WSJ: Save Us From Our 401k

Here we go – the beginnings of what will undoubtedly be a cavalcade of calls for Big Brother to rescue us from shrinking 401k nest eggs decimated by the financial meltdown. According to the Journal story, about 50 million Americans with 401k plans had over $1 trillion of stock value erased when the bubble burst in October 2007.

The ensuing crisis prompted some lawmakers on Capitol Hill to conduct hearings on revamping the entire 401k process. Among those ideas discussed (and hopefully tabled) included a “universal” retirement account which would cover all workers. In exchange for our hard earned money, Uncle Sam would offer a guaranteed, but low rate of return (I had seen projections of as little as 1%-3%).

But statistics released in 2006 indicate that the average balance in 401k savings plans for Baby Boomers aged 45-60 was just $25,000 – this BEFORE the bubble. Another 2006 study of 401k statistics for nearly 2.5 million eligible employees revealed that approximately 30% of workers weren’t participating in the 401k program at all – the number increasing to 54% for workers ages 20-29. And of those employees who did participate, one in five did not contribute enough to receive the full company match.

So the problem isn’t necessarily 401k plans – the problem is that Americans aren’t saving enough, or living entirely beyond their means. And now that the business cycle is in a downturn, Americans are looking to the government to cushion the fall, or take the hit entirely. While it’s certainly an understandable reaction for someone at or approaching retirement age who may have been caught off-guard, I find it distressing that many in my age demographic (ahem, 25-40ish) are calling for the same nanny state protections.

If the problem isn’t 401k plans, then the solution won’t be found in overhauling the system. The solution will materialize only through a painful but entirely survivable realization that with great return comes risk and vigilance, and with guaranteed return comes piece of mind at a price. But I realized this when I began participating in the program almost 20 years ago, and I don't think I'm any smarter than the average investor. I’m all for more transparency and greater flexibility in the 401k system, but I would prefer the government ultimately stays out of my investment decisions.

This is life, folks – not everyone gets a pony, and no one is guaranteed a trophy just for showing up. The new normal will mean that Baby Boomers may have to put off those plans for early retirement, or scale back on the floor plans for that Coconut Groves retirement villa in Pompano.

How did the children of the Depression ever survive?