Don't Count On Your 401(k)

By Mark Gimein
Sunday, May 17, 2009

"Our nation's system of retirement security is imperiled, headed for a serious train wreck. That wreck is not merely waiting to happen; we are running on a dangerous track that is leading directly to a serious crash that will disable major parts of our retirement system."

-- John Bogle, Feb. 24

If several years before the financial and credit crisis hit, someone had told you that the housing market was preposterously overvalued and derivatives were headed for cataclysm, would it have been worth paying attention to? The answer's pretty clearly yes, ain't it? Of course, some of the best minds in finance -- from Warren Buffett to Yale housing economist Robert Shiller -- did. It's just that hardly anyone listened.

Now there's another crisis building. It's just as big. Again, some of the best thinkers in the financial world are warning about it. (Yes, Buffett's one of them.) And yet again, as is often the case with gathering storms, most of us are doing our best to ignore the warning signs.

Americans lost almost a quarter of their retirement savings last year. Yet even if there were no market drop, we'd still be facing a disaster in the making.

The urgent lines at the top of this story come from John Bogle, founder of the Vanguard group of mutual funds and father of the low-cost stock index fund, the simplest and most cost-efficient tool yet devised for individuals investing in stocks. Of all the people who've thought longest and best about individual investing, Bogle has to rank near the top. For decades before the financial crisis ripped open the country's retirement accounts, Bogle was tirelessly warning people away from their brokers' fads and follies.

Bogle's voice is now one of the loudest and most cogent of those calling for a rethinking of American retirement. His words are from remarks that Bogle made to a congressional panel looking at the security of American savings. Like much of what is said about retirement, Bogle's comments passed by without much attention.

The bad news from Bogle is that the way it's set up now, the 401(k) isn't the panacea that policymakers on all sides of the spectrum hope it will be. What's wrong with the 401(k)?

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