Critical Look at the 401(k)

By on October 19, 2009

Stephen Gandel of Time Magazine, has written an enlightening article about worker’s experience with 401(k) retirement plans. There are some shocking statistics on display, which Gandel uses to critique the 401(k) as a retirement vehicle.

For example, the average 55-to-64-year-old should have a 401(k) balance of $320,000 based on projections by the National Bureau of Economic Research. Unfortunately, at the end of 2007, the average 401(k) of a near retiree was worth a mere $78,000. The 2008-2009 market meltdown probably knocked that number down another 20%.

One big problem is the 401(k) hasn’t been around long enough to provide workers with balances matching the income produced by traditional pensions. Another issue is that most workers haven’t maxed out their contributions so many will end up broke.

Gandel proposes a system of insurance that would guarantee that 401(k) balances don’t collapse right before a person retires.

SMA Comment: Although the accumulated savings in 401(k)s are on the pathetic side, this doesn’t make 401(k)s a bad idea. Workers need to educate themselves and save as much as they can (max out) via their 401(k)s. They should also attempt to save money outside the 401(k) and steer clear of high expense mutual funds and avoid attempts to time the market.

Source:

http://www.time.com/time/business/article/0,8599,1929119-1,00.html
***

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>