Monday, February 28, 2011

The Retirement Crisis: Is the 401(k) To Blame? - CBS

Various Federal Reserve Notes, c.1995. Only th...Image via Wikipedia
By Charlie Farrell

Baby Boomers are waking up to the fact that many of them don’t have enough money saved for retirement. So what’s the cause of this retirement mess? A popular scapegoat is the 401(k) plan. But the 401(k) has little to do with it.

Consider that it’s not just Baby Boomer 401(k) plans that are coming up short. Most defined benefit pension plans are also underfunded, just look at the mounting liabilities for public pensions that are estimated at anywhere from $1 trillion to $3 trillion.

So what’s to blame for the lack of retirement preparedness? Two things: inadequate savings and risky investment strategies.

In general, you’ve got to save between 12% and 15% of pay every year if you want some reasonable chance of retiring on an income that is comparable to what you earned prior to retirement. And by every year, I mean every year from ages 25 to 65. It takes about 40 years worth of savings, not just a couple of years.
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