Why Your 401k May Not Be Enough for the Retirement You Dream About?
Teresa (Tess) Schoendorf
Helping Professionals & Teams Reduce Stress, Build Confidence and Communicate with Impact
My job is to inform. You may not like what you read next: The 401k was originally designed to help high paying executives mitigate taxes. NOT to replace pension plans.
From www.cnbc.com in 2017:
Even the “father of the 401(k),” Ted Benna, tells The Journal with some regret that he “helped open the door for Wall Street to make even more money than they were already making.”
Other experts agree: On its blog, the Economic Policy Institute recently declared 401(k)s “a poor substitute” for the defined benefit pension plans many workers primarily relied on, which provide a fixed payout for employees at retirement, and which have now become increasingly rare. Nowadays, “just 13% of all private-sector workers have a traditional pension, compared with 38% in 1979,” reports The Journal.
That’s despite the fact that 401(k)s are far less safe: “Unlike defined-benefit pensions, which provide set payouts for life, 401(k) accounts rise and fall with financial markets.”
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Today: 401(k) plans hold more than $4.8 trillion in assets. And pensions, in the private sector, are increasingly rare.
“The great lie is that the 401(k) was capable of replacing the old system of pensions,” former American Society of Pension Actuaries head Gerald Facciani tells The Journal. “It was oversold.”
Still, while some early proponents of the 401(k) plan are having second thoughts, there’s no denying that “401(k)s have experienced tremendous growth, and workers are putting more money in today than ever before,” according to Sarah Holden, senior director of retirement and investor research at ICI, who spoke to The Journal. ”[These plans] established themselves as a successful component of America’s retirement savings system.”
Watch this video composite to get more of the story about your 401k.