Shore Up Your 401K

Sep 23, 09 Shore Up Your 401K
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401k plans have become an indelible aspect of American society.  Pitched as a means to provide an employee with a stake in a company’s future and as a way to help employees create an adequate retirement savings, the recent recession has exposed major flaws in the 401k structure.

Between 2008-2009, 401k plans across the country suffered major losses.  Many 401k balances have loss approximately 25% of their value.  The reasons for these losses are myriad.  However, they can be devastating for the bottom lines of many soon-to-be retirees, as well as those whose retirement still looms in the distance.

During hard economic times, people adjust their financial behavior in order to cope with the challenges of their present reality.  As this relates to 401ks, people contribute less and borrow more in order to continue to make ends meet.

Employers, who are mainly concerned about their profit margins, reduce or stop matching their workers’ contribution.  Coupled with a variety of other factors, these actions will substantially reduce the money that will be available for retirement.

Add in volatile or fluctuating stock prices, even employees who have steadily contributed to their 401k can find themselves facing substantial losses right before they retire.

Since it is obvious that market forces have forced many companies to scale back their 401k plans, a New York Times editorial has called on the Obama administration to implement a comprehensive retirement plan for American workers.

This plan would make a retirement account available to all workers.  It would be the only way to shield Americans, especially those that work hard and save plenty, from uncontrollable market forces that can substantially reduce their savings.

Until that happens, there are a few steps that you can take in order to shore up your 401k.  Avoid reducing your contribution unless it is necessary.  Do not let stock prices influence your decision to reduce because they are expected to rise again.

If you need to borrow from your retirement savings, borrow as little as possible and pay it back as soon as you can.  These are just a few things that you can do to protect your 401 until these systemic problems are finally addressed.

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