I agree on the abuse of the system unfortunately I see it every day at my work and it makes me cynical. BTW I also looked up a little more on the social security website and found that drug addicts are no longer covered under social security and those disibility who do not qualify (not a survivor spouse or child) or have not paid in to social security go onto something called supplemental security which is not funded by social security. Glad to see they cleaned that up at least!
The tax-advantaged nature of 401(k) accounts can be positive, and most fare somewhat pessimistic about retirement. There is something to give some people hope, specifically if they have retirement anxiety. A number of reports revealed that 401(k) plans are beginning to make cash again, after years of stagnation, despite some bad news.
I think there is nothing wrong with ending the tax exemption for 401ks, anyone with the
luxury of a 401k is a moderately high income earner compared to everyone
else. Democrats want to make everyone dependent on social security for
retirement, because that forces higher income earners to bare a bigger
tax burden for providing retirement money to everyone else.
That's not necessarily true. I am offered a 401k at my current job. I'm in a field where I will end up making significantly more if I stick to it, but for now I am in the $9-12 an hour range. If that's moderately high income were all f**d sideways! hehe
I think there is nothing wrong with ending the tax exemption for 401ks, anyone with the
luxury of a 401k is a moderately high income earner compared to everyone
else. Democrats want to make everyone dependent on social security for
retirement, because that forces higher income earners to bare a bigger
tax burden for providing retirement money to everyone else.
That's not necessarily true. I am offered a 401k at my current job. I'm in a field where I will end up making significantly more if I stick to it, but for now I am in the $9-12 an hour range. If that's moderately high income were all f**d sideways! hehe
You tell 'im!
In fact, it's far more important for lower-paid workers to get into 401K plans, because in most cases the company will match a portion of contributions, which can really add to the value of it over time, and in most cases a 401(k) plan is the only way lower-income workers invest. Higher-paid workers tend to have other investments--mutual funds and IRAs, as well as homes--that can provide additional sources of wealth in addition to 401(k) plans.
Of course, lower-paid workers also have the most difficult time contributing because it is taking money you need for everyday expenses and allocating it to the future. But it can be done. I was contributing to a 401(k) back when I was making less than $9-$12 an hour--it was hard, but I did it.
I think there is nothing wrong with ending the tax exemption for 401ks, anyone with the
luxury of a 401k is a moderately high income earner compared to everyone
else. Democrats want to make everyone dependent on social security for
retirement, because that forces higher income earners to bare a bigger
tax burden for providing retirement money to everyone else.
That's not necessarily true. I am offered a 401k at my current job. I'm in a field where I will end up making significantly more if I stick to it, but for now I am in the $9-12 an hour range. If that's moderately high income were all f**d sideways! hehe
You tell 'im!
In fact, it's far more important for lower-paid workers to get into 401K plans, because in most cases the company will match a portion of contributions, which can really add to the value of it over time, and in most cases a 401(k) plan is the only way lower-income workers invest. Higher-paid workers tend to have other investments--mutual funds and IRAs, as well as homes--that can provide additional sources of wealth in addition to 401(k) plans.
Of course, lower-paid workers also have the most difficult time contributing because it is taking money you need for everyday expenses and allocating it to the future. But it can be done. I was contributing to a 401(k) back when I was making less than $9-$12 an hour--it was hard, but I did it.
This is one of the areas where I fall on the side of the fence of supporting Social Security, and for keeping the tax exemptions on 401k's.
I don't want Social Security to become entitlement for people who never contributed, and I sure don't want it robbed to support other "adventures", but I think it may be the most important contribution that government can make to creating lasting stabilty of some sort. After all, Industry and Banking have shown repeatedly that they cannot be trusted with retirement funds, unless those funds are going to be used as golden parachutes for the few at the top, as they jump off the mountain they just levelled.
This is one of the areas where I fall on the side of the fence of supporting Social Security, and for keeping the tax exemptions on 401k's.
I don't want Social Security to become entitlement for people who never contributed, and I sure don't want it robbed to support other "adventures", but I think it may be the most important contribution that government can make to creating lasting stabilty of some sort. After all, Industry and Banking have shown repeatedly that they cannot be trusted with retirement funds, unless those funds are going to be used as golden parachutes for the few at the top, as they jump off the mountain they just levelled.
I'm not 100% sure whether people who have never contributed to SS (through payroll payments) can receive SS benefits--at least for themselves (they may get death benefits from a spouse).
Many state employees don't have SS taken from their checks--instead the state (and the worker) makes payments to the state pension plan, which becomes a substitute for SS. It's one reason why states are going bankrupt--payments from a shrinking government workforce, along with far too generous payouts to certain kinds of state retirees--is forcing state governments to fork over cash they don't have to meet these obligations (if I were king, all traditional defined benefits plans would be eliminated entirely and replaced with defined contribution plans like 401ks, and all employees would have to contribute to SS).
In terms of security of retirement funds, yes, I wouldn't trust the 'security' of a defined benefit plan at all. Too many employees get laid off a short time before they can claim full benefits, and there aren't enough safeguards against the poaching of DB plans by companies to protect workers' interests (which is why when companies go bankrupt, the pension fund is generally the first thing that gets trashed).
401(k) plans, on the other hand, are much safer and secure than DB plans. Since they're primarily funded by employee contributions they must be set up a trust with an independent Trustee that protects it from being raided or abused by corporate fatcats. It can't be used as collateral for commercial loans the way DB plans can. Most of the losses employees suffer from plans is due to their own uninformed investment decisions or by withdrawing money when their funds have lost value. But as far as I know, there hasn't been a single case of a 401(k) plan going bankrupt or being defrauded due to corporate shenanigans.
This is one of the areas where I fall on the side of the fence of supporting Social Security, and for keeping the tax exemptions on 401k's.
I don't want Social Security to become entitlement for people who never contributed, and I sure don't want it robbed to support other "adventures", but I think it may be the most important contribution that government can make to creating lasting stabilty of some sort. After all, Industry and Banking have shown repeatedly that they cannot be trusted with retirement funds, unless those funds are going to be used as golden parachutes for the few at the top, as they jump off the mountain they just levelled.
I'm not 100% sure whether people who have never contributed to SS (through payroll payments) can receive SS benefits--at least for themselves (they may get death benefits from a spouse).
Many state employees don't have SS taken from their checks--instead the state (and the worker) makes payments to the state pension plan, which becomes a substitute for SS. It's one reason why states are going bankrupt--payments from a shrinking government workforce, along with far too generous payouts to certain kinds of state retirees--is forcing state governments to fork over cash they don't have to meet these obligations (if I were king, all traditional defined benefits plans would be eliminated entirely and replaced with defined contribution plans like 401ks, and all employees would have to contribute to SS).
In terms of security of retirement funds, yes, I wouldn't trust the 'security' of a defined benefit plan at all. Too many employees get laid off a short time before they can claim full benefits, and there aren't enough safeguards against the poaching of DB plans by companies to protect workers' interests (which is why when companies go bankrupt, the pension fund is generally the first thing that gets trashed).
401(k) plans, on the other hand, are much safer and secure than DB plans. Since they're primarily funded by employee contributions they must be set up a trust with an independent Trustee that protects it from being raided or abused by corporate fatcats. It can't be used as collateral for commercial loans the way DB plans can. Most of the losses employees suffer from plans is due to their own uninformed investment decisions or by withdrawing money when their funds have lost value. But as far as I know, there hasn't been a single case of a 401(k) plan going bankrupt or being defrauded due to corporate shenanigans.
I agree with a fair bit of what you said, however the social security for state workers is variable by state, when I worked for Oregon we still paid into SS and have a defined benefit plan; but I do know of states and cities that do as you said, there is a federal requirement that I don't remember the specifics of that allows that. Not sure if it's a good or bad deal for either the government entity or the individual.
And while you are technically right that no 401k has gone bankrupt that is partially because they really can't because they belong to a person, not a corporation. However, they can lose the bulk of their values depending on how they are invested, which is why so many people had to cancel retirement plans (my mom works for Edward Jones and has had to help people plan for recovering funds at the end of their working life). That is one of the risks of the 401k, it is entirely dependent upon the market and as we saw with the housing bubble there are numerous ways the market can be gamed/scammed/wrecked even if it isn't direct manipulation.
As with anything, it is best to have some of each. I'm not confident my state-run pension (most public agencies in Oregon, local and state, belong to PERS at the state level) will survive the baby boomers and the idiotic returns they were promised so I have an outside retirement account as well. It's tiny at the moment but it's there. but I also can't depend on that.
.......And while you are technically right that no 401k has gone bankrupt that is partially because they really can't because they belong to a person, not a corporation. However, they can lose the bulk of their values depending on how they are invested, which is why so many people had to cancel retirement plans (my mom works for Edward Jones and has had to help people plan for recovering funds at the end of their working life). That is one of the risks of the 401k, it is entirely dependent upon the market and as we saw with the housing bubble there are numerous ways the market can be gamed/scammed/wrecked even if it isn't direct manipulation.
As with anything, it is best to have some of each. I'm not confident my state-run pension (most public agencies in Oregon, local and state, belong to PERS at the state level) will survive the baby boomers and the idiotic returns they were promised so I have an outside retirement account as well. It's tiny at the moment but it's there. but I also can't depend on that.
Absolutely true...bad investment decisions and bad markets can devastate the value of your 401(k) account. However, as an investor, you have total control over how much damage you're willing to be exposed to. For example, if you invest 100% of your 401K contributions into a money market fund, you aren highly unlikely to lose anything--they're managed to maintain their $1 share price. Your biggest risk, however, is that it won't grow very fast and will lose value if inflation rises.
If you have a long time horizon, and don't need to withdraw money for emergencies, a 401k with a mix of bond and stock funds it still a pretty safer bet. For example, most diversified accounts have recovered from the losses suffered in 2008 and 2009, although many are still not much further ahead than they were in 2000.
Remember, too, that when markets tank the value of defined benefit plans fall as well, and then it's up to states to make up for shortflalls in payouts. Already we're seeing many states that haven't the cash to fund these liabilities, and still others are thinking about rejiggering the benefit payments to be far smaller than originally promised. So even if you have a DB plan, there's no guarantee that you'll get the benefits you believe you're entitled to.
At least with a 401k the money is yours. And you get the pre-tax contribution advantanges. Which I don't believe are going to be taken away, certainly not by this Congress.
.......And while you are technically right that no 401k has gone bankrupt that is partially because they really can't because they belong to a person, not a corporation. However, they can lose the bulk of their values depending on how they are invested, which is why so many people had to cancel retirement plans (my mom works for Edward Jones and has had to help people plan for recovering funds at the end of their working life). That is one of the risks of the 401k, it is entirely dependent upon the market and as we saw with the housing bubble there are numerous ways the market can be gamed/scammed/wrecked even if it isn't direct manipulation.
As with anything, it is best to have some of each. I'm not confident my state-run pension (most public agencies in Oregon, local and state, belong to PERS at the state level) will survive the baby boomers and the idiotic returns they were promised so I have an outside retirement account as well. It's tiny at the moment but it's there. but I also can't depend on that.
Absolutely true...bad investment decisions and bad markets can devastate the value of your 401(k) account. However, as an investor, you have total control over how much damage you're willing to be exposed to. For example, if you invest 100% of your 401K contributions into a money market fund, you aren highly unlikely to lose anything--they're managed to maintain their $1 share price. Your biggest risk, however, is that it won't grow very fast and will lose value if inflation rises.
If you have a long time horizon, and don't need to withdraw money for emergencies, a 401k with a mix of bond and stock funds it still a pretty safer bet. For example, most diversified accounts have recovered from the losses suffered in 2008 and 2009, although many are still not much further ahead than they were in 2000.
Remember, too, that when markets tank the value of defined benefit plans fall as well, and then it's up to states to make up for shortflalls in payouts. Already we're seeing many states that haven't the cash to fund these liabilities, and still others are thinking about rejiggering the benefit payments to be far smaller than originally promised. So even if you have a DB plan, there's no guarantee that you'll get the benefits you believe you're entitled to.
At least with a 401k the money is yours. And you get the pre-tax contribution advantanges. Which I don't believe are going to be taken away, certainly not by this Congress.
The "unfunded liability" argument is a bit of a red herring as well. Sure if everyone working for an agency retired at the same moment it would be a problem, but we know that's not going to happen even amongst those who are eligible to retire. The liability measurement is also based on forecasts, which as we have all seen are iffy at best. A better way to look at it is like a mortgage. sure on the books you have a 200k debt, but in reality you don't have to pay that full amount in a year, you budget it accordingly and pay over time. Granted, that analogy falls short in that there isn't a set termination time or amount.
However, it cannot be argued that some states have been royally stupid, such as Illinois, in neglecting to make the correct payments at the right time (most state plans are very stable but that doesn't make the news because smart isn't interesting). But you also have to understand the history, the plans were created or modified to their modern form in the 1970's/80's when paying into a retirement fund like that was FAR cheaper for governments than paying wages due to the hardcore inflation. The failure was in management not paring back the contributions as the economic situation changed. I do think it's stupid that in my state governments must pay the full 6% or 0, no negotiation (and that might be changing) and "guaranteed return" rates is stupidity of the highest order, as well as paying supplements to those who retire and move to a state that taxes retirements. Moving legislators and judges out of our system will help some, and our local unions are finally coming around to the need to make changes (getting those within a year or so of retirement out of leadership positions has changed the unions' tones immeasurably).
The main problem with defined benefits plans is the "defined benefit" part. The actual "promises" of annual payments are either negotiated between states and unions or simply decided by bureaucrats independent of how the actual fund is performing. For example, my wife works for a local school system as a member of the administrative (non union) staff. She gets paid nothing compared to teachers and receives almost nothing in pension payments. When she retires she'll get a pittance of payouts.
Teachers, however, get significantly larger pension payments, and in some cases their promised benefits (if they retire at the certain age) are between 40-60% of their highest salary. They get this with barely any contributions of their own money into the system and many of them get to pick up their full pension benefits way before age 65.
Same with many other higher-level state government officials. Now, these folks, if they never work in the private sector, won't get SS, and the pension substitutes for the denial of SS. But no one expects SS payments to cover 40-60% of one's highest pre-retirement salary. That's why most Americans need 401(k) plans, IRAs and other investments.
The DB system might have made sense as a benefit for attracting people to work in the public sector (generally at lower salaries than the private sector), but given today's high unemployment figures these kinds of enticements aren't needed--hundreds of people are applying for the lowest government jobs these days.
The system is a huge burden on taxpayers who have to make up these unfunded liabilities. If I had it my way, all state pensions would be converted to defined contribution plans and each employee's account would be worth the value of any contributions taken from their pay plus a certain extra amount that would add up to the same amount they would receive on an annual basis from SS (based on their salary history to that point) were they in the private sector. From that point on, it would be up to the employee to contribute part of the salary pre-tax like the rest of us and manage their own retirement savings plan.
Price of taking from retirement too much. When things get hard, you need to never pull cash out of your investments. You may have a retirement account with some cash sitting in it, but it should never be touched. Even in an emergency, you can just get installment payday cash advances rather than taking out of your retirement.
Terrible idea to remove the pretax benefits of the 401k. Luckily my employer gives us 6%. I'm not sure why they'd tax it now, since you have to pay tax on it eventually.
Terrible idea to remove the pretax benefits of the 401k. Luckily my employer gives us 6%. I'm not sure why they'd tax it now, since you have to pay tax on it eventually.
So they can tax you on it now and tax you on it later.
Gubmint is good at double dipping.
When I retire, no matter where I live, I will have to pay Oregon state income tax on my retirement money.
It's one of the benefits of working for the gubmint.
And if I live in an income tax state, I'll be paying that state and Oregon income tax.
So looking forward to that. LOL!
Terrible idea to remove the pretax benefits of the 401k. Luckily my employer gives us 6%. I'm not sure why they'd tax it now, since you have to pay tax on it eventually.
So they can tax you on it now and tax you on it later.
Gubmint is good at double dipping.
When I retire, no matter where I live, I will have to pay Oregon state income tax on my retirement money.
It's one of the benefits of working for the gubmint.
And if I live in an income tax state, I'll be paying that state and Oregon income tax.
So looking forward to that. LOL!
Damn and I thought CA was fu**ed. Looks like you should move across the line to WA.
Very interesting. I dont think I would have a problem with it changing from a no tax to a low tax if it would help solve the issues. But would it really help solve the issues?
This is the attitude that gave us the IRS & the income tax to begin with........
Comments
In fact, it's far more important for lower-paid workers to get into 401K plans, because in most cases the company will match a portion of contributions, which can really add to the value of it over time, and in most cases a 401(k) plan is the only way lower-income workers invest. Higher-paid workers tend to have other investments--mutual funds and IRAs, as well as homes--that can provide additional sources of wealth in addition to 401(k) plans.
Of course, lower-paid workers also have the most difficult time contributing because it is taking money you need for everyday expenses and allocating it to the future. But it can be done. I was contributing to a 401(k) back when I was making less than $9-$12 an hour--it was hard, but I did it.
I don't want Social Security to become entitlement for people who never contributed, and I sure don't want it robbed to support other "adventures", but I think it may be the most important contribution that government can make to creating lasting stabilty of some sort. After all, Industry and Banking have shown repeatedly that they cannot be trusted with retirement funds, unless those funds are going to be used as golden parachutes for the few at the top, as they jump off the mountain they just levelled.
I'm not 100% sure whether people who have never contributed to SS (through payroll payments) can receive SS benefits--at least for themselves (they may get death benefits from a spouse).
Many state employees don't have SS taken from their checks--instead the state (and the worker) makes payments to the state pension plan, which becomes a substitute for SS. It's one reason why states are going bankrupt--payments from a shrinking government workforce, along with far too generous payouts to certain kinds of state retirees--is forcing state governments to fork over cash they don't have to meet these obligations (if I were king, all traditional defined benefits plans would be eliminated entirely and replaced with defined contribution plans like 401ks, and all employees would have to contribute to SS).
In terms of security of retirement funds, yes, I wouldn't trust the 'security' of a defined benefit plan at all. Too many employees get laid off a short time before they can claim full benefits, and there aren't enough safeguards against the poaching of DB plans by companies to protect workers' interests (which is why when companies go bankrupt, the pension fund is generally the first thing that gets trashed).
401(k) plans, on the other hand, are much safer and secure than DB plans. Since they're primarily funded by employee contributions they must be set up a trust with an independent Trustee that protects it from being raided or abused by corporate fatcats. It can't be used as collateral for commercial loans the way DB plans can. Most of the losses employees suffer from plans is due to their own uninformed investment decisions or by withdrawing money when their funds have lost value. But as far as I know, there hasn't been a single case of a 401(k) plan going bankrupt or being defrauded due to corporate shenanigans.
And while you are technically right that no 401k has gone bankrupt that is partially because they really can't because they belong to a person, not a corporation. However, they can lose the bulk of their values depending on how they are invested, which is why so many people had to cancel retirement plans (my mom works for Edward Jones and has had to help people plan for recovering funds at the end of their working life). That is one of the risks of the 401k, it is entirely dependent upon the market and as we saw with the housing bubble there are numerous ways the market can be gamed/scammed/wrecked even if it isn't direct manipulation.
As with anything, it is best to have some of each. I'm not confident my state-run pension (most public agencies in Oregon, local and state, belong to PERS at the state level) will survive the baby boomers and the idiotic returns they were promised so I have an outside retirement account as well. It's tiny at the moment but it's there. but I also can't depend on that.
If you have a long time horizon, and don't need to withdraw money for emergencies, a 401k with a mix of bond and stock funds it still a pretty safer bet. For example, most diversified accounts have recovered from the losses suffered in 2008 and 2009, although many are still not much further ahead than they were in 2000.
Remember, too, that when markets tank the value of defined benefit plans fall as well, and then it's up to states to make up for shortflalls in payouts. Already we're seeing many states that haven't the cash to fund these liabilities, and still others are thinking about rejiggering the benefit payments to be far smaller than originally promised. So even if you have a DB plan, there's no guarantee that you'll get the benefits you believe you're entitled to.
At least with a 401k the money is yours. And you get the pre-tax contribution advantanges. Which I don't believe are going to be taken away, certainly not by this Congress.
However, it cannot be argued that some states have been royally stupid, such as Illinois, in neglecting to make the correct payments at the right time (most state plans are very stable but that doesn't make the news because smart isn't interesting). But you also have to understand the history, the plans were created or modified to their modern form in the 1970's/80's when paying into a retirement fund like that was FAR cheaper for governments than paying wages due to the hardcore inflation. The failure was in management not paring back the contributions as the economic situation changed. I do think it's stupid that in my state governments must pay the full 6% or 0, no negotiation (and that might be changing) and "guaranteed return" rates is stupidity of the highest order, as well as paying supplements to those who retire and move to a state that taxes retirements. Moving legislators and judges out of our system will help some, and our local unions are finally coming around to the need to make changes (getting those within a year or so of retirement out of leadership positions has changed the unions' tones immeasurably).
Teachers, however, get significantly larger pension payments, and in some cases their promised benefits (if they retire at the certain age) are between 40-60% of their highest salary. They get this with barely any contributions of their own money into the system and many of them get to pick up their full pension benefits way before age 65.
Same with many other higher-level state government officials. Now, these folks, if they never work in the private sector, won't get SS, and the pension substitutes for the denial of SS. But no one expects SS payments to cover 40-60% of one's highest pre-retirement salary. That's why most Americans need 401(k) plans, IRAs and other investments.
The DB system might have made sense as a benefit for attracting people to work in the public sector (generally at lower salaries than the private sector), but given today's high unemployment figures these kinds of enticements aren't needed--hundreds of people are applying for the lowest government jobs these days.
The system is a huge burden on taxpayers who have to make up these unfunded liabilities. If I had it my way, all state pensions would be converted to defined contribution plans and each employee's account would be worth the value of any contributions taken from their pay plus a certain extra amount that would add up to the same amount they would receive on an annual basis from SS (based on their salary history to that point) were they in the private sector. From that point on, it would be up to the employee to contribute part of the salary pre-tax like the rest of us and manage their own retirement savings plan.
Gubmint is good at double dipping.
When I retire, no matter where I live, I will have to pay Oregon state income tax on my retirement money.
It's one of the benefits of working for the gubmint.
And if I live in an income tax state, I'll be paying that state and Oregon income tax.
So looking forward to that. LOL!
This is the attitude that gave us the IRS & the income tax to begin with........