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Dr. Russell – I’m up to page 100 of your book and frankly I’m astonished. I wasn’t born in Greenwich, nor do I work on Wall St. nor do I have a PHD, I’m a middle manager so I don’t make boat loads of income however I’ve accomplished what you claim can’t be done. I’ve achieved financial security thru my 401K while raising a family (2 children), buying a home (NJ), paying for college w/o any assistance from the government and still managed to achieve what you say can’t be in your book. I’m fairly close to you in Connecticut and would love to sit down and discuss this in much greater detail. I’ve even done a little research based on my specific SS taxes paid from 1978 to 2014. I think you’d be amazed at the difference between what those same taxes dollars invested in an S&P 500 Index would deliver vs. the SS program you are so complimentary of. No propaganda just the facts. Same dollar volume one invested in the US economy the other trusted to a government program. While don’t have any allegiance to the Financial Services industry you seem particularly critical. I don’t disagree there are bad performers that is true of any industry. I see some of the advantages I’ve benefited from in achieving what I have directly from the Financial Services industry offers. Investment choice, instantaneous execution, tons of educational material. The dreaded 401K has saved me a boat load of taxes and enabled me to accumulate tax deferred. There is a lot more I’d like to discuss with you but I’m afraid this memo doesn’t provide the time needed. I look forward to your response.
Mike – I’m happy that you’re satisfied with your 401(k) experience. Without knowing the details of what you did– contributions, investments, etc.–I can’t comment on how it would have compared to a defined benefit pension plan instead. What I do know is that there are many studies that confirm that 401(k) participants are coming up short in terms of achieving retirement security. You may have done okay, but that is not the typical experience. Regarding Social Security, you have to take into account that in addition to proving retirement income, it also includes disability insurance, support for surviving children in case of early death, and support for spouses at retirement age–none of which are included in typical 401(k) plans.
Well, I finished the book and have a few observations to share with you as I’m not aligned with your thesis. I work for a very large F500 firm so it is entirely possible we have 401K options and very low costs negotiated into our deal smaller firms don’t benefit from I’ll concede that point. However, I’ll share a few facts that will hopefully make you reconsider how fantastic you think SS is? I took my SS tax contributions from 1978 to 2014 (YTD) and if matched by my employer and invested in the S&P 500 Index would be worth $1.6M today and then taking that performance over the last 37 years and projecting over the next 4 years when I reach 62 that account would be worth $2.5M vs the $24,000 per year SS is going to offer. If I only draw down at a 6% rate that’s $150,000 vs $24,000. What’s also important to recognize over the last 37 years the S&P 500 Index only had 6 negative performing years. That’s positive results 84% percent of the time. Some how that doesn’t quite seem like the reckless casino you describe the stock market to be. Yes, pure index investing doesn’t have the burden of providing for disability and some of the other things SS does. But from a strictly head to head comparison of providing retirement funding $150,000 vs. $24,000 while investing the same $288,000 are you kidding. This isn’t even close. Additionally, when I pass my family inherits the entire remaining amount. SS provides nothing as there will be no minors (survivor benefits). There are lots of other benefits as I see it associated with the 401K vs SS. but perhaps the biggest advantage is controlling my own destiny. I don’t want to be dependent on some government plan / promise. Defined Benefit to me sounds like “trust me” vs. my seeing my 401K value anytime I want. I know exactly where I stand. I don’t want to find out 5 yrs into retirement the pension is underfunded ….no thanks self reliance rates very high with me. In the next to last chapter you discuss “What can be done” to improve the retirement crisis and suggest eliminating private company plans and rolling IRAs and 401K’s into SS? Private investment accounts being taken over by SS? Are you really suggesting such an act of confiscation? Are we still in the United States? When you went to government health care as an example as to why retirement planning should be nationalized I think I started to realize this isn’t a study based on facts but rather political ideology? You aren’t interested in the facts and actual performance your working an agenda? Sorry, but I have a lot more faith in the US Economy and the S&P 500 Index than I do the US Government and politicians. 31 out of 37 years resulting in positive returns and principle growing eight fold over 41 years is pretty darn good from my vantage point.No doubt Wall St. ran amok during the Housing Meltdown but don’t forget the key role the Community Reinvestment Act and the three stooges who ran the Senate Banking Committee had to do with setting the table for such a fiasco to take place. It also concerns me when the answer to any of Social Security’s troubles is to simply increase the tax burden on those already funding the program. Very little “shared pain” from where I sit. The pain is always in one direction. If you’re working and contributing you’re a marked man or woman. The government is an equal opportunity burden on those who aspire to self reliance! It is shocking to me the answer from your perspective is leave it to the government and the greatest retirement plan ever Social Security will take care of us all! Wow I can’t tell you how it pains me to think you’re advising hard working tax payers that this is the answer. If SS taxes had been invested in the S&P 500 Index from the very start it would have a surplus of hundreds of billions of dollars at this point. It would be a source of true national pride and fiscal stewardship instead of having pissed away the huge demographic advantage it had for decades. Do yourself and everyone else a big favor go back and actually look at the S&P 500 Index results year in and year out from 1928 to the present. You’ll be amazed at how fantastic the results are. Nothing goes straight up but when you actually look at the year to year results you will be surprised and delighted at the opportunity before you.
Good Luck – I wish you well…you know where to reach me if you want to discuss further.
One last comment. I think you are missing one critical factor both defined benefit as well as defined contribution plans have in common. Regardless of who is making the contributions the money still needs to be invested for either plan to work. You seemed to be under the mistaken notion that DB’s have some magical way to make money grow while avoiding the evil stock market. One way to do that is buying bonds if you’re prepared to grow at a snail’s pace and have a lot less to live on in retirement. The big difference that I see is with DB plans you’re trusting someone else to do job and with DC plans the individual owns that responsibility. I think the real solution to the retirement crisis is not confiscating IRA’s and 401K resources and investing them in the SS program, nor is it increasing taxes so the SS plan can get propped up one more time having failed miserably in it’s objective. The real solution is making financial literacy a required course in every high school and undergraduate program. Running from problems or delegating them to someone else to resolve rarely results in a positive outcome. Learning how to manage money like any other acquired skill takes time and effort just like most worthwhile endeavors!
I’m aware that DB plans invest in equities. How that is done differs among plans–from being directly invested by the plan itself to being administered by another company. There are also supporters of Social Security who would like to see the program invest in equities in addition to treasury bonds. Requiring “financial literacy” is no solution. While it might help some, it is based on the dubious logic that if all investors were financially literate, all would do well in the market.
Of course Mr Weinstein, working at a large Fortune 500 company as middle management, can do a decent job with his 401K – but it has nothing to do with the millions of workers across the country who cannot afford to put anything at all away for retirement, let alone actually find the time and expertise to manage the money – I’m all in favor of Mr. Weinstein making out well, but I wish he would not extrapolate from his own privileged position as a way to knock Social Security, which is all most working class Americans will have at retirement.