What I Don’t Understand About Retirement Plans

Please forgive me. This is going to be one of those blog posts that reproduces a bunch of screenshots from a Mastodon conversation, kinda like the articles that are a reproduction of Twitter screenshots, but I hope to use them as context for additional thoughts based on the conversation.

It started with an article about Milton Friedman called “Ideas Lying Around,” written and posted by Cory Doctorow. [https://doctorow.medium.com/ideas-lying-around-33a28901a7ae]

From which I quoted a paragraph about retirement accounts being akin to gambling.

To which Cory replied with a link to a past article he had written directly on the subject, called “401(k)s are a scam.” [https://pluralistic.net/2020/07/25/derechos-humanos/#are-there-no-poorhouses]

To which I responded with the following comment about not understanding retirement accounts.

And then things started to get interesting.

Cory has a lot of followers and my original post got a lot of favorites and boosts (boosting means sharing on Mastodon). But, my second post about not understanding retirement accounts got comments back, including the following question from kctipton:

 

At first I bristled a bit at the question because I felt it put me in a defensive position. Someone else seemed to think so, too, and jumped in to say the question was rude, to which someone else replied that that reply was rude. In the meantime, after thinking about it a while, I realized this was a very good question and said so. I didn’t need anyone coming to verbal fisticuffs over it.

Pyperkub replied with the following comment:

 

I got lost at “no load.”

That, right there, is one of the things I don’t understand about retirement accounts tied to the stock market. What is “no load” and how does it matter? (Also, if you’re wondering, like I was, what TPTB stands for, it’s short for “the powers that be.”)

Here are some other things I don’t understand.

What is the difference between stocks and bonds and how do those managing retirement accounts balance them?

What are the differences between the different types of retirement accounts (401(k), 403(b), etc.)? And why do they have those numbers? My daughter just told me that certain accounts are taxed at different times (when you deposit money versus when you withdraw it) and, ideally, you choose the one based on your tax bracket now versus what you think your tax bracket will be when you retire. As my employers have only offered one type of retirement account, I didn’t even realize this was a thing that should be considered.

When you set up a retirement account, you pick your investment risk level (low, medium, high). That makes sense, but when do you change your risk level?

When you retire, what is the process for drawing from your retirement account(s)? How much are you allowed or required to withdraw? What are the penalties for not drawing from the account or drawing too early?

In my limited experience, it seems that it’s rare to find advisors available to talk to from my retirement accounts to ask for information or advice. I’ve had only one advisor from a retirement account who wanted to check in once a year to see where things were at, determine if changes were needed, or answer any questions. This advisor, Christina VanSlooten with UBS Financial, was delightful. I felt like I was finally getting a grasp of my retirement account, but I lost this service when I changed jobs. Why aren’t all retirement accounts required to have a once-a-year check-in between an advisor and account holder?

Having done bookkeeping for an organization, I am used to being able to follow the money using receipts for income and expenses that I have witnessed. (The plumber comes to fix a clogged drain and invoices the organization. Then I write a check to the plumber and enter that into the bookkeeping.) I can directly see how those receipts become entries in the organization’s financial statements. (See my past post, “History in Numbers,” for more on this: https://maryewarner.com/2018/07/23/history-in-numbers/.)

When it comes to the stock market, it becomes all hocus-pocus to me. A portion of my check is deposited into my retirement account every two weeks and the total on the account will either make gains or losses based on the market, but where does the money from gains come from? And where do the losses go? Where are the receipts that show the direct one-to-one relationship to what’s on my statement?

And why can a statement from the Federal Reserve cause the market to suddenly soar or tank? What sort of monetary magic is happening here? And why is my retirement dependent upon it?

I may know the answer to that last question. It’s because wealthy oligarchs want to play with our money and not support Social Security. They don’t believe in taking care of anyone besides themselves, so if my retirement account is wiped out, it’s no skin off their noses.

So, yeah, I have questions about retirement accounts. They run the gamut of the practical to the existential. If I could see how the money and valuations flow, I might feel less like a fish flopping around in the dust.

I’ll leave you with one more comment from this Mastodon conversation, this one from Griz, Some Guy on Mastodon, who likens the stock market to a financial role-playing game among the wealthy. In this analogy, which I really like, I am just a non-player character. [https://en.wikipedia.org/wiki/Non-player_character]