401(k) Plans: No Time Like the Present

Get a good job with one company, work hard for them and show them your loyalty for the duration of your career, then when you retire you'll be rewarded with a pension that will take care of you for the rest of your life. Right?

Sounds kind of like a fairytale at this point. And once upon a time perhaps it was even true. But times have changed. And how.

Consider the story from Janis S. of Bailey, Colorado, who wrote to us with this:

I will be celebrating my 60th birthday soon. Last year I was laid off from a company I worked for 21 years. I was paid a pretty good salary, but now cannot find anything in the market that pays as well. I had planned on retiring by age 55 and was well on my way. Unfortunately, a part of those 21 years was with WorldCom and I lost my life's savings and had to start over. Now, I'll have to work beyond retirement age. I never thought at age 60 I'd be starting all over at "entry level" — looking for a job, interviewing, etc. I remember my Dad telling me when I was in my 20's and job hopping that you have to work for one company, be loyal and they will take care of you. Hah!!

You have probably seen many similar stories in the news in recent years and know all too well that Americans do not live in a fairytale world when it comes to retirement security. Some people, such as Janis, had a lot of their retirement investments in employer stock and lost everything when their company ran into trouble. And many of us simply have a hard time setting aside money in a retirement savings account when there are many bills that need to be paid today.

The reality is that people today have a lot of responsibility for saving for their retirement, and can no longer count on the traditional pension plans that many companies used to provide. In today's world, few of us expect to stay with one job for life and we need a lot more than Social Security to support us after we retire.

So what are people supposed to do in the face of this new reality? What can be done to make saving for retirement easier so that we can have the peace of mind that we will not outlive our savings or become a burden to our friends and family?

The good news is that in 2006 with AARP's support, Congress made it easier for people to join their employer's 401(k) retirement plan. New employees can be automatically signed up and have the freedom to decide later if they want to make changes to how much they save, but they don't have to think about these things as they settle into a new job.

But there is still much to be done. Among those employees who have access to a 401(k) plan, about one-quarter do not participate and many others give away free money by not taking full advantage of an employer match. Many workers find the process too confusing, too time-consuming or both — and take the path of least resistance by doing nothing.

And what about low-income workers? How can they possibly save for retirement when they need every last penny just to pay bills?

Smart policy options exist for making it easier for all Americans to contribute more to their 401(k) plans. Making financial education and literacy programs a part of school curriculums so that people understand the importance of saving and budgeting from an early age is one. Getting more information to all Americans on affordable investment options and how to invest wisely and without a lot of money is another. And making it easier and less confusing for everyone to invest in a plan when they're ready to.

All Americans should have peace of mind about their long-term financial security. Join Divided We Fail in calling on our leaders to help all workers safeguard their future.

Share Your Thoughts

We'd like to hear from you. Tell us if and how you are contributing to your individual retirement accounts. And if not, why not?