I don’t see how I’m going to be able to retire and keep buying all the cool new game products.
I much preferred the Pension System.
It's possible that the 401(k) plan has failed. How did we get so dependent on a savings vehicle that has failed so many of us?
The Danger Of A 401(k) Flameout
Hypothetical investment returns run by your employer probably suggest an 8% return per year is possible as an average for use in planning purposes.
Wrong!
The recession drove home the message that 401(k) plans don't come with any guarantees. Because millions of unsophisticated investors had been making their own investment decisions, many retirement dreams were left in ruins.
If your portfolio's asset allocation was 100% equities during the Great Recession (2008), you probably would have lost at least 38% of your nest egg. Out of what was once a $100,000 balance, you' would have had just $62,000 left.
Unfortunately, a 38% gain in the markets wouldn't make you whole again because that 38% gain is now based on a balance of just $62,000. A market rebound of 38% would have left you with just $85,560 of your original $100,000. Based on that hypothetical average of 8% per year 401(k)'s are on average hyped to pay you, it would take more than six years just to make back what you lost.
If you are nearing retirement, you could be in even more trouble because that 8% growth rate is based on an all-stock portfolio. If your risk tolerance drops within six years and you add bonds to your portfolio, that more conservative asset allocation is likely to grow even more slowly.
The fact is that investors always need to learn from their mistakes and educate themselves about the opportunities and risks involved when investing in the stock market. If your 401(k) has taken a hit, the best you can do now is learn from it and move on.
Uncle Sam Messed It Up, Uncle Sam Will Try to Fix It. The 401(k) plan originally flourished as a result of the government. Elected officials were left to clean up the mess on Wall Street after the market meltdown of 2008, and in the aftermath of that clean up, turned their attention to the 401(k) plan. In 2009, legislators began talking about how to fix the system and help guarantee the financially secure retirement that employer-sponsored plans failed to deliver.
The link is not working, but I'll offer an opinion anyways.
If you had a bunch of money in your 401k and the mutual funds tanked, you only lost money on paper. Last time I checked, the market had pretty much recovered from it's over-hyped high back in 2008. Yes, the market was over-valued. It likely still is, but that's another discussion.
If you took all your money out, you lost money. If you left everything alone, you still had all the shares you had before. Time is your friend. If you had to defer retirement for a couple years, what's the big deal? Retirement isn't a "right." In fact, for all of human history until the modern time, retirement wasn't even an option. So, live below your means now and you can live like you want to later in life.
Looking at my retirement accounts, they have either met or exceeded the overall market return for the past two years (after expenses, even!). My son's college fund returned just over 25% for 2010. The only problem I'm likely to encounter is the government changing the rules because I've been successful in choosing my investment options.
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401k Started as a good idea, that has been twisted to help corps and the wealthy. (neutral history here without partisan commentary, in pdf http://www.ebri.org/pdf/publications/facts/0205fact.a.pdf)
401k wasn't enough, so we invited 409a's to hide away the money of the wealthy. (American Jobs Creation Act, for more info http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_409A)
In an individual level, Doug is correct. It's over time performance vrs a snapshot, and over time most plans are fine.
In the the end, your 401k plan is designed to serve the wealthy and corps. That is what I would recommended being concerned about.