Are 401(k) Plans Bad for Your Clients' Financial Health?…

August 2002
Journal of Financial Planning;Aug2002, Vol. 15 Issue 8, p25
Academic Journal
This article discusses the conclusions made on whether or not the shift from predominately defined-benefit plans to predominately defined-contribution plans has been good for future retirees. Despite the booming stock market of the 1990s, an increasing percentage of older U.S. citizens are headed toward retirement with smaller net worths than they had 15 years ago, contents a New York University economist, who blames much of the shortfall on the rise of 401(k) plans. Edward Wolff measured U.S. citizens' wealth between 1983 and 1998, and found that over 40 percent of those 47 to 64 will not be able to fund even half of their pre-retirement income, versus only 30 percent in 1989. It is mainly families in the $35,000 to $75,000 range who lost ground. Workers earning $75,000 or more gained ground. Although part of the problem is increasing personal debt, Wolff blames much of the problem on the shift to defined-contribution plans, in part because workers substituted in 401(k) plans money they would have saved anyway if they had had traditional pension plans. Wolff stated that it is a concept that on the surface seemed very attractive, but has really failed workers.


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