It’s Retirement Income, Stupid
Does anybody remember the main purpose of a 401(k) plan in the first place? It’s not to grow your money, nor is it to provide you with a rich tax deduction as you’ve been told. Rather, the purpose of a 401(k) plan is to provide you with an adequate source of retirement income so that when you’re grandma’s age, you don’t have to eat Alpo for dinner.
Yet, what’s the first thing most 401(k) account holders do when they receive their quarterly statements? Anyone that answered “they immediately look at their total account balance” is absolutely right. What else is there to do? Isn’t the total 401(k) balance the bottom line? Yes it is, but it’s only part of the story.
A recent report from Reish & Reicher titled “401(k) Account Balances as Monthly Retirement Income” hinted at future changes in how 401(k) plans operate.
401(k) statements originally were designed to show how much accumulated retirement assets a person gathered. While that’s good, it’s only part of the equation. For that reason, 401(k) statements of the future will need to show how much monthly or annual income that the person’s 401(k) sum is capable of generating. Ultimately, this is the bottom line reason for a 401(k) plan — to have the accumulated sum generate an adequate level of income that 1) covers a person’s expenses and 2) doesn’t prematurely run out.
What does any of this income talk have to do with commodities, precious metals and my 401(k) plan? To achieve an adequate 401(k) lump sum and thereafter an adequate income source, a person needs to have a multidimensional approach that involves low-cost market exposure to all the major asset classes — not just the ones favored by mutual fund salespeople.
For the record, I am neither a gold bug nor a proponent of an all-bullion investment portfolio — nor do I have to be — because what’s being argued is an issue of plain common sense.
The fact is 72 million people with 401(k) plans face acute financial risk because of substandard investment menus that appease ERISA’s false definition of “diversification” and the status quo. And the only way to help 401(k) investors is for ETFs and other investment vehicles to be offered inside 401(k) plans. The ETF(k) retirement plan, as I call it, is the retirement plan solution of the future.