The 401k plan is one of the most innovative creations that has every been thought up as a way to help people save for retirement. For years people depended on Social Security as their primary income source upon retiring but with a growing population and an increase in coverage, population, and expanding entitlement programs, Social Security is no longer adequate to confront the rising costs of living. There are now many different types of retirement savings plans but they’re all based around the basic principal of putting money aside for retirement. With any new plan, there are always problems and there’s a growing concern among many that shows a huge gap in what people are putting aside and what they actually need.
These various plans have allowed average citizens to save for retirement by depositing money into investment accounts and, based on different taxation plans, allows people to deposit funds and allow the money to grow on a tax-deferred basis. Some plans, like Roth IRA’s, allow people to pay the taxes up front but the basic principal is much the same. What’s been even more helpful is when companies get involved and allow their employees to participate in a 401K plan by matching applied funds. The US Department of Labor reported that over 17 thousand companies offered similar plans which has helped millions of Americans. The problem is that, when people are given control over the accounts, they mismanage the funds and find themselves lacking when the need arises.
Many lawmakers and public officials have noted this growing concern and are worried what this will create huge savings deficits for current and future generations. Senator Herb Kohl, D-Wis, and others, drafted the SEAL 401K Savings Act in order to counteract 401k repayments and withdraws. Sen. Kohl stated, “The gap between what Americans will need for retirement and what they will actually have saved is estimated to be a staggering 6.6 trillion dollars. While having access to a loan in an emergency is an important feature for many participants, a 401k savings account should not be used as a piggy bank.” Unfortunately, what should be done and what people are actually doing are two different things.
Though people work and save their money, it’s incorrect to assume that people are able to become their own pension and savings managers. People too often treat their retirement accounts as if it were a savings account and when people decide to withdraw from their plans, statistics have shown that people, very rarely, replace the funds.
Thankfully the solution to many of these issues is simple but the execution is what will make the difference. As with most things, the solution is in educating individuals about their retirement savings and diversifying their investment portfolios. The best investor is an educated investor and there are many companies that will help individuals looking to save and spend their money wisely. Applying some forward thinking and better money management could mean the difference between a comfortable retirement and having to get a second job after retiring.
This article was written by Retirement Calculator.