Writing in the October 19, 2009 issue of Time ® “Why It’s Time To Retire the 401(k)”, Stephen Gandel writes “The ugly truth though is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves. In the past two years, that has become all too clear.”
Is that how you feel?
I guess I didn't need that fishing boat anyway.
This story is largely based on the experience of several retires from a company that terminated its pension plan twenty-six years ago and replaced it with a 401(k) plan. Clearly we would all like to have a pension plan, Social Security and other savings when we enter retirement. We would also like to be mortgage free, but that is not the real world in large part of our own doing. In short, millions of Americans are better with the 401(k) than without it.
The fact is that a majority of Americans never had a pension plan even before the idea of a 401(k) was popular; one of the reasons we have IRAs. The remaining bastion of the defined benefit pension is among government workers. At the state level pensions are generous and expensive, and many are in serious trouble with their funding. And for the taxpayers, they are probably unaffordable as well.
The current gripe with the 401(k) is that it is subject to Hamlet’s slings and arrows of outrageous fortune. Ok, we get it the market goes up and the market goes down and sometimes at inopportune times. On the other hand there are steps people approaching retirement can and should take to mitigate that. My own 401(k) plan is worth more today then it was a year ago. I’m not an especially wise investor but I do know enough to put a good chunk of my funds in less volatile investments in the years before retirement and during retirement and I also know enough to keep plowing money in while the market is low. And as for keeping up with inflation yes, you do need to plan for that and that means you have to start out with more money than you think you will need so you have a cushion. But that issue is not unique to those dependent on a 401(k) plan, the vast majority of pension plans (government being the likely exception) do not have cost of living adjustments built in while the cost of living adjustment within Social Security is one of the main drivers of the coming meltdown of that system.
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