Employees Depending on Their 401k Investment Plans for Retirement May Be in Trouble

401k investment plans have been around for almost thirty years. When they were introduced, it was believed that their availability would force more Americans to look towards the future and save money for their retirement. In practice, however, it has been a bit less successful than desired.

The 401k investment plan is an employer sponsored retirement savings plan in which approximately 50% of all working Americans share in. But even though the 401k retirement savings plan is managed by the employer, many employees don't really understand that they still need to be involved. Normally, at periodic times during the year, the employee is allowed to select different options. You are allowed to select conservative investments such as money funds or more speculative investments such as stocks. Sadly, once most people select an option, they never change it again assuming that it will manage itself.

Most employees choose 401k investment plans with options heavily slanted towards stocks. This means that their investment plan is closely tied to the stock markets. In good times, this can be pretty good. In bad times, however, it can be disastrous. As employees get closer to their retirement age, the conservative thing to do is to not risk the funds that they have already accumulated and instead choose options that are not as volatile. In reality, however, most employees don't choose at all - in effect leaving their retirement fortunes in the hands of the market.

Secondly, the vast majority of employees who contribute to 401k investment plans put less than 6% of their salary in the plans - not a lot for anyone saving for their retirement. In addition, more than a third of those who choose a stock option, choose the stock of their own company. While this shows admirable company loyalty, it shows terrible investment strategy as most retirement planners would suggest that a conservative investor diversify his investments a bit more.

Thirdly, not too many years ago, it used to be common for employers to offer matching 401k dollar contributions to the amounts given by their workers. Today that's less true. In addition, many companies have have eliminated their 401k plans altogether in an effort to lower their operational expenses and increase their profits.

So, we have almost half of employees not even in a 401k plan. Of the reminder, most contribute less than 6% of their salaries. And of the ones that do, they're depending on the stock market to support their retirement lifestyle once they leave work. Add to this, the reality that most companies that once had pension plans for their employees have gotten rid of them. The combination of these factors is sad news indeed for the majority of Americans that are looking at their 401k investment plans for retirement security.

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