Investing in a 401k Plan – Is it a Logical Choice?
Many Investors are questioning the 401k Contribution Plan
There was talk not so long ago regarding the privatization of the retirement system for working Americans. That process would have relied more on investment plans like 401ks and IRA contributions and would have lightened the load on the Social Security system. Luckily, that concept never became a popular notion thanks to the economic turmoil. America is experiencing billions of dollars of net worth lost due to the retraction of 401k investment portfolios. This situation has both investors and financial experts asking “do 401k plans make sense?”
Those who were expecting to retire about this time now have doubts if it was even sensible of them to have created 401k investment plans to begin with. A research by the Employee Benefit Research Institute found that Baby Boomers were hit especially hard by the economic retraction – on average 401k balance declined by approximately 20% in 2008. Because that figure also includes new contributions, the Employee Benefit Research Institute believe that the actual investment declines are actually even greater.
The first big test on the 401k system is showing dismal results, supporters of the investment tools think that the overall pessimism is a bit premature. 401k contribution plans are a fairly new investment instrument, with their roots dating back to 1978. At that time Congress passed a law where employees would not be taxed on income that was deferred, thus laying the groundwork for the 401k investment retirement strategy and reduced the traditional “pension plans” that were previously very common.
It is not all gloom and doom though when it comes to investing in a 401k, many employers till make it quite simple and an attractive benefit for their employees. By making contributions towards a 401k plan is still a sensible choice if your employer offers a matching dollar amount on top of your contributions. The match is free money after all and to receive it you must make 401k contributions.
Investing in a 401k can be a logical choice as long as it is part of your overall retirement strategy. Make sure the investments in the 401k are low risk and stable to hedge any additional losses, take advantage of the matching employer contributions and have diversified investments to help plan for retirement.