Are 401(k)s a failed experiment?

Baby Boomers latched onto 401(k)s in the late 1970s, when companies began switching from traditional pension plans to employee-funded retirement accounts tied to the ups and downs of the stock market. But now, many Boomers eager to quit working haven't saved nearly enough, and are heading toward a "faith-based retirement," says Joe Nocera at The New York Times, in which they have little to go on but faith that everything will be fine once they leave the workforce. Only 22 percent of workers over 55 have more than $250,000 socked away for their post-work life. And a shocking 60 percent have less than $100,000. Even with Social Security payments, that amount will dwindle quickly, and Boomers are increasingly putting off retirement and working into their late 60s and 70s. Are 401(k)s simply a bad retirement system?

Tying retirement to the stock market is a bad idea: Most people "lack the skill and emotional wherewithal to be good investors," says Nocera at The Times. That's why "linking investing and retirement has turned out to be a recipe for disaster." Average investors are prone to bubbles in the stock market, such as the tech bubble in 2000 or the housing bubble in 2008. Furthermore, most people are also vulnerable to personal financial shocks — a divorce, a health problem, or a job loss — that can force them to raid their 401(k) accounts. It's time to rethink the system.

"My faith-based retirement"

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Clearly, we ought to beef up Social Security: "The poverty rate among the elderly is rapidly increasing," says Kathleen Geier at Washington Monthly. And remember, the elderly are particularly vulnerable to financial difficulties arising from health problems, which will deplete their personal savings even more. The problem? Social Security benefits are way too low. The solution? The government ought to raise them.

"The Social Security benefits are too damn low"

Hold on. More government funding is not the answer: It's ridiculous for Nocera to trash the entire 401(k) system just because he messed up his retirement, says Glenn Reynolds at InstaPundit. And expanding Social Security would only make things worse: If "people aren't clever enough to plan their own retirement," then it's unlikely the government is "clever enough to plan for other people's retirement." There's "no evidence that the folks in Washington are any less dumb than the public at large."

"More on those underfunded/over-generous public pension plans"