Your Retirement Plan
You are in deep CA-CA!
In an interview I heard today on NPR, the author of a NY times Op-Ed, Teresa Ghilarducci, a professor of economics stated that the current practice of 401(k)s just isn’t doing the job providing for retirement income. This is even true for people who are taking the right steps early, saving a significant amount, and being financially smart. For me the message was one I’ve heard before, but with a slightly different twist.
The end position she was touting was a need for another layer of government support program not unlike social security. Her position was focused on all the people who are managing the money that you save and how they take a cut through one fee or another and the focus on their bottom line, not yours. Where as a government program doesn’t have the profit motive, doesn’t need to pay executive bonuses, and could be large enough to get the best deals like the huge investment funds.
She may be right, that over time these fees may reduce your fund balance by 20%-35%. However, in my opinion, the emphasis should be to improve and make the July/August 2012 regulations more simple by requiring all fund managers and plan sponsors to post their investment and administrative costs in a visible format that could easily be understood by the average person. The regulations are still too complex. The market will also help drive down the fees. Maybe co-ops or credit unions whose owners are the participants should manage the 401(k) plans. In any case, I think our government should get the healthcare law (PPACA) in place before it takes on another critical issue of senior support.
The other notable aspect of the interview was the point about how much money you need to maintain your lifestyle. Ms. Ghilarducci said the target was 10 to 20 times what you were earning before you retired. If you apply this guide, it is usually an amount that most people are never going to get to without radical changes in our systems or support programs. Even if we get rid of the big fees and save the 20% to 35% she says we are losing. So what is the answer?
In other words a budget plan is necessary for retirement. Planning is not much fun because it is hard work, but today there are tools that make it easier. Don’t let the doomsday folks spoil your retirement, because you can live the ‘American Dream’, if you plan!