Are 401Ks Still A Good Idea?

Even with the stomach-churning twists and turns of 2008 and 2009, most people who continued contributing have recovered their original portfolio value. However, the stock market drop has made it obvious that as a vehicle for retirement, certain safeguards need to be put in place. For one, it’s important to understand your 401K investment strategy based on your age. Two, a 401K should not be the only way to invest your funds for retirement. Finally, 401Ks need to be managed by someone who understands the market, as the risks increase with a laissez-faire attitude.

How Companies Might Change The System

There is a possibility that companies will start to manage their employees’ 401Ks differently than in the past. It is certain now that matching contributions are disappearing. Additionally, more stringent requirements for employees to contribute to their own retirement funds are going to be put in place. Companies will demand better accountability of the private firms that manage these funds, and more transparency when it comes to fees.

Who They Will Choose

Private retirement account managers will need to show an expertise in how they handle employees’ money when it comes to age strategies. Older employees need to be more aggressive with contributions, but less aggressive with stocks. A greater proportion of their savings should be stored in cash as they approach retirement age, to hedge against market losses in the crucial last years of employment.

Major Changes Ahead

One of the biggest mechanisms to change will be the option to rollover or lump sum your distributions when you get laid off. It can already be difficult to get your money transferred out of one company to your individual IRA, sometimes taking as long as five years to complete the process. In the event of a layoff, you won’t have access to these funds for some time. In the future, however, you may not even have this choice, and the amount that you invest will be held in an annuity that may not be available until you retire.