Free Markets, Free People
401 (k)s are a failure … or something
More whining from the baby boomers (and yes, I’m a boomer). Joe Nocera of the NYT is 60 and his 401 (k) has just failed to provide for his retirement:
The only thing I haven’t dealt with on my to-do checklist is retirement planning. The reason is simple: I’m not planning to retire. More accurately, I can’t retire. My 401(k) plan, which was supposed to take care of my retirement, is in tatters.
And Old Joe was a fan of 401 (k)s too:
Like millions of other aging baby boomers, I first began putting money into a tax-deferred retirement account a few years after they were legislated into existence in the late 1970s. The great bull market, which began in 1982, was just gearing up. As a young journalist, I couldn’t afford to invest a lot of money, but my account grew as the market rose, and the bull market gave me an inflated sense of my investing skills.
I became such an enthusiast of the new investing culture that I wrote my first book, in the mid-1990s, about what I called “the democratization of money.” It was only right, I argued, that the little guy have the same access to the markets as the wealthy. In the book, I didn’t make much of the decline of pensions. After all, we were in the middle of the tech bubble by then. What fun!
But the tech bubble knocked the poo out his tech heavy portfolio (yeah, everyone took a bit of a soaking, but much of it came back).
Here’s the part that gets me. While you can kinda, sorta, give him a pat on the back for the tech stock thing and say “aw, poor thing”, that’s not why his 401(k) is in “tatters”:
A half-dozen years later, I got divorced, cutting my 401(k) in half again. A few years after that, I bought a house that needed some costly renovations. Since my retirement account was now hopelessly inadequate for actual retirement, I reasoned that I might as well get some use out of the money while I could. So I threw another chunk of my 401(k) at the renovation. That’s where I stand today.
Or said another way – he spent most of it on things that have nothing to do with retirement while also losing half to a divorced spouse.
How is that that fault of the 401(k)?!
Of course, it’s not.
But Nocera spends the rest of his article blaming all of this on the inadequacies of 401(k)s. So what does he do … find an “expert” to buttress his obvious conclusion:
What, then, will people do when they retire? I asked Ghilarducci. “Their retirement plan is faith based,” she replied. “They have faith that it will somehow work out.”
I laughed, but it’s not funny. “The 401(k),” she concluded, “is a failed experiment. It is time to rethink it.”
Uh, no, it’s not.
It’s certainly not as failed an experiment as Social Security. And, by the way, for those for whom it is a failure, it’s a failure with their own money (and not mine or millions of other tax payers). Anyone who looks at Nocera’s explanation as to why there’s nothing in his 401(k) today knows better than to claim it’s the fault of the program or somehow a “failed experiment”.
Clue: when you make huge withdrawals to buy and renovate houses prior to your retirement, you might be gutting your retirement program – you know, the program in which you were able to save a large amount of money for after you retired that you chose to use today? And someone should also clue Mr. Nocera into the fact that his interpersonal relationships which end in divorce aren’t the fault of the 401(k) either.
But hey, in today’s world, it is hip to be a victim, isn’t it? Everyone has to have something or someone to blame for their stupid decisions in life. And Nocera provides a great example of the type. Blame the fund, not the fool making the dumb decisions.