The original plan for 401ks dates back to 1978. The idea was pretty simple and very sound. Allow employees to defer some of their income into retirement and not be taxed on the income in the current period. In 1981, the IRS clarified that 401(k) plan participants could defer regular wages, not just bonuses, and the plans began to proliferate. Certainly millions of Americans have saved some sort of retirement nest egg through 401ks. But has it down enough? Some shout a resounding no. In fact many experts say shifting the retirement savings responsibility to individuals from their employers, while relieving the employers from the hassle and responsibility for retirement money management, has failed for the employees retirement planning. Employees simply haven’t saved enough or managed their money well.
For one thing, 401 k plans are no obligatory and tended to be utilized by those employees in the higher income brackets. Employers started eliminating their defined benefit plans. The result is top heavy participation and many workers left with no plans at all.
Those that did invest tended to put in too little, manage the money poorly if at all, and were confused by too many choices. Corporations tended to leave the system l alone and the end result is deemed many to be a failure.
“Another problem is that when 401(k) savers retire, they often opt to take their savings in a lump sum and roll the money into IRAs, which may entail higher fees and expose them to conflicted investment advice. A recent report by the Council of Economic Advisors found that savers receiving such advice, which may be suitable for them but not optimal, see investment returns reduced by a full percentage point, on average. Overall, the report found that conflicted investment advice costs savers $17 billion every year.” According to KDSK.com
401ks are still American main retirement vehicle. Here at www,retirementnext ,com