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VIDEO: Stop Drinking the Company 401k Plan Kool-Aid

The 401(k) dilemma, dropping account values and resistance to opening statements piling up lead many to further financial confusion and isolation.  Compound this with job layoffs and increasing unemployment rate have caused many financial homes to crumble.  Here are my notes and thoughts from this segment on CBS’s 60 Minutes.

People saying, “I’m afraid” or “I’ll never see my money ever come back”, permeate our conversations with discussing 401(k) retirement plans.

Others say, “Looking at my 401(k) statements crushes any rest I may get…I’ll have to work for the rest of my life.”

While many people who have worked for 20 or 30 years have to take jobs as cashiers and baristas at Starbucks, it is extremely humbling for them to have a boss that is have their age and now “under their wing”.

“We’ll never live our dream and vision of retirement”, one couple shares.  “I never see the day I’ll retire.  We can forget building a log cabin and living a quiet, comfortable life.”

Question: What kind of retirement plan allows you to LOSE 30, 40 or 50% of your savings just as your near retirement?

David Wray, President of the Profit Sharing and 401(k) Council says, “The 401(k) is the absolute best way people can save for retirement.  They absolutely are the best retirement vehicle we have.”

Question: How can you say it’s the best available IF it has let DOWN tens of millions of people at the time they need the money the most?

David Wray’s replies, “That’s not a 401(k) problem.  That is about our entire investment system…NOBODY was saved during the current thunderstorm.”
(NOTE: I have plenty of past clients and students who have used a financial vehicle for retirement and college planning that has AVOIDED ALL LOSSES during the Great Recession.  I disagree with the “nobody was saved” and “401(k) is the best way to save for retirement” statements by David Wray.)

Oddly, 401(k) retirement plans that have become the primary source of income for over 60 million Americans, yet they were never designed to become a retirement plan to begin with.  They were created in the 1970’s to be a savings plan and tax-shelter for ordinary workers, mainly, highly compensated executives.

It was supposed to supplement, at the time, the two primary income sources for retirees – Social Security and pensions.

Here’s the killer soundbite from pension and 401(k) expert, Brooks Hamilton, who has been on the forefront on the retirement plan industry since the Eisenhower days:

“The typical 401(k) investor is a financial modest.  The don’t know a stock from a lock.  We give them a list of 20-30 mutual funds, with really powerful names, which makes them say ‘Gee, that’s where I want my money…”

Question: What is the quality of the mutual funds within these 401(k) plans?

Brooks Hamilton answers, “Mediocre.  I’ll be honest with you, with half the funds on the list what people characterize as “dogs”, shouldn’t be on the list to begin with.”

Watch California Representative George Miller, a staunch critic of the 401(k) industry, state his viewpoint on undisclosed fees by economic wizards from Wall Street “zapping” your 401(k) accounts.

He goes on to say, “We just tried to put a little disclosure, transparency into the fees…and we felt the full fury of the financial lobby.”

What kills me in this video is David Wray at the end saying, “Don’t expect your 401(k) money to come back…that is having unrealistic expectations.  Maybe if they work another ten years, maybe it will come back.”

Agggh! Sorry.  I don’t buy that garbage.  I’m glad the invention of the internet and personal finance blogs are around to help educate more people and provide a path to regaining what was lost.

Keep in mind, I DO like 401(k) plans with matching contributions from an employer…but it is not a retirement plan. It’s just a piece of your bigger financial picture.

We share innovative financial strategies on our weekly Chicago-based personal finance podcasts and real estate radio talk show on WLS 890 AM on Saturdays from 10am-Noon.  Stay posted!

In case you cannot wait and want to discuss your retirement plan or 401(k) with a financial professional within our Money Smart network, please call us @ 708.686.2000 or email us – info@moneysmartradio.com

Currently there is "1 comment" on this Article:

  1. Joel Wymer says:

    Great post Matthew… You’ve been on the forefront of this message for some time now – maybe it’s starting to resonate with other media folks. Let’s hope so!
    God Bless – Joel

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