401k PIONEERS LAMENT

By Blanke Schein Wealth Management on January 28, 2017

Commentary by Donald Stockhausen

Wall Street Journal, January 3^rd, 2017, ”401k PIONEERS LAMENT”

THE 401k IS THE DOMINANT WAY AMERICAN’S SAVE…. yet only 33% of U.S. workers are in a plan, and, more importantly, households that have a plan (ages 55-64) hold only an average of $104,000 in a 401k.

More than 30 million U.S. workers don’t have access to the 401k because many small businesses don’t provide one. Just 61% of eligible workers are currently saving.  Many never calculated how much they need to retire.  The truth: financial experts say 8x your annual salary must be in the plan for one to be able to retire comfortably.  (Thus, if you earn $50m/year your retirement fund needs be about $400,000).

401k-what is it?

A 401k is an employer-sponsored program that allows workers to place pre-tax wages into a tax-deferred investment program or savings account.  Some companies offer matching contributions, up to 6% of workers’ earnings.  This tends to encourage the saver.

Wall Street Journal said….

“Many early backers of the 401k now say they have regrets about how their creation turned out despite its emergence as the dominant way most Americans save.  Some say it wasn’t designed to be a primary retirement tool and acknowledge they used forecasts that were too optimistic to sell the plan in its early days.”  This is similar to municipalities and states’ pensions whose actuarial consultants calculated that plans would earn 8%.  However, in the past eight years supposedly “safe” investments such as Government bonds and certificates of deposit earned virtually zero.

2017 and beyond

“Semper Paratis” as the U.S. Marines motto states.  If you read this, act now.  Start a 401k, or similar savings plan today, before you get another debit card.  If you already are in a plan, increase your contribution and don’t switch investments often.  Use vanilla stocks and bonds, or funds that generate CASH to reinvest on a tax-deferred basis. You may expect modest returns and employ the “Magic of Compound Interest”.

Original Article source: http://www.wsj.com/articles/the-champions-of-the-401-k-lament-the-revolution-they-started-1483382348

Disclaimer:

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