Is there anything to learn from the US and their 401K system??

boglehead

What amazes me after a few days of pension debates around the UK, is that nobody has ever drawn a comparison to the US model of 401k... Past the age of 59.5 y/o, the funds can be accessed through standard drawdown and/or annuity - all of it being subject to income tax, as a normal income would.

This system has been around for years and years, and tens of millions of americans are using that system every day.

Maybe we should try to avoid reinventing the wheel and crying for wolf, and start collecting data point from their experience. I am not sure Lamborghini sells more cars per retiree in the US, than in the UK...

gadgetmind

I've mentioned it a fair few times here and on Motley Fool.

I've also spent a lot of time discussing investing and pensions with me US colleagues and employees. Let's just say that having this responsibility has changed their culture such that deep knowledge of how to invest (and divest) is the norm in the US rather than the exception.

Eric_the_half_a_bee

I imagine the consequences of running out of money in your 80s are rather more terrifying in the US than they are here, in terms of care, health and other benefits

boglehead

Eric_the_half_a_bee wrote: »

I imagine the consequences of running out of money in your 80s are rather more terrifying in the US than they are here, in terms of care, health and other benefits

I am not sure this is necessarily a major factor... people that are making the mental leap of saving for retirement, will take care of their pot, and not blowing it at once. Regardless whether the state provides them with a small safety net.

Let's face it - who can afford to live (not survive, but live) on a £13k state pension??

dunstonh

There has been comparisons to the Australian system which is a closer match to the UK than the US. Although the UK is higher regulated and some of the issues that Australia have would not occur here.

The US has a dire social security system and a greater spread of wealth and poverty. Maybe they could learn from us in some areas. There is also media coverage in the US that they refer to as the retirement savings crisis and they too refer to the Australian model as a potential solution.

The difference between the amount of savings working-age Americans have accumulated for retirement and the amount they should have already saved is $6.6 trillion.
Half of all Americans have less than $10,000 in savings.
Just one in five working Americans will receive pension income during retirement.
Nearly 6 million Americans over the age of 65 live in poverty, and that number is expected to grow.

Eric_the_half_a_bee

boglehead wrote: »

Let's face it - who can afford to live (not survive, but live) on a £13k state pension??

Once you need care, if you run out of money it's not £13k, it's £13k plus care home fees, plus free halthcare

Not great, but I imagine the US equivalent is a lot worse

boglehead

Eric_the_half_a_bee wrote: »

Once you need care, if you run out of money it's not £13k, it's £13k plus care home fees, plus free halthcare

Not great, but I imagine the US equivalent is a lot worse

Definitely - but my point is about the mindset... people saving will take care of that pot - and not blow it... otherwise they would be blowing the money in their 20s, 30s etc...

boglehead

dunstonh wrote: »

There has been comparisons to the Australian system which is a closer match to the UK than the US. Although the UK is higher regulated and some of the issues that Australia have would not occur here.

The US has a dire social security system and a greater spread of wealth and poverty. Maybe they could learn from us in some areas. There is also media coverage in the US that they refer to as the retirement savings crisis and they too refer to the Australian model as a potential solution.

The difference between the amount of savings working-age Americans have accumulated for retirement and the amount they should have already saved is $6.6 trillion.
Half of all Americans have less than $10,000 in savings.
Just one in five working Americans will receive pension income during retirement.
Nearly 6 million Americans over the age of 65 live in poverty, and that number is expected to grow.

Read my post again, I was talking about the pension system - not the welfare system as a whole. The proposed pension program is now VERY close to the 401k plan. I have lived and saved in the US for 6years... so I understand their system a bit

As far as your stats about the US - thanks, but completely out of context. What would help is to compare that as a % of their GDP, % of the population and then do the same thing for the UK.
What you will find is that this is not significantly different.

dunstonh

Read my post again, I was talking about the pension system - not the welfare system as a whole. The proposed pension program is now VERY close to the 401k plan. I have lived and saved in the US for 6years... so I understand their system a bit

You cant compare one thing without consideration of the other.

As far as your stats about the US - thanks, but completely out of context.

Why? You want to compare systems but dont seem to want to look at the differences.

atush

Eric_the_half_a_bee wrote: »

I imagine the consequences of running out of money in your 80s are rather more terrifying in the US than they are here, in terms of care, health and other benefits

You can say that again. Sprained my ankle a year or so out of university (so no longer was on my parents insurance) and a trip to a walk in clinic cost me more than a weeks wages.

Running out of money would be bad, but I think ( I am not sure as I only have a partial entitlement) that Soc Security may be higher than the SP?

Also 401K is inheritable, I inherited 1/3 of my mothers (there was income tax to pay for me)

kidmugsy

Why would anyone rational compare 401k to UK pensions? Surely a more rational comparison would be 401k versus UK pensions plus ISAs?