Designer of the 401K now regrets it!!! January 5, 2017Posted by shaferfinancial in Finance, Mutual Funds for Retirement, Retirement Income.
Folks who read my blog know how much I dislike the 401K as a retirement vehicle. I have often pointed out that the original design of the 401K assumed it was a supplemental strategy to go along with pensions and other investing for top level corporate executives. It was never intended for use as a single retirement vehicle for average salaried workers.
Now in an article in the Wall Street Journal written by Timothy Martin, one of the original designers basically comes out and says what I have been saying all along.
From the Wall Street Journal Piece:
“His hope in 1981 was that the retirement-savings plan would supplement a company pension that guaranteed payouts for life. Thirty-five years later, the former Johnson & Johnson human-resources executive has misgivings about what he helped start. What Mr. Whitehouse and other proponents didn’t anticipate was that the tax-deferred savings tool would largely replace pensions as big employers looked for ways to cut expenses. Just 13% of all private-sector workers have a traditional pension, compared with 38% in 1979. “We weren’t social visionaries,” Mr. Whitehouse says. Many early backers of the 401(k) now say they have regrets about how their creation turned out….
“The great lie is that the 401(k) was capable of replacing the old system of pensions,” says former American Society of Pension Actuaries head Gerald Facciani, who helped turn back a 1986 Reagan administration push to kill the 401(k). “It was oversold.” ”
So in short, corporations took advantage of the 401K to reduce pension obligations and the need to put aside $$$ to cover those obligations in both good and bad markets. They found this pension cash flow need hard to manage in varying markets. But, individuals are expected to be able to handle this cash flow issue?
I have said it before many times, but sequence of return risk is the greatest challenge to individual retirement savers. And the vast majority of workers have no idea what sequence of return risk is, let alone how it can devastate their retirement savings.
Now that the Wall Street Journal is even on board, isn’t it time you gave me a call?