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The Short Answer

Three Tips to Make Your 401(k) Work for You

No, the 401(k) doesn't doom you to a substandard retirement.

It's surprising there aren't many calls in the press to ditch the automobile. After all, think of all the dumb things people do with them. They drive much too quickly and sometimes after drinking lots of alcohol. They even drive while sending text messages, putting on makeup, and reading the newspaper. The consequences can be dire: More than 40,000 Americans die in auto-related deaths each year, with nearly 3 million suffering injuries of some kind. Of course, it would be impractical and silly to outlaw the automobile. They are too intertwined in our lives and are beneficial in many ways. And it would be unfair to blame the automobile for its misuse.

Yet that's exactly what's happened in the case of another vehicle, in this case, the main retirement savings vehicle for most Americans: the 401(k). Last fall, a Timecover story called for the retirement of the 401(k) itself, using the often-catastrophic losses investors suffered in the 2008 crash as the argument against them. But just as cars don't cause accidents, there's nothing inherent in a 401(k) that dooms you to a substandard retirement.

The Time article was trying to make a broader point that the do-it-yourself nature of the 401(k) makes retirement savers much more vulnerable to unpredictable fluctuations in the market, especially versus the company-provided pensions of yore. Although pensions aren't perfectly secure either, it's true that even investors with thoughtfully conceived 401(k) portfolios suffered heavy beatings in 2008. Those nearing or in retirement were dealt an especially tough blow as they faced living off a much-smaller nest egg and because, unlike younger investors, they don't have as much time to recoup their losses. 

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