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August 12, 2002
401(k)s are Still OK
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Despite the economy, workers are still better off with 401(k) plans than with company-sponsored pensions, according to a new study.
Conducted by Dartmouth College Professor Jonathan Skinner, the study reports that regardless of the 1990's boom and the bad decisions investors make, 401(k)s are still superior, according to a story in the Kansas City Star.
But a New York University economist disagrees. Edward Wolf said that 401(k) investment wealth fell 11 percent or more on average from 1983 to 1998, the Star reports.
But both sides agree on several things. Pension plans are being phased out and workers need to familiarize themselves with 401(k). Many workers are passing up the chance to invest in their 401(k). But despite the huge losses from the stock market and corporate scandals, they are essentially necessary.
Investing in 401(k) can bring a retiree's income up, even if it is just to the poverty level. It becomes especially important to consider when the future of Social Security is unclear, according to the Star.
Financial advisors emphasize the importance of diversifying a 401(k) portfolio, even if the portfolio seems stable.
Advisors discourage borrowing against or cashing out 401(k) accounts. They should be rolled over when changing jobs.
Although it is unlikely that a 401(k) retirement income will meet workers' current incomes, it is better than having no retirement at all.
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