Personal Finance

3738 readers

1 users here now

Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Join our community, read the PF Wiki, and get on top of your finances!

Note: This community is not region centric, so if you are posting anything specific to a certain region, kindly specify that in the title (something like [USA], [EU], [AUS] etc.)

founded 1 year ago

MODERATORS

WandererLagomorph799@lemmy.ml

nieceandtows@programming.dev

nieceandtows@lemmy.ml

100

Was the 401(k) a Mistake? How an obscure, 45-year old tax change transformed retirement and left so many Americans out in the cold. (www.nytimes.com)

submitted 4 months ago by Blaze@reddthat.com to c/personalfinance@lemmy.ml

61 comments fedilink hide all child comments

you are viewing a single comment's thread
view the rest of the comments

[–] sugar_in_your_tea@sh.itjust.works 1 points 3 months ago* (last edited 3 months ago)

You'll generally get less from a defined benefit plan vs a defined contribution plan. A defined benefit plan is an insurance product, so the managers are encouraged to be more conservative with investments to limit risk. A defined contribution plan is an investment product, so the managers are encouraged to maximize returns.

Would you rather have a 5% yield guarantee or a very high chance at 10% return? (as in, 10% has been consistent in the past) In almost every scenario, a defined benefit plan will have much lower usable cash and no inheritance vs a defined contribution plan.

The US actually has both. Social Security is a defined benefit plan, and a 401k is defined contribution. Social Security is intended to replace ~40% of pre-retirement income (more for lower income, less for higher income), and the 401k is intended to fill in the gaps.