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You wrote, sad to say, but that is where we are at. i think a lot of it goes back to our education system. if the parents do not have an interest/ desire to educate their children then maybe it should be learn in schools. at less some of the basics ,ie - this is a check book - this a credit card [ when you over charge this the interest you will paid - info on the stock market - etc. not every student will care, but it's start. we all know how student loans will change peoples lives. what ever you do just don't tell how much we are in debit, they might not come back to school.

I have my own speculations on all this. It's based solely on anecdata. I think it has to do with personal motivations plus the prevalence of bad 401(k) plans.

I've known a lot of people in one of two camps when it comes to their own 401(k):

1. Invest everything in the riskiest fund available, or
2. Invest everything in a money market fund.

Both at some point get disappointed with their returns and decide to cash out either when they change (or lose) jobs or later (after changing jobs) when they go back and look at a statement and see how badly it's done over some period.

The risky investor gets really excited when they happen to luck into a growth spurt. I've seen that happen not long ago. Young coworkers investing in a biotech fund...

I also know one person that is kind of split - she puts some of her money in a biotech fund and the rest goes into some really low-risk fund that gives her next to nothing in returns. She's single, younger than me and professes an unrealistic ambition to retire soon despite the obvious obstacle that she's not saving nearly enough given her hyper-aggressive, hyper-conservative allocations. (I think she was probably 20%/80%.)

I think people like this tend to drag down the average performance of 401(k) plans significantly. Ironically people that tend to make bland well-reasoned investment choices do better over the long run. But that's not what most people do.

In any case, I think there are other factors at play here besides poor choices by employees.

Quoting the article, The Employee Benefit Research Institute estimates the median amount in U.S. 401(k) accounts is a paltry $18,433 and almost 40 percent of workers have less than $10,000 in those instruments.

Did you also know the average US worker changes jobs every 4.6 years on average? If they only contribute to get a match (and not every plan gives a match) and cash out at the end of every job, it would easily explain the less than $10,000 number. It would mean the average employee + employer contribution was around $5K/year.

Also I've worked at a lot of smaller (sometimes startup) companies. These 401(k) plans tend to be atrocious. It's hard to blame the employer for that. The 401(k) plan offerings available to small companies is atrocious. But in those companies I've tried to accumulate as much as I can in my 401(k) knowing I'm just going to roll it out to an IRA when I leave. My investment choices in those plans have always been focused on fees; but not everyone sees that. Instead they just see that their 401(k) is performing much worse than the market and feel they've been cheated.

So they pull it out. Some cash out and take the tax hit. Others put the money into an IRA in the hopes of doing better on their own. Very few roll into another 401(k). The point being that this greatly affects the number being quoted here - because that's just based on 401(k) balances. On average people are contributing probably about 1/3rd of what they legally and contractually could contribute. This figure gets pulled way down by the large population of bad plans, plans with no match and workers that feel they can't afford the contributions for one reason or another. And finally most workers don't leave their 401(k) in place when they leave an employer - which is like once every 4.6 years...

So these low figures are not all that surprising once you think about it.

Want to make 401(k) participation more universal? I think the biggest problem that needs to be addressed are the crappy plans used by small to mid-sized companies. Small companies need to have access that doesn't cost a fortune. There are details there to iron out; but reducing the risks and amount of paperwork would be key to improved competition in small 401(k) plans.

Note: There is a 3rd group that is actively planning for retirement and making use of their 401(k) along with reasonable, rational investment choices; but we're not fun to talk about. And we're probably not even the largest group of employees ... by far.

- Joel
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