If Not a 401(k), Then What? The Alternatives Aren't Great
For many young workers earning the median wage, it may be better to just pay down debt or buy a home if they have the resources.
Saving for retirement isn’t easy.
Photographer: Bloomberg
A recent column on 401(k) plans that I wrote attracted a lot of attention. On the positive side, most agreed the benefits of these retirement plans are eroding due to changes in tax rates and interest rates since they were created some 40 years ago, more employers reducing or eliminating matches, and the failure of some plans to keep up with declining fees on other financial products. On the negative side, many objected to my contention that for some young median-wage workers in bad plans, contributing to a 401(k) no longer made sense, and that these accounts might become poor choices for a significant portion of workers if current trends continue.
My proposed solution was for the U.S. Congress to restore the tax benefits that 401(k) plans originally enjoyed for median household income workers. But as some rightly pointed out, waiting for Congress to solve your problems is not a winning strategy. It’s fair to ask what I think individuals should do to help themselves save for retirement. I have some answers, but they’re not great.