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The 401(k) is a great vehicle for retirement,
Millennials spend 44% of their food dollars – or $2,921 annually – on eating out, according to the Food Institute's analysis of the United States Department of Agriculture’s food expenditure data from 2014. That represents a 10.7 percent increase from prior data points in 2010. In contrast, baby boomers in 2014 spent 40% of their food dollars on eating out or $2,629 annually.
LewisBraham said:Not much of a spending difference between boomers and millenialls here except for the fact that many millennials don't have families yet and are beginning their careers so they probably eat at home less: Millennials spend 44% of their food dollars – or $2,921 annually – on eating out, according to the Food Institute's analysis of the United States Department of Agriculture’s food expenditure data from 2014. That represents a 10.7 percent increase from prior data points in 2010. In contrast, baby boomers in 2014 spent 40% of their food dollars on eating out or $2,629 annually.
Another one from T. Rowe Price: https://dywealth.com/resources/blog/baby-boomers-vs-millennials-who-has-better-financial-habits
Not much of a spending difference between boomers and millenialls here except for the fact that many millennials don't have families yet and are beginning their careers so they probably eat at home less:
millennials are privileged, cocky, entitled, lazy, impatient and so much more. However, in my extensive experience as a workplace leadership speaker, I've found that the reason that previous generations have a challenge with millennials boils down to this:Millennials remind older professionals of who they once were.
I’m thinking those folks not lasting with the same employer for 35 years would have probably been far better served by a 401(k).
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This is the reason why so many 401k plans have gotten sued in recent years. Many of them stink and are larded with fees and those excessive fees come out of employee contributions instead of out of company assets. The entire burden of retirement is put on employees' shoulders and it is not just that Americans are wasteful as you claim. American workers wages have stagnated for over 30 years and have actually gone down on an inflation adjusted basis for lower-income workers. Many Americans don't have much money saved because quite frankly they're just getting by. There are also two costs that are just killing them--medical expenses and college tuition--which have increased in price way faster than inflation.
@LewisBraham_ I have no argument with the main thrust of your comment, regarding the basic superiority of a defined benefit pension over the 401k semi-ripoff. But Jojo26 also has a valid point regarding the failure of many Americans to either understand or plan for the requirements of retirement. I have personally known quite a number who have actually had pretty good incomes, but squandered them on frivolity without a care in the world for their future. And many of those folks are now in serious trouble.
Certainly there has been virtually no effort to educate most workers with respect to retirement matters; there has also been a massive lack of interest on the part of many workers to find out about these matters for themselves.
There's quite a difference between being poor because you tried your damnedest but all of the breaks went against you (no question that lots of people fall into this area), and being poor because it was just too much trouble to worry about the future.
Mind you, my use of the term "Consumerism" is not a reference to the need for people to be consumers, in order to meet their needs and wants, or the way government tracks "Consumer Spending." The "Consumerism" I refer to is the result of a total lack of awareness: the lack of awareness about how advertising skillfully convinces people to spend and spend, without regard to a spending PLAN, and without any ethical awareness of the corrosive effect which spending-for-the-sake-of-spending has upon a person's character, as well as the negative effects upon the whole of society. Just ask uncle Donald. (But this idea would not even "compute" for him.)
"T. Rowe Price surveyed workers of both generations who were contributing to their workplace 401(k) plans. Admittedly, Americans who are committed to saving for retirement are more likely to embrace better financial habits."
That's three surveys/studies now proving the same point. I get that a lot of people hate millennials, but I think it is just a classic hating the younger generation thing. When boomers were kids older generations hated them too. It is a rather tiresome trope, aside from the fact that everybody is different and it makes no sense to judge an entire generation any way. The usual knee-jerk refrain from older folks is a complaining "kids today." As if when they were kids in their twenties they weren't making mistakes too. As if twenty-somethings haven't always been sort of rash idiots throughout all time, and old folks haven't always been close-minded and judgmental of youth throughout all time. All of that said, I actually think millennials are better informed and more money conscious than previous generations because A. they grew up during the 2008 stock crash unlike boomers who've had it easy economically most of their lives and B. they're all wired to financial information on the Internet all the time. Yes, young people make mistakes and maybe spend a little too much sometimes on things they don't need. It's called being young.
Why on earth would anyone "hate" an entire generation? Not identify with them, perhaps, not understand them well, OK, but "HATE"???
In working with them and being the parent of two, I have found many of the generalizations true except for the lazy part, though I am sure many are. But otherwise my God do they work hard. Also, often, work smart.
Back then, you had to have ten years with the company to even qualify for a pension. I worked at a company that offered a pension of 2% * (years worked) * (final average salary). I had been there 9.5 years when I received an offer of a superior position elsewhere. Glumly, I turned them down so as not to lose a pension (They declined to add several years seniority to compensate.) Fortunately, six months later they came back and offered the position again.
I remember a letter to the editor of Chemical & Engineering News. This was back in the 70s. The writer was irate that many workers received no pension at all because of job insecurity (or moving to a "better" job). He could not understand why companies could not have a portable pension, so that, for instance, if you worked for eight companies, they would all pitch in to provide 2% of your final salary. I remember thinking at the time what an idiot the guy was for not understanding why, and what the result would be. He was also sure that companies were terminating men just short of ten years to avoid any pension liability at all.
The company my father worked for had a pension. But it was also well-known that they would "encourage" men to retire, or move on, by their mid-fifties. If they didn't get the hint, it was likely they would be transferred to a really undesirable job assignment or location. You would think having a 401(k) instead of a pension might reduce the company's incentive to dispose of you, and you would be much more likely to end up with at least something ...
I'm sure more than one retiree got the shaft on those deals.
According to their calculations, returns to a DB PLAN (that is, benefiting the COMPANY running the plan) have been higher than returns gained by an average DC plan (that is, benefits actually accrued to employees). Does anybody care that that would justify the company needing to contribute 0.7% less to the plan to satisfy its obligations? The study is NOT a comparison of what employees would receive.
According to an article in Governing Magazine, “In Montana, 25-year-old employees hired after 2011 must work 36 years before accumulating employer-financed benefits from the state’s Public Employees’ Retirement System. New Ohio teachers of the same age retiring after 2026 will similarly need to work 35 years in order to earn employer-backed benefits from the State Teachers Retirement System of Ohio.” I’m thinking those folks not lasting with the same employer for 35 years would have probably been far better served by a 401(k).
Again, you do raise valid issues with respect to losing benefits if you leave an employer before retirement. Working for multiple employers over a job career is much more common now than it was when I was 25.
The outcomes of many 401k plans have been very poor for the majority of participants. It is easy to blame the participants for that until one realizes how wages for many Americans haven't kept pace with inflation and that companies pushed the conversion into a 401k system specifically because it was cheaper for them to put the burden of retirement on their employees. If 401ks are such a great deal for employees compared to pension plans, why would companies be so eager to jettison their pensions in favor of 401ks? Wouldn't a great deal for employees entail a not so good deal for employers having to pay for the greater costs of 401ks compared to pensions? Or is this one of those mythical unicorn win-win situations where both employees and employers benefit?
From the abstract of the Urban Institute study: "Virtually every plan requires employee contributions. In half of those plans employees must work at least 20 years before their future benefits are worth more than those contributions."
In other words, assuming the employee could get the same return for those contributions by investing in a DC plan such as a 401k, the employee would get more out of the DC plan than out of a DB plan (pension), unless the employee continued to work for 20+ years.
The main reason for that is that pensions are backloaded - usually pensions are computed as a function of the number of years you work times your final salary. So they're pretty worthless for several years, until you rack up a lot of time on a single job, and also achieve a higher salary.
They were designed in an era when lifetime employment was much more common. They were also designed to shackle employees to their employers.
Vesting rules have evolved to address the trend toward greater mobility. As noted in the Christian Science Monitor (1981), "Before 1974, a three-decade stint in one job was the rule in order to be ''vested'' in a corporate pension program. ... Many young workers, of course, are job-hoppers. So one major change brought about by the 1974 passage of ERISA (Employee Retirement and Income Security Act) was the use of tax incentives to lower the vesting ''cliff'' to 10 years."
In the real "golden days", vesting was not ten years as Wholly Terriers wrote, but decades, left entirely up to the employer's discretion. In 1989, those ten years for vesting were cut in half, as noted in a letter to the NYTimes.
The problem that the Urban Institute effectively identified was lack of pension portability. It seems, though, that this has been addressed as well. Here's a 2016 paper stating that "nearly all state retirement systems have features that allow for preservation of retirement income benefits, even for those employees who decide to change jobs." (Haven't read, yet.)
Take away the vesting problem, take away the portability problem, and what one is left with is the conclusion of the paper that Lewis cited - employees will do better with DB pensions than with self-directed DC plans.
But it would be very interesting to see how much it costs companies to finance a pension plan versus a 401k. In reality, I think in most cases the 401k was really a backdoor pay cut for employees that bolstered profits for companies since the death of the pension system. As did eliminating the concept of lifetime employment. Fire the high paid long-term employees with pensions, hire lower paid new ones and give them a 401k instead. When they become too high paid, fire them too and get new ones. And all the while keep selling employees on the idea that this is somehow good for them.