Should the 401(k) Be Reformed or Replaced?

Social Security, Medicare, and Medicaid usually garner most of the attention and debate when it comes to retirement in the US.  The plan that comes in and out of the lime is the current 401k system.

As most Americans have come to realize either by force or circumstance, is that American companies are not providing for the once generous retirements plans that they once offered.  Guaranteed retirement plans such as pension and medical coverage are going by the waste side.  More and more Americans have to count upon themselves in order to both plan and save for retirement.

However, does the current 401k system have the wherewithal to support this growing demand.  Many people say no which is the focus of this NYT piece.

• But many investment experts and economists give the 401(k) system low marks. They note that fewer than half of the nation’s private sector workers are in 401(k) plans and that nearly a quarter of businesses with more than 100 employees do not offer 401(k)’s. Moreover, many Americans put only 3 percent of their earnings into 401(k)’s when investment experts often recommend saving 10 or even 12 percent.
• The typical worker age 55 to 64 had just $54,000 in a 401(k) in 2010, according to a new report by the Center for Retirement Research at Boston College, and households with workers in that age group had $120,000 in retirement savings on average, if the money rolled into I.R.A.’s was included. That $120,000 is less than one-fourth the savings recommended by many retirement experts. Moreover, the center calculated, that $120,000 would provide an annuity of a paltry $7,000 a year.

Andy Manis for The New York Times

• Stephen P. Utkus, director of the Vanguard Center for Retirement Research, said most Americans saved far too little. “Certainly by your 30s, you should be saving 10 percent,” he said
• He said many Americans emptied their 401(k)’s after they were laid off, leaving them with far too little savings for retirement. “You can’t invest your way out of a savings problem,” Mr. Utkus warned. “To catch up, you have to save more or maybe work longer. My general advice for people is, save 3 percent more of your income each year and plan to work three more years.”