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Bogle’s 3 ways to fix 401(k)s

By Jennie L. Phipps ·
Sunday, July 21, 2013
Posted: 6 am ET

John Bogle, founder of Vanguard Group, was interviewed recently by Morningstar about the future of 401(k)s and how to fix the problem of most people not saving enough for retirement.

He made three retirement planning points that made a lot of sense to me.

First, he said that 401(k)s were set up to be thrift savings plans -- not retirement plans. 401(k) plans give savers the ability to withdraw money by borrowing and to make capital withdrawals under certain circumstances, as well as the ability to take all the money out when you change jobs. "All that flexibility and letting you have access to your accumulated capital is a terrible way to build up a lifetime retirement plan," Bogle says.

His solution is to tighten up the rules. "To fix (401(k) plans), to make (them) a little more -- shall we say -- rigid, and less flexible."

Bogle's second suggestion is to create a government-run retirement board to certify investment companies that want to manage 401(k) funds. Among the questions he would ask these investment firms: "Are you prudent investors? Are you long-term investors compared to speculators? Are you charging a reasonable fee?"

Bogle's third suggestion is to coordinate 401(k) plans with Social Security. Given that for most people the lifetime value of Social Security is somewhere between $300,000 and $400,000 -- guaranteed and inflation adjusted -- that, in effect, gives them that much in a fixed-income investment. Their 401(k) account could then be invested in stocks -- especially dividend-producing stocks -- that will provide a steady income.

"If you had $300,000 all in equities and $300,000 in Social Security, you're already at 50-50, you're almost there," Bogle says.

When Bogle says it, it sounds simple. Wish that it were so.

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Rodolfo Blyze
May 11, 2014 at 9:30 pm

Great stuff, I learned a few things I never knew :)

July 22, 2013 at 1:01 pm

Government-run? More rigid and less flexible? Aren't these the same fools that have helped themselves to the lock box fund known as social security all these years? No thank you. I'll continue to manage my own money since I'm the only one that has any interest in it's long term performance these days.

July 21, 2013 at 10:56 pm

John, I have to disagree that more choice is better. I hate to say it, but the vast majority of people do not understand the complexities of investing, and giving them more choices will either paralyze them from choosing at all, or worse, open them up to worse choices than they have now. Most people don't even take the time to look at the 10-20 choices they have now, what would make people look at 100s or 1000s? And how do you stop people from chasing some hot stock tip and throwing away their (supposed) life savings? For all the rhetoric about wealth gaps, more choice would benefit a few (like me) who take time to understand their investment choices...the many would really just suffer more.

John Doe
July 21, 2013 at 6:18 am

I've already started cutting back on 401k contributions and now only contribute the minimum necessary to get the match. We have people running these plans that are like Nazi's telling you how long how much etc... you can do with your investments and not to mention the high fees. Folks need to be able to invest in whatever is available in the stock market and not just lame mutual funds. I expect as they continue to clamp down on folks in the future less people will make use of the 401ks. Give people more freedom to pick their investments and folks will use it more.