IRAs hold more money than 401(k)s. People don't save in IRAs. Both of these facts are true at the same time.
The explanation is rollover money. Workers accumulate cash in their workplace 401(k)s through automatic payroll deduction, the only savings method that actually works for humans who possess free will. Then they leave their jobs. Then some financial advisor with a Series 65 license and a fishing boat payment tells them to roll that money into an IRA. Then they do it. Then they never contribute another cent to the IRA for the rest of their lives.
So now IRAs hold trillions more than 401(k)s despite receiving almost no new savings. It's a museum for old 401(k) money. A graveyard with compound interest.
The summary mentions observers fear these people are exposed to poor investment advice. What a bloodless way to describe what's happening. Guy spends thirty years letting Vanguard target-date funds do their thing at 0.15% expense ratios. Guy retires. Guy meets financial advisor at a steak dinner seminar. Guy rolls $840,000 into an IRA. Guy now owns seven different American Funds with 5.75% front-end loads and 1.2% annual expenses. Guy's advisor just bought a Sea-Doo.
The beauty is the money still counts as retirement savings. On paper, the retirement system is working. In practice, a guy named Todd with a corner office at Edward Jones just skimmed enough off Grandpa's nest egg to remodel his kitchen. Observers fear poor investment advice. Poor investment advice fears nothing. It drives a Lexus.
The system runs on inertia and rollover paperwork. The trillions aren't a sign of enthusiasm for IRAs. They're proof that once money enters the retirement industrial complex, it gets passed around like a f*cking casserole dish until someone finds a way to charge for holding it.
Photo by Brett Jordan on Unsplash
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