See Ya 401k pre-tax investments, Hello Gov-controlled accounts

[audtatious]

http://www.workforce.com/secti...8.php

Just saw this and need to do some research. Maybe someone here can shed some light on it....

Due to the way peoples 401k accounts have taken a hit during this economic crisis, the Dems want to step in and ensure that peoples retirement accounts are protected. Thus, they have a potential proposal on the table.

First, what are being invested into 401k plans today would be put into a Gov account sponsored and managed by the SSA. If you are not investing today you will be investing at least 5% (mandatory) of your salary into this account based upon this plan. This would be post-tax dollars and you would receive 3% annually (adjusted for inflation).

This replaces the current 401k plans that are in place (although you can still have 401k above this I believe). As 401k plans are pre-tax (if you don't cash it until after retirement then you never pay tax on it) this change will effectively fill Gov coffers with additional income tax revenue from you and your employer. Employers will probably not be interested in any fund-matching as it's post-tax money at that point. Additionally you are limited to the APR the Gov will give you on your money.

So, up until this "financial crisis" kicked in, I was making 14%-ish on some of my 401k options (based upon recollection....It was WAY above 3% for sure). It was pre-tax so the investment was higher than the post-tax that is being proposed. My company matches up to a set point as well. So, with their new plan, after 20+ years of investing in the new system vs the old one, I will end up with FAR less money to live on.

Is this correct or am I missing something? Are the Dems simply waiting for Obama to become President before this change screws us all?

[HashiriyaS14]

I did not read the article, but I will admit that at first glance, this seems to be a genuinely terrible idea.

It seems so terrible, in fact, that I hasten to assume that we have all the facts, just because I am incredulous that anyone would try to institute such a misguided plan. Stranger things have happened though.

The 401k is fine as it stands. 3% is a horrible return compared to the 8-9% that a broad equity index tends to average over a long period of time.

I'll read it later.

[audtatious]

Which is why I asked if others had insight on this as it is the first time I have seen it. I'm hoping it's right-wing gum flapping or that I misunderstood their plan.

[HashiriyaS14]

I'm hoping it's right-wing gum flapping or that I misunderstood their plan.

You and me both.

And no, I hadn't ever heard anything about it before.

I'd hope that ANY President, from any party, would have the good sense to veto something like this, if for no other reason than political self-preservation, as this would be enormously unappealing for all but a tiny sliver of the population.

[audtatious]

Kinda depends I guess. In an environment where you have another side capable of stopping something like this then you at least hope the other team is looking out for you. When the other team has no teeth, as in the case of a Dem controlled House/Senate/Congress (or worse, a Super Majority where the Dems don't need a single Republican to agree) and Dem President, then you can only hope the Dem President has consideration for the other side. Of course, that assumes the President isn't simply a front-man who follows party lines.

If it's true, do you think Pelosi or Reid would be against it? Do you think Obama, if President, would really veto it as it would bring in more funds to support his UH and other monetarily challenged pet projects?

[AZhitman]

After hearing the moronic drivel that comes out of Barney Frank's misshapen, slobbering yap, I wouldn't put it past them.

I'll create a new thread on THAT.

[HashiriyaS14]

If it's true, do you think Pelosi or Reid would be against it? Do you think Obama, if President, would really veto it as it would bring in more funds to support his UH and other monetarily challenged pet projects?

I honestly don't think any one of them would support it, because I don't think the Democratic constituency as a whole would support it.

Aside from a few reps hailing from very poor districts, I think that most people were voted into office by individuals who like and want to continue their 401k plans. I cannot imagine this lunacy gaining much traction. That doesn't mean it wouldn't be proposed, but I don't think it would ever reach the President.

And yes, I think Obama would veto it for the same reasons. Squashing 401k's would appear to be disastrous for his popularity.

Some ideas are just bad ideas, no matter what your party affiliation. For the vast majority of Americans, this is a pretty solidly bad idea.

[audtatious]

It's "proposed" and relatively "on the table" from what I can see. I would have ignored it if I were not continually overloaded with "for the better good" style policy crap that is spewing around.

[telcoman]

It's "proposed" and relatively "on the table" from what I can see. I would have ignored it if I were not continually overloaded with "for the better good" style policy crap that is spewing around.

http://www.tsgnet.com/pres.php...sbups

click on video

Telcoman

[audtatious]

Isn't that special

[ishkabibble]

Woo hoo! A 3% return!

This is one of the worst ideas I've ever seen proposed.

[audtatious]

Which is why I hope I am reading things wrong.

[ishkabibble]

Unfortunately, I haven't seen anything that conflicts with your interpretation.

[smockers83]

Your interpretations are apparently correct. Two Democrats want to make 401(k) plans taxable now and want to set up forced savings accounts investing in government bonds at 3% adjusted for inflation. A few major problems:

*The interest rate is not enough. Rule of 72 says it'll take ~24 years for an initial investment to double. That means there's only one doubling period in the average working American's life. Not a whole lot being done for retirement. You can find savings accounts at 3%, although they are hard to find nowadays. Might as well put it into CDs instead that will earn more.

*It almost sounds like some annuities.

*The government is going to put a lot of people out of business.

*It's just a poor investment really

Although I do see some good. It is only 5% of one's salary. How much of your salary do you now commit to your retirement plan? If its more than 5%, that first 5% is now secured in bonds, guaranteed to be there when you need it, a stable value investment. The only problem is that older investors, ones nearing retirement should be looking at this. Younger investors, say in their 20s and 30s who are going to be in the market long term yet, can afford to put money into a higher risk investment to build that retirement fund. It may go down once in awhile, but it'll rebound. The stock market historically averages a 10% return though. Ultimately, this plan is a huge failure from the time it was thought of. By the time this is passed and implemented, there will be no more worries of retirements being evaporated.

[ishkabibble]

Although I do see some good.

I don't. I can get a better than 3% return on a checking account.

[audtatious]

You can find savings accounts at 3%, although they are hard to find nowadays. Might as well put it into CDs instead that will earn more.

Not necessarily, I have a few FDIC internet savings accounts that are in the 5% range. What's nice is that I can yank it for other investments at any time whereas with other investments I can get penalized for pulling out for a higher yield investment.

An additional concern is whether the Gov will actually invest this money or spend it like it does SS and put us much further into the hole. Where is the new Gov income stream going as well? How will the economy react when the funds going into 401k, which are corporate investments, are pulled for a Gov savings account?

My tin-foil hat is ringing, huh Ishk?

[ishkabibble]

Notice that I only make the tinfoil comments when you're "investigating a conspiracy". Conspiracies are rare. Incompetence is not.

[audtatious]

Conspiracy means attempt to do something they know is wrong or unlawful. Most of the time the points I bring out are not conspiracies as the people think they are right and everyone else is wrong. Harmful is the side effect of what they want, not an actual intent

Same with this thread. These people think doing this will solve many issues with funding while also forcing everyone to invest in something they deem as helpful (but at a lower rate or return). I guess they figure this is a way to mandate additional savings per person instead of those who do not invest in a 401k because they want the money monthly instead of looking out for their futures.

[smockers83]

I don't. I can get a better than 3% return on a checking account.

There's only one good thing I saw. That good thing is that it is a stable value investment, but those are much better for people near or in retirement. Young people and long-term investors can benefit from it in that it is a base for a nest egg, but they can get much better returns elsewhere and they can afford to take that risk. Young and long-term investors have an awesome potential today to create a lot of wealth with the stock market on sale. A lot of people's retirements (the Baby Boomers) could be in jeopardy right now because they may have not adjusted their portfolio correctly to represent what their investment goals and strategies should have been given their age.

Not necessarily, I have a few FDIC internet savings accounts that are in the 5% range.

Regarding you two and those bank accounts, I didn't say they were nonexistent, just that they are "hard" to find as the average savings account APY is less than 1% today.

[ishkabibble]

Most of the time

Key phrase.

[audtatious]

The large majority....

The rest is trolling to get people to think and look things up instead of drinking the Kool aid.

[ishkabibble]

[audtatious]

I would drink the Kool Aid if it were lemonade. Unfortunately the Dem party uses Blueberry-banana Sparkle Surprise flavored Kool Aid.