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401(k) Made Retirement Much Tougher

One of the first champions of 401ks, Herbert Whitehouse, told the Wall Street Journal that the retirement savings plans were supposed to supplement company pensions. Instead, companies replaced defined-benefit pensions with less costly, market-driven 401k plans, something he and others didn't anticipate.

Of all eligible U.S. workers, 61% are saving but haven't calculated how much they'll need in retirement, according to a study by the Employee Benefit Research Institute and Greenwald & Associates, a market researcher.

Most employees might think they understand their employer's 401k plan, but in a recent test, Fisher's 401(k) IQ in the Workplace Quiz, 71% failed. Fisher Investments released the results, which showed a gap between what the respondents said they knew about 401ks and their actual knowledge of the plans.

Most of the respondents, 88%, understood the matching-fund concept with 401ks, but only 24% could explain a mutual fund, and only 40% knew how much of their pay they would need to save to live comfortably in retirement. Notes from Balaji: To my audience even though most of the professionals understand mutual funds and index funds they don't have access to industry secrets and benchmarks. Eventually leading to losing their wealth in long run.

The test results showed that most of the respondents, four out of five, preferred a company that offers a 401k plan. But most, 66%, said they were uncomfortable choosing the right investment options. Fisher says one in four of the respondents didn't pick their 401k assets or couldn't remember how they were chosen.

Workers might prefer defined-benefit pensions -- with their guaranteed lifetime payouts – over market-driven (read: uncertain) 401k plans. But employers aren't likely to go back to offering costlier life-long pensions.

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