The 401K Was Never Designed To Be Primary Retirement Savings Plan

Shelby Bateson's picture

The 401K plans are a highly coveted benefit for American workers. But did you know that these plans were never designed to be the primary savings vehicle for retirement funds? They were originally formulated to give executives additional avenues of compensation. The average worker was added to go along for the ride.

In addition to providing another avenue to pay executives and key employees, the 401K plan was also envisioned as a way to shift the risk from the employer to the employee in providing retirement planning. Since the advent of the 401K plan in the 1980s, fewer employers offer pension plans as a benefit, to their employees.

Currently less than 50% of American workers are enrolled in a 401K plan. The average balance in the existing plans is less than $50,000, which is hardly adequate to maintain an average worker’s standard of living as he approaches retirement age.

During the current recession, trillions of dollars have been lost in retirement investment plans. Many workers approaching retirement age are being forced to re-think their plans, finally realizing that they will very likely have to work longer, and perhaps retire at a much lower standard of living than was originally envisioned. Because of the huge losses, many workers have stopped investing in their 401Ks, as re-growth of their investment balances is NOT keeping up with the comeback on Wall Street.

The average American worker is now faced with the dilemma of how to save for retirement years. With the average social security benefit at only $1,150 per month, it is estimated that the even those with retirement plans will be retiring on an income substantially below their current standard of living. Because of limits on the amount you can contribute to 401K plans, the gap between current standard of living and retirement funds available widens as incomes increase.

To protect yourself as you near retirement age, it is becoming increasingly important for all American workers to educate themselves on how to invest for a more secure future.

Written by Shelby Bateson

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