Forty years ago, the 401k as we know it was born.Submitted by Financial Planning Solutions, LLC on November 22nd, 2018
Forty years ago, the 401k as we know it was born.
According to the Investment Company Institute, more than $5 trillion (with a "T") sits in these accounts of over 55 million participants.
401k's have become a staple of saving for retirement.Don't get me wrong, they work well for those that do two things:
- Contribute to them
- Contribute enough into them.
Way back in the olden days before 401k's, many companies had pension plans. This was money that was provided by the company for those that worked there long enough to be eligible. This monthly benefit was paid out by these companies without any funding by the employee and lasted until they died.
Bethlehem Steel was one of these companies that provided a pension and shunned the 401k as they said, "We take care of our employees". Bethlehem Steel went bankrupt in 2001. The U.S. Pension Benefit Guaranty Corp. stepped in however; many employees got a cut in their expected benefit.
This brings me to my point. If one has a pension, great. Pensions along with Social Security provide a good base toward one's retirement income needs.
We have many clients that are receiving a pension. The ones that are best off also have retirement savings. Whether that was through a 401k (or similar company sponsored plan) or a retirement plan on their own such as an IRA, this added amount of tax deferred savings can really make a difference in one's retirement and their goals.
One issue with many pensions is that they are not indexed for inflation. If one receives $2000 a month at age 65, they will still receive the same $2,000 when they are 85. What this means is that their benefit won't be able to buy the same goods and services down the road.
At a 3% inflation rate, when they hit 85, that $2,000 of "stuff" will now cost over $3,600.
We are here to help you make sure you don't run out of money in retirement by putting together a plan to help ensure an income that keeps pace with the cost of living.
Give us a call. We are here to help.
All the best.
Rick Fingerman, CFP®, CDFA®, CCPS®
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship.
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