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401ks no substitue for actual pensions

Ummm... no kidding?

The 401(k) generation is beginning to retire, and it isn't a pretty sight.

The retirement savings plans that many baby boomers thought would see them through old age are falling short in many cases.

The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse.

It's a great time to raise the retirement age for social security! And force public employees to give up their pensions!

And i don't think the answer is to dump more money into that sinkhole.

Vanguard Group, one of the biggest providers of 401 (k) plans, has changed its advice on how much people should save. Vanguard long advised people to put 9% to 12% of their salaries--including the employer contribution--in their 401(k) plans. The current median amount that people contribute is 9%, counting the employer contribution, Vanguard says.

Recently, Vanguard has begun urging people to contribute 12% to 15%, including the employer contribution, because of the stock market's weak returns and uncertainty about the future of Social Security and Medicare.

Some 401ks don't even offer a guaranteed return option, so you're basically stuck with stocks and bonds, hoping that you don't retire during a downturn. And it seems like more companies are dropping the matching employer contribution, leaving the program with nothing but a tax deferral. I think you're better off stuffing money in your mattress.

Someone likes 401ks, though:

Initially envisioned as a way for management-level people to put aside extra retirement money, the 401(k) was embraced by big companies in the 1980s as a replacement for costly pension funds. Suddenly, they were able to transfer the burden of funding employees' retirement to the employees themselves....

They were a gold mine for money-management firms. In 30 years, the 401(k) went from a small program to a multi-trillion-dollar industry supporting thousands of financial planners and money managers.

By fnord12 | February 21, 2011, 7:46 AM | Liberal Outrage