18 June 2011

Why you want a 401(k)

You know all of those forms and things that your employer puts in front of you on the first day of work and then about once a year thereafter? Chances are that some of those forms have to do with something called a 401(k) plan.

A common employee benefit is a retirement savings account known as a 401(k) account, named after the section in the Internal Revenue Service codebook that defines said account. 401(k)s provide most working folk a way to save for the time in which they will no longer be working (aka retirement) in a tax-deferred manner (aka something that saves you money now) and, in many cases, with a supplement from your employer (aka free money). 

Most of us plan to retire. Actually, I think we all plan to retire. I mean, who really plans to either drop dead on the job or just keep working through the throes of the final moments? The generally accepted retirement age is 65, although that is gradually being ratcheted up to 67. Life expectancy in these United States is currently just shy of 79 years. You do the math. Will you have enough saved by the time you are 67 years old to sustain you for 12 years? And what if you are a healthy, contrary, stubborn sort who lives longer? How are you going to pay for that? What if, for reasons beyond your control, you have to retire before you reach 67? It happens. All the time. 

Hopefully Social Security, or whatever is left of it, or whatever form it assumes between now and the time you retire, will help. Personally, I’m not counting on this, and I advise you monitor it closely. Depending on whom you listen to, Social Security will run out of money sometime between 2025 and 2060. It seems that the system designed by the folks in charge at the time is heavily dependent on an ever-growing work force and, given birthrates and other such information, we’re not making Americans at the same pace as we used to make us. So, Social Security will suffer. Like I said, I am not counting on this particular program to keep me rosy during my golden years.

Maybe you are counting on getting a pension from your employer. I would check very carefully with my employer if I were you. Without going into excruciating detail, the types of pension plans that many of our grandparents and maybe even our parents were able to depend upon are kind of like dinosaurs. Most employers have decided that the risks of managing other peoples’ retirement funds were too much for them to handle.

Or maybe your last name is Rockefeller or Gates or something like that and you will one day inherit gazillions and you don’t need to worry about this stuff. In that case, thank you for stopping by. Please purchase something from Amazon before you exit the blog; perhaps a house. For the rest of us, do you really expect your parents to provide for you after they’re gone? Do you think it will happen? Do you want to stake your future existence on their ability to provide for you beyond the grave?

So who does that leave? Ummm, that would be you and me. For all practical purposes, you are responsible for funding all of those years between when you quit working and when you quit breathing.

Which brings us back to 401(k) plans. For most of us, this is the most available and accessible way to save for retirement. You want one, you know you do. Stay tuned and learn more.

(P.S. For those of us working in the public sector, the equivalent of a 401(k) is a 403(b) account. There are differences, but the similarities are greater. If you can have one, you want one. Trust me.)

No comments:

Post a Comment