<p>This week’s a good week to go over 401K and other options (he has TIAA-CREF options too) with our son as he’s here for the week (working remotely). I want to see good investment options as I’ve worked at places where the options were awful - basically not a lot of good options to move your money to before a crash or no ability to take advantage of special situations (commodities, international, etc.).</p>
<p>In NJ the employers share of the pension cost for most government workers and teachers was supposed to be 4% of the employees salary/. The State missed the payments for 20+ years. The pensions with the ability to retire early , police and fire or the pension where they spike and double dip- the local politicians, were not funded by the State but by the local jurisidictions. For cops the locals contribute about 14% of the cops pay for the local it is also 4%. The locals only missed making the contributions for a few years so those pensions are adequately funded.</p>
<p>My FICA contributions (mine and my employers) are approaching $300K over the last 30 years. If I work until I am 65, that will add another $200K or so, for a total of $500,000 (assuming the rate doesn’t change, which is not a sure thing).</p>
<p>I qualify for the maximum amount, which at age 65 today is about $30,000 per year. This will probably be around $40K when I retire, assuming the COLAs aren’t eliminated.</p>
<p>$40K not very much for $500K in lifetime contributions, with a theoretical value of probably $1.5-2 million if it had been invested with even a modest rate of return (I’m too lazy to do the math).</p>
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<p>Obviously, this can vary depending on where you live. In our state, the state pension system is not subsidized with taxpayer money. Our state’s pension fund is also underfunded. The General Assembly acted to counter this trend in 2011, passing significant system reforms. These reforms raised employee contributions to 7%, delayed pension vesting from five to ten years, and required the last five highest years of salary, rather than the last three, to be used in calculating retirement benefits. No taxpayer dollars go to the pension fund.</p>
<p>Public workers in our state pay social security.</p>
<p>“as far as I know, teacher and city worker pensions are not funded by the public. Yes, they are paid with tax dollars, but there are no additional tax dollars used to supplement the pension fund.”</p>
<p>In CT, teachers’ pensions are certainly partially funded by the public. My wife has contributed less to the fund then I did to ss and will get substantially more than I will.</p>
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<p>aquamarinesea, yes, I agree with you on not withdrawing from a 401(k) – I have been a 401(k) plan administrator for over 20 years and seen a lot of people do stupid things with their accounts – but when we took H’s $$ out, it was $6,000 and he was 25. That $$ represented almost six months of living expenses for us at the time. Since I was the sole income and I was making $16k/yr. in Philadelphia, those were real, necessary funds. PLUS student loan rates at that point were 8-9%. No 10% penalty since it was for educational expenses. We had purposely saved in the 401(k) rather than an IRA because of the way things were reported on FAFSA. Made sense for us to save for grad school via the 401(k), get the employer match, and then distribute when he left work for school. The vested match more than covered the taxes we owed. </p>
<p>Since then, we save like crazy and have not touched our retirement accounts.</p>
<p>DH works for the gov’t. He pays Social Security taxes plus a mandatory percentage of his income towards the pension. That’s in addition to the 401(k).</p>
<p>CountingDown --</p>
<p>Thanks for the explanation. Now it makes sense.</p>
<p>Let me ask is it excessive for an employer to contribute 4% of an employees salary to a retirement plan either for a pension or for a 401k match?</p>
<p>If it’s a top-heavy plan and the owner gets $$, 3% is the minimum. Unless you work for a small company, this is likely not your scenario.</p>
<p>If an employer contributes 4% of payroll to a traditional defined benefit pension plan, you are NOT getting 4% into an account with your name on it. That 4% is the cost of funding that plan for the year, with benefits payable using the formula in place at age 65 (or earlier, if permitted in the plan document).</p>
<p>Where I’ve worked, it has been typically 50% of the first 6% I contribute (so the max employer match is 3%). DH and S1 have slightly more generous matches.</p>
<p>To answer your question – is 4% excessively generous? It’s not bad, but it’s not over the top. I worked with a lot of small plans where the match was in the 3% range, but the profit sharing allocation (which is discretionary and based on profits) represented the real $$. In small plan design, though, the emphasis is on maximizing the owner’s allocation and less on altruism towards employees. ;)</p>
<p>My advice is to contribute at least enough to your 401(k) to get your maximum match. Don’t leave that $$ on the table. Your employer considers it part of your compensation.</p>
<p>There are those out there who are living out the prophesies made 30 years ago. They did not save, borrowed against their homes for extra money, took pensions in lump sums and now are living on social security and that’s it. I have some in my family. Some of them were the absolute loudest about complaining how there would not be any Social Security money for them for all they had to pay, and it’s all that they have, ironic. </p>
<p>I worry, too. Our kids do not appear to be able to be in place for the standard of living they enjoyed from us.</p>
<p>tom1944 --</p>
<p>The median 401K match is 3% according to Vanguard, but I’ve also seen 4% as being the median employer contribution.</p>
<p>Countingdown- I was only asking because 4% was the employer cost for the NJ pension plan. When the contribution was made the plan was funded at 105%. The State missed it for 20+ years and now claims the teachers and workers are greedy because they want the pension they signed up for. The public was sent message after message about cashing in sick time, retiring early and spiking pensions as a tool to show how greedy the public worlers are. Problem is that none of those things apply to teachers or state workers and the plans where the employees get that stuff and where the employer missed only a few years of contributions are adequately funded.</p>
<p>So much of opinion is based on anecdote. Both of my “greatest generation” parents (and my stepfather) died broke despite having degrees from top universities and, in my stepfather’s case, a fairly substantial inheritance. That’s not how it’s supposed to be, is it? My wife and I graduated from hippy-dippy Berkeley back in the tie-dye days, and paid for all three of our kid’s college educations, but I’m looking a six figure income in retirement in a few years from various sources - a small pension, social security, real estate, IRAs, 401(k)s, etc. - and we’ve never inherited anything or earned that much from our jobs. We just live within our means, without being obsessively frugal, and have not made too many mistakes with our investments. Basically, our timing was lucky. I bought my first tiny house in 1975, with a $5K down payment. Our current home was purchased in 1991 with a six figure down payment that was rolled over from that first house through two intervening homes, each pricier than the one before. I’ve never had to save money for a down payment since that first house. </p>
<p>But all of that could be different. I have a friend whose career (and income) has paralleled mine closely - and he has <strong>nothing</strong> put by, despite having no kids. (He drives a $100K leased car to the apartment he rented after his house’s short sale.) Four of my neighbors have walked away from underwater homes that they each owed over $900K on in the past 3 years. They all had kids, and are looking at college expenses in the future. One of their biggest mistakes was being born about 10 or 15 years too late to be as lucky as I was.</p>
<p>I could take credit for our (current) rosy financial outlook, but I know better. We’ve made more good decisions than bad ones, but that wasn’t due to moral virtue or brilliant analysis. It was just part common sense, part luck, and part innate frugality.</p>
<p>Which is why I’m a fan of Social Security. For every family that’s lucky like mine, there’s going to be folks like my parents, my friend, my former neighbors, whose timing was bad, who got sick, or who picked heads when they should have picked tails. I know it’s tempting to blame them for their lack of prudence but I honestly think random factors play a larger role, on average, than virtue or intelligence.</p>
<p>“Which is why I’m a fan of Social Security. For every family that’s lucky like mine, there’s going to be folks like my parents, my friend, my former neighbors, whose timing was bad, who got sick, or who picked heads when they should have picked tails. I know it’s tempting to blame them for their lack of prudence but I honestly think random factors play a larger role, on average, than virtue or intelligence.”</p>
<p>This is my view also. There are a lot of people here who think that their investment success - so far is because they’re such savvy investors and ignore the impact of luck. This exactly why ss is so important.</p>
<p>Kluge, I usually agree with you and I agree with you again. Great post. </p>
<p>Luck and timing…you have to have those…</p>
<p>I can’t believe I haven’t walked off a curb and gotten hit by a car. That burst of air caused by a car whizzing by…I can’t believe I have never been part of that air. I can feel my right leg entering the street…yet…it doesn’t.</p>
<p>There is a poster or two that thinks they know what they are doing and they are clueless. They don’t understand what they own. That’s ok. Sometimes things work out anyway.</p>
<p>But just in case, yeah I am a big fan of SS.</p>
<p>kluge I agree also. In NJ if you brought your first home around 1980 or earlier and did nothing but use the gain as a down payment and move up you did very nicely. I have a friend that did that and is now in a home worth $1.5 million with no mortgage.</p>
<p>Warren Buffett knows what he’s doing - most people (including me) are boneheads when it comes to financial issues.</p>
<p>No…I think you are pretty smart doct. You don’t have to be a Warren Buffett. (he got bailed out big time).</p>
<p>I was talking to my mother and my aunt. I told them they needed to own some bonds for income several years ago. They are retired. They argued with me so I said, “Forget it. If you are not comfortable, don’t buy them”. They bought tiny amounts of bonds.</p>
<p>I was talking to my mom today. My aunt is freaking out. Interest rates have dropped since she bought the bonds. My aunt thinks she is losing money on the bonds because interest rates dropped from 5 percent to 4 percent on the bonds. “Uhhhh…no. There is an inverse relationship
between bond prices and interest rates. The bonds have actually increased in value as rates dropped. Plus, she is never going to sell the bonds”.</p>
<p>Kluge --</p>
<p>I agree with you also. Well put.</p>