply to Only 100k in 401k at 50

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]A large part of 401K underperformance which is shocking as up to recently the default was the in cash or money market safe option. The company did not want to do the investing for you. Many people often opened a 401k and did not move the funds so say in cash for many years.

Now companies can default to a target date. My own daughter started work in 2022 and did not pick any choice for her 401K under new rules she got put into Target Date 2065. When she finally realized this in Summer 2024 she was mad she missed the rally in stocks, but turns out her 401K was up a lot. If it was the past it would have been in the money market or something. She reallocated.

But before companies could invest in stocks with default option was a big problem. People would leave it.

Also Target dates and an aging population means a ton of 55-70 year olds still in workforce. Those Target dates have a lot of bonds and international stocks.

Also different target dates have different stock tollerances. The Fidelity 2025 has more US stock than the Vanguard 2025

And age matters. I was at a start up prior to this and a lot of Target date people. We were a very young company. It was all Vanguard 2060-2070 funds. Lets day that was a old Fed place the funds would be Vanguard 2020-2045 funds. Big difference last five years in missing out on Stock Market gains.

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hence why we desperately need more basic financial education in this country!!  
First, everyone should contribute to a 401K (if they have one) at least up to the company match.  Otherwise you are leaving $$ on the table.  I've seen people do this at tech companies (ie places where the workforce is educated and one would assume would understand this and they make enough to be able to contribute typically).  At our company, over 20% were not contributing, so we made the switch to "employees must opt out" and the automatic was the % to get the full company match.  That was a fun January for HR/Payroll when the Jan 15 paychecks were deposited.  
And IMO, the default should at least be a "target fund".  Those are not perfect, but it's much better than MM fund at age 25.

But in reality, this just shows that most Americans don't work hard to help themselves with this.  10+ years with your 401K in MM when you are in your 20s/30s?!?!  Well don't complain when you don't have enough to retire.  [/quote]

401(k)s are not the panacea you make them out to be. Only 25% of companies with under 50 employees offers a 401k. 58% of companies with 100 employees offer 401k. That is 52% of US workers force. Till about 5 years ago 68% of large businesses did not offer 401k.

Many of the plans require vesting to receive employer match. Which is absolutely ridiculous. If you leave your first job for a higher salary you lose your employer contributions. Do this twice and you could lose 10 years of matching funds. This is a retirement instrument not a loyalty test.[/quote]

The other issue is matching and how much you make. Fannie Mae is very generous with 401k with a 8 percent match and immediate vesting. They also match on bonus. I was working with lots of people making 300K and if they just did 8 percent for match they were putting in 48K a year. You also can join first day at work.

Most people make way less and get way less a match. And some have vesting periods to get match and others waiting periods to join. And some have none.

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