Why Most Early Proponents of the 401(k) Now Say It’s a Failure

Herbert Whitehouse was one of the first proponents of the 401(k) 35 years ago, when he was a human resources executive at Johnson & Johnson.

Today the 65-year-old Whitehouse says he will have to work into his mid-70s if he wants to maintain his standard of living, after his own 401(k) took a hit in 2008.

Whitehouse is one of a chorus of early 401(k) supporters who have changed their minds.

A recent article in the Wall Street Journal reveals how pre-retirees at all income levels are falling short – way short – of the amount of money they need to have to be able to retire.

Fully half of those between ages 50-64 have less than one year of their income saved.

The top 10% (those making $251,000 or more annually) have an average of only two years of their income saved.

The article mentions that “financial experts recommend that people amass at least eight times their annual salary to retire.”

Those “experts” ought to have their heads examined, because even a $1 million nest-egg would provide you only $28,000 a year at the current recommended withdrawal rate of 2.8% per year.

If a person is well into the top 10% and makes $500,000 a year and – like the average pre-retiree – has a nest egg of two years’ of his gross salary, that’s $1,000,000. If he withdraws 2.8% per year, that comes out to $2,333/month, which is only 5.6% of his current monthly income of $41,667/month!

For a person who makes $100,000 a year and saves $200,000 for retirement, at 2.8%, he can withdraw $5,600 a year, or $467 a month. Compared to a pre-retirement income of $8,333/month, how far do you think $467 is going to go?

Financial experts who don’t want their clients to run out of money before they run out of life are recommending you stash away 10 to 20 times your annual household income.

Let me ask you a question: How many times your annual income do you have saved for retirement?

Unfortunately, even if you do manage to save 10 or 20 times your current income, there’s no guarantee you’ll be able to retire comfortably.

Because if you’re saving primarily the way most people do – in retirement accounts that rise and fall in value with the stock market, you have no clue what your retirement accounts will be worth when you’re ready to tap into them.

And that’s the biggest reason 401(k)s are doomed to fail

As I’ve said many times before, if you don’t know the guaranteed value of your retirement savings on the day you plan to retire, you don’t have a plan.

That’s why so many people have embraced the Bank On Yourself method – it lets you know the guaranteed minimum value of your plan on the day you want to retire – and at every step along the way. Find out what your bottom-line numbers and results could be if you added Bank On Yourself to your financial plan, by requesting your FREE Analysis.

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FREE ANALYSIS!

6 Reasons Your 401(k) is a Scam

In a recent blog post, I discussed 6 reasons 401(k)s are a scam. Think you’re getting “free money” in the form of a 401(k) employer match?

It’s all smoke and mirrors, because for every dollar an employer contributes to your 401(k) match, they pay 99 cents less salary on average!

You can get the facts and learn about 5 other reasons your 401(k) is a scam here.

Another big reason the original champions of the 401(k) have changed their tune is because of the high fees charged in 401(k) plans, that can siphon off one-third to even one-half of your savings over time.

In fact, Ted Benna – who is considered the “father” of the 401(k) – now says:

I helped open the door for Wall Street to make even more money than they were already making.”

You got that right, Ted! In fact, the mutual fund industry lobbied Congress to ensure employers would be able to automatically put your hard-earned retirement savings into pricey mutual funds – mostly target date funds (TDFs) that give you no guarantees whatsoever.

It’s just one more reminder that the only guarantee Wall Street gives us is that they get paid whether we win or lose!

It’s Never Too Late to Take Back Control of Your Financial Future

How would it feel to:

• Know the guaranteed minimum value of your retirement savings plan on the day you plan to retire… and at every point along the way?
• Have your plan grow by a larger dollar amount every year – guaranteed?
• Never again worry about when the next market crash will wipe out 50% or more of your hard-earned savings again?
• Have tax-free access to your retirement savings when and how you want, with no penalties or restrictions for accessing your money “too soon” or waiting “too long”?
• Increase your lifetime wealth by hundreds of thousands of dollars simply by using your plan to pay for major purchases, rather than financing, leasing, or even directly paying cash for them?