Are 401K plans "scams?

I would feel a lot better about them if they had safeguards against crashes, which immediately begin to pull substantial amounts from accounts. This is supposed to be for retirement, after all.

Doesn't this depend on the definition of the word "scam"?

It seems to me that 401K plans are straightforward, you know exactly what you are getting and how they work. They aren't fraudulent in any way. 401K's have historically provided a return of 9% over the long term... this is certainly better than most other forms of investment.

I have heard that managed plans that charge a fee don't do any better at providing a return than an index fund with no fees. I don't think this counts as a scam, although it may make them less valuable.

Any time I get a company match... I take it. This is free money.

Then you should only invest in US Treasuries and only earn 2% a year. The idea of starting to invest early when you are in 20s is you are in a position to invest in higher risk you have 40 years to make up for the lows. Historically over time the stock market increases - but this is long term.

As you approach retirement age - you move your investments into "safer" vehicles those that are not impacted in a crash - you don't invest 100% in stock mutual funds when you are 60 almost ready for retirement.

You can invest if you want from the beginning in safer vehicles but you will earn only a minimum amount. You have the option of choosing your investment from a series of funds for just that reason.

Ah I found this youtube video about a scammer that is trying to convince people that 401ks are a scam- I think this why certain people think 401 ks are a scam - but this is actually a scam.

It is like you said - there are risks but 401k programs are upfront about this.

https://www.youtube.com/watch?v=1OHVzmzXA3A

Some people may foolishly think they are but if you work for a company that matches even a percentage of your contributions they are the best investment anyone can make.

401Ks are low-risk investments and so the company match is an additional, incredibly high yield you can't get anywhere else.

Let's say you have a plan where your company only matches 50% and at the end of the year your account has made nothing in terms of investment yields...guess what? You made 50%! Where else can you get that yield?

Sure the market could utterly collapse and all of those contributions could be lost as well, but that hasn't happened and won't. Even in the Great Recession, company contributions offset personal contribution losses.

And I haven't even discussed the tax benefits

Any young person who has the opportunity to invest in a 401K and doesn't is making a big mistake, and if they don't because they think it's a scam, they are a fool and deserve to retire without money.

One of the best things the government ever did for the Average Joe!

FREE MONEY!! Yes!

You want an absolutely risk free investment in the market which will never exist.

Having said that: You invest $1,000 in a 401K and your company matches it with $500. You automatically have a 50% cushion against market losses. How much more risk-free do you want? (Some companies match 100%)

50%? I don't think I've ever gotten a match of more than 6%, and the size of the company or its industry, the shape of the economy, and my role didn't change that.

You need to look at your plan more closely

The 6% limit was applied to how much of your salary you invested.

If you invested 100% of your salary, your company would only match by 50% or more, up to 6%. There has to be a limit to free money.

If you can afford to invest more than 6% of your salary in the market you shouldn't do it in a 401K...unless you are happy will low-risk yields.

Every money manager and investment expert in America will tell you to invest as much as you can in your company's 401K plan.

It's a no-brainer!

Yes my company matches 100% up to 6%. Do if I invest 5% they match 5%, if I contribute 6% they match 6% if I contribute 7% they match 6% as I hit my cap of 6%.

I just never heard someone ever say that 401ks were a scam. So I wondered if that is what the newly college graduates think.

I told the girl if you don’t invest in a 401k then what is your plan to finance your retirement... she had no answer... believe me I gave her about the same advice as you addressed here. Not sure if she will listen.

That is a great plan. I hope you were able to invest 6% of your salary

Yes I am - I might have even bumped it up to 7% - I am in my 50s and I have over a million saved - but if I want to retire in the next 10 years and maintain my lifestyle I need that. I am on track to be where I want to.

I have been fortunate to work at places that had similar benefits - one company even put in 15% off the bat to a DCP plan without contributing anything (you became fully vested at 5 years) - I still did the 401k investment, but at a lower rate.

Oh, you're right, my bad.

I work for a place currently with no employer contribution (we're a small, fairly new company -- I imagine we'll get matching at some point).

And I have some cash in there but also in the mutual funds with our advisor. Plus RP gets matching at his job. All good.

Sounds like you are in very good shape...congratulations!

It's a common mistake.

It's unfortunate that your company doesn't match your investments at all, but you still get tax benefits.

Investment for the future is good and investments that are tax-deferred are very good. As long as you don't have to dip into your 401K before you retire you'll save a bundle on taxes.

Another great thing about the 401K plan is that you can borrow off it, with interest, but you pay the interest to yourself! (You will "suffer" in terms of taxes though, but not unduly)

401Ks are the farthest thing from a scam. Unfortunately, a lot of Democrats want to force companies to contribute. Ridiculous. To pay for their grandiose plans they will probably support taxing them more too.

For my retirement yeah - I have little other money with a daughter in college now! Depleting anything else I had saved!

I did this when were buying a house - we needed the down payment as we didn't have enough and just borrowed until our current home sold - we then paid off the 401k balance.

There is no suffering of taxes - you do not pay taxes on what you borrow. I do not remember paying any taxes as a result of borrowing against my 401k.

Good point about vesting. People who don't stay employed with a company for a reasonable period of time (usually 5 to 7 years) may lose the corporate contributions, but that not unreasonable.

I am very fortunate in my retirement financial situation due to stock I was granted when I worked for a corporation, the money I made on the sale of a company I formed and my 401K.

I accomplished it all with smarts, a lot of very hard work and without a college degree.

Anybody can!