Socrates, philosopher and teacher, claimed that asking the right question will elicit the correct answer. So let's not ask how our 401(k) is changing but rather, why invest in a 401(k) in the first place?
Why in the world would Pennsylvania employees, including teachers, believe they will have sufficient 401(k) retirement returns? How inviting is a 3 percent return on a 401(k) investment when (in 2011) the rate of inflation was 3 percent? Are the highly touted tax advantages meaningful? Do employees realize a 401(k) is a form of investing, not a form of savings?
401(k) disadvantages include:
• Limited investment choices.
• Hidden fees.
• Lack of individual expertise to evaluate market performance.
• Investment vulnerability to the vagaries of the stock market.
• Lack of a guarantee the investment will provide enough for retirement.
Workers provide a steady infusion of capital from their automatic 401(k) investments, causing the market to rise. Those in a position to take advantage of daily market fluctuations — the professional investors/banks — get the greatest benefits. The savvy investors take their profits, driving the market down. Then the continuing 401(k) capital pushes it up again until they cash out again.
The cycle makes big investors billionaires while average employees in it “for the long run” hope no major world catastrophe occurs to jeopardize their retirement funds.
While contemplating how to respond to these important questions, people should — as Socrates would — ask the right questions. As a former educator, I remain skeptical: 401(k)s remind me of seasonal sheep shearing.
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