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Carole Estabrook

Gov. Andrew Cuomo has proposed a new pension plan for state workers. In a nutshell, the plan includes a large reduction in pension benefits with the option to pass on the limited plan and to enroll in a more traditional 401(k) program.

The times they are a changin’ and traditional pension programs are unfortunately a thing of the past. And while I agree that pension reform is in order, I question whether or not traditional 401(k) plans are the way to go.

401(k) plans are a good idea in theory, but if the stock market is unstable, you could hit 65 years old and take a huge hit to your savings.

In February 2011, the Wall Street Journal reported that the average worker age 60 to 62 had less than a quarter of what is necessary in their 401(k) account to maintain a healthy standard of living in retirement.

401(k) plans present a problem in that many people only put in the minimum amount required to participate. I also suspect that most people don’t even think about their 401(k), assuming it will grow steadily like a savings account over a period of 30 years.

But how your 401(k) grows depends on the quality of your investments. And while it’s true that brokers can’t directly sell people bad investments, they can roll bad investments into mutual funds, which make up a good portion of most 401(k) plans.

This isn’t done maliciously. The reality is that brokers can’t survive on sure bets alone. Once the great opportunities are gone, brokers buy whatever is left and sell it to consumers in the form of mutual funds; a blend of good and bad investments. 401(k) plans help brokers unload some bad investments. The drawback is that you aren’t always getting the best bang for your buck on your 401(k).

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But perhaps the most dangerous thing about a 401(k) plans is how easy it is to access the money. People can tap into their 401(k) plans whenever they want. People dip into their savings accounts to make ends meet in the here and now, without considering retirement.

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I’m not saying that 401(k) plans are all bad. I have one myself.

But these plans were not designed to shoulder the entire burden of retirement. 401(k) plans were designed to supplement pension plans and Social Security in retirement years.  

With Social Security shrinking and pension plans all but extinct, to suggest that a 401(k) can replace a traditional pension is deceptive.

Estabrook’s column appears

Mondays and she can be reaches at estabrookcarole@yahoo.com.

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