Word: planned
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...factor in whether the 401(k) works as designed has to do with when you retire. If the market rises that year, you're fine. If you retired last year, you're toast. And the chances of your becoming a victim of this huge flaw in the 401(k) plan are pretty high. The market fell in four of the nine years since the beginning of the decade. That means anyone retiring this decade had a nearly 50% chance of leaving work in a down market. In fact, your chances of retiring into a down market are even greater than...
...collapses) and can't afford to recover from on our own. "People tend to meld savings and insurance in their mind, but they are not substitutes," says Nancy Altman, a former Harvard professor and the author of The Battle for Social Security. "It's fine to have a savings plan as a supplement but not as the main retirement protection for everyone." She says the best way to guarantee a replacement for people's wages in retirement is by pooling risk, and the way to do that is through insurance...
...Altman is not alone. Teresa Ghilarducci, an economics professor at the New School, has proposed a plan in which the government would divert 5% of everyone's wages. In return, you would be guaranteed in retirement a check for 26% of your final salary every year until you died. Altman would also like to expand Social Security to pay an additional 20% of workers' final pay. It's unlikely Congress would go for that at the moment...
...government. The ERISA Industry Committee (ERIC), a group that represents the nation's largest employers, has proposed a system of exchanges that would allow individuals the ability to buy a guaranteed retirement account on their own. Some government regulation would be needed, but it would be a private plan...
...What the ERIC plan and others like it are essentially proposing is a form of retirement insurance. So instead of putting 6% of your salary into a 401(k) or some other investment account, each pay period you would send 6% of your check to a retirement-insurance provider. The policy would work similarly to a traditional pension in that it would provide a guaranteed monthly check equal to about a quarter of your final pay, from when you quit working until you die. Some employers might even be willing to pay the annual premium as a perk...