The number of US workers in the labor market over the age of 75 is expected to nearly double over the next decade, creating a looming retirement crisis.
Retirement savings in the United States were long thought of as a three-legged stool. Americans had pension plans, Social Security benefits, and defined contribution plans like the 401(k). Not anymore.
Pension plans are nearly extinct. About half of private sector workers were covered by those so-called defined-benefit plans in the mid-1980s, but by 2022 only 15% of private sector workers had them.
Social Security payments still provide about 90% of income for more than a quarter of older adults, according to Social Security Agency surveys. But the Social Security trust fund is facing a 75-year deficit, and without intervention it will be depleted by the mid-2030s, meaning that only a portion of retirees’ expected benefits will be paid out. Lawmakers have faced a decades-long political stalemate on how to fix it.
What’s left is the 401(k), which 68% of private industry workers have access to, but only 50% use.
You could put your 401k money in a money-market fund or something like that. It doesn’t have to be invested in the stock market.
Also, if you’re young, and you’ve got extra dough, do yourself a favor and start a Roth IRA. They are amazing.
I second the Roth, there is a much lower yearly cap (around $7k). But you’ve already paid the taxes on it and can withdraw it tax free down the line!
It’s definitely good to diversify, but these really only pay off if you expect to be in a higher tax bracket during retirement (you make $60k/yr at your job now but expect to withdraw $150k/yr during retirement). With a 401k it’s the reverse, where you expect to be making less per year during retirement, which is probably more applicable for most people.
Thats not totally true. The import thing about a Roth is that the earnings grow tax free. That’s great even if you’re withdrawing less in retirement as long as there was growth in your Roth between when you contributed and when you start withdrawing. If you plan to withdraw your Roth in the next couple of years then yeah probably not worth as much, if you have a couple decades before you plan to retire? That may be a different story.
But you’re contributing less because the contributions have already had ~20% or more taken out in taxes at a period when it’s worth ‘the most’ with respect to future inflation.
Employer sponsored 401k plans usually don’t give that much choice in how you allocate the money.
That being said our whole economy is tied to the stock market, in my opinion to the point it’s “too big to fail” (at least catastrophically). Betting against it on the order of decades would be a very bad idea as our whole economy relies on inflation of the dollar.
401k plans aren’t usually the place to do exotic investing. Most offer at least one fund matching the S&P 500 or total stock market, another covering the total bond market, then usually a mix of small cap, mid cap, growth, and income funds.
Realistically you only need some funds moderately solid in your 401k while you’re employed there. As soon as you change jobs, you can roll it over to your own IRA where you have much more control.
It isn’t that those companies are publicly traded in the stock market that makes them “too big too fail” all at the same time, its that the stock market also overlaps with the huge majority of GDP generating commerce in the USA. If the stock market is failing (the whole thing at the same time) then the US economy is failing.