From the "Room for Debate" feature on the NY Times website:
So Much for the 401(k). Now What?
Below are a few outtakes from the various contributors:
* Alicia H. Munnell, Center for Retirement Research
* Jacob F. Kirkegaard, research fellow, Peterson Institute
* Thomas R. Saving, economist, Texas A & M
* Teresa Ghilarducci, economist, The New School
* David C. John, senior fellow, Heritage Foundation
* Thomas C. Scott, money manager
When 401(k) plans came on the scene in the early 1980s, they were viewed mainly as supplements to employer-funded pension and profit-sharing plans. Since 401(k) participants were presumed to have their basic retirement income security needs covered by an employer-funded plan and Social Security, they were given substantial discretion over 401(k) choices.
Approximately 60 million Americans today have a 401 (k) plan, or just over 40 percent of the non-farm work force. In other words, more than half the United States work force does not have a 401(k) plan and thus derive no benefits from the associated tax break.
Yet tax-breaks cost our government a lot of money. The latest data shows that 401(k) plans in 2007 alone resulted in lost federal tax revenue of $46 billion.
There is no doubt that the world is risky and rare events happen. But what is the alternative? Assuming that the current value of equities represents the future earnings of the underlying corporations, then unless you believe that something fundamental has changed so that the long-term future of the economic system is one of stagnation, you should continue to invest in your 401(k) and maintain an age-adjusted equity share.
The 401(k) is a failed experiment of how well individuals can save for their retirement in commercial individual accounts. Instead, we need a supplement to Social Security that competes with the 401(k) — what I like to call a “guaranteed retirement account” plan to which all workers and employers would contribute 2.5 percent.
The sad fact is that any form of retirement plan causes risk to someone. Traditional pensions put the risk on the company; government-managed systems put it on the taxpayer, who already must pay for Social Security and Medicare excess costs. What is needed is a way to reduce risk on the individual 401(k) investor.
How do you feel about 401k's as a retirement savings tool?