Two Weeks ago I ran a piece called “Is the 401k Broken?” I received some great emails and comments on that piece, and I’m glad we’re having a conversation about it. Today I have two more opinions. See the piece from Jason Hull of Hull Financial Planning here: “Is the 401k Broken? Another Point of View“
So, now I have a couple of opinions….but I wanted more. Is the 401k broken?
Gene Natali is an innovative guy. Instead of complaining that kids don’t know enough about money, he reached out and helped them begin to get their act together. Today, his book The Missing Semester and the financial literacy council he helps , attracts thousands of people to question whether we need to do a better job on retirement and financial planning in general.

Here’s Gene’s response to my question, “Is the 401k Broken?”
I hadn’t seen that story, and given the time it was written (conclusion of financial crisis) there is certainly some emotion in the writing – But 5-years and +200% from the S&P later the author might have a different opinion.
1) Do I think the 401k is broken?
No, and more Americans – particularly younger Americans – should be taking advantage of company 401k plans and company match programs. I’m often stunned when I talk to folks at corporations who will say how few people choose to participate in 401k’s and how many invest simply in cash. Employees should have to “opt out” of the 401k not have to “opt in”. Our last blog entry showed what happens if you save $3 per day from 25 to 35 or $3 a day from 35 to 65. You can guess where I’m going with this. Now imagine if every 25-year old could save $3 a day from 25 to 65….
2) Could the 401k be improved?
Sure, most things can be. Personally I believe educating employees about their investment options and financial goals should be a higher priority for many companies (some are doing this). By replacing the defined benefit plan with a 401k a company greatly reduces its liability, but it shouldn’t then be a “sink or swim” approach when it comes to the employees and their investment choices.
3) Is saving for retirement broken?
This is an interesting question and “broken” is a strong word. Instead I might say that society doesn’t place a high enough emphasis on retirement or on savings and investing. Case in point: I helped my 23-year old friend (a teacher) open a Roth IRA in May. It will likely be the best investment decision she ever makes simply because of her age. As soon as we finished her mom (who is not well prepared for retirement) said, “Congratulations, you are now gambling with the stock market…”. OUR SAVING NEEDS SHOULD DICTATE OUR SPENDING – NOT THE OPPOSITE. We have become a spend first society, and can you blame us? We are surrounded by temptation and consumerism at nearly every step. How do recent grads even have a chance in today’s world (answer: They need a plan, and must stick to that plan)?
On a positive note, I can report that we saw a high level of enthusiasm from students across the country – about saving for retirement – but generally after they were made aware of it’s importance.
*********
Interesting response, thanks Gene! I share his feeling that we should have an opt out system for retirement rather than an opt in system. I also LOVE (sarcasm doesn’t cost extra on this blog) the response from his friend’s mother about “gambling” in the stock market. That, to me, shows the level of education about money and planning.

I wasn’t done yet. I asked Matt Becker from Mom and Dad Money. Matt also, like Jason, helps people complete comprehensive financial plans online. His take to my question, “Is the 401k Broken?”:
For younger generations, the shift towards more self-directed retirement accounts actually creates a lot of opportunities. While traditional pensions provided security (though, as we’ve seen, not quite as much as people thought), they also forced you into a pretty rigid work life. With the rise of the 401(k) and IRA, individuals who know how to take advantage have more freedom than ever to change jobs, start businesses, and generally define “retirement” however they would like. It’s a new world with new risks, but also new opportunities that previous generations didn’t have.
*********
I like Matt’s phrase, “individuals who know how to take advantage….”. I think that alone illustrates the lack of financial education. We should all know “how to take advantage” of our financial futures, shouldn’t we? Isn’t that job #1 in our lives?
Empty Pockets Photo: Dan Moyle; Gene Natalie and Matt Becker photos from their websites (links above)
Matt’s point about employment flexibility is insightful. Moving between companies can be lucrative, but in any case, it’s often necessary. So it’s good to have a retirement vehicle that matches that reality. I’ve read (maybe in 48 Days to the Work You Love) that the average job length is now about 3.5 years, and shortening…usually just long enough to get those matching funds vested.
I read something recently that more millennials are utilizing their 401ks than Gen X-ers or Boomers did at their age.
Thanks for including me Joe! It’s easy to blame the vehicle. It’s much harder to look at our own behavior and see how we can improve. You can take a wild guess which one is more likely to help you to a better result.
I think that is one of the most vital information for me.
And i am satisfied studying your article. However should statement on few general things, The
website style is perfect, the articles is in reality excellent : D.
Good activity, cheers