The New Commonsense Guide to Your 401(k): Rebuilding Your Portfolio From The Bottom up

Chapter 18. How to Use This Stuff

A 401(K) PLAN is certainly not as good as an inheritance. However, contrary to what a lot of critics say, it can be better than a traditional defined benefit pension where your employer foots the entire bill. The defined benefit plans sounds promising, but unless you spend your working career at one company, the results are likely to be disappointing.

And defined benefit plans can enslave workers. For every worker who retires fulfilled from a happy career at one employer, there might be a dozen who felt forced to stick with their employer—no matter how unsatisfying—because of pension requirements. That became clear to me one day as I headed into New York on an Amtrak train after a freak spring snowstorm delayed the train for five hours. Once the passengers realized they would never make it to their meetings and all the food and drinks in the snack car disappeared, tension gave way to a sort of camaraderie. People spilled their life stories.

The man in the seat behind me confided to his seatmate that he had taken early retirement at age sixty after thirty-one years as an engineer with the same company. He didn't have enough income to retire and knew he had to find work. Yet "it was almost a relief to be forced to make a change," he said. "I was so bored there for all those years." He got good assignments and tackled each one with enthusiasm but six months of interesting work was followed by three or four or five years of complete boredom.

This man was ...