I was "bored" (the course was, overall,
beneath even my modest skill levels), it was late in the
afternoon, and—as humans are sometimes wont to do—I found
myself trying to make the course more challenging by doing
something stupid.
Actually, by doing something stupid three times (which, by
some definition, is doing something
really
stupid)—when "fate" intervened and kept me from
breaking my neck…by breaking my leg.
It was a difficult lesson to learn (more accurately, it
was a difficult way to learn the lesson); I spent the next
six months in the middle of a Chicago winter in a cast—much
of it in a cast that encased my entire leg, which also
happened to be the leg you need to drive.
I learned a lot as a result of that experience—but one
thing that never, even for a second, occurred to me was to
blame the icy slope, the skis, or the tree I slammed into,
though all surely played a significant role in the final
result (…perhaps if I had been a lawyer, rather than a law
student, at the time…).
Failing "Grades"
There's been a lot of press devoted lately to the
"failure" of the 401(k)—even though, IMHO, like my skis, it
hasn't done anything other than perform as advertised:
In fact, it has provided millions of working Americans with
a wonderful opportunity and incentive to provide for their
own financial future.
It is, of course, that very opportunity that makes the
current economic "crisis" so much more painful.
Even those Americans not in fear of losing their jobs feel
poorer—feel, and rightly so, IMHO, that they have been
robbed.
However, it is not the 401(k) that has robbed them.
Their 401(k), in a crude analogy, is no more at fault than
were my skis (though there were surely some who, like I,
were taking foolish risks late in the day).
The real culprits are to be found in greedy mortgage
lenders, pliable mortgage takers, opportunistic
securitizers, and a facilitative government (see "
IMHO: Pay "Back"?
").
And, as painful as those losses surely have been, and
however much money has been lost in an individual account,
I'm pretty sure no one has yet lost everything they ever
put in, much less the "cushion" of the employer match.
Compare that with Social Security
(1)
—will you ever get back what was taken from your pay over a
lifetime of working (odds are, you'll also pay taxes on
money that has already been taxed)?
Let's face it: Social Security isn't immune from the
economy, or the markets—it's just that the problem seems
like someone else's to fix (and we know how they'll fix it,
sooner or later).
Let's be frank: The 401(k) has provided millions of
Americans with their first—and only—education about the
markets and concepts like tax deferral and the value of
compound interest.
It has provided an interim source of funds in times of
financial stress, and it has provided many with their
first—and only—opportunity to invest in our great capital
markets.
Indeed, each and every 401(k) balance literally represents
a conscious decision to forgo compensation in the
here-and-now for the security it can (and must) provide in
the future.
It is a character trait and discipline that Americans are
said to lack—and yet, the 401(k)'s tremendous success puts
the lie to that conclusion.
Its benefits to the most highly compensated are
negligible, barely enough to sustain their ongoing
commitment to sponsoring these programs, while it offers
those of more modest means a convenient, efficient way to
take responsibility for their own financial future.
The bottom line is that, IMHO, the 401(k) has been a
marvelous success: It's a venue where millions of Americans
who save nowhere else—and who would save nowhere
else—choose to do so, and they do so because it is a system
that encourages and nurtures that behavior—both financially
and via education.
It is not the only answer to true financial security in
retirement—but then, it was never meant to be.
(1)
Of course, Social Security was never really intended to
provide for individual account accumulations
(though I think any number of politicians have been
willing to gloss over that "detail").
Still, you might find the following of
interest: