Is the 401K Retirement a Lie?

I've been thinking about retirement lately as I approach the mid-century mark, and like too many members of Generation X who were hit hard by several downturns and recessions, I don't have a grand plan for reitirement income. As an educator who pays into a state pension, I will never draw from Social Security, and I have to hope that legislators in Colorado and Illinois do not gut the defined benefit plans I have paid into. The story of the "vanishing pension" plans has been the story of a generation that may not have the comfortable golden years that the Silent Generation and the Baby Boomers have enjoyed. A solution to the problem of weak or disappearing pensions and the unstable future of Social Security was the rise of the brilliant 401k plan that promised to allow people to control more of their own money and grow their own nest eggs. Sadly, it may all be based on false promises and naive ideological thinking. That's the warning from Bloomberg's Meghan McCardle who writes this week about "The 401K Problem We Refuse to Solve."

Was the 401(k) a tragic mistake? “The great lie is that the 401(k) was capable of replacing the old system of pensions,” former American Society of Pension Actuaries head Gerald Facciani told the Journal. “It was oversold." This is true. On the other hand, so was Social Security oversold. As was that good ol' defined benefit pension, so beloved of editorial writers, which was available to only a minority of workers when the 401(k) sprang into being. Nor were those pensions necessarily the generous perpetual incomes of popular imagining; autoworkers and public-sector employees got a great deal, but most people were not working for either the government or General Motors. They got smaller pensions -- sometimes much smaller, if their companies failed and dumped the pensions onto the government’s pension insurer.