Newsweek magazine ran a big cover story by Jane Bryant Quinn this week (Aug. 19 issue) entitled "5 Ways to Fix the 401(k)," preying on fears of "your melting money." And while everyone likes a good hyperbolic headline, you know you should be skeptical about what you read. Just because something graces the cover of a national publication doesn't mean it's correct -- God forbid you should follow advice you get from a measly website (we jest).
Quinn's main point seems to be that we need legislation enacted to save us from ourselves, and that's part of the problem with a lot of her writing: She seems to think the average American is a complete ignoramus. While that may be debatable -- Anna Nicole Smith's new television show ranks very highly in the ratings -- Jane, at least try to pretend you don't think we're all stupid.
The problem is not with 401(k) plans themselves but with the lack of education to go with them. And what's more efficient? Getting yourself educated -- we think you can do it in 60 seconds -- or waiting for Congress to do something?
Let's take a quick look at Quinn's five ways to save the 401(k):
1) Limit the choice of funds
Her argument is you have too much to choose from, so you foul it up. But why should people who want to put in the effort to choose different kinds of funds be penalized? And why doesn't she even mention the most important choice here: a broad market index fund, which is best for most 401(k) participants?
2) Don't bury workers in company stock
Solid advice here. The last thing you want is too much of your livelihood -- your job and your retirement -- tied up in one company. Don't let your loyalty get the best of you. Diversify.
3) Put the squeeze on easy 401(k) loans
Again, you're limiting options for everyone because of the mistakes of some. Overall, once your money goes into a 401(k), it should stay there -- particularly if you have cockamamie ideas like trying to double your money in silver now (or in dot-coms a couple of years ago). But it's your money, and sometimes this kind of loan can work for you.
4) Provide independent investment advice
Now there's one we can all agree on. The question is how to pay for it. You'd have to pay for advice directly or through the plan. We have a cheaper solution right here: TMF Money Advisor.
5) Push everyone into the pool
Here she means that companies should automatically enroll employees in 401(k)s to get more people saving. Nearly 9 million workers who have retirement plans available to them don't join. Saving more is a great idea for everyone, but do you want it mandated by the government? And where would the money go? A cash account? Stocks? Bonds? Who decides?
In short, the 401(k) is a great tool for building your retirement nest egg. Despite scary headlines, it's not broken. It doesn't need fixing. It needs to be used. So, just do it, Fool.