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Pensions Are Dead ... Is the 401K Next?


Is this the last generation to use 401ks? The 401k retirement savings account has become the preferred retirement plan offered by many employers over the last 30 years. But some retirement-planning experts predict that 401ks will be overtaken by a new form of retirement savings in the future.

The reason is simple: 401ks don’t help employees who lack the ability or the commitment to save for retirement. They also put each saver at individual risk with their personal investment selections, without the ability to pool risks with other employees.

Remember pensions? Traditional pension plans were a hit for many employees. They didn't have to sacrifice current earnings to contribute to their pensions, and the investment risk was borne by everyone in the pension so that individual employees were not subject to the risks of their own investment selections.

Alternatively, each 401k participant is on his or her own when it comes to investment risk, and each employee must save enough money to fund their own retirement. Some feel this is a daunting task.

If your employer offers you the opportunity to participate in a 401k plan, take it! Take personal responsibility to invest enough of your income to take full advantage of any and all employer matching contributions. If possible, deposit at least 10% of your income through payroll deduction. Learn to live off the remaining 90%.

Work with a qualified investment advisor who can help you take advantage of this type of retirement plan. When used wisely, employees are able to earn potentially higher retirement benefits than with a tradition pension plan.

Remember, a 401k retirement plan may not be available to you in the future. The earlier your start participating, generally the better your results will be. Take personal responsibility and do it!

For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.