Subscribe to this BlogIs the Economy Killing the 401(k)?
For beleaguered investors in 401(k) retirement plans, the news keeps getting worse. Over the past year the typical plan participant has suffered a loss of anywhere from 20% to 35%. Now a growing number of employers are adding to their workers’ woes by cutting their 401(k) matching contributions. A recent survey by Spectrem Group found that 34% of U.S. employers had reduced or eliminated their matches since January 2008, and another 29% intend to do so over the next 12 months.
The Pension Rights Center, which keeps a running tally of companies that have cut their 401(k) matches, reports that more than 100 employers are on the list. Among the recent additions: J.P. Morgan Chase, Rockwell Automation, and—can you say irony?—the leading advocate for retirees, AARP.
From the employer’s standpoint, cutting the 401(k) match is a quick way to slash costs, and it’s a kinder alternative to laying off employees. But the long-term impact of the cuts threatens the retirement security of their workers, which in turn cast doubt on the future of the 401(k) plan. There are signs that 401(k) participants, once famous for their inertia in past economic downturns, have started to give up on their saving. Spectrem’s survey found that 20% of employees have lowered their contribution rates, and another 5% intend to do so over the next 12 months. Those that are continuing to contribute are taking fewer risks. According to the Hewitt Associates 401(k) index, some 80% of contributions are flowing to fixed-income investments, not stocks.
All of which will make it more difficult for plan participants to earn the returns they need to achieve a comfortable retirement—and for the 401(k) plan to deliver on its promise. A study by the Employee Benefits Research Institute found that it will take most older workers (those who have been at their job for 20 years or more) at least three years to recover their 2008 losses. That calculation assumes employees continue to hold stocks, earn returns of at least 5% annually, and continue to contribute to their plans. If the stock market returns zero for the next few years, it will take workers nearly five years to recover their losses.
The flaws of 401(k)s have come under sharp scrutiny in Washington. At a February hearing the Senate Aging Committee examined 401(k) target-date retirement funds, which posted surprisingly large losses, particularly for older workers who were seeking safety. “Despite their popularity, there are absolutely no regulations regarding the composition of target funds,” said committee chairman Sen. Herb Kohl (D.-Wi.). “With more and more Americans relying on 401(k)s and other defined contribution plans as their primary source for retirement savings, we need to make sure their savings are well-protected with strong oversight and regulation.” The House Education and Labor Committee has also held hearings on 401(k) plans—at the most recent one, committee chairman Rep. George Miller (D.-Calif.) labeled 401(k)s plans a “a high-stakes crap shoot.”
As the criticism mounts, some policy experts are seizing the opportunity to push for a new tier of savings plan designed supplement or replace the 401(k), which would provide a steady stream of retirement income. A flurry of proposals have already been issued, including one last month, backed several policy groups and Service Employees Union International. This latest plan calls for a universal retirement program that would mandate contributions from employers and employees, with the government subsidizing lower-income workers.
Will some sort of new retirement plan get any traction? Despite the 401(k)s shortcomings, major changes seem unlikely at the moment. Even President Barack Obama’s proposal for an automatic IRA, which would establish a simplified retirement plan for small business workers, is facing stiff resistance from the GOP and business interest groups. But if the stock market keeps sliding and the recession lingers on—and millions of baby boomers move into retirement without enough money to pay the bills—Washington is bound become more receptive to broader changes. For now, though, the only remedy for your beaten-down 401(k) is to somehow save a lot more.
– Penelope Wang
The $nake oil con-artists who invented and promoted 401K retirement investment vehicles (and other flim flam paper) are from the same criminal, gangster bankster jackals that wanted to put the Social Security Trust [sic] funds into the $tock market casino.
401K? 403b? 529? IRA Roth? Keogh Plan? Viatical? Money Market? Madoff? California $tate bonds? Maybe a pension promise from Enron… or GM and Chrysler?
There's a $ucker born every minute!
Another important factor that causes many people to not contribute to their 401k is that our schools do such a poor job of educating our microwave society children about "the long haul" and comounded interest and the fact that many don't know that the first 5% you put in will not change your take home check because of the tax break on the contribution
I hope the 401(k) doesn't die a socialist death. I don't understand how so many people can sock away a lot of money and not take the time to educate themselves more on financial matters.
Let me see if I have this correct? Some of you are knocking Social Security and extolling the virtues of the private sector 401Ks. Social Security recipients got more than a 5 percent raise, while 401Ks lost more than 50 percent. Do the math. Social Security is the reason why our unemployment rate is only 8.5 percent. If there was no Social Security, the current unemployment rate would be more than 25 percent.
If you buy in your 401k when you feel happy and sell when you feel sad, I think we all know what the outcome will be.
For those patting yourselves on the back for getting out of the market in 2007 – more power to you, but how many people out there are sophisticated enough to know exactly when to jump in and out of the market? I thought the NASDAQ was overvalued in 1998 when it was at 2,500, but if I had owned tech shares then and gotten out, I would have lost out on the market doubling between then and 2002. Or, if I didn't put all my money back in at Dow 6,500, I'd be down 20% right from the start. Market timing is usually a losing proposition, and remember, most mutual funds in 401(k)s prohibit frequent trading. If you're still 35 years from retirement like me, just chill out and let dollar-cost averaging be your friend.
As for the possible nationalization of 401(k)s – I don't want the government anywhere near my money. They've done such a swell job managing Social Security and Medicare – oh yeah, you bet I'm excited at the prospect of Harry Reid managing my retirement money!
the fact that government is meddling in personal retirement plans is a sickening thing. lets just hand over any and all of the elements of our lives, our personal decisions, all control of our life, to our amazing government who is sooooooo great at managing themselves
The problem with my 401k is that the only investment choices are funds. The fund managers were as guilty as any other banker at getting into toxic assets. That's why our 401ks took a hosing.
My personal stock account did not suffer nearly as much, partly because I could make changes more quickly and I can hand-pick individual investments. My 401k will get rolled into an IRA very soon so I can take control of the details.
The government needs to quit tinkering with these investment vehicles and get us a nationwide single-payer health plan. That would do more to help more people save money than any retirement plan. Just help us keep more of our money and let us save or invest it as we choose.
There should be efforts to make more people financially literate, but that won't matter if you are just one accident or illness away from ruin. And that is pretty much everyone.
I'm in my late 40's and moved all my investments before everything really hit the wall so I didn't loose that much. Unfortunately I think retirement is a thing of the past for the majority of my generation. Right now I am considering cashing it all in and working till I die. Just the way it is.
Why doesn't the government take all our income and distribute back to us?
Social security is nothing more than seizing of private money and now they want to take even more?
Another socialist program in the offing that redistributes money to lower incomes.
If this ever gets implemented I'm leaving the USA, had enough of this.
Some of the negative things said in these comments about 401k plans are very unfortunate, and I hope youger people out there will do some of their own research before assuming many of these people have any idea what they are talking about. Aside from the tax benefits of a 401k plan, which are HUGE, it's also a means for many of us that are a little less than responsible with our own savings. Sure, there are some bad company plans out there but the majority offer diversity and you should embrace it. If you have all your money tied up in your company's stock, in a 401k plan, BAD CHOICE! Fact is that if you bet against your 401k plan, you are essentially betting against the future of America. Yah, things are screwed up right now but I have complete confidence that times will get better, just as they always do, in this greatest country on God's green earth. Whatever you do, don't take your money out of your plan because of panic. You WILL regret it.
The people who put their 401k in with Madoff and Nadel will be retiring on … tadaah … Social Security !
The Social Security trust fund is all in Treasuries collecting interest, and it will be solid for 35 to 75 years, depending on the economic growth of the USA. If we lift the salary cap so that the lucky rich pay their fair share, it will last forever.
It's the safest retirement plan, and it'll be there long after Wall Street is gone.
I see a lot of posts about Social Security and how it's failing and a horrible program. I bet you the people that are saying this have little to no idea about Social Security, only what they hear on TV.
Social Security pays more than retirement benefits. It also pays disability benefits, and if you die and have young children and maybe didn't buy enough life insurance for them to live on, they pay your children benefits until they are 18. If you have a stay at home wife or husband, you also pay into Social Security for them and they get benefits when they turn 62, or if you die, they can get it as early as 60 or 50 if they are disabled. If you have a disabled child, that child isn't going to work and get a pension, when you die who is going to take care of him/her? Social Security, thanks to Childhood Disability Benefits. My point is Social Security is a lot more than people know. With no adjustments its good until the 2040s and still with no changes can pay an estimated 75 to 80% of promised benefits. Social Security could be just fine if they followed private Health Insurance and raised rates by double digits almost every year, people with health insurance don't think that system is broke so why is Social Security getting such a bad rap? And for you "conservative folks," Social Securitys cost to manage the benefits is one of the lowest, if not the lowest.
Maybe it doesn't give you the "return" that you want, maybe you could take that money and do soooo much better with it cause your really savvy and smart. When the guy down the street who didn't work for an employer with a pension plan and never earned much and couldn't save much runs out of money and breaks into your house to steal your things so he can have money to eat, how smart of an idea was it not to provide a benefit for every work regardless of if they work at Mcdonalds or Goldman Sachs. Everyone should be able to have their basic needs met in retirement or if they are disabled and that is the point of Social Security, and it does a damn fine job it and will continue to do so.
I am over 60 and remember when 401K's very initiated. The company I worked for at the time had a good pension plan but like most pension plans you had to work there for a period of time to be vested. However the company started putting money into the plan as soon as you started work. So if you left before you were vested the money just sat in the pension plan, enriching it. The laws, at the time, prevented the company from removing funds from the pension plan. So when 401K's were introduced my company jumped on the alternate pension plan, as it enabled them to purchase annuities for the employees that were vested, thus dissolving the pension plan. The money that was in the fund from contributions never vested was of course obsorbed back into the company and used or distributed as they wanted. This may sound insignificate, but it was millions of dollars.
I have no doubt that if my pension plan would have been continued and I had oportunity to contribute to an IRA, as I have, I could have maintained a style of retirement enjoyed by my father.
We can blame the Democrats, Republicans, or Independents all we want, but the blame then and now should be placed on greedy, self centered individuals that society has not only allowed to exist, but has come to accept and envy.
BTW Anything our government sees fit for us should apply to them. When your term ends so does your benefits.
Social Security was never intended to be a pension system. It was a supplement, a safety net.
If the government wants to improve my retirement, for gods sake give me a traditional pension. The stock market is not for the faint of heart, and it is not for anyone who isn't willing to take the time to pay attention to how it works and how to save and invest wisely.
I disliked the 401(k) when it first was introduced. I didn't want to give up my traditional pension, but was forced to. I declined to go for the 401(k) because I didn't understand the stock market. So I stuck with traditional savings.
A later job gave me an IRA. When I left that job, I rolled it over and tried investing in mutual funds. But I still didn't understand what I was doing, and allowed a broker to steer me into horrible funds: big load, poor return. Lost my shirt.
Also learned my lesson. I avoided 401(k) after that, and went back to my own savings.
Taking control of my own investments allowed me to save, retire a boatload of debt, buy a house, and start a new retirement fund that I manage my self after studying how the market works.
My portfolio is in the black.
I realize returns are not guaranteed. I know I can lose money. But if I do lose it, I'm the one in control and to blame. I still have a 403(b) at my job, a Roth IRA, and a traditional state pension.
I'm betting my personal portfolio will have the best returns by the time I retire.
I don't want to take risks with Social Security by being forced to invest that. I don't want a government sponsored 401(k) that I am forced to contribute to. I prefer the current system that at least is supposed to give me some retirement income when I have to stop working.
If only the government could keep its hands out of the till.
401ks fail because there are too many rules. You can only put a certain percent in from your pay; why not your whole check. When a newly married are both working they could get by with one check and save the other.
Also your 401k should not be tied your job. You should be allowed to set it up where you want and tghe money just gets funneled to that company.
I think the concept of a universal retirement fund is one that has already been tried (Social Security). I'm not a big fan of SS, but let's not forget that the biggest reason behind the pending collapse of SS is because the government we want to to run this retirement is the same one that can't keep their hands out of the social security fund, borrowing against it to pay for other programs.
The 401k is simply one vehicle available to people to fund their retirement. Seek counsel on what funds to invest in and what each fund aims to do (asset allocation and investment strategy). This is the time you REALLY want to be buying in, while the funds are undervalued.
I see this article as an ongoing epidemic amongst american people; people not taking charge and responsibility of their own destiny. The same thing happened with people who bought into 5/1 ARM's without realizing their mortgages were going to balloon in 5 years and are blaming the evil mortgage brokers. Do your own research and take charge of your own fate. Don't over extend, seek multiple opinions and make a decision only when you are comfortable.
401k ALWAYS WAS A SHAM
401k was set up to "take the pressure off of businesses" and allow them to stop offering pensions. It was billed as the "new" pension source.
Most Americans don't make close to enough of a contribution to them to even consider it as a retirement source. This is epecially true of baby boomers. The so-called "matched" contributions (which are now being abolished) were always a joke, anyway.
The receont economic collapse has cancelled millions of retirement plans.
The question is will the stock market ever improve enough to allow those who lost 40-55% of their 401k value to replace it? In their lifetime? Even if they stayed in the market?
The odds are against it as we stand now. The best that anyone can hope for is to allow your money to build tax free in a Roth IRA. Forget corporation pensions. Forget "matching" funds.
What you need to do is save as much as you can in low risk funds, with 50% bonds. This means: NO credit card debt. NO purchase of new cars, unless you can pay cash for them…No expensive vacations. No more lattes and foolish consumer spending.
Only YOU can save for your retirement. This means that the American pattern of spending is out….for good.
Folks, it's up to you. It always has been. The days of a free ride (except for corporation execs) is over. Perhaps it never really was…
sanjosemike
To those who wrote that 401k's were not a vehicle to plan your retirement around, I have this to say.
Most companies do NOT provide a pension plan! As far as putting money in savings accounts and CDs, have you looked at the interest rates on these types of accounts??? You might as well tuck your few bucks in your mattress, the banks have been paying in the 1% range of interest.
If you cash out now you lock in the losses. Not smart. The stock market has over 90 years of history with ups and downs. All this "I lost 30% 67% is just paper funny money. If you didnt cash out you still own the shares. They are just worth less. If you dont need the money today hang onto your shares and wait until they are again worth something. Sell it today and you get today's prices. Sell 5 years from now and make money. Fear is not wise investment advice.
"Will some sort of new retirement plan get any traction?"
I am certain that the Gov't will float some ideas about changing the 401K system; maybe in the mainstream news. Then they will aggregate comment board results to gauge how cheesed the peasants are.
Answer – Of course they will try to change the 401K system; A ready source of new blood for the Treasury & Fed. They don’t even pretend to have restraint anymore.
Wow, there are a lot of great comments on this blog! I am amazed, though, at some of the people who post total crap. I really hope you don't actually believe what you post here. You'll just end up another drain on society.
By the by, boomers cashing out of the market will do absolutely nothing to harm the market. Why? The wealthy people in this country own a huge percentage of the amount of stocks that are owned by Americans. Their stocks will be passed on to heirs, not sold.
The best retirement income vehicle is still the guaranteed pension.
Government jobs still offer those generous benefits. For most working people the best path to a secure retirement.
Companies continue to cut compensation. The reduction in the 401K contributions is just another step.
Better than nothing, but 401K's really don't work as a retirement income vehicle….
What a great bunch of elected officials that we have! A universal retirement program mandating employer and employee contributions? Is this not our already established (and failing) social security program? I guess it is working so well now, maybe we should set up another program just like it. Look, this will be the greatest buying opportunity that any of us will see in our lifetimes, so you better take advantage of it. I am 29 years old, and I'm betting that when I'm 60 I will have a lot more money in the bank if I have market exposure than I will if I take that cash and bury it in my back yard. I can't say that returns will be great in the future, but not saving is not an option. I look at things this way: The only person who is going to look out for me, is me. I think it's time we start taking some responsibility for ourselves. We are all investing in the same marketplace, and if that marketplace doesn't earn great returns, we all didn't see great returns. We will, however, maintain our status in our american society. The only way to slip down the ladder is to not save as much as your neighbor who has the same type of income. I, like Mike from Miami, worry about where tax rates are headed, but I am trying to take some action to help that. I am pushing my employer to offer the Roth option in our 401(k) plan so that I don't have to worry as much about where tax rates are headed. I also try to diversify my investments between different pools of money that are taxed differently so that I will have options to maximize my net income when I get to retirement and take withdrawals. I think we need to quit whining about what is going on, and how much money we have lost. The point is that we are here now, and it is the future that is important. Let's take action and fix our ailing systems, and take action to be accountable for our own future financial well-being. Save instead of spending more than you make, and these downturns won't hurt nearly as bad.
I've got 30+ years to contribute to my Roth 401(k). I LOVE my TAX-FREE! Growth and Earnings. I'm saving 20% of my income and am taking full advantage of this down market. They better not take away my 401(k).
Why dream up another method of short-changing American labor in retirement? Stagnating American wages, increasing unemployment and inflation make any suggestion for increased savings for most workers appear ridiculous.
How about a real retirement safety net via increased Social Security benefits? Why are American retirees entitled to only 40% replacement income when most of the developed world offers 60 to 75% plus free healthcare? Increased taxes and reduced benefits for the wealthiest and preventing the Fed gov't from looting SSA funds can make this happen. Yes we can!
Mike from Miami -
Couldn't you find any more tired and inaccurate investment cliches for your rant?
Here's one you missed – Boomers don't, and never have saved, so the impact their departure will have on the market is wildly overrated. Here's another you didn't miss – The banks and their "bought" politicians…Since when did bankers lobby for a Democrat?
Just saying.
Don't take this advice. This is the person that will be living off of a bankrupt Social Security system. Get out of debt, and put 15% of your income in as fast as you can.
"Only invest the minimum into a 401K to get the maximum match, everything above that is a waste of money.
Why?
1. In the future tax rates are likely to be (much) higher because somebody has to pay for the debt that our bankers and their bought politicians are running up.
2. Our government is likely to confiscate all or part of your 401K via taxes or surcharges to help those that didn’t save for retirement.
3. The stock market is bound to show anemic growth or outright decline over decades to come.
4. Once boomers start cashing out their 401Ks more money is leaving the stock market than entering it. What do you think this will do for stock prices?
If you have the chance get your money out now, before it is too late."
Why is no one talking about how much money the fund managers made during the whole 401-K experiment? And, I believe that is what it is, an experiment. Sure, we, the contributors, made some money during the good years, but a lot of that money has been wiped out. Our gains were nothing compared to the salaries of these fund managers. We created a rather large class of super-rich with our contributions. And now, some companies have stopped contributing to their employees' plans altogether. Are we really better off now, or should we re-think the whole defined pension plan? Of course the companies and financial institutions are telling us no, the 401-K is the solution, but remember they have the most to lose.
These stories always focus on the doom and gloom and use scare tactics to drum up readership. I agree whole-heartedly with the comments below. While it's a terrible time for those planning on retiring in the coming months, they should have taken their money out of higher risk areas. For the rest of us, especially those in our 20's and 30's this seems to me to be the perfect opportunity to get into the markets. As soon as the market began to nose-dive I increased my contributions, why not? You are buying more shares for the dollar. A common thread amongst successful investors is finding the opportunity to increase wealth during down periods, when the majority only sees their fear and the obvious negative.
Another laughable topic -> not investing because the government will either over-tax or take 401k completely. Are you kidding me?
I've heard all about this 401(k) alternative. The liberals are using panic and fear and cease our 401(k) balances & IRA's, in exchange for a pitifully small "secure" return of 3%. It is facism. Cradle to grave gov't control.
You say that baby boomers cashing out their 401k's will hurt the market. Being the devil's advocate, won't all that money taken out be spent by all "us" who are in that group? A group as large as the boomers could be just the thing the market will need to boost it back.
If we buy, industry must produce, thus the road to recovery by these baby boomers you are saying will "cause the market to drop with their withdrawals."
Yes, the economy is killing the 401k, and it needs to be killed.
The 401k is a strange hodge-podge of funds and rules. In addition, there's the problem that the employers are 'managing' the funds. This is not where you want your retirement funds; ask anyone who worked at Enron or a host of other companies.
A better solution to retirement is:
– Beef up Social Security by removing the salary cap
– Beef up Medicare by allowing anyone who is hit by a layoff to join Part A (and maybe Part B) at any age and stay in as long as they want
– Beef up the IRA by increasing the annual contribution limits to about $10k
– Encourage IRA savers to put lots of savings into safe investments like CDs, GNMAs, TIPS, and Treasuries and not more than 50% in stocks (too risky)
People can still gamble in the stock market, but they shouldn't do it with their retirement money or any money that they need to live on before retirement. It should be for 'extra' money only.
These three steps will significantly strengthen our retirement system by decoupling it from employers: portable retirement and health care.
25 to 35%? I lost more like 60%. I was always told to stay long term! So I did and got screwed. Now, I am down to the same level I was 20 years ago. I guess I'll just have to have the government take care of me after I can't work anymore.
People should increase their 401k contributions now while stocks are on sale and enjoy their income tax reduction. There will be no income tax in the future. The U.S. can't raise the income tax rates high enough to pay for all the debt without sending the economy into another recession. Therefore, a national sales tax will be implemented. Reduce your income tax now while there still is an income tax.
Only invest the minimum into a 401K to get the maximum match, everything above that is a waste of money.
Why?
1. In the future tax rates are likely to be (much) higher because somebody has to pay for the debt that our bankers and their bought politicians are running up.
2. Our government is likely to confiscate all or part of your 401K via taxes or surcharges to help those that didn't save for retirement.
3. The stock market is bound to show anemic growth or outright decline over decades to come.
4. Once boomers start cashing out their 401Ks more money is leaving the stock market than entering it. What do you think this will do for stock prices?
If you have the chance get your money out now, before it is too late.
Why isn't anyone talking about how a recessed stack market benefits younger employees investing in 401Ks with a long term strategy. If someone told me that I could buy stocks today at a 2 for the price of 1 basis, how isn't that a positive thing for younger people? I have been investing in my 401K plan since 2005 and am more than happy to dollar cost average into this recessed market that is sure to recover long before my retirement.
I think this fear of the 401k is just that, fear. Stopping contributing now is actually the worst thing you can do. Prices are low. I'm not saying there isn't risk involved in the 401k, but the fundamentals of the investment are still sound. Fear drives us to do the exact opposite of what you should be doing in this situation. Keep in mind im speaking on behalf of those that have 20, 30 years plus to go before retirement. There has never been a 10 year period where stocks weren't one of the best investments you could ahve made. Yes, things can change, but the statistics are in our favor. Bump of your contribution percentages if you can.
I did not loose money in 401K because somehow before the fall of stocks all my money was in money market and now I moved all into stocks and day by day I am gaining as stocks grow back. I am trying to put as much as possible into it.
I still for the life of me cannot understand why there is a vesting feature on matches to 401k coontributions. In this age where younger employees change jobs or are forced to change jobs, vesting takes nullifies any contribution one may get anyway.
Liberals will at least try to get their hands on 401k and maybe even IRA money. They will develop some sort of social security program with it and we will be taxed even more. What's to stop them from going after anything you own! They just want more control and power over our lives.
I doubled my 401k investment with stocks so cheap. Even with company not matching your 401k, it's money taken out pre-tax, which saves you some dollars when you file for the year. Wall street is cyclical, 10 year averages, it'll just go up again in time. We are a resilliant country and economy, have faith. We've been in bad situations before economically and we'll get by again. Just remember that diversification is key with your investments. I am not rich, I paid my way through college after serving honorably in the military as enlisted, and I know I will be fine in the long run. I still have 30 more years of work ahead of me and I am not concerned. USA.. love it or leave it. No one's forcing you to stay!
I can manage may own money, thank you! I'd rather not have the government mandate what I contribute to my retirement savings. In fact, I wish I could take back my Social Security contributions going forward. I know I can earn a better return than the government. I'm not a huge wage-earner (mid 5-digits), but I'm putting enough away so I don't have to count on Social Security being there when I retire.
Isn't what they are proposing Social Security?
Shut up and leave my money alone. Just because people don't want to study or have the guts to stick to the plan how is that my fault? If they did they would know that even though they are getting close to retirement that they may have to work for 5 more years is just part of life. Life isn't always fair and things don't always work exactly the way we want them.
A 401(k) is just a plan, but over half of the people contributing are not contributing enough to win. There are inherit risks involved with making money, and there is nothing law makers can do to decrease that risk or increase the money in people's savings without stealing from someone else.
We have to study how to diversify, get out of debt, save like crazy and let the market work for us. Here's an idea, get with the financial services companies to provide training for individuals so they know how to handle money rather than make laws. If the law makers want to fix something fix social security for those that want to be on welfare.
I don't believe there is anything wrong with the 401(k). The problem is people don't monitor their investments in order to set themselves up for retirement. I could care less that my 401(k)is 40% down. I haven't lost anything, because I don't need the money now. If you're 5 years from retirement and didn't change your investments within your 401(k) since you were in your 30's, it is your fault you don't have the cash to retire, not your 401(k)'s.
Well duh? Of course the 401K's are down. If you do not plan to die in the next 10-30 years this is a buying opportunity of a lifetime. Companies are doing everything they can do to avoid as many layoffs as possible including cutting 401K match. Just remember anyone born in this country has won the birth lottery. The only thing to fear is fear itself.
The 401K was designed as a supplement to a pension, social security, adding a layer of inflation proofing and possible better life during retirement. IT WAS NEVER INTENDED TO REPLACE PENSIONS AND SOCIAL SECURITY EVER. Over the past 25 years or so the implied benefits by the "Financial Advisors" "you cannot count on SS or Pensions and therefore the 401K is your salvation.
Things to know:
You will be taxed on your withdrawals both state and federal
You will pay capital gains both short and long on any distribution.
The fees are an ongoing problem,
As most can now attest, the pain of a downward trend in portfolio price at the wrong time can be catastrophic. The diversification concept is a sham at best, again as seen today, professional diversified portfolio managers are taking a beating, imagine us little people?
As designed the 401K is a good thing and does as intended. If however, you are believing the "Financial Advisors" point of view, get ready for a very large disappointment.
The 401K needs to go away if the trend continues to move away from pensions and social security as the rock for retirement. A possible solution might be a social security supplement maybe an annuity worker funded plan?
The bottom-line, the 401K is not the problem, the shift from properly funded pensions and social security to 401k the savior is the problem. Yes, it needs fixing or scraped.
401Ks are great vehicles. But the main problem with 401ks is the lack of investment options. If you were smart enough to see this mess coming and moved your 401k investments into the money market option back in 2007, you broke even. Few 401k vehicles give you the option to profit in down markets. The idea of 401k is fine and you should contribute regardless of company match. But make sure you push your HR group to make good investment options available so that you can profit in all markets. Once the choices are there, its up to you to use the correct strategy.
This is all a moot point when you live paycheck to paycheck. When your employer is giving themselves millions of dollars and the lowly workers $30k/yr, how the heck are we supposed to "save more"? Get a clue people, corporate and executive greed is what is killing our financial system and it trickles down through the middle class. We get paid less and less each year while the bigwigs negotiate multimillion dollar compensation packages. So when your CEO gives themselves a million dollar raise, they have to lay off 50 people making $20k. That's not good for the future of the economy but the "experts" will never talk about that.
The ultra liberals have been talking about this for some time now. They want to abolish 401k's and private pension plans so they can get their hands on that money. Do you really think they are concerned about you? Why do you think Social Security is going bankrupt. The reason is not because Social Security doesn't have enough money it's because the politicians steal the money from Social Security to pay for other things. They have done such a great job with Social Security why WOULDN'T we give them more money to manage.
Without a Company match 401K investing a bad choice. With Federal deficits growing at alarming rates, taxes will be higher in the future not less as was thought. No moving down the tax scale in the future. Most 401K investment selections bad at protecting against future inflation to boot.
Every article that talks about 401K losses ultimately makes the statement that people should save more. In order for those able to save more the governmnet should allow individuals whose companies have cut matching 401K to save the difference if they can.
It worked during the bull market of the 80s and 90s, but we are now heading toward a long down-cycle… Wall Street's 401(k) baby is dead.
Without company matches, you stand to lose even more in the current bear market.
I stopped contributing and shifted my balance to money markets about a year ago and did not lose a dime in the crash.
Retirement advice anyone ?: if you are a homeowner, just use the money you would contribute to a 401(k) to pay off your mortgage before you retire. Lower expenses is money in the bank.
If you are not a homeowner, save the money you would contribute to a 401(k) for a down payment on a house and buy in 3-5 years. Houses will be even cheaper and you'll do fine as long as you don't flip-it, swap-it, or leverage-it… just live in it.
How much of this can be attributed to jobs lost, wages cut and increased cost of living vs. Fear of losses? I know for us, we can no longer afford to contribute. But, when wages hopefully return, I think I'll chose to limit my contributions significantly. Choosing instead to invest in CD's with crappy returns. Better that than to trust my money to criminals, and a stock market that has earned me a negative return for the 13 years that I've contributed to it.
> some policy experts are seizing the opportunity to push for a new tier of savings plan designed supplement or replace the 401(k), which would provide a steady stream of retirement income.
- We have already such a plan, and it is called Social Security. It is good for providing the bare necessities. Like every plan, however, that guarantees a stream of money from the younger to the older generation it faces demographic challenges. Another tier of saving plan would only be a ripp-off of the younger generation by the voting majority.
The problem isn't the 401k, but that people are relying solely on the 401K to save. Diversification is still the key word here. Whole life ins policies still have a guaranteed return. Also, CDs and savings accounts in banks still provide positive returns. People got sold on the idea that the 401k was the only way to go and now everyone will be paying for it.
What we really need is a way we can save a pitifully small percentage of our income, invest it without showing any competence on our part, and get returns big enough to sustain our lavish, low savings rate funded lifestyle, with absolutely no significant risk. I am sure the government will get right on this.
One quick suggestion is to shift the burden to future generations. They can always come up with something better, right?
The reduction in contributions is, in part at least, due to the 'safe harbor' limitation. This is regulation which comes into effect once the employer match is eliminated. When this happens the maximum contributions of HCEs (highly compensated employees) is limited to that of the other employees. This bizarre regulation reduces contributions at the very time that they should be increasing them i.e. when the underlying investments have better then usual value..
"This latest plan calls for a universal retirement program that would mandate contributions from employers and employees". Isn't that exactly what Social Security is supposed to be? Maybe we should consider getting that on firm financial footing first?
I moved my 401k into Money Market when the Dow was at 7350 about a month and a half ago…should I go ahead and move back into the stock market mutual funds or wait (anticipating that the market will dip below 7350) and then jump back in?