Are 401(k)s a Financial Silver Bullet?

Almost every financial adviser recommends having a 401(k)... but are they the surefire solution they're made out to be?

Two Cents on Twitter: @twocentspbs

Two Cents was created by Katie Graham, Andrew Matthews, Philip Olson CFP® and Julia Lorenz-Olson and is brought to you by PBS Digital Studios. We love dropping some knowledge on all things personal finance and helping you make better money decisions.

sources:

Two Cents is hosted by Philip Olson, CFP® and Julia Lorenz-Olson
Directors: Katie Graham & Andrew Matthews
Written by: Philip Olson, CFP® and Julia Lorenz-Olson
Executive Producer: Amanda Fox
Produced by: Katie Graham
Edited & Animated by: Dano Johnson
Images by: Shutterstock
Music by: APM

[TwoCentsPBS]

No, we're not back in the studio yet! This is an episode we shot before the pandemic and put on the back burner to address more imminent topics... still relevant, though!

[QuestionEverythingButWHY]

“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
― Mark Twain

[MikeStamm]

I would love to see an episode on HSA's. Personally I love the HSA and in my opinion is one of the best tools. I make sure to max mine out every year and have everything but my first 5k invested in a target retirement fund. What most people don't realize is you keep this money no matter what, it has a triple tax savings when used on qualified expenses, AND if you happen to save to much you can convert it to a traditional IRA when you retire. My plan is to have at least half a million in the account by the time I retire to cover all my medical expense. Keep in mind that in 2019 the average couple retiring would need $285, 000 to cover their remaining lifetime healthcare costs and you might as well use tax free money! Not to mention my employer also contributes $800 a year to this account. One last thing most people don't know about this account you can also use the money tax free to pay for long term care insurance if that is something you desire.

[efr]

I love that you also mark the passage of time by Harrison Ford movies! :)

[Jebusankel]

401(k)s have an early withdrawal penalty. That should be mentioned when evaluating if it's a "silver bullet".

I'm a millennial and the idea of a pension is so crazy to me. I put in a career of work and hope my company is around for decades after I retire? And hope they don't mismanage the funds? Or I put in 19 years of work instead of the required 20 and I get nothing? Who would agree to that?

[mcfatty]

@4:54 - I ain't no math genius, but that 13% of the pie is looking mighty large.

[ardnehsan]

After looking at inflation studies 30-40 years down the road, driving off the cliff is looking pretty tempting...

[sagan.]

Wow I like most millennials did not know about the “Vested” part of putting into the 401(k)’s I’ve learned so much from you guys 👍‼️

[mdctenga]

You know that weird feeling when you say "I miss when MTV played music videos..." to someone who responds, "MTV played music videos?"

When you guys brought up pensions, I was like "wait, what's a pension?"

I'm sad now.

[jessicabowen]

would love to see an episode on the 401k's cousin - the 403b. I'm especially interested in the many problems with them like annuities, high fees, and non-transparent high pressure sales agents. I'm trying to learn more, but it's really hard!

[hamzahahmed]

This episode was by far one of the cutest ones. I love it!

[ccccccchhhhhh]

My employer actually automatically enrolls you and you have a month to opt out. It was pretty convenient because then i didn't really have to set it up lol. They automatically enrolled you to receive the match.

[luisahernandezmunoz]

The only problem is the fees and the mutual funds and taxes especially if this is a traditional and not a Roth

[joes]

I was with a company for 6 months when they announced that they were terminating their pension for new employees. I was a little heartbroken as having a pension was a first for me. To make up for this, the company made additional contributions to our 401K above the normal for the next three years so I thought that was a pretty cool thing to do, especially when you consider they didn't have to.

[dhvanantrivedi]

I'm not in the US but this video still makes sense as we have a similar thing in my country. Just love the way you explain it guys. Always great to see you and learn something from it

[ganeshanvekar]

One of the reasons I love video your editing and it makes a video so engaging, It Is awesome.👍👍😍😍
And where you get these sound effects?

[talknight]

Where I live regular pension funds are paid into by both employees and employers but are guaranteed up to 30% by the government. Government employers and certain unions mandate having a pension fund and often provide special rates. On top of that, the big insurance/pension companies provide various other pension/savings funds that are not employer-matched, for example something called a Provident Fund which also received tax benefits but you're fined if you withdraw it before retirement.

[AntonWongVideo]

4:53 13% pie graph graphic is inconsistent with the number it's trying to represent
also, I think it'd be cool if you expanded more on how people can save money with a 401(k) by shopping around and looking at discount brokers or robo-advisors.

[of]

Remember the rule of 200/600/1200 (10/20/30 years)

Whatever expense you sign up for (a $300 larger truck/fancy car payment, $100 a month Starbucks every morning habit, $200 month excessive bar/booze/restaurant habit, $100 cable TV package, that larger house or trendy apartment with the $300 extra rent/mortgage). Realize what that costs you in your 401k by this rule

10 years of that habit/bill is 200 times the monthly expense that could be in your 401k
20 years is 600 times
30 years is 1200 times

Add up those Examples above and that’s $1000 a month. After 10 short years you could have had $200K in your 401k or $1.2 MILLION over a 30 year career. Ouch


(Rule based on extra 22ish% going into 401k instead of after tax, 7% ish rate of return after fees and inflation)

This is not to say don’t enjoy some luxuries but consider what they are costing you. Especially if they are no longer a “special treat” but “daily habit”

[taejonep]

You folks do such a great service for the general public. Keep on spreading financial knowledge! Thank you for all that you do.