Realism in retirement planning
Investment companies and financial journalists often seem to assume that planning for one’s retirement is so simple that only the thoughtless or the reckless will get it wrong. Start saving as early as possible, they say. Save at least 10% of your pre-tax income. Invest in low-cost stock funds, and consider shifting a percentage of your nest egg to bonds as you get closer to retirement.
The economic devastation of the past few years has given this approach an air of unreality. Except for the very richest among us, real wages have been stagnant for years. Housing prices have plummeted to the point where many people owe more on their mortgages than their homes are worth. Credit card debts are climbing and savings are almost nonexistent. The old advice is still good, as far as it goes, but ordinary people are having to scramble just to get from one month to the next.
The New York Times, to its credit, is starting to get this. A recent article on borrowing from your 401(k) plan doesn’t try to argue that it’s a good idea, just that it might sometimes be preferable to the alternatives. “These are tricky times,” the paper says. “Banks are frantically reducing the credit lines on existing home equity loans. Credit card issuers are deploying similar tactics. That makes 401(k) loans a more attractive option, or sometimes the only remaining one, for people who need money.”
The Times article lays out the rules governing 401(k) loans, the pros and cons, and links to a helpful calculator that tells you what your loan will cost you in the long run.
