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...Occidental had stuck with its pension plan, Lucantonio might not have to work. When he retired, he had a salary of nearly $80,000. That means he would have received a pension check of about $3,100 a month. It would be nice if 401(k)s could produce a guaranteed check as pensions do. But most 401(k)s don't generate enough income, and Lucantonio's is no different. He retired from Occidental with $350,000 in his 401(k). That's a hefty sum, but he can withdraw just 4% of it annually, or about...
...Neil's retirement outlook is growing darker every day. He once made a six-figure salary, but the 63-year-old is fairly certain that his savings won't be able to sustain him for very much longer. He has some $500,000 left in his 401(k) and spends about $75,000 a year. At this rate, he worries he will tap out his retirement savings within the next decade. (See 10 things to buy during the recession...
...Where 401(k)s Go Wrong In theory, 401(k)s should provide much more of a retirement cushion than they do. A 2007 study from the National Bureau of Economic Research (NBER) estimated that, on the basis of historical returns, by 2040 the average 401(k) of a near retiree would grow to an inflation-adjusted $451,944. That money, spread over 30 years, could replace at least 50% of the average retiree's income. Add Social Security and even highly paid workers will probably earn more than 80% of their preretirement income. "The only reason these accounts haven...
...practice, 401(k)s haven't been nearly so rewarding. When Boston College's Munnell looked at the returns 401(k)s have actually produced compared with the projections, the difference was sobering. The average 55-to-64-year-old should have a 401(k) balance of $320,000. In fact, at the end of 2007, the average 401(k) of a near retiree held just $78,000 - and that was before the market meltdown...
...these accounts amount to much? Munnell found a number of reasons. Some people don't contribute as much as they should - essentially ignoring free money from company matches and tax relief. And, as the original engineers of the 401(k) suspected, the less you earn, the less you are likely or able to contribute. For most employees, the maximum contribution to a 401(k) is $16,000 annually. She found that just 5% of people earning $80,000 to $100,000 maxed out, compared with 30% of those making $100,000 or more...