Don’t Hate on Your 401(k)
February 10, 2009 by blackgirlgrown
Filed under retirement planning
You would think that tax-free contributions to your 401(k) would mean nothing but love. Unfortunately, we avoid opening 401(k) statements like a crazy ex. Knight Kiplinger suggests we show a little tender loving care to our “not once what it was” 401(k) accounts:
Quite simply, tax-deferred retirement plans are the best gift that Washington ever gave to American workers. Yes, I know they’re not as sweet a deal as were the defined-benefit pension plans once common in the U.S. Employers funded those plans and bore all the investment risk, and there was no way that employees could raid their retirement funds early. But those pension plans aren’t coming back, so there’s no point in waxing nostalgic.
When I probe why people are disgusted with 401(k)s in general, I find that the real issue is not the concept. After all, what’s not to like about getting an employer match to your own savings, and not having to pay taxes on the earnings inside the plan until retirement?
Instead, the issue for most people is the investments they chose for their 401(k). They are remorseful that their asset mix lacked diversity. Maybe they had too much in their employer’s stock, which shouldn’t represent more than 10% of the mix. Or, with retirement just a few years away, maybe they were too heavily invested in stock mutual funds.
I got my bonus and thought about stopping my 401(k) contributions until that particular check cut — it’s something I struggle with every year. I decided to allow the contribution to be taken out of the bonus check — as I have done the past five years. In the end, I know I’ll be happy with the decision.