How I Learned to Stop Worrying and Love the Freefall

This just makes me mad.

The stock-market rout has ignited a crisis of confidence for millions of Americans who manage their own retirement savings through 401(k) plans.

After watching her account drop 44% last year, Kristine Gardner, a 35-year-old information-technology project manager in Longview, Wash., feels no sense of security. "There's just no guarantee that when you're ready to retire you're going to have the money," she says. "You either put it in a money market which pays 1%, which isn't enough to retire, or you expose yourself to huge market risk and you can lose half your retirement in one year."

No, sweetie, there is no guarantee. There never has been a guarantee. There was never SUPPOSED to be a guarantee. It's called risk. Risk in return for a potential reward. You take your risk just like everyone else and stop whining about it. This 35 year old girl has 30 years to retirement age, more than enough time to overcome last year's market dip. Someone should educate her on that.
Not to mention the fact that the Federal Reserve (yay government!) is largely responsible for the (less than) 1% yields on money market accounts, treasury bills, etc thanks to its inane 0.25% policy.

Many retirement experts have come to a similar conclusion: The 401(k) system, which has turned countless amateurs like Ms. Gardner into their own pension-fund managers, has serious shortcomings.

Good Lord Almighty, save us from so-called experts and their opinions.

"This is the biggest test that the 401(k) plan has seen to date, and it has failed," says Robyn Credico, head of defined-contribution consulting at Watson Wyatt Worldwide, noting that many baby boomers are ready to retire. "We've put people close to retirement in a very challenging position."

Ok, let me just stop you right here and note that:
1) the expert in charge of bashing 401(k)s is a DEFINED BENEFIT guy. Of course he would be against it!
2) never, in the history of ever, has a retirement-ready people been forced to deal with "a challenging position". Except, you know, for the other 21 recessions/depressions the US has been in since 1900.
3) the stock market is more volatile than most people realize, and it is much more complex than is accounted for in news story headlines. See this website for lots more information. (Look at the sections on Secular Cycles and Significant Swings especially.)

The most obvious pitfall is that 401(k) plans shift all retirement-planning risks -- not saving enough, making poor investment choices, outliving savings -- to untrained individuals, who often don't have the time, inclination or know-how to manage them. But even when workers make good choices, a market meltdown near the end of their working careers can still blow their savings to smithereens.

"That seems like such a fundamental flaw," says Alicia Munnell, director of Boston College's Center for Retirement Research. "It's so crazy to have a system where people can lose half their assets right before they retire."

Yes, because the experts get it right so often. Look, it's not a matter of being "untrained". If you want to participate in the system, educate yourself. If you don't want to or can't do that, there are professional financial planners out there to help you with the details. It's not crazy to have a system where people can lose their shirts. It's the free market! Invest your money or don't! If you don't, then save 10-15% of your salary in a savings account. If you do, you're taking (gasp!) a risk that you could lose half your investment. But you've also got the possibility that your investment could go UP (cf. 1991-1999). The thing is, people got so used to winning the stock lotto (16 of 18 years from 1982-1999, and even 4 of the last 6 years), that they conveniently forget the market can go down a lot. Do you know how many years since 1900 the broad market has dropped by double digits? Twenty-three. One out of every five years.

Congress has begun looking at ways to overhaul the 401(k) system.

I'm trying not to swear....

At hearings in October, the House Education and Labor Committee heard from a variety of witnesses. Some proposed setting up "universal" retirement accounts, which would cover all workers. One such plan called for establishing accounts that would receive annual contributions from the federal government, and would offer a guaranteed, but relatively low, rate of return. Another proposed automatically investing contributions in an index fund that holds stocks and bonds, with the mix getting more conservative as workers approach retirement. Other witnesses proposed less drastic changes, such as providing better education.

A universal retirement account...hm. Where have I heard that bef...oh! You mean like SOCIAL SECURITY? The broken, dying, about-to-be-bankrupt social security program? Yeah, that worked out really well, didn't it? So let's double down on that idea, except that while employees pay into social security on their own, we'd pay for Social Security Part Deux with "annual contributions from the federal government". And how does the federal government get the money to pay these contributions? Yep! It's taxpayers! Except, you know, for the 50% of Americans who don't actually pay any taxes but would receive the "benefits" anyway. So we'll double the taxes on those who pay, give rebate checks to those who don't, and let no one actually take control of their own destiny.
Next up: no new small business creation. Cause, you know, too risky. You might lose your shirt.

I won't even go on quoting from the article, but let's look at a few crucial points not made already. Call this personal financial planning 101.
1) The above arguments against 401(k) plans ignore two very significant benefits, namely employer match and current tax reductions, which help with the down fluctuations.
2) IRAs and/or Roth IRAs. Fund 'em. Love 'em.
3) 3-6 months worth of expenses in savings (cash, preferably in a bank and not under your mattress) for emergencies.
4) Once again, the Richest Man in Babylon was right. Pay Yourself First - by saving 10% of your monthly salary.
5) Use debt only for appreciating assets - house, business, education. No credit card debt.

And that's just the very basics on retirement investing. We haven't even touched budgeting, insurance, continuous education, making yourself too valuable to fire, multiple streams of income, etc etc etc.

The point? Take responsibility for yourself. Stop whining about what could happen or what did happen and do something about it personally. Just don't get the government involved in it.