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Is your 401(k) Failing You, or Vice Versa?


You may have heard advertising lately claiming that “Wall Street 401(k)s have failed.”  I’m not sure what a “Wall Street 401(k)” is, but I assume they mean those accounts invested in traditional stock and bonds. 

Why is this claim being made, and on what is it based? It is a strange conclusion to draw here in the 10th year of the second-longest Bull Market in history. A recent report by the Federal Reserve (FED) highlighted some observations, and I believe that the insurance industry misinterpreted the FED’s findings. Among the FED observations were:

  • A typical couple nearing retirement will receive only $600/month from their 401(k)s. 
  • The $600 payment is not indexed for inflation. 
  • 401(k) balances for the age group 45 to 54 have declined by an average of 3% during the past 3 years. 
  • People aged 35-44 have experienced balance declines on average of nearly 20% in three years. 
  • Reasons for the declines are “high fees and leakages.”

The insurance industry concludes that, “Continuing to Do Something that isn’t Working is INSANITY.” While no one could disagree with that statement, we wonder why the average account balance in these age groups is declining in an era of rampant market growth. Yes, 401(k) Plans have been subjected to high fees. However, since the Bush Administration’s Pension Protection Act, fees have been steadily declining. “Leakages” refers to people withdrawing money from their plans prior to retirement. I fail to see how that could be the fault of the 401(k) Plan itself.

So far, there is nothing I see that would render the 401(k) Plan a pariah. Blaming the 401(k) Plan itself for the failures of many 401(k) Plan participants is backwards. Problems with 401(k) accounts frequently rest with their owners, who far too often are taking early withdrawals, cashing in accounts when they leave an employer (failing to roll over their balances), and simply failing to contribute on a routine basis. Perhaps Plan participants are failing their own 401(k)s? If so, wouldn’t these people also draw funds from their life insurance policies? Who or what is to blame for many peoples’ failures? Draw your own conclusions.

Van Wie Financial is fee-only. For a reason.