401Ks are a disaster: Column

[zipplewrath]

112. Not in reality

I've been in a 401K since I was 30. I'm about 5 -10 from retirement. The reality is, despite putting in the max most of that time, and getting a match (varied over the years between 25 and 100%) I don't have nearly enough cash in there to retire with 60% of my current income. Fortunately, I still have a defined benefit plan as well, although the company terminated the newer employees from participating. One would have to save at the very least around 800K in current dollars.

Now, admittedly, a huge part of the problem is that over that period of time I've lived through 2 fairly major down turns in the markets that cause huge losses in the investments. Ultimately they returned to previous values, but after several YEARS. Which basically means I lost that many years of growth. Had the markets been more stable over the years, it probably would have compounded much higher than it has.

But I am well compensated, so my 401K grows faster than many. The economic realities are that many folks aren't well paid over their entire careers. Many of them bounce in and out of the job market through down turns in the economy. Contributions start and stop. Saving enough is very hard in that environment. With defined benefit pensions on the other hand, often you only needed about 10 "good" years towards the end of a career to get a decent benefit. They can do this because it is a "shared" benefit. Everyone pays in, but people will get payouts for various lengths. Which means that some will see very little at all (die too soon) and others will recieve a large payout because they live so long.

You can't really buy an annuity on those terms. I haven't seen "collective" annuities yet, although I think the coming 401K crisis might create them. You give them all of your 401K, and they pay you monthly until you die. Then they keep it all. Some will do well, some will pay hundreds of thousands and only receive a few months of checks. But the monthly check will be better than what one could get by buying their own annuity.