I can’t retire. My 401(k) plan, which was supposed to take care of my retirement, is in tatters.....
The bull market ended with the bursting of that bubble in 2000. My tech-laden portfolio was cut in half. A half-dozen years later, I got divorced, cutting my 401(k) in half again. A few years after that, I bought a house that needed some costly renovations. Since my retirement account was now hopelessly inadequate for actual retirement, I reasoned that I might as well get some use out of the money while I could. So I threw another chunk of my 401(k) at the renovation. That’s where I stand today.
According to the Employee Benefit Research Institute, for instance, only 22 percent of workers 55 or older have more than $250,000 put away for retirement. Stunningly, 60 percent of workers in that same age bracket have less than $100,000 in a retirement account. [Behavorial economist Theresa] Ghilarducci told me that the average savings for someone near retirement in America right now is $100,000. Even buttressed by Social Security, that’s not going to last very long.A 401(k) forces you to manage it yourself, or to pay someone to manage it for you. You’re locked into a menu of mutual funds with significantly larger management costs than the pension funds pay--you’re paying retail while the pension fund manager pays wholesale. The amount you can pull out per month is uncertain at retirement, and the value of your holdings will fluctuate throughout your retirement. Worse, you have a nearly unlimited opportunity to do something stupid and screw the pooch:
“People tend to be overconfident about their own abilities,” said Ghilarducci. “They tend to focus on the short term rather than thinking about long-term consequences. And they tend to think that whatever the current trend is will always be the trend. That is why people buy high and sell low.” Financial advisers — at least the good ones — are forever telling their clients to be disciplined, to create a diversified portfolio and to avoid trying to time the market. Sound as that advice is, it’s just not how most humans behave.So why would companies replace a pretty good pension system with a 401(k) system that sucks? One reason is they stopped caring about employee retention. Pensions are great mechanisms for keeping people on board--you’ve gotta stay for a period of years before you’re fully vested in the plan, and the pension grows as your term of service and salary grows. There was a time when it was the goal of management to retain workers, to hold onto their institutional memory, and reward them at retirement. But that time has passed.