8 ways your 401k is failing you

Even with the stock market in the midst of a sustained bull run, many savers are uneasy about elements of their defined contribution retirement plans.

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May 27, 2013 8:25AM

The problem is that most Americans are too illiterate when it comes to investing their own money.

This is a result  of our criminal public education system. Personal financing should be taught at all grade levels concentrating the most in high school.

Most Americans can't balance a check book let alone make sounds investment decisions. A good investment counselor will cost you a small fortune or he/she will just keep "investing" your money until it's all gone.

If Americans spent as much time on their investments through life as they do worrying about who will win "Idol" or "Dancing With The Stars", they would retire much wealthier.

May 9, 2013 11:10PM
This article makes good points about costs. But the main reason the 401k is not working very well is because Americans do not save enough in the first place. They expect to save $25,000 and end up millionaires.

Compound interest is not THAT powerful.
May 22, 2013 11:34AM

The problem with an IRA or 401k is that your capital gains are taxed at the EARNED INCOME rate, not the lower capital gains rate.


The only ones making money on your IRA/401k are the fund managers, brokers, and the IRS.

May 22, 2013 10:50AM
I don't like the tone of this article.  Seems to be implying in many cases that people are either not interested enough or uninformed to take control of their 401K, leaving the door open for a so called "benevolent" government to take control of your money for you.  If you think this sounds far fetched, it actually happened in Argentina and some Dems have started floating the idea of government control over your assets.  They take control of you 401K (the implication is that you are stupid and need to be saved from your dumb choices and the evil stock market that is controlled by fat cats on Wall Street) and you get a crappy government annuity worth maybe $.25 cents on the dollar for those who have been responsible to save and spend some time managing their accounts.  The irresponsible who haven't saved get subsidized by the responsible- basically another redistribution scheme rewarding bad behavior.  It's not rocket science, look at the funds to pick from and see which ones are doing well.  Purchase several of the better performers to get some diversification.  When the **** hits the fan, don't panic and sell everything.  If you are too lazy or dumb to do this simple research or save anything, too damn bad if you have to live a meager retirement.
May 9, 2013 9:36PM
Well, 401k is definitely not a pension.
May 10, 2013 10:29AM

The biggest problems with a 401k or 403b are the investments. 


Most employer plans offer a limited number of mutual funds.  Many of the funds are performing below average when compared to other funds within the same category.  The typical plan has 15 to 20 investment options with only 2 or 3 being quality funds.  The remaining funds perform at or below average and have high fees.  Diversification among those funds is limited. 


Employees should be allowed to go outside the 401k or 403b plan when picking their investments.  Employers should also be required to provide free annual appointments with an independent investment advisor. 

May 10, 2013 1:12PM
Trouble with many of the ideas that are coming out of our scummy politicians' heads is that today, we are only including 'the rich' in the conversation, while in the future, when the scum politicians realize they can just keep lowering the threshold of who is considered 'rich' until they get as much from the taxpayers as they can before we start squealing like pigs. Look what happened to the income tax--100 years ago, it only applied to 'the rich'..."we'll get them for having the nerve to be so wealthy" right? Even until the early 60s, the average Joe and Jane were paying only 3% of their income in income taxes. Yet now the average is closer to 15%, quite a jump, don't you think for working Americans, not the leeches on welfare and disability who don't pay any taxes. We're like the frogs being boiled...to keep a frog from jumping out of the pot, start with cold water, put in the frog, then gradually heat it up. 100 years ago, the water was cold; but now the frogs, the taxpayers, are starting to get really hot, and most of us (we call them Democrats in the biz) are too clueless to kow we are being boiled to death with new taxes.
May 10, 2013 11:20AM
1.14% median fee is better than paying 15% or more in taxes on that money. My 401k is a Vanguard 2030 plan, and I'm doing quite well this year! I have much more than $25,000 (MUCH), and my YTD performance is 8.65% for 2013. How else am I going to take tax-free money, and get that return? This article points out "problems", but offers nothing in the way of solutions or alternatives. My company isn't very large at all, and they phased out pensions a few years ago. What they did, however, was increase bonuses, and toss some extra cash into our 401k's at the beginning of each year.
May 27, 2013 9:43AM

Am I the only one who's 401k is doing great?   The stock market is at an all time high.   I have kept my contributions at the max for the last 25 years.   I had huge (HUGE) gains through the 90's and some  big losses around 08-09 (like everybody else).   Like I said the market is booming now, and if you suspended you contributions, you are crying.  You lost an opportunity to buy stocks low and also you lost out on the company match.


Dollar cost averaging is the whole deal.   The dips allow you to accumulate shares a lower price, that's why you buy on a weekly/monthly basis to spread the costs out.   That doesn't mean you can just leave it and not pay attention.   The risks you can take at 20, 30, 40 and even 50, are not the same ones you should be taking at 55-65.   All funds offer lower risk, lower return options, that as you near retirement age you should move into to protect you money.


After a lifetime of plugging away, I am starting to move sizable portions into bond funds and safer bets, and will continue to until I retire.   My 401 over it's life time has out paced my pension and SSI that it not even a comparison.   That money is mine, and unlike my pension and SSI, I will be able to leave that to who ever I want.


Does saving and investing mean that money will be there when you need it?  Absolutely not>>>>>>>>>But not doing so ensures there will be nothing.

May 27, 2013 7:15AM

Tax deferral can be great, but, only if you end up in a lower tax bracket when you withdraw the funds. Otherwise, your 401k can turn out to be a tax infested nightmare. That’s why I prefer a Roth IRA. Once the money is in there, earnings are tax free forever, and there are no minimum withdrawal requirements when you reach maximum retirement age. There’s a reason why our government makes it more difficult to accumulate sizable assets in a Roth IRA vs. a 401k or traditional IRA, and it’s not because they are looking out for your interests. Unless your company is giving you a significant match on your 401k contributions, I would max out savings in a Roth first, then decide what to do with anything that is left over. 

May 21, 2013 12:53AM
and all I can say voter is I hope your money is in a 401 that went to little and the ss says you dont get your social security that you paid in on other jobs because you have a "pension fund"
May 9, 2013 9:05PM
The 401K was originally designed as a tax shelter for those making 200K or more. When Wall Street found out that they could buy the politicians and make piles of money in up front and hidden fees, they set to work moving everyone from conventional defined benefit pensions to 401K's. The Wall Street investment and banking industry growth exploded upward and now Joe Average making 50-55K wakes up to the reality that those fees he didn't know about ate up half of his savings and he can't afford to retire. And the beat goes on with Wall Street getting boat loads of money from THE CHAMPIONS OF THE MIDDLE CLASS!!! Justice Thomas said it in a nut shell when he stated that Obama would have been torn to shreds if he didn't dance to the beat of the elitists, just like other presidents before him.
May 9, 2013 11:28PM
401k plans are a joke. But what other option does the working person have. You are one person swimming with all the sharks you will be eat'n
May 27, 2013 9:58AM
Back when the big hit happened, I took a loss, sure...but I was smart enough to have diversified my account and only lost about 10% of my 401k balance. Now, I'm not an economist, just a regular WORKING guy who knows that it is MY money I'm working with. As noted in previous posts...it's not rocket science. A cursory look over the funds provided by most plans will allow you to figure out which are making money over the long haul and which aren't. Pick the best one from each of the fund categories offered, work your way up to at least the maximum contribution level your company will match and get at it!!! Bitchin' and moanin' ain't gonna get it done...you're going to have to put in the time, effort and OVERSIGHT to ensure that your funds are performing the way you expected. If they aren't...move the money to other funds that are. The real kicker is the "hidden" fees, which aren't really hidden at all, they just don't advertise them (S & H not included). Read the information sheets on your selected funds, not just skim over them, and you'll find that the information is there for all to see. If you think that the fees for managing the fund is too high...change funds!!! The lazy in this world will always complain about how they never have what the workers in this world have...that's because those who really work for themselves stay on top of THEIR money, so they'll have it when they need it. So, if you want to get there, quit yer bitchin', get off your butt and get at it.
May 27, 2013 5:48AM
About a month ago I was reading that the obama administration were looking into ways to penalize people who saved too much money in their IRA accounts.
May 27, 2013 9:10AM
I guess they think that most of us aren't smart enough to have a 401K or run it ourselves.   Mine is just fine, thank you very little.

May 27, 2013 12:58PM

Once again MSN takes a negative tone on self reliance and personal responsibility.  The article points out valid risks associated with 401K's.  But the title of the article should indicate that these are potential risks not that 401K's are failing for all of us. The biggest issue here is the under-educated investor.  It is very unfortunate that personal finance is virtually ignored as a curriculum subject by our public education system (HS level).  Many of us have done quite well with our 401K's. 

May 22, 2013 10:58AM
Fortunately, even though I only like one of my limited 401K options (Pimco Total Return), if I jump through the right hoops, I can move the money in my 401K to a brokerage linked account, where I have a portfolio of diversified ETFs.
May 27, 2013 9:43AM

Who is this article a commercial for??? Obviously someone who wants you to think they charge less fees. Plus they want to remove the cap???


There is a reason that there's a cap on investing. If you have no cap, then the government wouldn't get any taxes from the rich at all. Since it's all pre-tax the government doesn't get a cut. I put the max in for years........before I retired. The limit was $22,000 then, but if I could have I'd have put away a lot more. It's not counted as income at all, so no taxes on it. If you remove the cap, the rich will throw everything they can into it making it just another loophole.

May 27, 2013 1:48PM



wall street's skimming off around 1/3 of american retirees retirement money through management and assorted transaction fees.


it's a pretty good racket that's going mostly unnoticed.


index funds are one good solution.

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