Friday, November 13, 2009

401(k) Post Mortem

A recent Wall Street Journal Article has this shocking news about 401(k)s: they dropped 24% in 2008.

The author goes on to say that this could have been worse – because the S&P 500 declined by 37% in the same year.

BUT – be careful. She later writes that doesn’t mean 401(k)s did any better than the market average. Why? Because that data includes worker contributions! So the losses were actually worse than 24%, but people kept adding to their accounts!

Someone with a small 401(k) could have lost much of its value in the market, but if she contributed that same amount during the year her account would have shown no change.

Is that how we are going to prepare for retirement? Contributing more and more every year and not knowing if the money invested will grow or shrink?

No wonder author Garrett Gunderson (see Wednesday's blog on Retirement Myths) says, “A 401(k) is not the "safe" and "smart" plan that you have been told it is; in fact, it's an extremely risky investment for most people.”

No wonder people worry if they will have enough money for retirement. It is not secure money. Why lose money? There is no need to lose money – you can have no downside risk and still have upside potential in an annuity.

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