Why 401(k) plans will fall short for most Americans

[xchrom]

http://blogs.reuters.com/reuters-money/2011/08/26/why-401k-plans-will-fall-short-for-most-americans/

It’s time to end the fraudulent notion that 401(k)-type plans are adequate retirement vehicles for most Americans.

They fall short in so many ways, but mostly because they’re too expensive, are exposed to excessive unhedged market risk, poor allocation and contain no income guarantees. There is a better way: Congress can fix the problem while boosting private investment.

With the latest market rout, it’s hardly surprising that most Americans say they are “not where they need to be” on retirement saving. Most are behind after two recessions, two market crashes and yet another downturn.

While most 401(k) balances rose over the past two years, more employees than ever before have taken out loans against their major source of retirement funds. The ever-worsening economy has forced Americans to treat their 401(k) balances like piggy banks.






***we were bombarded w/ advice that this was a good place for our money:mad:

[marmar]

1. K&R.....Thom Hartmann was talking about this yesterday.

The most successful snake oil sale in history.

[HockeyMom]

2. How many people lose their jobs,

can't find another for long time, and use their 401K's to live on? No choice.

[Demeter]

3. You can't get anything real for a 401K

even gold has to be held by someone else, who may be a crook.

It's just paper promises, without a contract. Social Security is safer.

[DemReadingDU]

4. Now that I am older and wiser

I never would have started participating in the 401k or IRA program. I would have put whatever I could have saved, into a regular savings account at the credit union.

[pansypoo53219]

5. 401k's are a rip off. the washington monthly

had an article years ago on it. aldo warned about dirivatives many years befoe they imploded.

[FourScore]

6. My husband's 401k has trippled in value

But I want to investigate this further.

:shrug:

[BlueMTexpat]

Defined benefit pension plans were early targets of GOPers.

Excuses were that vesting requirements were too onerous and that employees changed employers more often than in the past, both true but there were other ways to handle those issues - none of which pleased employers. So first, there was the change to defined contribution plans, later to 401ks, each serving the interest of the employer rather than that of the employee. During the M & A craze of the 80s, corporate buyers often borrowed from fully funded pension plans of the companies taken over so that employees ultimately got the shaft when pension plans were bankrupted. Also in the 80s, IRAs were begun as extra retirement savings possibilities, into which 401ks could be rolled over at retirement. They were great so long as people were able to leave their money in them, the market was doing well and the IRA fund managers had scruples. In too many cases, these prerequisites were not present - as we have all seen to our detriment.

It's been a long and steady progression into financial chaos for too many which is why SS MUST not be raided or privatized. It really is the last bastion standing.

[bemildred]

8. Yep, it's those "entitlements" they don't like. nt

[BlueMTexpat]

7. Deleted as dupe

[unblock]

9. in many plans, fees take most of the tax advantage

often they'll tell you about the mutual fund fees, but neglect to tell you about the 401(k) administrator's fees, which can be steep on a percentage basis, especially for small company plans.

remember that the tax advantage of earning inside a retirement plan vs. outside a retirement plan is only a few percent, so if an administrator takes 1% per year (some take even more!) that's a huge portion of the advantage of a 401(k).

combine this with limited investment choices and many people would be better off investing on their own, whether in an ira or even not.

[JDPriestly]

10. This is essential information as we consider the future of Social Security

and Medicare!

And it is so, so, so, so true.