In Ep. 229 of the Mullooly Asset Podcast, Brendan and Tom reminisce about the ‘good old days’ when everybody had pensions and 401(k)’s and everybody was happy! And then they burst everyone’s bubble reminding people that didn’t happen! They talk about these workplace retirement plans, the incentives they offer, and how it might be time to revamp the system to get more people to save for retirement.
Show Notes
‘The Case for Revamping 401(k)s’ – Benjamin Harris – The Wall Street Journal
‘So Much for the Bond Bubble’ – John Rekenthaler – Morningstar
‘Some Bonds are Better Diversifiers Than Others’ – Ben Johnson – Morningstar
The ‘Good Old Days’ that Never Existed: Revamping 401(k)s – Transcript
Tom Mullooly: Welcome to the Mullooly Asset Management podcast. This is episode number 229. I’m Tom Mullooly, and I’m here with my cohost Brendan Mullooly. And Brendan, you’ve got some information you want to share about 401(k)s you’ve been reading about.
Brendan Mullooly: Yeah. There was an article in the Wall Street Journal about a week or two ago. It was talking about, well, the title was The Case for Revamping 401(k)s, and discussed in the article was just the way that we incentivize people to use these accounts for retirement savings. The primary benefit that is pitched to people for making contributions to these accounts is that you can exclude your contributions from taxable income.
Tom Mullooly: I think a lot of people just miss that basic point. Like, hey, you know, if you max out your contributions, you’re dropping your income, your taxable income by 18 grand if you’re under 50. 24,500 if you’re a 50 or over person maxing out your contributions. It’s pretty good.
Brendan Mullooly: It’s good, and that’s what the article said. It’s worked. It’s worked okay. I mean, you could see, obviously, average and median balances in retirement accounts don’t tell the whole story, but they’re not great, you know? You see some people who manage to save a pretty good amount of money in these accounts. Other people, it doesn’t really seem to be helping at all.
Tom Mullooly: Why is that?
Brendan Mullooly: I’m not sure. It’s really just about savings habits. But, the idea this article is getting at was just talking about the exclusion of income as an incentive, and how it sounded good on paper, but it hasn’t totally done it. It hasn’t done enough to get people to do anything, obviously. So, just thinking about incentives, and how they may or may not always work. They sound good in theory. They don’t really get people to do what you intend to do sometimes, or they have a completely different effect than what was intended.
Tom Mullooly: I think the bigger issue may be, and tell me if I’m wrong, but the bigger issue may be that people can’t see that far into the future. So, there is no reward for them to have money taken out of their paycheck every pay period for a part of their life that’s not going to happen for 15, or 20, or 30 years from now. And so, it’s like, “Why should I do that when I have other things I want to do with the money? I want to pay down debt, or I want to go on vacation, or I have to pay my student loans.” So,
