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.
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