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Uncommonly Sensible

Keeping the "anal" in analytical... (While trying to remain civilized)

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Wednesday, January 11, 2006

Show me the money...


For more companies, 401(k) becomes automatic

"More than one-third of large employers say they're likely to start automatically enrolling employees and increasing the employees' 401(k) contributions in 2006..."
-Kathy Chu, USA TODAY

This in lieu of traditional pensions. I have mixed feelings about this; I currently have the best of both worlds...a decent pension plan, and some matching by my company of my 401K contributions.

What with recent (and not-so-recent) failed pension plans, corporate bankruptcies and the like, the 401K may seem like a good alternative. In some ways it is, but if bad investment decisions are made, they can be as bad as a failed pension plan (or even worse).

At least those are often bailed out by the government.

The situation definitely bears close scrutiny...

9 Comments:

Blogger Nightwalker said...

Ze Squeaky Wife has an automatic 401k. It is of the difficult-to-opt-out-of type, to the point where it might as well be mandatory.

However, it was started in a year where they gave extra percentage points on the annual raise with this in mind. Therefore, it was painless in the first place, and will still help in the future.


Frank

January 11, 2006 12:11 PM  
Blogger camojack said...

I think if Social Security goes bust, which it inevitably will, I believe...the 401K is the way to go.

January 11, 2006 12:59 PM  
Blogger Beerme said...

camojack,

First off, it's inevitable that most companies go to this 401K matching program as a pension plan because the traditional pension plan is becoming too expensive and difficult to maintain. It's not necessarilly a bad thing. It will probably be more advantageous than a traditional pension.

I am like you. I have a traditional pension which I can begin receiving, after retirement, as early as 2009 at the age of 52 (I will be 53). Since 1986 I have been voluntarily investing in a 401K and a 457 account where I invest pre-tax dollars into investments that I choose from a wide range of mutual funds and stock invvestment options. I set my investments at 10% back in the mid-nineties so whenever I get a raise (and it has been VERY infrequently, lately) my investment rises accordingly.

We may both regret the fact that we weren't invested in a 401K instead, as pension plans will not continue to be bailed out by the government when they fail...

January 11, 2006 5:00 PM  
Blogger 'da Bunny said...

Due to the volatile nature of employment in the corporate world, it's nice to have the portablity of a 401k. With downsizing, job/career changes, etc. happening more frequently, it's very easy to "roll over" a 401k to the a new employer's plan, allowing for continued hands-on management of one's money. Often, traditional pensions involve being "vested", and if you get laid-off before being 100% vested, you lose!

Jack, considering the current circumstances a MY house...what's this "retirement" thingy you're referring to? :-(

January 11, 2006 6:46 PM  
Blogger Hawkeye® said...

Hey Camo,

I look at this way. Nothing in this life is guaranteed. Pension plans go bust. People make bad decisions when investing. But anything one can get above and beyond salary is great.

Even an average American can be considered one of the "wealthiest" individuals in the world. Some people in third world countries make only a few bucks per YEAR. We are blessed I think.

Regards...

January 11, 2006 7:18 PM  
Blogger camojack said...

Beerme:
I agree that it's inevitable that most companies will go to 401K programs, and Social Security will probably be replaced by something similar...it kind of has to.

My current pension will allow me to collect 90% of whatever I've earned starting at age 55, increasing 2% every year until it reaches 100% at age 60. Also, at 58, a "bridge benefit" kicks in. This is something which I can collect until I reach 62, when I could start getting SSI, although at that point it will only be 72.5% of what it would be if I waited to collect 'til I'm a lot closer to 70.

I too invest 10% of my pay pre-tax...which (pre-tax) is the only way to go, IM(NS)HO.

FWIW, my plan is to take the 96% pension plus the bridge benefit when I turn 58.

'da Bunny:
You're quite correct regarding the volatile nature of employment in the corporate world; so it is nice to have the 401K option.

As for my traditional pension, since I have over 20 years with my current employer, I am "vested"...fortunately.

This "retirement" thingy? Something I hope to live long enough to do.

Hawkeye®:
Quite so. Nothing but Death and Taxes (and pain) are guaranteed, and tomorrow is promised to no-one.

FYI, even the very poorest Americans are wealthy compared to 90%+ of the world's population. It's one reason so many of them hate us...

January 11, 2006 8:25 PM  
Blogger Bob_inSpain said...

i guess it is good to get all and whatever retirement pension and/or investments you can get.

the better the retirement package, the nicer the deal is, and it seems like ya' just do the numbers and see how good off you are and get a new job or not.

the BAD thing is that those gov't guarantees sometimes only give about 10c on the dollar, like United for example.

in that case, people were deceived about what was possible... or, maybe even the people in charge fooled themselves too....

the best part of a 401k in today's world is that you know what you have... unless the WHOLE economy goes to crap so fast there is no recovery... in which case, there will be worse things to worry about than the retirement nest egg.

(can i say crap in a blog? is that allowed?)

January 11, 2006 11:56 PM  
Blogger Bob_inSpain said...

i suppose that bad part about the era in which pension and social security worked and were secure...
is that we all forgot about being good savers for our own future.

January 12, 2006 12:00 AM  
Blogger camojack said...

Bob:
10¢ on the dollar is better than nuttin', honey...but it's also the kind of thang that makes a 401K appealing. Anything is better than nothing, of course, but da mo', da bettah.

Sure you can say crap in a blog; you can say whatever you wish, but if it exceeds what small children should be exposed to, I'll just delete it. I know that you're familiar with those boundaries, so I really don't think it's an issue with you.

As for saving for our future, that's what the 401K is all about.
(But you knew that...)

January 12, 2006 1:18 AM  

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