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Political pundits want you to believe that this week's election results mean something for your retirement. Hogwash. The only thing partisan bickering will do is distract legislators from taking steps to fix our broken retirement system.
Even so, falling balances are an easy scapegoat and every postelection analysis I've heard on TV and radio over the past 48 hours includes some reference to retirement. But the most dumbfounding came from newsman Tom Brokaw. During the Morning Joe program on MSNBC, he said that "[baby boomers] looked at their 401(k)s and said, 'I don't want to be old and poor. What am I going to do?' " Because of that, Brokaw argued, those voters sent a message: "Get this straight now."
In other words, according to Brokaw, Republicans carried the House because voters thought they're better for their retirement accounts than Democrats.
We've seen these sorts of accusations before, in both directions. During the 2008 election campaign, Democrats blamed Republicans for being asleep at the switch in allowing the financial crisis to decimate workers' 401(k) balances. When stocks again swooned in early 2009, Republicans in turn blamed new Democratic initiatives for stoking fear and uncertainty among investors.
Neither party is right, because neither can be properly blamed for sinking 401(k) balances. But don't take my word for it. The Urban Institute regularly tracks the average amount saved in U.S. retirement accounts. Balances have recovered during the first two years of the Obama administration. Take a look at this information from the Urban Institute:
Source: Urban Institute.
Source: Urban Institute.
Economists and pundits will argue over how much credit, if any, Obama deserves for this increase.
I wish they wouldn't. Because here's the truth: 401(k) accounts are apolitical. Obama deserves zero credit for recovering balances just as his predecessor, George W. Bush, deserves zero blame for falling balances. Neither Democrats nor Republicans, Senate independents or House Tea Party winners, can claim credit or lay blame for what your 401(k) balances do from here on out.
Face it: Your retirement is 100% in your hands, Fool.
We pause to bring you the lone exception to this rule
If you're a stock investor like me, which party controls the legislative agenda is slightly, but not a lot, more important.
Strategic bets on favored Republican industries such as health care and defense could pay off, sure. Health insurer UnitedHealth Group (NYSE: UNH ) was a 20-bagger during the original Republican revolution from 1994 to 2000. Just remember that defense giants Lockheed Martin (NYSE: LMT ) and Boeing (NYSE: BA ) both badly underperformed the market over the same period.
A better strategy: manage to your goals
Your best and most Foolish bet is to ignore politics and take advantage of the two things 401(k) plans offer you outside of tax-advantaged savings.
- Low-cost diversification. Most 401(k) plans offer funds invested in dozens if not hundreds of stocks. Investing in them won't win you much during a rally, but you won't lose much during a crash, either.
- No-brainer dollar-cost averaging. Contributing to your account regardless of election results takes the edge off market volatility. You'll buy more when prices are low, less when they're high, and grow your balance along the way. This is why 401(k) plans are apolitical.
More than that, they're designed to build savings over any period of time. Economic winds aren't a factor, unless you withdraw or move funds to try and "time" the market in some way.
Perhaps that's to whom Brokaw was referring: citizens so afraid of a double-dip recession that they've changed everything in their retirement plans and cost themselves money. Instead of looking in the mirror, they called for regime change.
On Tuesday, they got what they wished for. Here's hoping they wake up to the truth that none of the new blood will help them retire. Because if they don't, we'll hear more cries for change soon enough. And they'll be just as misguided.
Want the skinny on retiring in style? Click here to check out our 13 steps for living well in your golden years.