Playing the Blame Game

PrintEmail

It’s been a very interesting year for the world of financial services and the broader economy. It has truly dominated the news. And there has been a lot of banter about "fixing the 401(k)."
 
Wrong! It’s not about fixing the 401(k). It’s about educating people who use their 401(k) as a major source of savings, and how to invest within this savings opportunity. The 401(k) is a tax benefit that incentivizes saving.
 
Harold Evensky offers a great explanation:
 

“A 401(k) account is simply a legal ''wrapper.'' Although the funds in the account belong to you, they are legally separated from your other personal investments and receive special tax treatment. What you invest within the 401(k) is your choice. Neither the government nor your company will tell you how you have to invest those funds.

 
You prefer to invest in high-quality bonds and your coworker prefers high-tech stocks, no problem. Each of you can do your own thing. How you each end up financially will depend on the nature of the investments you select, not the fact that you made your investments through a 401(k) account. The 401(k) account is simply the 'messenger.'"
 
Assuming you select a diversified allocation with your investment objectives and appetite for risk in mind, the most important question YPs can ask is: "how much do I need to save during my career so that my 401(k) can sustain my lifestyle when I retire?”