We’ve got a problem and we know it.  Speaking generally but based on the numerous reports about us since the financial fall of 2008, we have changed, in most cases dramatically.  We can’t really be faulted for it.  We’ve been trained since we were young and we are genetically hardwired to be able to recall what hurts and what doesn’t – and what to do.  Take away the wealth we had accumulated in our 401(k) plans, and we will no longer trust the purpose of the plan.

Take away our matching contribution, the incentive offered by the employer as a sort of fiduciary smoke screen, and we will simply ignore the plan. Many of us don’t remember a time when 401(k) plans didn’t exist.  And for those of you old enough to remember the nineties, the matching contribution has been the “free money” incentive supplied by the employer to help nudge us into a better retirement.

These plans can be faulted for numerous things: poor choices, high fees and even restrictive matching contributions (forcing employees to buy the company stock in order to get the match).  It is because of these plans, the stock market began a quick climb throughout the previous tow decades, giving those fortunate enough to have been invested, an incredible boost in their account balances.  Even post-2001 and 2008, the balances in these accounts owed a great deal to the bull market that occurred between 1982 and 2000.

But that was then. And we were so into the markets. Now we have a problem that may not have an easy solution. Plans are under scrutiny for their ability to provide low cost investment opportunities.  Companies, looking to protect the core business have withdrawn the generosity they may have once showered on employees in favor of hoarding cash.  This is part smart business, part understanding that in a restrictive job market, they don’t need to over incentivize their benefits.

You have also taken a similar approach.  You have begun to realize the importance of an emergency account, paying down outstanding debt and otherwise simply saving more than you had in previous decades.  And when your employer withdrew their match, you saw this a sign that they lacked confidence in their own plans.

Both of you were pretty smart in these head-for-the-bunker approaches to the future.  But that smartness will eventually come back and bite you both in a big way.  While it may be hard to get businesses to spend, getting you to invest more and save less is much more difficult. Trying to cajole you into to doing so might have its own pitfalls.

We should have been saving more all along. We should have had emergency accounts that covered three-to-six months worth of income.  We should have been prudent with credit and managed our household finances better.  So saving more, a catch-up game that could take several years to complete for the average middle-aged, middle income worker is costing us in terms of retirement investments.

Most 401(k) plans are mess.  They often contain funds that are too high priced or are so low risk as to take away any of the potential the markets might provide.  They often contain too many funds to choose from or too few.  Some offer education; others not so much. Some have immediate enrollment and choose the fund for you, channel a portion of your paycheck (and sometimes your raise) into the plan even if you have no idea where or how the money is being invested; others make you wait too long to get involved and waste precious invest-able years.

And the match, even when it was offered was often done so incorrectly. many companies, some of whom still offer a match of some sort, often up to three percent of the workers pre-tax income, only do so when they buy the company stock.  Which is not even a good idea even if the company is doing well.  It defeats the diversification needed for a robust portfolio and numerous employees are making a (potentially) fatal mistake with their future income.

For those of you who remember the “good times” of the matching contribution, pulling it away has made many of us do the same.  But what should have occurred was exactly the opposite.  You should have replaced the match on your own. If you were contributing 6% and the company offered 3%, you should have upped the ante to 9%.

But suppose you didn’t have a good plan to begin with? Look to a traditional IRA or even a Roth IRA.  The former is done with after-tax dollars while the other offers a tax-deferred plan calculated when you file your income taxes. Both allow you to invest up to $5,000, $6,000 if you are older than 50-years-old. But both require more hands-on discipline to make sure it gets done.  Both require you pick the funds to invest in.  And both, critics suggest, don’t allow you to invest enough.  After all they explain, a 401(k) will allow you to invest up to $16,500 of your income.  But few did or do even when things were much better.

So, you might ask, the idea is to save more and invest more; where are supposed to get this money?  The simplest answer is to spend less and channel more to both concepts.  A more complicated answer would be to get businesses to spend more and save less and in the process create jobs, increase competition among job seekers and have a good reason to return to creating incentives.  A much more complicated answer would be increased involvement from the federal government, resisting those who say spending is the wrong way to stimulate the economy. If they don’t, and businesses won’t and you can’t, who will?

In the world you occupy, the answer is to invest more, stay as fully employed as you can and prepare for the future both in the short-term (through savings and debt management) and for retirement. It is no easy task.  But easy is over.

Related posts:

1. 401(k) Plans offer Danger and Risk – When You Don’t Expect It
2. How to Live with Your 401K
3. Your 401(k): Older, Wiser and 30
4. No 401(k)? That’s Okay
5. Retirement Planning: Between the Need and Acting on It