Scam, no. But like any investment vehicle, not the only thing I would rely on in my future. DH and both work for companies with generous matching plans, so we max our 401Ks. We also have investments in a mix of IRAs, Roth IRAs, mutual funds and pure cash. We've chosen to save very aggressively, and have a much smaller house than we could afford and rarely take vacations although I'd love to.

I'm a government contractor in my late 30s, so I make basically government payscale, and already have over $300K in my company's 401K. Ideally your 401K should give you a bit of control in terms of what funds they invest your money in. I think that I can allocate my dollars among four or five separate funds that carry varying degrees of risk.

It's not the 401K's fault that the market has sucked in the last decade. Blame all sorts of factors for that. I think anything that encourages people to save (employer matching! pre-tax withdrawal!) is a good thing. Plus if you think your income will be lower after retirement (which will be the case for most people), paying taxes on the income later, when you're in a lower tax bracket, is likely a good thing. (unless tax rates drastically rise.)

I have a 401K, a roth IRA, some other retirement funds, a pension (if I stay at my current job) and a mortgage that I plan to pay off by age 70 or sooner.

It is not a scam, but it was not intended at its inception to be a "retirement" per se - just a tax-deferred savings account - and part of a "three-legged" retirement plan that includes (1) a retirement pension or "defined benefit" plan that nobody gets anymore unless you work for the government or a union, (2) social security, and (3) your 401k, IRA, thrift, Keough, and/or SEP savings accounts.

99% of people will not be able to live off their social security and 401ks unless, at the very least, they have no mortgage. My advice is to seek employment that provides some sort of pension - at least 1 spouse. One can work for the federal government for only 6 years and get a retirement I believe.

That being said, the best advice is to put THE MAX into your 401k.

Good luck!

Anonymous wrote:OP here, Scam in the sense that you will be able to retire off of them. I mean we've had 2 horrible drops in value resulting in a basic flat line of ROI for the last 12 years.

Most people in general don't have any retirement savings. This is the generation that will rely on 401Ks, and most reports say people haven't saved nearly enough in them. If you get a match, take it. But the disadvantage to them is you have to rely on a board who picks the funds you are allowed to choose from. And they often suck.

Try to save in a diversified manner. 401k. Real estate. Bonds. Etc. there is no perfect way to do it, IMO. Just make sure you save.

OP here, Scam in the sense that you will be able to retire off of them. I mean we've had 2 horrible drops in value resulting in a basic flat line of ROI for the last 12 years.

OP, I agree. This article spoke to me. It's not a new piece. Written in 09 I think.

http://www.time.com/time/magazine/article/0,9171,1929233,00.html

401(k)s have been around for 30 years. What would be the scam? Why post this blather without even Googling or researching 401(k) plans???

It depends on how you organize it. For example, I'm in my 40's and have been working for over 20 years. I've worked for 5 companies in that time. When I switch companies, I take the rolled over amount and I move it to an IRA that I have that is on a more conservative investment track. I then take my current job's 401K and use an aggressive investment strategy in the hopes that it will grow faster, but not put my bigger "nest egg" at too much risk. it's work pretty well now and have more than 50% of what choosetosave.org thinks I need to have saved for my retirement and I'm still about 20 years away from retirement age. I'm about on track to ensure that I will have enough to live on between my retirement funds and my social security when I get to retirement age.

Anonymous wrote:I do think it has contributed to the financial bubble. Pension plans invested wisely and prudently. 401ks take away the professional advice and throws you to the wolves, and all that income was misused by Wall Street gamblers.

Remember how Bush and some Republicans wanted to privatize Social Security? Youch.They should bring back defined pension plans and tighten up the enforcement (look at all the states and companies that underfunded pensions and now cry wolf) and allow it to adjust to economy/taxes/revenue so they don't end up in the financing trap like auto unions, etc.

Remember how Clinton proposed investing a portion of Social Security revenues in the Stock Market?

Double ouch.

http://www.epi.org/publication/briefingpapers_fixsocsec/

401Ks aren't a scam, but they did hasten the exodus of the defined benefit plan, which was a public policy error.

The 401k vehicle in and of itself isn't a scam at all. It's just a way of transferring responsibility for your retirement to you rather than to your employer as in the old defined benefit (pension) plans.

The disadvantageous part comes from many other factors such as the fact that the vehicles you can invest in (mutual funds) are severely restricted in the kind of transactions they can take part in and are essentially reduced to picking over the leftovers after big investors have had their day. Usually that means following trends because they have to measure up against a benchmark, buying high after the pre-IPO high networth investors dump astronomically valued shares that they acquired for a pittance, being forced to dump shares at the wrong time to keep in line with their allocation, etc.
The mutual fund co.'s know this but they don't care since they are compensated based on the size of assets under management. So it's in their advantage to spin a tale whereby you are going to be left out in the cold in your old age unless you "invest" every penny you can with them. Big investors would never contradict this since in order for them to sell high, somebody has to buy high.

Anonymous wrote:Why would they be a scam? You have control over your money - when you leave your job, you can transfer the money to an IRA which you can fully control. Yes, you have to understand what the costs are to you, but if you're employer is matching any money that would likely outweigh the costs.

Maybe it'd be better if you could setup 401K/IRA that's setup for you at 18, and it'll be professionally managed as a pool for your generation and all your employers will contribute to, like.... Social Security!

I think they should get rid of the Social Security contribution cap, and adjust the benefits accordingly, so even the rich don't feel like they're wasting money. "No matter how much you make, you'll always have a % of your lifetime earnings"

Think they'll buy it?

I'm confused as to exactly where the scam is. Perhaps you can enlighten us, OP. Yes, you are right that 401(k) plans are relatively new and have not been used for generations. How could they be if they are new? That doesn't make them a scam nor does it mean you won't be able to use them to fund retirement.

You'd have to be insane not to take advantage of the employer match you would get with a company-sponsored retirement plan (including a 401(k)). It would be like if someone offered you free money and you refused it.

I do think it has contributed to the financial bubble. Pension plans invested wisely and prudently. 401ks take away the professional advice and throws you to the wolves, and all that income was misused by Wall Street gamblers.

Remember how Bush and some Republicans wanted to privatize Social Security? Youch.

They should bring back defined pension plans and tighten up the enforcement (look at all the states and companies that underfunded pensions and now cry wolf) and allow it to adjust to economy/taxes/revenue so they don't end up in the financing trap like auto unions, etc.

Why would they be a scam? You have control over your money - when you leave your job, you can transfer the money to an IRA which you can fully control. Yes, you have to understand what the costs are to you, but if you're employer is matching any money that would likely outweigh the costs.

What does everyone think about 401ks? Are 401ks something very new that haven't been used by many generations for retirement? My wife and I are convinced we will never be able to live off them and are planning to do other retirement options such as investment property rentals. We are in our mid 30s and have 100k saved and are thinking of doing something else with it.