Your 401(k) Stinks, and Here’s What to Do About It

We at The Motley Fool have always been champions of the individual investor, encouraging each person to take control of her or his financial destiny. In theory, the transition of America's retirement apparatus from defined-benefit plans — i.e., pensions that pay a monthly amount — to defined-contribution plans — such as 401(k)s and 403(b)s — is consistent with this Foolish philosophy. The individual makes all the contribution, investment, distribution, and inheritance decisions, whereas with a defined-benefit pension, the worker has very little control.

However, for the majority of Americans, the transition away from defined-benefit has not been to their benefit. It requires each person to become an investing expert and financial planner in their spare time, and too many Americans don't seem to have the time, interest, inclination, or skills.

According to the Employee Benefit Research Institute, the average 401(k) account is a tad over $60,000; those within a decade of retirement have a bit more, with an average balance of $78,000, but more than a third have less than $25,000. Almost half of workers (43%) between the ages of 45 and 54 reported they weren't saving anything for retirement.

Not that traditional defined-benefit pensions don't have their own problems. Many are underfunded, and the benefits accrue mostly to workers who stay with the same employer for many years, which is less common in today's mobile workplace. But it's clear that 401(k)-based retirement planning will result in not much of a retirement for many workers.

We can chalk a good deal of this up to people not taking responsibility for their finances, but the problem also lies with the 401(k) system itself. Employees are stuck with the plan and the investments that have been chosen by the employer and/or HR department (who may be fine people, but not necessarily investment experts). Too often, the fund choices are mediocre or worse, and the costs are high.

Get Ready to Look Under the Hood
Unfortunately, you likely don't know the true costs of your 401(k). They're hidden in boring legal filings or embedded in the expense ratios of the mutual funds within the plan. But that's all about to change.

Beginning later this year, 401(k) plans will be required to disclose how much the administration of the plan and the investments is costing participants. This is important information, since — according to human resources consultant Towers Watson — an increase of 0.5% of expenses (i.e., $50 for every $10,000 invested) could consume eight years' worth of savings for an above-average earner. After all, the $30 billion to $60 billion the financial-services industry makes from 401(k)s each year doesn't grow on trees; it's usually taken directly from investors' accounts.

The amount of fees being extracted from 401(k) accounts may be shocking to some investors. Indeed, many might be surprised they're paying fees at all, if an AARP survey is to be believed, which found that 70% of worker didn't know they were paying fees. Alas, that is just not the case.

With the new disclosures, it will be easier to see what you're paying, and whether that's too much.

Generally, smaller plans pay higher costs — “smaller” meaning both the number of plan participants as well as total assets in the plan. According to a study [PDF] conducted by Deloitte for the Investment Company Institute (a trade organization for the mutual fund industry, so not necessarily an unbiased crew), the median all-in cost — which includes administrative costs as well as investment expenses — to plan participants in 2011 was 0.78%. But the numbers vary widely, with plan size being the primary factor.

The median cost for a plan with more than $1 billion in assets was 0.38%, whereas the median cost for a plan with less than $1 million was 1.41%. Similarly (and relatedly), the median cost for a plan with fewer than 100 participants was 1.29%, compared to 0.43% for those with more than 10,000 participants.

You can use those figures as a benchmark to determine where your fees fall in relation to other plans. Then, figure out who's paying those fees — you or your employer. Chances are, it's the person you see in the mirror (unless your boss follows you into the bathroom, which is kinda weird). According to the Deloitte study:

[P]articipants bear the majority of 401(k) expenses. Similar to any other employee benefit (e.g., health insurance), the employer determines whether the employee, employer, or both will pay for the benefit. According to the Survey, on average, participants pay 91% of total plan fees while employers pay 5% and the plans cover 4%. This compares with participants paying 78%, employers paying 18% and plans paying 4% in the 2009 Fee Study.

In other words, employees are paying the majority of fees, and the share that they're paying is going up.

Are you getting your money's worth from your 401(k)? Here's how to find out, and what to do about it:

  • Evaluate your investment choices. See if the funds in your plan, over the past five years, have beaten a relevant index fund as well as the majority of other funds with a similar investing objective. This information may be found in your quarterly statements or on the website of your plan provider. Important note: Your funds' mileage may vary from the information on Morningstar or other fund-info sites since funds in 401(k)s often have additional costs.
  • Use the side brokerage account, if offered. Approximately 20% of 401(k)s allow participants to open an account with a discount brokerage within the plan. This will let you buy individual stocks, bonds, ETFs, and other mutual funds. However, compare the benefits to the costs, since these accounts often have higher maintenance fees.
  • Advocate for a better plan. Talk to the folks in your HR department and raise your concerns. After all, their retirement is on the line, too, and they should also be motivated to have the best possible plan. Here's an example of a letter you can write to ask for a better plan.
  • Don't ignore other accounts. If your 401(k) is stin(k)y, contribute just enough to take full advantage of the employer match, and then max out an IRA with the discount brokerage of your choice. You might pay lower costs and have more investment options. However, if you are in a higher tax bracket — and thus ineligible for the Roth IRA, and your contributions to a traditional IRA wouldn't be deductible — then it might make sense to invest in non-dividend-paying stocks you'll hold for many, many years. You don't get a tax break up front, but you'll pay long-term capital gains when you do sell, which (at least according to current laws) are lower than the taxation rate on ordinary income (the rate at which your paycheck and traditional 401(k) and IRA distributions are taxed).
  • Move your money. You generally can't transfer the money in your 401(k) to another account while you're still working for the employer sponsoring the plan, but some companies allow it, especially for older workers. If your plan is sub-par, ask if your employer allows “in-service distributions.” If so, or once you leave that employer, transfer the money to an IRA. But do not just get a check and cash it; that is considered a distribution, which will be subject to taxes and a 10% penalty if you're not 59 ½ years old. Instead, get the money to an IRA, ideally through a “trustee-to-trustee transfer,” in which the money is sent directly from your 401(k) to the IRA.
  • Get help. If you're looking for professional advice with your investment choices, look for a fee-only planner who charges by the hour, such as the Certified Financial Planners at the Garrett Planning Network or the National Association of Personal Financial Advisors. She or he can also estimate whether you're saving enough to retire when and how you want.

Hug Your Boss, Then Make the Request
Employers deserve credit for sponsoring retirement plans. They don't have to do it, it consumes the HR department's time, and it might even cost them actual money. I'm on the 401(k) committee of The Motley Fool (where the company covers all administrative costs, thank you very much), and I can tell you that it's more work than most people would think.

But don't be bashful about politely asking for a better plan. No one is planning your retirement for you, and no one cares more about your retirement more than you do. The more your retirement will rely on your own contribution and investment decisions, the more you must take charge.

More about...Investing, Retirement

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TB at BlueCollarWorkman
TB at BlueCollarWorkman
8 years ago

Well slap me silly, put me in the 70% that didn’t know I was paying fees. Jeez. Man, I thought just so long as I merely had a 401K that I was doing good for retirement, but now I see that I need to pay closer attention to it? I guess nothing in life is nice and simple, so why should retirement accounts be?

Nicole
Nicole
8 years ago

I’d like to add… that if you have several plans at work and one of them has a guy that makes regular visits and seeks people out and sits down with them etc…. chances are the fees on that plan are a lot higher than on the plans where you have to call up and make an appointment or you can only do your investing over the phone. It’s up to you whether or not you think that additional service is worth it. Of course, that additional service may also include counseling you to put money in higher fee mutual… Read more »

Holly
Holly
8 years ago

Excellent post. Advocating can work. My employer had an awful, high-fee plan for years. I did my best within the plan, picking index funds where I could. But after years of employees complaining about the options, HR finally found us a better deal. Caveat: you may be able to move existing funds over from the old 401k provider to the new provider, but there can be fees. I had to have my funds invested with the old provider for 10+ years in order to move my funds out of the plan, and would have to pay a hefty fee to… Read more »

Luis
Luis
8 years ago

I’m developing a small firm in Puerto Rico that will basically focus on Retirement Planning using Life Insurance. We have a product through Western Reserve that’s called Global Indexed Universal Life policy. In this type of policy, some of the money goes to a whole life insurance (about 100K in insurance basically) and the other part to a values account, tied to the S&P 500, Euro Stoxx 50 and Hang Seng index. If all of those indexes “do well” you could get up to a 13.25% monthly compounded interest rate. If some or none of the indexes “do well”, the… Read more »

partgypsy
partgypsy
8 years ago
Reply to  Luis

so you are promising a 12% minimum to 159% annual return, with no downside? I think you must be leaving something out.

Chuck
Chuck
8 years ago
Reply to  partgypsy

Luis means that it compounds monthly, for an annualized yield of 1%-13%.

Some guy
Some guy
8 years ago
Reply to  Luis

Buy term and invest the difference. Keep life insurance seperate from investments. The plan you are describing is likely loaded with fees and only good for the insurance salesman.

Sarah
Sarah
7 years ago
Reply to  Some guy

Buy term and invest the difference is a catchy phrase, but not good financial advice. It is only good advice for poor young couples who need the cheapest coverage, and actually can’t afford to even invest, but just want to protect their kids. Permanent life insurance, specifically Indexed Universal Life, is a safe and wise way to build a retirement income stream, that one can not out live. It is very uneducated to say it is only good for the insurance agent. The rich have been using permanent life insurance policies, to grow their money, and receive tremendous TAX ADVANTAGES,… Read more »

Marco
Marco
6 years ago
Reply to  Luis

Only but term life insurance. Invest separately. Any other life insurance is garbage and only benefits the salesman. You will be shocked at how inexpensive term life can be. Any others like universal/whole life insurance suck up alot via high payments that go into a “savings” account or an “investment” account which the company keeps when you die. LOL. If you already have whole life ask them what happens to that money.

Ohio Guy
Ohio Guy
8 years ago
Tom
Tom
8 years ago

Costs in a 401(k) are a big deal and extremely complex for the average person to understand. Excessive costs do make a huge difference over the long haul. At the end of your working time, the main thing that matters, is how much money do you have in your account to live out the rest of your days. Having said that, the biggest problem is people are not saving enough. If your employer has a 401(k) match you better take adavantage of that benefit. For your 401(k) acouunt it is free money. And you better take advantage of it. I… Read more »

Ross Williams
Ross Williams
8 years ago
Reply to  Tom

Its no more “free” money than your salary or other benefits are. Its tough to argue with 100% return if your employer is matching the contribution. But that is part of the problem with these programs. Its not clear a 25 year old should be making retirement savings a budget or savings priority. Yet we have public policies that not only encourage it, but all but require it.

Steve
Steve
8 years ago
Reply to  Ross Williams

One you pay the “sunk cost” of having a job at the given employer, then yes it is free money.

chacha1
chacha1
8 years ago
Reply to  Tom

And then there’s profit-sharing. Most of the money in my 401(k) wasn’t money I deferred from my wages … it was profit-sharing. I’ll still have to pay tax when I start taking distributions, but it was indeed “free money” in the sense that I didn’t have to work additional hours (or years) to get it. Another thing people need to keep in mind, though, is that while *their own* contributions (through deferred wages) are always 100% vested, employer contributions (through matching or profit-sharing) are typically vested on a time scale, and won’t belong to the employee until s/he has put… Read more »

betsy22
betsy22
8 years ago

The statistic about the average 401k balance being just over $60k is interesting — but I wonder if it’s somewhat misleading, especially if many people are changing jobs fairly frequently and rolling over their 401k balance into an IRA each time. In a down market, many entry and mid-level employees wouldn’t hit $60k in their 401k if they’re changing jobs every 3-5 years. It would be more useful to see the entire picture of 401k, IRA, pension, and other investments.

Queeb
Queeb
8 years ago
Reply to  betsy22

I am very curious about what the average person supposedly has in their retirement accounts also. I keep reading a person should have about 1 million dollars. Yet the average is $78K for people nearing retirement? How are people retiring? Somehow people must be managing. I would love to hear from someone who is and find out what’s what.

Steve
Steve
8 years ago
Reply to  Queeb

A large chunk of people just live off of Social Security payments. Also, keep in mind that many people who are retired as of today, worked at jobs with traditional pensions a few decades ago.

Amy
Amy
8 years ago
Reply to  Queeb

Some folks I know that finally retired (in their 70s) get by from mooching off of their 11 kids and selling Avon. They have started to move around every few years “to be closer to family” which is code for “move in, eat your food, and annoy your spouse and kids”.

Queeb
Queeb
8 years ago
Reply to  Amy

I am not sure what your friends situation was or passing judgment, but this is what I tell my teenage kids could happen to us/them if we spent money on every little new gadget they wanted or for stuff like cable. (“But Mom, we are the ONLY people that don’t have cable!”)
LOL. My teenagers dread the thought of never getting away from us;)

Cybrgeezer
Cybrgeezer
8 years ago
Reply to  Queeb

I retired 17 months ago with a lot more than $78k — but far less than $1 million — in my 401(k). Today, I am collecting, between SS and my own investments, about 110% of my former take-home.

A lot of good planning and a little luck made it possible. BTW, only one year in my life did I crack the $50k annual pay barrier. I have always been low- to middle-income.

The biggest advice I have is to retire debt-free. That can make up for a shortfall in what the “experts” say you need — that near-impossible $1 million.

Queeb
Queeb
8 years ago
Reply to  Cybrgeezer

Thanks for your feedback! It is very encouraging. We are looking to retire in about 15yrs and our house should be paid off in 2yrs. We won’t make the 1 million mark either so we are concentrating on taking care of our health, living frugally, and pray we don’t lose our jobs. Along with continuing to invest it is the best we can do.

chacha1
chacha1
8 years ago
Reply to  betsy22

Agreed. My understanding is that the lifetime balances are so low not because 401(k)s are being rolled over into IRAs, but because A) people don’t stay in jobs long enough for their employers’ matching contributions or profit-sharing to be vested; B) people cash out an account when they leave a job rather than roll it over.

This is based on reading I did while a manager, however, which is about 5 years out of date.

Ross Williams
Ross Williams
8 years ago

“It requires each person to become an investing expert and financial planner in their spare time, and too many Americans don’t seem to have the time, interest, inclination, or skills.” We don’t have time since we also have to become medical experts, education experts, building experts etc. Its completely unrealistic to think that every American is going to become an investment expert. We simply aren’t capable of operating in a marketplace being manipulated by graduates from Harvard and Yale with years of training and experience. There was a story in a local paper about the retirement benefits for some public… Read more »

Steve
Steve
8 years ago
Reply to  Ross Williams

a) People don’t pay income taxes on the fees when they’re in the 401(k). So while it’s true that that part of the deferral is basically a transfer from the government to the finance industry, it doesn’t come out of the pocket of the individual 401(k) investor directly.

b) The increase in an after-tax account would be taxable, too. Assuming that it was all long term capital gains taxes paid at the end, with no dividends or sales/cap gains distributions along the way, the increase (however much higher it got than $750) would be taxed at 15% (2012 rate).

trice
trice
8 years ago

What I’m most curious to know is, how will this information be disclosed? Will it be printed prominently on our 401k statements or buried in a plan document on a shelf or obscure corner of a web site somewhere?

Emily
Emily
8 years ago
Reply to  trice

Yes, this is still not clear to me, either. I understand how to evaluate the fees associated with the individual mutual funds I hold in my 401(k) — I go to morningstar.com, look up the fund, and look for the fund’s Expenses value.

But this article seemed to be talking about other fees. Are there “overall” fees associated with my 401(k) account?

Steve
Steve
8 years ago
Reply to  Emily

Yes (well, probably) and that’s why you are (probably) part of the 70% that didn’t know it. 90% of plans have some kind of plan fees ON TOP of the underlying mutual fund’s fees. Sometimes the fees are applied to the overall account, charged and disclosed separately. But often you see things like “Total stock market fund fund” where the second fund means it’s a “wrap” around an underlying mutual fund, with a higher expense ratio. The different between the fund fund’s expense ratio and the underlying fund’s expense ratio is the plan fee. My spouse once worked at a… Read more »

Paula
Paula
8 years ago

Thanks to Robert Brokamp for another good article. 401k’s have always seemed restrictive to me and I do not invest in anything that is market-based. The idea is a good one in that it forces some to prepare for their future but there are alternatives to this. Starting years ago, we bought income properties and some hard assets. We are retirement age yet we still get (mostly) passive income from our rental properties and to a lesser degree from SS, pension and other sources. Our IRA’s have not produced much income. For us, owning income producing properties has proven to… Read more »

john
john
8 years ago

People love sales on everything they shop for, so apply the same methods to your assets, retirement,etc.. When things hit lows buy and sell when they are near the top, you may not hit it either way but getting close is fine. It doesn’t matter if its real estate, stocks, funds, bonds, etc… This my new belief and dollar cost averaging stinks as does set-it-and-forget-it. You need to take personal responsibility as no one else will, it doesn’t matter if you are an expert or not. Ignorance isn’t bliss.

Ross Williams
Ross Williams
8 years ago
Reply to  john

“When things hit lows buy and sell when they are near the top, you may not hit it either way but getting close is fine” Actually getting close is not “fine”. Its a prescription for losing money. You miss the best prices at both ends. You will lose some money off the top and some off the bottom. The numbers seem to show that will make you a net loser overall. To win at market timing you need to be almost infallible in your judgments of market directions. None of us are. If you are Warren Buffet you can decide… Read more »

john
john
8 years ago
Reply to  Ross Williams

Ross, I actually disagree/agree. I know that market timing doesn’t work and that in general humans are prone to mistakes and don’t really have the ability to anticipate markets. That being said close is just fine and I don’t consider losing money off each end but you have to know your numbers and make your spread. For ex: if you bought the dow in 2009 at 8k and sold later at 12k your spread would have been nice even though you didn’t come close to the top or bottom. I don’t see how that is losing money. The key is… Read more »

Ross Williams
Ross Williams
8 years ago
Reply to  john

On the other hand if you sold at 12,000 in 2008, thinking it had bottomed and sold it again later at 12,000, you wouldn’t have made anything. The real question is where is the money in the mean time. Of course, 5 years from now, selling at 12,000 may look like it was a bad idea in any case. Because if you took your money out of the market any time during the 2002 to 2008 period, you likely lost money when you got back in. The price of oil may go back up because of demand, but it also… Read more »

john
john
8 years ago
Reply to  john

Ross- in reading your posts, its fine to play devils advocate, but all I’m seeing is how the system works or basically doesn’t work. So what have you done to be successful, are you all in cash all the time? Your analogy about 2008 doesn’t make much sense. If you sold in 2008 at 12k, bought in 2009 at 8k and sold again at 12k in 2011 you would have made a nice profit. Even if you meant to say bought in 2008, its about buying distressed assets,stocks weren’t there yet, no on should have been buying in 2008. Once… Read more »

WWII Kid
WWII Kid
8 years ago

I am so freakin’ lucky to have a great 401(k) plan at work. One reason it’s a great 401(k) is because the members of the industry it serves would sue their brains out if it wasn’t (hint hint). I also have an unprecedented match from my employer. While it’s not perfect and we weren’t shielded from the big losses a couple of years ago, our 401(k) plan is constantly evolving and offering more and better options.

It’s also the reason I work a second job so I can max out my contributions every year and still eat.

chacha1
chacha1
8 years ago

Retirement saving is just like anything else – some people are motivated to pay attention, other people would rather let “someone else” do the work. People would rather take a handful of pills every day than do a weekly meal plan and take a daily walk. If the task at hand requires processing information that is laid out in language more challenging than that on a cereal box, a lot of people simply won’t process it. I managed an office for 8 years and most of my co-workers/staff left their 401(k) money in “money market funds,” a.k.a. the holding company’s… Read more »

Babs
Babs
8 years ago
Reply to  chacha1

The money market option in our plan is actually guaranteed to lose money right now because the fees are higher than the interest rate AND of course it is not even FDIC insured.

Lori Blatzheim
Lori Blatzheim
8 years ago

The question of what to do with a 401(K)plan is frequently raised by Seniors reading my blog http://www.retireandrenew.com. I am a retired nurse, not a financial planner.I am not qualified to answer them but I can refer them to posts I think may help them. I plan to include this post on the list. My concern is that there are so many Seniors that have a limited understanding of the 401(K) process. Thank you for including information on how to find a qualified financial planner. Hopefully, a person in this field will provide help that will lead them to a… Read more »

A-L
A-L
8 years ago

Just a quick note: 403Bs will not need to be as forthcoming with their disclosures on fees (at least, not according to what I heard). So if you have a 403b, you still need to do a little more dedicated digging to find out the expenses. My employer offers about 10 different companies for our 403b, all of them horrendous. The majority don’t even allow regular mutual fund or stock purchases…instead they’re annuities that are “linked” to gains made in the market, but won’t go down. Long story short, not good for long-term investors as their only investment vehicle. Those… Read more »

Julie
Julie
8 years ago

Like the author, I also sit on an investment committee, and it is very difficult to choose mutual funds that perform consistently well. I’m curious if the author can comment on the advisability of a 401(k) that offers ETFs, rather than mutual funds, as its choices. I would think the expenses would be much lower. But are there other risks?

Nicole
Nicole
8 years ago
Reply to  Julie

The general belief among the research and policy community (see Madrian and Choi’s extensive work, for example) is that low-fee broad-based index funds are the best bet, especially Target-date low fee index funds. If there is to be a default option mandated by the government, that’s the direction they’ll be going because that’s the best bet. Vanguard has the lowest fees for this option and is thus the best choice for those who want to just match the market and be appropriately diversified for their time from retirement. There’s a few other details on target-date funds that make them different… Read more »

Steve
Steve
8 years ago
Reply to  Julie

The differences between ETFs and index mutual funds are quite small nowadays. They are noise compared to the differences between providers (Vanguard vs. Fidelity vs. TIAA-CREF vs. everybody else)

jackowick
jackowick
8 years ago

I’m lucky to have a very generous employer who aggressively shops our plans around so we switch every couple of years, they take care of all changeover fees, and we get a phenomenal match. Then they hold seminars and annual Q&As to get everyone up to speed. They also give retirement planner tools and forecasts to help you out. And yet people STILL do not use the program. You can lead a horse to water, but you can’t make him drink. We can keep focusing on laws, disclosures, regulations, etc but at the end of the day it’s about education… Read more »

victoria
victoria
8 years ago

“This is important information, since – according to human resources consultant Towers Watson – an increase of 0.5% of expenses (i.e., $50 for every $10,000 invested) could consume eight years’ worth of savings for an above-average earner.”

Eight years’ worth of savings or eight years’ worth of interest? Because the second case isn’t great, but in the first case — YIKES.

Amy
Amy
8 years ago

Seems an appropriate place to ask this question.

I rolled over $2,500 from a 401(k) to an IRA when I switched jobs a few years ago. $40 is charged every year for fees, which seems high for a small balance that isn’t being added to. Thinking of withdrawing it all for tuition (I just started school again). I’m still contributing to the SIMPLE IRA my new employer provides, and I don’t want to touch that or lessen contributions. As an alternative, the money for the tuition will be coming from an inherited IRA.

Steve
Steve
8 years ago
Reply to  Amy

$40 on a $2500 balance is 1.6%. A little high but consider that if you cash it out, you’ll pay a 10% penalty. Can you add to the account to get it above some minimum where you’ll stop getting that fee? Can you roll it into another account?

KS
KS
8 years ago
Reply to  Amy

If I’m correct (and I might not be, always consult a professional in the subject area),if you rolled the 401k to a traditional IRA, taking it out would be a bad idea because you would hand over %10 in a penalty plus you would have to count it as income come tax time. So taking out the $2,500 would mean forking over 500-$1,000 to the gov, depending on your tax rate. I would look for another way to pay for school. I don’t know anything about inherited IRAs so I can’t comment on that option. Again, I don’t know your… Read more »

Amy
Amy
8 years ago
Reply to  Amy

I will definitely do more research, but I was under the impression that the penalty does not apply for withdrawals made for qualified education expenses, such as tuition.

Mom of five
Mom of five
8 years ago
Reply to  Amy

What’s your tax bracket? If you take the money and pay the penalty, I believe you’ll also pay taxes on the money as income.

What about rolling it into a Roth IRA? YOu’ll still have to pay taxes on the money as it were income, but then you’ll be able to take out the principle from the Roth without paying a penalty. I think, check with a pro.

Steve
Steve
8 years ago

The first part of the article is good but I disagree with much of the “what to do about it” section: “Evaluate your investment choices.” Yes, but… Fund ratings are useless. As we all know, past performance is not indicative of future performance. Instead this boils down to two steps. 1) Does your 401(k) offer a total stock market index fund? If not, it stinks. 2) How do the expenses on that fund compare to Vanguard’s total stock market fund (VTSMX)? “Use the side brokerage account, if offered.” If your 401(k) mutual funds are terrible, then they’re also going to… Read more »

Sam
Sam
8 years ago

The 401k system has basically been a huge failure for the average worker and a huge cash cow for Wall St. The system wasn’t set up for average workers to save for retirement, it was set up for high net worth folks, and as a result its not really working for those average workers. Basically people my age will not be able to retire and if they can retire certainly will not have the kind of retirement they see their parents having. Why? Well each individual worker has to become a financial planner and that takes time, energy, smarts and… Read more »

john
john
8 years ago
Reply to  Sam

Your maxing out your 401k-which means 17k each this year. 34k saved plus whatever matches you get. I wouldn’t consider you average. In fact you might be high-net worth or will be in 10 years or so depending on how long you have been maxing out your accounts. The last 10 years have not been kind to investors especially if you have just invested and not rebalanced regularly. On Average most people probably put in is around 8% or $5500 and that # is skewed but the people who max their accounts. I do get why people appreciated pensions but… Read more »

Paul N
Paul N
8 years ago

The one great thing I see about this discussion is the number of informed people about this subject. A few years ago this topic would be a big Huh? for many people. Great comments everyone. I understand points like “jackowick” brings up. I’m a middle manager, our company has a very generous defined contribution plan. They contribute 100% of each employee’s maximum every year. Unfortunately they give the money to a company that has high fee’s and underperforming funds. All my attempts to get the CEO + accountant to look into this falls on deaf ears… pretty frustrating. I don’t… Read more »

Lance@MoneyLife&More
8 years ago

Robert I love your articles! You give great advice in a fun way that makes it so they aren’t quite as dry as they otherwise could be. Keep up the good work. At one point I really wanted to work for the Fool but you guys didn’t have any accounting positions open. I live in Florida now so it is out of the question but you guys have a great work environment.

Tie the Money Knot
Tie the Money Knot
8 years ago

“No one is planning your retirement for you, and no one cares more about your retirement more than you do”

Very wise words indeed! There is no ship that will come sailing in to save any of us. Nobody is in the backgrounding waiting to bail us out, and there is no magic security blanket.

Mike
Mike
8 years ago

I have to agree with the “in-service” rollover, if you’re plan allows it, do it. Open an IRA account and move as much money as you can from your 401k account, especially if you’re investment options in your current plan is sub par.

I think many people are unaware of all the rules or just too lazy, thus just let their 401k grow at an anemic rate.

Sarah
Sarah
8 years ago

THANK YOU! People must be made aware. This is critical information.

William @ Drop Dead Money
William @ Drop Dead Money
8 years ago

Great article! My experience has been that although the 401k system is flawed, it motivated me to save and and save hard. I am glad I did. Shame on me that I wouldn’t have done it without the 401k system in place. Yes, the fees are high. Yes, the options are limited. But I came out ahead anyway. My experience left me with two things I tell the young ‘uns: Don’t worry about the fees. If you pick an index fund, the return will still be positive. Second: if you want to get drop dead money (enough to tell others… Read more »

Paul N
Paul N
8 years ago

Hi you have some good points but, I have to disagree about your comments about ingoring fee’s.

Do a google search on “the rule of forty” Fees literally (as small as 2%) will take several hundred thousand dollars from you over your investing timeline. You have to pay attention to them.

As investors we all have start steering away from these products that make fund companies rich and the individual investor a mediocre return.

MyMoneyDesign
MyMoneyDesign
8 years ago

This is exactly why it’s important to hit your 401k employer match maximum and then spread your retirement savings among your other plans; in particular to your Roth IRA. I make sure I get my full match from my employer so I don’t leave anything on the table. But beyond that, I know that I could do better in fees in choosing something simple for my Roth. Playing defense is sometimes just as important as playing offense in investing.

FTS
FTS
8 years ago

I have a quick question about IRA’s and roth IRA’s in general. without going into too many specifics,I am 35 years old, I have 46,000 in an old employer 401 k and I also have about 11,000 in a target fund Roth IRA. I have a couple of questions. I am now in a job that I will earn a pension. I have been debating to put the 401K in my ROTh IRA, pay the taxes, and continue to fund the roth IRA. Or, should I place the 401 K in a IRA and leave it, and continue to fund… Read more »

Steve
Steve
8 years ago
Reply to  FTS

There are pros and cons to converting your 401(k) to a Roth IRA. It depends on many specifics about your current and future situation. As far as the funds having different per-share prices, that is an almost totally irrelevant number when comparing two funds.

Anne
Anne
8 years ago

Jeeze….Wonder if we were to socialize medicine in the US and allow people to invest their current monthly insurance $$’s for retirement. That would huge for the middle class, poor folks, and unfortunate health stricken folks the availabilty of funds to invested in their retirement….. This might solve just about all these current financial burdens and future problems!

Jezza
Jezza
7 years ago

I’ve always had my own views on Superannuation/401. 1. Slow to accumulatte 2. Not leberaged 3. YOU must do all the work yourself 4. Cannot generally access until retirement age 5. It’s a backup plan for the absolute worst case I’ve found that even purchasing just one investment property while you’re young and holding on-to it at a 5% growth rate (not including rental increases) includes leverage and on average has made much more than anyones Super over the same period. If I take a look at a typical property purchased 30 years ago by our Fathers for $25,000 that… Read more »

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