I think there is some misunderstanding about what a 401k Plan really is. In fact, the employee (that would be us) will be able to chose from a number of different funds. Some are more riskier than others. Some carry (nearly) no risk at all.
To the question of “What if the market crashes?”... if one were really concerned with it, that person should invest all their money in a “Money Market Fund.” The one I invest in (through Vanguard) is guaranteed by the government. It is not subject to the highs and lows of the market. If a brother has quite a money invested in his 401k plan and is near retirement, he’d be a fool to keep it in stocks.
But... 401k plans don’t just dump money in the stock market. You a have a choice to invest in the MMF... the drawback of which is, course, lower dividends. On the whole, even that is a great deal for us, because the interest rate is higher than you’ll be able to get from any bank or S&L savings account.
However, if a brother has 10 or 20 years more work before retirement, the stock market is a great place to put all his money. Yes, the market will crash (capitalism, folks). But if you’re young enough, you can wait out the bad times and make an even bigger killing in the long run.
And don’t forget, whatever you contribute to a 401k plan is NOT taxed until you take it out. Also, there are, in fact, provision (depending on the plan) that allow you to take money out of the plan early (serious finical hardship, etc). In fact, in my plan, I can borrow from 401k plan, without penalty, and pay in back with an interest rate that I designate. Depending on the plan, the worker can have quite a bid of control over it.
Of course, 401k should never be adopted as a “substitute” or replacement for a defined pension plan. That’s a give back no rank and file member will stand for.
Richard Van Schaick
