Sketch Guy: Squeezing the Most Out of 401(k)’s, for Now

We hear a lot of discussion around the idea of reform. Reform the government. Reform the banks. Reform education. Reform health care. In fact, it’s hard to think of a system we’re 100 percent happy with.

So it’s no surprise to see many headlines and stories recently about the “failed” 401(k) experiment and how we need a different system to finance and manage retirement. It’s also easy to see why John C. Bogle, founder and retired chief executive of the Vanguard Group, described 401(k)’s as “a thrift plan that we’ve tried to redesign into a retirement plan.” The average amount in 401(k)’s doesn’t bode well for people looking to retire in their 60s and live 20-plus years. There are clearly some issues with the current system.

Let’s say we accept the premise that the system needs to change, that we as a society need to adopt a better way, a different way to help people finance their retirement. Let’s say further that we agree that maybe saving for retirement is better addressed as a collective, societal issue rather than an individual one. If we believe that, then we should pursue reform and advocate change to our elected officials.

But at the same time, we have to accept the reality we live in now. Even if we believe that the retirement system is broken, it is the only system we have, and we all know that it isn’t changing anytime soon.

It’s when we reach this point that I see a potential disconnect, maybe even a moral hazard. If we focus exclusively on the problem, in this instance the 401(k) system, it can be incredibly easy to abdicate personal responsibility. However, no matter how bad the system, we’re only hurting ourselves if we separate personal responsibility from reform.

We need to accept the fact that working for reform and taking personal responsibility are not mutually exclusive.

Even though we may wish it were different, the 401(k) is the option most of us have to plan for retirement. As part of the reform process, you owe it to yourself to get the most you can from the current system. Simply saying the system is broken doesn’t absolve you from making the best possible financial decisions you can.

We have a personal responsibility to understand the current system and make the best of it even as we’re trying to reform it. That means doing things like actually participating in your 401(k), making sure you take advantage of any match your employer might offer, selecting investments inside your plan that match your goals, maxing out contributions and not borrowing money from your 401(k).

Obviously, these five things won’t fix the broader problem we have as a society of being woefully unprepared for retirement. We have a system that needs fixing so it can serve a wider group of people, and we should all be advocating for those changes. But don’t let your frustration blind you to the things you can do right now in the system we have.

It reminds me a bit of this idea that we’re all waiting around for the day when scientists announce that they’ve found a pill that lets us eat anything, never exercise and live forever. What if they made the announcement tomorrow but said the pill wouldn’t be available for five years?

Would you stop eating healthy and exercising? Doubtful, because even though they may not be your favorite things to do, they’re still the only things you have at the moment to keep you healthy between now and five years from now.

That’s how it is with 401(k)’s. Hopefully something better will come along, but in the meantime, work with the tools you have to get you from here to there.

Article source: http://www.nytimes.com/2013/07/15/your-money/squeezing-the-most-out-of-401-k-s-for-now.html?partner=rss&emc=rss