Kidding... kidding. The Wall Street Journal has an interesting blurb on how to "catch up" so you only need to work til 72 years old instead of 84. :) The move from pensions (which are unaffordable to companies in a global competition versus peers who do not need to fund them) to 401ks (which require diligence, stable job participation, 30+ year time horizons and financial acumen; all things severely lacking in the U.S.) will prove to be a long term disaster... but since it won't all explode in a 3-4 year time frame like the mortgage mess, this will be an issue that will come to the fore front over the long run. When many baby boomers realize they are going to be working "til they drop". (not to mention the cost is punitive to most small businesses, which employ the majority of Americans)
- In the midst of a market meltdown and economic crisis, many Americans' 401(k) retirement plans are looking a bit bedraggled. But some tender loving care from plan participants, employers and policy makers can help spruce up these accounts.
- Market upheaval has underscored a litany of woes in 401(k) plans. Many people don't save enough, make poor investment choices, pay high fees that eat into returns, and raid their retirement accounts to pay credit-card bills or fight foreclosure. Meanwhile, hard-hit employers are suspending 401(k) matching contributions.
- In the 12 months following the market's peak in October 2007, more than $1 trillion worth of stock value was shaved off 401(k) and other defined-contribution plan accounts, according to Boston College's Center for Retirement Research. Roughly 50 million people have 401(k)s, and these accounts now have about $2.5 trillion in assets, estimates the Employee Benefit Research Institute in Washington.
Undersaving has always been a big issue in 401(k) plans, and the economic doldrums are only making matters worse. A recent survey commissioned by AARP, an advocacy group for older people, found that about 20% of workers age 45 or older had stopped contributing to a 401(k), IRA or other retirement accounts in the past year.
2 … Even with no match.Employers' matching contributions are a big incentive for many workers to contribute to 401(k) plans. But major employers like General Motors and FedEx are suspending these contributions, and cuts are on the way at other companies. One out of 10 employers already has reduced or plans to reduce the match, according to a December survey by consulting firm Watson Wyatt Worldwide, up from 6% just two months earlier.
If your employer has suspended the match, you should boost your own contributions to make up for it. Together, the employee and employer should contribute at least 10% to 15% of the worker's salary to build a healthy nest egg, retirement experts say.
The maximum amount most workers can contribute to a 401(k) this year is $16,500. Workers age 50 or older can contribute an additional $5,500.
3 Set it and forget it.
Sharp market swings can lead 401(k) savers to make some poor investment decisions, like fleeing stock funds simply because they've taken a dive. Investors who dump stocks at depressed levels lock in losses that could take a big bite out of their savings.
People who leave the asset-allocation decisions in the hands of a professional don't have to worry about making emotional investment decisions in rocky markets. One solution: So-called target-date funds hold a broadly diversified blend of stocks, bonds and other investments and gradually shift toward a more conservative mix as investors near retirement.
But be aware that these funds can still fall hard and fast. The average target-date fund dropped 32% last year, while the Standard & Poor's 500-stock index fell 38.5%. Even 2010 funds for investors about to hit retirement fell 25%.
4 Pay attention to fees.
Hefty fees can put a lot of cracks in your nest egg. Yet many employers haven't even tried to calculate the total costs of their plans. You should be able to see the total dollar amount you're paying in plan fees so you can compare the 401(k) and other savings vehicles such as an IRA, Ms. Benz says.
5 Get more workers saving.
Many companies don't offer 401(k)s, and many workers who do have the opportunity to invest often simply don't.
More and more employers are automatically enrolling workers. But many of these efforts focus only on new hires. They should also include existing employees. What's more, many workers don't have access to a 401(k). The costs and administrative burdens can be daunting for small businesses.
One solution might be for the government to make it easier for small employers to band together to offer workers 401(k)s, says Paul Stevens, president and CEO of the mutual-fund industry trade group the Investment Company Institute.
13 comments:
Not sure if I agree with #3 (Set it and forget it.) I suspect that even with Index Funds, at the very least, have a stop set... My gut tells me we still have another leg down coming and no immediate ramp back up.... jegan
I think the biggest issue with many 401K plans is that there's no cash option...you have to be fully vested in the available funds (obviously so the fund managers collect fees). I think part of the 401K losses were due to you not being able to do anything else but remain vested and get punched in the gut for months.
hmm, set it? I'm setting my IRA to all stocks around SPX 680 or so. And I'll be going to bonds and money market at SPX 1100 or so. After that, no more equities for a few months...not sure what happens in 2010.
Anonymous... Just curious what you're going to set your IRA to at SPX 300? .
crappy.. You're right. About the best we had was a Pimco bond fund... (5 Star rated and lost money every year that I owned it.) jegan ;-)
who don't they allow for a commodity option.
Anyone who invested heavy in gold since the popping of the dot com bubble was up every year since 2001. Or oil...I mean when you retire, you don't need money to buy, bonds, stocks, you need money/savings to buy items like oil, food, etc. Why not just own them? It is the ultimate store of value and savings.
no federal reserve or government, or market crash can destroy the value of owning a barrel of oil, or a bushel of corn, or an ounce of gold.
jegan
re: stops
if you say "stops" to 90% of 401k participants you will get a blank stare.
crappy,
usually there is a money market option - at least in mine. But unfortunately you get 6-8 funds; mostly generic.. many similar. High fees, etc.
Bill,
see jegan
you guys think like people who are in the market all day every day. Most 401k participants are not like that - they are very passive and many do not even know where to start.
Re: "if you say "stops" to 90% of 401k participants you will get a blank stare."..... Something is wrong with our education system. I wish mine had focused on more practical matters. In fact, I think that every fund prospectus should come with an explanation of stops and a signature page before you invest.
By the way.. Been keeping an eye on your AMZN short, but considering shorting POT if we get a minor runup this week if Geithner or Congress does anything to inspire the market..
jegan
It's sad though, i thought everyone knew of "never put all of your eggs in one basket"
and all these people are complaining of 40% losses, when that's what they get if they're all in the S&P.
if you have a mix of S&P, commodities and bonds, you wouldn't be slaughtered
how often is there a year that gold, treasuries and S&P all went down?
Stops? My fidelity account does not have stops and requires that you hold your holdings for at least 30 days, otherwise they block you from selling anything from any of your accounts for 90 days. There is no first in- first out. That's why I got slaughtered in some holdings after the senate vote went bad.
Billman: If you ever want to retire on your 401k you cannot have too many bonds unless you are over 50. In case you have not noticed: every other holding went down. That is how you get a 40% loss.
You are right... IRAs and 401ks don;t have stops.. I should have clarified... If you don't have an account that can send you alerts, then set up an account on Yahoo Finance, or Money, or whatever. Have them alert you and then you can act on the alert.
And, I also was beaten up by my fund manager over a sale within the 30 day period.. I asked him why he thought I should lose money just so I can stay within the arbitrary time frame he set.. When he finished babbling, I told him to sell anyway. (F*ck-em... Not their retirement..)
If at all possible, try to buy ETFs anyway.. Cheaper and you can sell during the day. And if at all possible, try to transfer your retirement account out of your company's hands... It'll allow you a lot more freedom, not to mention much better choices..
jegan
I think the article was more to the passive investor. Again you are thinking like "an active, engaged, I watch the market everyday" That is simply not how 90%+ of Americans act. Most have no idea what an ETF is.
TM.. True...However, you don't have to own a fund and watch it every day, if you just turn on an alert.. Consider how much pain would have been avoided if people had sold their funds if/when they dropped below the daily MA50...
jegan
Not sure if you caught this:
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Financial Times (http://ftalphaville.ft.com/blog/2009/02/03/51971/happy-boycott-cnbc-day/)
Principal content
Happy Boycott CNBC Day!
Posted by Tracy Alloway on Feb 03 10:01.
StockTwits has proposed today be official ‘Boycott CNBC Day.’
Their reasoning for blacklisting the business channel is outlined below.
Boycott CNBC Day on Tuesday February 3
We are boycotting CNBC on Tuesday February 3, 2009 and ask you to join us.
We are boycotting CNBC because of what we perceive as a gross lack of accountability and editorial judgment.
We are boycotting CNBC because they produce shows with personalities who take zero responsibility for stock picks and markets calls which misinform viewers and distort the severity of the economic crisis.
We are boycotting CNBC because they trot out so called expert guests who have cost investors millions without warning viewers and allow these guests to pump themselves up without demanding the disclosure of performance…
Of course, this isn’t the first call for a protest against the network. The Boycottcnbc blog was started last year, lambasting the channel for taking down an online poll, and more recently, Howard Lindzon accused the channel of serving up ‘financial terrorism.’
The most withering assessment we’ve seen of the network so far (and conversely the boycott), comes however, from Condor Options:
Stocktwits is calling for a boycott of CNBC for tomorrow, February 3rd.
Of course no one actually watches CNBC, except in the way that hipsters drink Pabst and grow mullets and go to monster truck rallies. It is enjoyably kitschy to hear Larry Kudlow praise the virtues of laissez faire capitalism as if the last two centuries hadn’t happened, and to watch the flashing banner alerts and wonder at how our culture has become so addicted to primary colors.
But their crass aesthetic and ideological immaturity aren’t the primary reasons to disregard the network. The real problem with mullets and Pabst and Toby Keith songs, and with CNBC, is that there are people, large swaths of humanity, in fact, who apparently regard the above unironically. And there are others who trade based on how they suspect the hoi polloi will react to the news of the hour. And so on. Conflicts of interest abound, performance assessments are entirely absent, and the only service provided is stimulation, not information.
So for those with any sense, a boycott of CNBC will make tomorrow no different from any other day.
I've been boycotting cnbc for the last two years, welcome to the party
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