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Robert Trigaux

After market drubbing, 401(k) reconsidered



Wake up and good morning. Now that the stock market has knocked the stuffing out of the retirement savings of a generation or two, influential folks are starting to rethink the idea of the 401(k) and other savings tools for the golden years.

Aliciamunnellcenterforretirmentre_2 Consider today's Wall Street Journal story headlined "Big Slide in 401(k)s Spurs Calls for Change" (subscription required). "The most obvious pitfall is that 401(k) plans shift all retirement-planning risks -- not saving enough, making poor investment choices, outliving savings -- to untrained individuals, who often don't have the time, inclination or know-how to manage them. But even when workers make good choices, a market meltdown near the end of their working careers can still blow their savings to smithereens."

That's the crux, and the experts now agree we have a big problem. As Alicia Munnell, director of Boston College's Center for Retirement Research (see photo), told the Journal:

"That seems like such a fundamental flaw. It's so crazy to have a system where people can lose half their assets right before they retire."

Nestegg401kwsjebri Gee, you think? At least the topic of how to preserve and protect retirement savings is now up for debate. The Center for Retirement Research has some interesting ideas here on ways to reduce retirement funding risks. Imagine what would have happened if President Bush's 2005 mandate to privatize portions of the Social Security system had also become law in time for the market meltdown. Consider the bar chart based on Employee Benefit Research Institute data that shows we've lost a good $1-trillion in 401(k) and other defined benefit assets, courtesy of the market drop, since the market peak of October 2007. Mind-boggling numbers that the force the government to figure out ways to rebuild quickly.

While the politicians ponder this, I've written a column of 26 practical steps that can be taken now by folks trying to recoup their retirement savings or, at least, put then in better order for future gains. Every little bit helps. Here are my three favorites:

First: Never maxed out your 401(k) contributions at work? Take advantage of the catchup provision, worth up to $5,500 extra this year. Second: Don't be conservative in investing in stocks for your retirement if you are young. You've got decades to bounce back if the market sinks again. Third: Make sure you fund your 401(k) enough to maximize your company's matching plan — assuming your employer still does matching.

Employee matching is no longer a given. Consider Sears, which just said it will suspend the company match to its 401(k) plan on Jan. 31. The Chicago Sun-Times published Sears' memo to its employees here.)

(Alice Munnell photo courtesy of Boston College.)

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 11:23am]


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