When most of us think of retirement, we instantly think of 401(k) plans. However, new data presented in a Wall Street Journal article entitled, “The Champions of the 401(k) Lament the Revolution they Started,” suggests that 401(k) plans don’t offer as much financial security as we once thought.
401(k)s have been the most common retirement planning vehicle for the past 39 years. Many people don’t know what their 401(k) will be worth next year, 5 years from now or 10 years from now. What’s worst, their financial advisors can’t tell them either. Most 401(k) plans consist of several mutual funds with unpredictable outcomes. These mutual funds also have no performance guarantees. In addition, 401(k) plans have subjected hard-working Americans to a plummeting stock market and high fees.
Why do We Rely on Them?
When you really think about it, relying on a 401(k) for your financial future makes very little sense. You’re essentially risking your money on the stock market, yet marketers and your employer make the plans sound as secure as a savings account with your local bank.
Though it’s possible to build a future and even a fortune in the stock market, it’s also quite possible you won’t. Everyone knows that. Yet not every 401(k) investor takes the time to figure out what is really supposed to make their money grow over the next few decades.
In addition, though you know how much you’re investing in your 401(k) every month, you likely have no idea what you’ll get out of it when you cash it out.
Unfortunately, people mistakenly believe, (and financial product marketers completely support), that you’re “saving for retirement with your 401(k).” However, you’re really “investing for retirement with your 401(k).” When you invest money, you can suffer a loss.
What Can You Do?
Once you understand what your 401(k) really does, you understand it’s a useful tool. However, it shouldn’t be your only choice when it comes to saving for retirement. It’s important to diversify and consider other, safer options and even more investments, (if that’s something you’re interested in). That way you have more money coming in from different sources when it’s time to retire.
When you’re ready to plan for retirement with real world strategy, contact us at Teton Pines Financial. We offer a variety of retirement and financial planning options for modern professionals.