Ever find yourself around the watercooler discussing with co-workers how your 401(k) is performing—likely leading to the increasingly popular “I’ll never be able to retire” discussion? It’s becoming a bit of a modern-day lament, begging the question: Why do Americans have this doom-and-gloom attitude about their golden years’ financial situation?
Academic, institutional and media reports tend to serve up workers with warnings—often wrapping up with a “save now and save more” silver lining. It doesn’t seem to be inspiring the masses. According to a Wells Fargo study, 37 percent of Americans expect to work until they are too sick to work or die.
Given the current state of America’s retirement, it’s worth taking a look at how we have arrived at this point–and, in particular, the retirement myths that have persisted for decades but aren’t doing current savers as much good as they (and you) probably think. We asked retirement experts to weigh in.
Myth # 1: The 401(k) was created to boost your retirement dollars.
Not really. You might not have given it a second thought as to why you have a 401(k), the retirement savings standard, but the truth is, it happened by chance—not by some deliberate congressional plan.
It all started with the Revenue Act of 1978, spearheaded by Rep. Al Ullman, D-Ore., a staunch believer in tax cuts. In the 184-page bill was a rather simple and short provision called 401(k). It was essentially buried in the report and overlooked by nearly everyone. That is, until a Pennsylvania benefits consultant named Ted Benna noticed that the provision—established for such things as deferred-stock bonus plans—could be applied to joint tax-differed employee and company accounts. By 1982 companies such as Johnson & Johnson, PepsiCo, J.C. Penneyand Hughes Aircraft Company were using 401(k) plans.
The kicker is that Benna has been critical of 401(k)s over the years, implying that he helped create a monster. He envisioned the plans to be simple plans on par with pensions, but more recently Benna has said he would “blow up the system” and start over again with something new.