Maybe. But the article is mostly highlighting the fact that we do a poor job of educating people about investing and budgeting. For example:
She also knows that markets don’t always go up. During the 2008 global financial crisis, her 401(k) lost a third of its value, which was a scarring experience.
I’m guessing she sold when the market went down and locked in losses, and then didn’t buy again until stocks rebounded. So the classic “buy high, sell low” strategy.
The proper approach is to buy and hold until retirement. See the story of Bob, the world’s worst market timer for an example of how buying and holding will work even if you buy at all the wrong times. Bob was fine in retirement because he never sold.
larger social issue
The proper solution here isn’t to go back to pensions, it’s to provide sane defaults and simplify the programs so everyone can understand it will enough to use it properly.
There are lots of retirement account typesDo you know how many retirement account types there are (not investments, not plans, but account types)? Here’s a few off the top of my head (not exhaustive): - 401k - most common employer plan - IRA - universal option - 403(b) - government/education plans - 457 - government/military plan - SIMPLE IRA - small company plan Each has a different set of features and caveats, as well as (in)compatibility with other plans. If you change sectors (e.g. you go from public school to private school), you may have completely different retirement options. Some employers can offer multiple of the above as well, and each employer has different rules for their plan. Add to that three different contribution options (pretax, Roth, and after tax), and the average person is rightfully confused. It’s the same problem as the tax system generally, it’s too complicated.
My proposal to unify retirement accounts1. Consolidate all of those plans into the IRA and Roth IRA, increasing limits as needed 2. Allow employers to contribute to and create IRAs, just like they already do with HSAs 3. Require employers to contribute a certain amount by default into an account, unless the employee opts out; perhaps start at 5% and increase by 1% every year up to a cap of 15% of salary, or the max employer portion, whichever is lower 4. Create a standard for brokerages to inform employers about plan limits so they don’t over-contribute 5. Require brokerages to invest customer funds by default into a low-cost target date index fund, unless the customer opts out 6. Disallow account closure or transfer fees, though free transfers can be capped at one/year/account - customers should always be able to move funds without penalty 7. Consider preventing withdrawals of gains for 10 years from account opening; contributions can be withdrawn whenever (life happens) This: - preserves choice - provides reasonable defaults - gives most people a good outcome, unless they opt into poor choices
I’m very much against pensions because, as an insurance product, they’ll provide worse value vs a defined contribution plan, assuming the defined contribution is invested according to best practices (aggressive early on, then more conservative as you get closer to retirement; i.e. a target date fund).
In fact, I’m convinced we should replace Social Security with a Negative Income Tax (essentially means-tested universal basic income) to ensure that everyone stays out of poverty. Social Security doesn’t do that, but that’s kind of how many think of it. I don’t understand why we’re giving benefits to wealthy people, we should be concentrating those on the poor. In fact, this safety net shouldn’t be just for retirees, but anyone below a certain income threshold, though we can certainly start with an age limit that reduces as people move out of the current SS system.