Beyond 401 (k) Plans
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Copyright 2009 U.S. News & World ReportAll Rights Reserved U.S. News & World Report
Sunday 1 March 2009
SECTION: BUSINESS & MONEY; News You Can Use; retirement Pg 70 Vol. 146 No. 2
LENGTH: 553 words
TITLE: Going beyond 401 (k) Plans
Signature: Emily Brandon
HIGHLIGHT:
A bear market has battered the popular savings vehicle. Perhaps it is time for a new system
Ouch. The Americans have lost over $ 1 trillion in their 401 (k) 's in 2008. The evidence, said Teresa Ghilarducci, a New School for Social Research economist, that America needs to radically alter the way in which workers save. It proposes to eliminate tax breaks for 401 (k) 's and replace them with guaranteed retirement accounts. Under Ghilarducci's plan, described in his book When I'm Sixty-Four: The Plot Against Pensions and the Plan to save, all workers who have no traditional pension would be required to contribute 2.5 percent of their income to a government account with an employer, 2.5 per cent match. A 3 percent return over inflation would be guaranteed by the government. U.S. News Ghilarducci asked about his controversial retirement plan. Excerpts:
What is the problem with the 401 (k) retirement system?
The biggest problem with the 401 (k) is the pension scheme for people who need it most do not receive the benefit of the subsidy. Those who receive the highest subsidies are in the tax bracket higher. The biggest problem with the 401 (k) 's in general is that contributions in 401 (k) are voluntary on the part of the employee. Sometimes, the employee receives the support of the employer match, but is not guaranteed. Because the employee puts money in it, the employees think it is a savings account for testing and retirement. Because of the ability to make money before you retire, it is not enough when you retire. The employee must also make investment decisions. Most workers are not well suited to make these decisions. And they can not spread the risk over time. Basically, a fund, it can save much more in life expectancy, but the worker has only one time to plan. There is also market risk, and there is very little they can do to guard against this risk.
If 401 (k) 's are there to serve the investors so badly, why people like them?
What they are wrong to say that the stock market performed better than the government. But your 401 (k) is not in the stock market. Your 401 (k) is in mutual funds, and you have to pay a fee for this. Because tuition and because of the errors people make in managing their own money, the average yields were about 3 percent, without adjustment for inflation. They also see high-profile plans being terminated. When there is no other better options available, it's the best they have.
Is a 3 percent interest rate over inflation enough to get people to retire?
Hardly. This is the minimum that the government can secure itself and not run the risk of being unable to pay. If you save 5 percent of your income, just to get the middle-income workers to 70 percent of their preretirement income in retirement. Without this additional guarantee, they are about 40 percent of Social Security.
What should investors who have exhausted retirement 401 (k) 's now, under the current system?
My best advice is to keep your savings in 401 (k) account, but to consider very carefully whether you invest. Investing in low cost index funds. If you can not tolerate the stock market goes up and down, then you should probably buy the bond index. In my 401 (k), I have a balance between stocks and bonds, and I am the lowest possible costs. I am not trying to time the market. We should not sell their assets low.
GRAPHIC: Photo, Teresa Ghilarducci, CHARLIE ARCHAMBAULT FOR USN & WR
LOAD-DATE: February 19, 2009
Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc.. All rights reserved
Terms and Conditions Privacy Policy
Sunday 1 March 2009
SECTION: BUSINESS & MONEY; News You Can Use; retirement Pg 70 Vol. 146 No. 2
LENGTH: 553 words
TITLE: Going beyond 401 (k) Plans
Signature: Emily Brandon
HIGHLIGHT:
A bear market has battered the popular savings vehicle. Perhaps it is time for a new system
Ouch. The Americans have lost over $ 1 trillion in their 401 (k) 's in 2008. The evidence, said Teresa Ghilarducci, a New School for Social Research economist, that America needs to radically alter the way in which workers save. It proposes to eliminate tax breaks for 401 (k) 's and replace them with guaranteed retirement accounts. Under Ghilarducci's plan, described in his book When I'm Sixty-Four: The Plot Against Pensions and the Plan to save, all workers who have no traditional pension would be required to contribute 2.5 percent of their income to a government account with an employer, 2.5 per cent match. A 3 percent return over inflation would be guaranteed by the government. U.S. News Ghilarducci asked about his controversial retirement plan. Excerpts:
What is the problem with the 401 (k) retirement system?
The biggest problem with the 401 (k) is the pension scheme for people who need it most do not receive the benefit of the subsidy. Those who receive the highest subsidies are in the tax bracket higher. The biggest problem with the 401 (k) 's in general is that contributions in 401 (k) are voluntary on the part of the employee. Sometimes, the employee receives the support of the employer match, but is not guaranteed. Because the employee puts money in it, the employees think it is a savings account for testing and retirement. Because of the ability to make money before you retire, it is not enough when you retire. The employee must also make investment decisions. Most workers are not well suited to make these decisions. And they can not spread the risk over time. Basically, a fund, it can save much more in life expectancy, but the worker has only one time to plan. There is also market risk, and there is very little they can do to guard against this risk.
If 401 (k) 's are there to serve the investors so badly, why people like them?
What they are wrong to say that the stock market performed better than the government. But your 401 (k) is not in the stock market. Your 401 (k) is in mutual funds, and you have to pay a fee for this. Because tuition and because of the errors people make in managing their own money, the average yields were about 3 percent, without adjustment for inflation. They also see high-profile plans being terminated. When there is no other better options available, it's the best they have.
Is a 3 percent interest rate over inflation enough to get people to retire?
Hardly. This is the minimum that the government can secure itself and not run the risk of being unable to pay. If you save 5 percent of your income, just to get the middle-income workers to 70 percent of their preretirement income in retirement. Without this additional guarantee, they are about 40 percent of Social Security.
What should investors who have exhausted retirement 401 (k) 's now, under the current system?
My best advice is to keep your savings in 401 (k) account, but to consider very carefully whether you invest. Investing in low cost index funds. If you can not tolerate the stock market goes up and down, then you should probably buy the bond index. In my 401 (k), I have a balance between stocks and bonds, and I am the lowest possible costs. I am not trying to time the market. We should not sell their assets low.
GRAPHIC: Photo, Teresa Ghilarducci, CHARLIE ARCHAMBAULT FOR USN & WR
LOAD-DATE: February 19, 2009
Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc.. All rights reserved
Terms and Conditions Privacy Policy
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