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View Diary: Senate Democrats ready to push Social Security expansion (110 comments)

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  •  Most people are not prepared to navigate the stock (3+ / 0-)
    Recommended by:
    jbsoul, splashy, cowdab

    market. That's why they count on a bank or a money manager to invest for them. And if your 401k is on the smallish size even the professionals can't do much to protect it during hard times. And given the ethics on display in the financial community what would anyone trust a modest 401k to provide for retirement given the evidence of the last 20 years?

    It is time to design a defined benefits pension system for the 21st century. It is safer for small investors to invest in funds together with laws regulations and insurance protecting them from the disgraces who have pillaged our economy for too long.

    The 401k does not work for working and middle class retirees. 401s work for investors and employers, not employees. Back to the drawing board.

    •  There are, of course, no... (1+ / 0-)
      Recommended by:
      OrganicChemist

      ...assurances in high gain investing. However, over the past 20 years, one would have done fairly well dollar cost averaging into an index fund that covers, for example, the DJIA. It's pretty simple and inexpensive (unless your employer's 401(k) plan sucks - which some do WRT fees). It doesn't take a money manager to invest in a broad index fund -- and it's generally unwise to fiddle around with allocations trying to "time the market". People with modest means don't need a money manager -- they don't have to be tax efficient, they are not trying to avoid estate taxes, and they shouldn't be taking high risks.

      But, the point is, the individual is usually free to invest, just as Social Security does, in the safest investment available -- treasury debt or perhaps money market funds in one's 401(k). There is no free lunch for small or large investors - higher gain is correlated with higher risk.

      You can buy a defined benefit plan instead of putting your money into a 401(k) -- they are called annuities (it's probably not a wise investment and one has to be quite careful to not get soaked on fees). But it's quite safe and quite easy.

      I don't understand why people think defined benefit pension plans have magical powers and are secure. Ask the retired municipal workers in Detroit how secure they feel their plan is. The Pension Benefit Guaranty Corp insures most private plans, but if too many collapse, they will need to be bailed out by the government - but the taxpayers may reject that idea.

      As well, most defined benefit plans in the private sector don't adjust for cost of living -- so they are actually often not very "secure" as a few years of the mid 70's through the early 80's devastates "real" benefits.

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