Interesting cover article in TIME magazine this week titled, “Why it’s time to retire the 401(k).”
Article author Stephen Gandel says “the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves.” He goes on to argue the accounts prove most dangerous to those closest to retirement, due to 401(k) growth being driven primarily by contributions in early years, but becoming more market-exposed and sensitive to market drops the longer you hold it.
There are plenty of frightening statistics – the average 401(k) has a balance of just $45,519; 46% of all 401(k) accounts have less than $10,000; the median investor in 401(k)s and similar accounts lost 29.2% in 2008 and the five-year return was -0.5%; 44% of all Americans are in danger of going broke in their postwork years; just to name a few.
The article talks about how most people would be better off if traditional pension plans had not been abandoned in favor of 401(k) plans. It mentions that in 1983, more than 60% or workers were covered by traditional pensions. By 2007 that dropped to 17%. In that same time, 401(k)s have grown from less than 15% of workers having the plans to 63% utilizing them by 2007.