According the Investment Company Institute, the mutual fund trade group, the answer is a resounding yes. In a just-released survey, the ICI found that 73% of households are “confident” that their retirement accounts, both 401(k)s and IRAs, will help them reach their retirement goals.
The ICI also found that a whopping majority of Americans (90%) are fine with the current 401(k) system, while 98% like having a choice of investment options.
But there are cracks in the system.
Sure, it’s not surprising that Americans feel better about their plans, given the monster market rally. According to Fidelity, the typical 401(k) balance stood at $60,700 in the third quarter of 2009, fueled by market gains and investor contributions — a sharp rise from the first quarter low of $47,500. Still, the typical 401(k) account remains below its $69,200 high in 2007.
That shortfall highlights the basic problem with these plans: There’s little evidence that 401(k)s are the best way to provide secure retirement income. Sure, in theory, a worker who consistently saves in a plan over 30 years and earns a steady return can amass a sizable nest egg. But for most people, those projections are simply a fantasy. As of 2008, the median account balance for those in their 60s with 20 to 30 years of tenure stood at $135,000. For most workers, that’s not enough to support you through two or more decades of retirement.
Why can’t investors do better with 401(k)s? As the Center for Retirement Research at Boston College has found, the problems lie on all fronts. You, the worker, may fail to save enough, or you may make poor investment choices. Or the problem may be your plan, which could offer lousy investments or be saddled with high costs. Even if you get everything right, you can get hurt by retiring just as a bear market hits. That’s precisely what happened to many workers in the 2008 market meltdown.