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Why You Should Keep Contributing to Your 401(k)

Posted by on Feb. 9, 2011 at 11:00 AM
  • 5 Replies

A 401K in this economy is no way to save for retirement. You might consider stuffing your mattress with gold bars.  Was this “financial planning” article written three years ago and just recycled?”

I can sympathize with why this reader is disillusioned with her retirement account. Depending on one’s asset allocation, many workers saw their 401(k)s drop 30 percent to 40 percent during 2008. And financial planners anticipate it could take years before our nest eggs fully recover from the bear market.

But rather than convince new parents they shouldn’t bother saving for retirement, the market’s poor performance only reinforces the need to squirrel away as much cash as you can afford for your golden years. Now that our portfolios are smaller, we have to work that much harder to come up with the money we’ll require once we stop punching the proverbial time clock.

Making matters worse, by the time young parents are ready to retire Social Security may not even exist. Unless the government bails out this ailing program, we’ll be on the hook to fund our entire retirement out of our savings alone.

Finally, we also need to save more than our own parents because we’re all living longer. According to a recent New York Times article, we should plan on living 25 to 30 years after we retire. As if that kind of timeline alone isn’t intimidating enough, we’re all likely to have astronomical health care bills since older folks tend to require more medical attention.

Consider The 401(k)

I’m not arguing that a 401(k) is perfect, but it really is the best retirement tool workers have at their disposal.  Each year Uncle Sam allows those who are fortunate enough to have access to one of these accounts through their employers the chance to contribute $16,500 in pretax dollars.  Invest in an IRA or Roth IRA and you’re limited to just $5,500.

Although some companies have been cutting back on perks, many firms still contribute money into their employees’ retirement accounts — this is known as a match — provided you invest a minimal amount into your 401(k) too. This is essentially free cash that no one should walk away from.

Most plans also offer a variety of mutual funds to choose from. So if you’re feeling gun shy about the stock market, you could always choose a bond fund instead.

Getting back to that reader’s comment, I wonder what this parent’s other plan is?  Stuffing your money in a mattress certainly won’t keep up with inflation. My guess is that anyone who isn’t saving in a 401(k), IRA or some other qualified retirement account is just using the bear market as an excuse to spends all of his money and not save a penny of it. Perhaps the thinking is if they ignore the problem — the need to save for retirement — the issue will simply go away.  Unfortunately, it won’t and you’ll be stuck relying on your children to support you when you’re old.

by on Feb. 9, 2011 at 11:00 AM
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Replies (1-5):
by on Feb. 9, 2011 at 11:05 AM

good info, thanks.

by on Feb. 9, 2011 at 11:15 AM

Thanks i have a IRA and think it is a great decision.

by on Feb. 9, 2011 at 12:14 PM


by on Feb. 11, 2011 at 1:54 AM


by on Feb. 13, 2011 at 6:28 PM


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