The 401(k) Myth: bonanza may well turn out to be a bust for most workers.

From Truth Dig:


http://www.truthdig.com/report/item/20071212_the_401k_myth/
Posted on Dec 12, 2007

By Marie Cocco

WASHINGTON—The great 401(k) bonanza may well turn out to be a bust for most workers. This is not news to millions who know their account balances, or to low-income workers whose employers rarely offer them the chance to open an account.

In the 1980s and, especially, the go-go 1990s, the 401(k) was the wondrous new invention that was supposed to make assembly-line workers capable of becoming rich, in retirement, through their own industriousness and, lest we forget, the magic of the stock market. The myth began to fade amid Wall Street’s uncertainty during the past decade. It should be buried—deeply—with the latest Government Accountability Office report on the savings plans that have become the primary form of pensions available to that half of the private work force that has any pension at all.

Projecting retirement savings based on those currently participating in 401(k)-style plans, the GAO found that the youngest workers—those who’ve been told from the start that their jobs would provide no traditional, fixed-benefit pensions of the sort that their grandparents or parents might rely on—face the prospect of paltry incomes in old age. More than a third of those born in 1990 could be predicted to have no savings at all in retirement, the GAO found. Among the lowest-income workers, 63 percent would have no savings in their plans when they retire.

What about more diligent savers? Overall, the GAO found that as a group these retirees would have an average income of about $18,784 a year, or just over $1,500 a month. Among the highest-income workers, a fund balance that is used exclusively for monthly income—not for extravagant extras—would be $50,098 a year.

“Some will have very little, some will have almost nothing, and some will have nothing when they retire,” says Rep. Robert Andrews, D-N.J., who chairs the House subcommittee on health, employment, labor and pensions.

...

No social security, our 401K's virtually worthless, we boomers are totally screwed.

I doubt it. What better way to save than a 401k? If you borrow against it or cash it out then you don't have anyone else to blame but yourself.

I went with mostly international funds, and it's slowly making gains but still worth much less than I put in. That's from 2000 to now.

and as always, when it's cruch time and the money needs to be paid out,, there's always a "OH MY GOD who could have foreseen this coming?.. how could we have known that 401-ks would not equal or surpass what workers used to have".. we only have PHDs in economics, from some of the best universities on earth and years of financial experience.. how could we have possibly known this would happen??".. gee we're real sorry.. call the welfare office..

I find that surprising.

My company took the dive some 3 years ago.

The first year, I was among the highest contributors in our office. After having a steady checking account balance for several years, it dwindled and I was living paycheck-to-paycheck, while every spare dime went to the 401k.

My employer contributed nada that year. A few months into the following spring, I grew frustrated at the lack of variety in the funds offered, and the lack of well-performing funds, so I did some research and found several other IRA businesses online that offered all that variety I wanted AND gazillians of tools for research - for free - that the people we were paying offered none of.

Suddenly they looked like someone who didn't really know what they were doing, and I went to our comptroller and told him I wanted take the tax hit and pull my money out. He told me that I was better to leave my money there, and not contribute any more because ya never know - our owner might contribute and that's FREE MONEY. Because he's the guy with the MBA in accounting, I listened to him, and simply reduced my contribution to $100 per month.

Six months later, news of their bankruptcy hit the papers. The lawsuits started flying shortly thereafter.

Lessons learned:

#1 If your gut sends you a strong warning, listen to it and walk, no matter what the experts say.
#2 If you're going to get into a work-sponsored IRA, don't invest heavily if they don't offer you a HUGE variety of funds to choose from.

The U.S. Government Accountability Office (GAO) is known as "the investigative arm of Congress" and "the congressional watchdog." GAO supports the Congress in meeting its constitutional responsibilities and helps improve the performance and ensure the accountability of the federal government for the benefit of the American people. GAO's work includes oversight of federal programs; insight into ways to make government more efficient, effective, ethical and equitable; and foresight of long-term trends and challenges.

http://www.gao.gov/