Originally published April 5, 2010 at the Financial Planning Association's All Things Financial Planning Blog
Robert Schmansky, CFP(r)
It seems to me a lot of the conversations these days about ‘reform’ are really more of a way to get people to act a certain way, invest a certain way, or own a certain product, rather than promoting ideas that solve the underlying problems. Regulating behavior, rather than teaching how to fend for oneself.
Pundits and politicians are proposing ways to ‘fix’ the 401(k). Two ideas working their way through Congress and the administration include attaching annuities to 401(k) plans and regulating investment advice for participants.
But do these ideas fix the problem? Are they even necessary?
Many advisors think the above regulations offer little benefit, and may have the potential for significant confusion for savers.
Sure, the 401(k) plan isn’t perfect, but what I wonder is how the above changes answer the following questions participants have:
• How much should I save and where? Do I save more for retirement, or an emergency fund, or perhaps a home down payment fund? Do I save more or payoff debt?
• More than simply knowing how much risk I think I may want to take, how do I invest based on my goals, personal risks and emotional tolerance? What is the tradeoff I may face in investing for higher returns and my goals? Do I need to take on market risk, and if not, how do I make sure my savings keep up with inflation?
• Is my 401(k) working in concert with my overall financial plan? My estate goals? My other investment accounts?
The 401(k) itself is not a problem. It is just an account, and since it has been introduced savers have become wealthier than past generations by being allowed to take control of their savings. But, with that opportunity comes personal responsibility.
Below are my two cents in the conversation to improve retirement plans: