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Over on Yahoo, Robert Kiyosaki writes,
The Biggest Scam Ever an article about 401(k)s. This in response to the Time article Why It’s Time to Retire The 401(k). He cites statistics on balances and averages.
I completely disagree with both arguments. Here’s the simple truth: the 401(k), Keogh, 403(b) and the multitude of IRAs are probably not going anywhere. When most people set up these plans at work, they meet for a few minutes with their HR person who doesn’t know anything about investing and just wants to get all the check marks done for the new hire. Retirement accounts are not a Ronco product – you cannot, cannot just “set it and forget it”. If that’s the way you plan your retirement fugetaboutit. You won’t retire, you’ll be like Robert Shivley in the Time article working on the golf course or greeting people at Walmart. The biggest problem with defined contribution plans like a 401(k) is there is no one to hold your hand, walk you through it and keep you on track. Sure there’s the HR weasel but their job is just to get you to fill out the paperwork. They don’t care if you should be more heavily allocated to stocks or bonds and by law they really can’t give you investment advice. And the investment firm that handles your 401(k) usually is not all that interested in sitting down with you to determine the right balance for your personal account. They usually get paid for the dollars contributed after that it’s a tiny commission amount on the total invested dollars.
It’s not the 401(k) or the IRA that need to be tossed, it’s the idea that you can Popeil your retirement. Wherever your money goes, if you have the opportunity and can allocate your own funds, sit down with a planner of some type. If your 401(k) is sitting at a local firm have a one hour review with your broker. If not and it’s one of those “follow the line” firms call them up. The people answering the phone at those firms want to keep your money and are paid salary to talk to you. There’s nothing in it for them(except keeping the account), it’s all about you. If it’s a local broker remember any decent broker will sit down with you and if they won’t fire them and move your money – assuming you can.
If you can’t move your money and your broker doesn’t have time for you – after complaining to your HR department about the lack of service – sit down with a fee based planner (as opposed to commission based planners). You can take all of your options to a fee based planner who charges you by the hour and has no vested interest in which investments you actually hold. The only vested interest an hourly planner has is to give you decent advice that makes you want to come by next year to pay them for another hour of their time – oh and the referrals of your co-workers who can’t get advice any other way helps.
While the statistics cited by Time are pretty scary not knowing what the statistics are based upon is even scarier. An average is just that, an average. More new accounts with lower balances, more older (presumable larger balance) accounts that have been rolled from 401(k)s out to IRAs, more people regularly withdrawing from their accounts all contribute to the average, just as much as a stock market downturn. Without the underlying numbers averages are just statistics. As has oft been quoted, “there are three types of lies: lies, damn lies and statistics”.
I don’t think the 401(k) needs to go away. I think people need to start planning more for their 20+ years in retirement than next summer’s vacation. They need to start looking at what they are invested in. Ron Popeil isn’t your retirement plan. He might be able to get a chicken done just right, but you have to set it and then reset when it comes to retirement planning. And just because Warren Buffett knows that a stock is a great value and will be worthwhile 40 years down the road doesn’t mean you can buy and hold forever. Even Warren sells once in a while. You still have to periodically look at your retirement plan. You have to take a vested interest in how much you have to retire on, no one else cares about your retirement – really.