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GUEST EDITORIAL: Don’t expect the 401(k) to be a miracle retirement cure

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The Wall Street Journal recently ignited an online forest fire when some of the early champions of the 401(k) surprisingly disclosed a change of heart, seeing that the retirement investment accounts haven’t lived up to their expectations.

Why the lament? Herbert Whitehouse, a former Johnson & Johnson human-resources executive, and one of the first in the U.S. to urge workers to use a 401(k), now says he intended the retirement investment accounts to supplement, not replace, company pensions. Ted Benna, a retired benefits consultant and a so-called father of the 401(k), frets that the accounts provide savers too many opportunities to make deadly investment mistakes. Other pioneers say that because the market has changed, early, low calculations of how much saving would be necessary to retire comfortably have proved unrealistic.

Defined-benefit pensions, which guarantee workers monthly checks after they retire, aren’t going to make a comeback. Plus, 401(k) accounts have worked for those disciplined (and fortunate) enough to set aside bigger chunks of their salary for several decades in the right investments.

In many instances, these accounts have provided more in retirement benefits than a traditional private-sector pension would have.

The reality is that most Americans — especially the working poor and those without access to employer-sponsored 401(k) accounts — have woefully undersaved for retirement. And despite bull markets since the 1980s, many with 401(k) accounts haven’t amassed enough individual wealth to leave the workforce.

About 52 percent of U.S. households are at risk of running out of money during retirement, up from 31 percent in 1983, according to Boston College’s Center for Retirement Research. And a staggering 45 percent of all households have put aside nothing in retirement savings. Workers in other developed nations, such as France and Germany, save a much higher percentage of their personal income.

This retirement savings gap reinforces a major concern: Americans aren’t as financially savvy as they need to be. Add in our debt-financed consumer spending, rising medical expenses and stagnant salaries, and work-free retirements are at risk for many. This at a time that the Social Security safety net has problems of its own.

This isn’t likely a problem that government or business can solve; Americans must be prepared to take control of their future. Schools and parents need to start treating financial literacy as a required life skill. Too many people aren’t able to balance a checkbook let alone understand the compounding factor of money over time.

Ignorance isn’t bliss. Now more than ever, financial literacy could mean the difference between having a cushion in retirement and looking under the cushions.