Should the 401(k) Be Reformed or Replaced?

September 12, 2012 | | The New York Times |

A study by Demos, a liberal research center, found that a median-income couple that invested in 401(k)’s for 40 years with fees averaging 1.6 percent a year would achieve $354,850 in assets at average savings rates, but only after paying $154,794 in investment fees.

READ: The Retirement Savings Drain: Hidden & Excessive Costs of 401ks

Alicia H. Munnell, director of the Boston College center, recommends that people jump at the opportunity to join 401(k) plans as soon as they can. “The trick is to contribute from Day 1 if your employer has a plan, and leave the money there,” she said. She voiced concern that 21 percent of workers whose employers offered plans declined to participate and that for those age 20 to 29, 40 percent declined.

Stephen P. Utkus, director of the Vanguard Center for Retirement Research, said most Americans saved far too little. “Certainly by your 30s, you should be saving 10 percent,” he said

He said many Americans emptied their 401(k)’s after they were laid off, leaving them with far too little savings for retirement. “You can’t invest your way out of a savings problem,” Mr. Utkus warned. “To catch up, you have to save more or maybe work longer. My general advice for people is, save 3 percent more of your income each year and plan to work three more years.”

He advised 401(k) participants to put money in balanced funds, like target-date funds, that decrease the ratio of investments in risky stocks as investors age. But Mr. Bogle warned that target-date funds often charged one percentage point a year more than other funds.