CNBC: For millions of Americans, the 401k is a failure

My 401K hasn't failed at all.

Because a certain percentage have time to post on web-sites while they're supposed to be working, but apparently do not have time to log on to their 401K and do simple things like rebalance. Good for them. I'll end up paying for their irresponsibility anyway, why does it matter?

There are two main problems IMO. The first is a lack of financial education. I'm a financial advisor and 90% of my clients walk in the door with no clue how their 401k and other retirement vehicles work.

The second problem is how we define our wants and our needs. Far too often, wants are misidentified as needs, and savings of any type are the first to get sacrificed.

Quite frankly, I believe if we take care of #1, most of the problems will fall in line. On a personal level, I'd be ecstatic to deal with clients who are more educated when they walk in the door.

Government decides to offer a free tool set to every american household.

25% do not request the tool set
45% request the tool set but do not learn to use the tools correctly
30% use the tools correctly and are very pleased

Government & CNBC analysis- Tools are a failure, we need to give every household a handyman.....

Critics of Ms. Ghilarducci are missing a key point. She is as much as admitting that Social Security is a failed policy. If private retirement savings is insufficient to supplement Social Security for workers, then by definition Social Security is insufficient. Rather than tinker with the voluntary aspects of retirement savings, doesn't it make sense to address the insufficiencies of the mandatory part, Social Security, first?

And speaking of mandates, Chief Justice Roberts has ruled government mandated spending is a form of taxation. Thus, what Ms. Ghilarducci is proposing would be a tax on workers earnings. Good luck selling the idea of higher taxes reducing current cash flow for potentially increased retirement income to the American workers who have become accustomed to a certain standard of living based on their current cash flows.

Who will make the investment decisions for these government-run retirement plans? You can't allow them to be self-directed, or you will have people who blow their entire accounts with poor decisions. So some government employees will have to be put in charge, but those employees will have no fiduciary duty to the individual account owners. Won't there be problems in the markets if those directing the investments of hundreds of millions of individual accounts act in concert to changes in economic conditions? The volume of buying and selling would lead to huge swings in prices as changes in demand would be severe while the supply remained relatively constant.

They want the 24 Trillion in retirement savings plans.

My company auto enrolls everyone in their 401k for the minimum to get company match (6%). They tell you during orientation and send a post card. You have to logon to your 401k to change the distribution and go through some hurdles to change it. 99% of people forget about it since it never is in their paycheck and the 1% are the ones likely to inrease their 401k


I imagine that the 401k contribution amounts for my company are considerably higher than others because the company banks on the spenders being too lazy to change it

quote:

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Personal Finance should be a mandatory class in middle school, high school and should be a mandatory elective to graduate from college.

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Gosh, do I agree with this one. I know grown professionals who don't understand simple vs compound interest and who place their faith in a financial guru who preaches the almighty envelope as a budget tool. If we as a society had educated people along the way in money management and financial concepts, things might function a bit better.

Investment clubs for kids, Junior Achievement or similar programs, requiring kids to work in some school sponsored activity in order to help fund activities (ie, run/manage the concession stand/popcorn at recess or school events)...once upon a time, middle class kids had part time jobs. Today, they're too busy being driven from one activity to another....make those kids work, make them bank a paycheck, and teach them budgeting skills. Show them how your household finances work.

The day 401ks and IRAs are government-raided will surely be a day of uprising.