Thursday, May 15, 2008

Another Reason Why We Need Social Security

One of the most frequently used arguments used to promote private accounts is the promise that “you can do better” by investing your Social Security money yourself.

Problem is...for too many people, that’s just not true. A new analysis of nearly 1 million retirement portfolios show the majority of savers are making costly errors in their 401(k)s. The Associated Press reports:

"...69 percent have inappropriate risk or diversification of holdings and 36 percent have worrisome concentrations of company stock. In addition, one-third of savers aren't putting enough aside to qualify for the full company matching contribution. The problems are especially pronounced among young and low-paid workers... When looking at risk and diversification of investments, 38 percent of the portfolios had very inefficient or very inappropriate investments. That could range from a young participant with a portfolio that's too conservative to an older worker with one that's too aggressive. An additional 31 percent had somewhat inefficient or risk-inappropriate holdings. The remaining 32 percent had good balance in their portfolios.”
The study was done by Financial Engines, an investment advice firm. It’s President, Jeff Maggioncalda says:

"Unfortunately, our study found that those who need their 401(k) the most look to be benefiting the least."

That’s why the role that Social Security plays as a secure source of retirement income is so critically important, especially as pensions disappear and investments in Wall Street continue to ride our current economic roller coaster. Retirees need to save and invest for their futures; however, they also need the stable income Social Security provides.

No comments: