An article in yesterday's USA Today highlighted several disturbing trends in the retirement planning of America's workers. The most noteworthy:

  • According to a survey conducted by, the percentage of eligible workers who participated in a 401(k) plan has declined this year, from 75.0% to 72.4%. Participation rates dropped 2.5 percentage points last year, which was the first drop in 20 years.

  • The percentage of all workers -- not just those eligible for a 401(k) -- who regularly save for retirement dropped to 42%, the lowest rate since 1980, according to marketing consultant RoperASW.

  • Human resources consulting firm Hewitt Associates (NYSE:HEW) found that upon changing jobs, 42% of workers cash out their 401(k)s rather than transfer the assets to an IRA or a new employer's retirement plan. Not only does this jeopardize a worker's retirement by shrinking the nest egg, but distributions are taxed as ordinary income and -- if the person has not reached age 59 1/2 -- penalized an additional 10%.

What reasoning could account for such shortsighted behavior? Each person has his or her own answer, but we can take a guess at a few of the most common.

Reason #1: "I don't have enough money."
Finding room in a budget for savings can be a challenge. But keep in mind that it may actually be costing you money not to save for retirement, since contributions lower your taxes. If you're in the 28% tax bracket, for example, every $100 contribution to your 401(k) shaves $28 off your income tax bill. Plus, that money will grow tax-deferred, which saves on taxes when compared to having money in a regular savings or brokerage account. And finally, if your employer matches contributions to your retirement plan, you're essentially turning down a bonus if you don't participate.

Reason #2: "My old 401(k) wouldn't have added much to my retirement."
Hewitt found that workers with 401(k) balances between $5,000 and $10,000 were the most likely to take the money and run. After all, how much could a few grand add to retirement savings?

Quite a bit, actually. A 401(k) balance of $7,500 that earned an average annual return of 8% could grow to $36,951 in 20 years and to $82,017 in 30 years.

Reason #3: "I'll never retire anyway."
Several recent studies have shown that Americans plan to delay or even forgo retirement. For some people, the reason is purely financial (these may also be the people who cashed out their retirement plans). But for others, it's a question of whether they'd want to retire. There really are people who enjoy working.

But even if you're not sure you'll want to spend your last decade or two gainfully unemployed, retirement accounts are still good savings vehicles, due to the tax benefits and company matches. You don't even have to be retired to have access to the money. The money's available penalty-free at age 59 1/2, or under certain circumstances (such as disability). You can even borrow against your 401(k). So the money isn't locked up forever, or just for people who have hung up their work boots for good.

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