Retirement: Is the 401(k) Killing American’s Retirement Plans?

retirement, business, financial planning, six sigma focus blog

Will you outlive your money? That is the question that terrifies most Americans. America shifted away from company-based retirement solutions to the 401(k) plan and allowed Americans to manage their own retirement plan. At the time, it was a thought that gave people a certain level of confidence of being in total control of their money and possibly, earn more in retirement than what their company could provide. Business leaders loved the transition because of the financial burden to the company could come off the books. It was a win-win for everyone. Timothy Martin of the Wall Street Journal recently reached out to several of the early proponents of the 401(k) retirement plan and asked what they thought about their program in 2017. None were too excited about the plan for retirement.

Where does that leave you in your retirement years? Will you live in a comfortable home in the suburbs, or will you be bunking in the basement of your grown childrens’ home?

Where Are We with Retirement Plans?

Well, here are some things to consider about the 401(k) plans for retirement. It is a financial instrument that works, but it works best in conjunction with other financial tools, not as a standalone retirement plan. Companies are not required to offer a 401(k) plan to employees, nor are they required to contribute to those plans.

The next issue is to understand that a 401(k) plan is susceptible to the fluctuation of the market. Let’s suppose you had your money in a 401(k) plan prior to 2000. The market has had two significant downturns, one in 2000 and one in 2008. Most people took a major hit in their 401(k) plans in both events. We know that it takes five years on average to recover losses after a downturn. So, you took a hit in 2000 and felt some recovery by 2005. Then you took another big hit in 2008 and started to see the light in 2013. That is basically a decade of struggle to get things back in place. Let’s just suppose a downturn happens in 2020, while you’re in retirement. What do you do to rebuild the money you need to live on?

Time to Get Smart with Your Money

The fact is, companies will not return to a retirement system they fund. It is just never going to happen. The responsibility for retirement savings lies squarely on your shoulders. Here are a few facts that might be a wake-up call for you and your financial future:

The Center For Retirement Research estimates that 52% of American households are at risk of not being able to maintain their living standards in retirement.

The Economic Policy Institute says that just under half of American households are headed by someone between the ages of 31 and 61, who have nothing saved for retirement.

There are no easy solutions to the challenges of retirement. Because of healthy lifestyle and medical advances, we are living longer than ever before. This means that you will need more money that you ever thought possible.

Now is the time to meet with a certified financial planner and get together a plan. Even if you have a sturdy 401(k), don’t depend on that one solution for retirement. Markets fluctuate and your retirement is not worth risking. Be smart. Have a strategy that works.