November 30, 2004 10:09 PM
A Lesson for Social Security: Many Mismanage Their 401(k)s
Excerpt: If President Bush has his way, it might be possible in a few years for Americans to take a portion of their Social Security taxes and invest the money as they see fit. The president says people should have more control over their retirement savings. For a look at the challenges that plan could present, consider Americans' experience with do-it-yourself 401(k) retirement plans.
If President Bush has his way, it might be possible in a few years for Americans to take a portion of their Social Security taxes and invest the money as they see fit. The president says people should have more control over their retirement savings.
For a look at the challenges that plan could present, consider Americans' experience with do-it-yourself 401(k) retirement plans. In the 23 years since 401(k) plans were first created, many people have made obvious mistakes in investing their money, such as putting too much money into low-yield savings accounts or betting the house on their own company's stock. Many also don't put as much money into the plans as they could, forgoing big tax savings and employers' matching contributions.
Some companies have become so concerned about their employees' poor decision-making that they are shifting responsibility away from them. One Los Angeles power-equipment maker is automatically putting its workers into accounts managed by a professional investment company unless they choose otherwise. Dozens of other companies, including J.C. Penney Co. and Alcoa Inc., are giving employees a similar option, although they're not making it the default choice. Vanguard Group and Merrill Lynch & Co. are among the professional money managers now offering such managed-account programs, which were made possible by a federal rule change in December 2001.
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