You and your 401(k) are becoming the key retirement vehicle

Long-term investors may be smarter than they think.

Roger Ferguson

Roger Ferguson

That’s the word from a financial expert with three Harvard degrees (B.A., law, Ph.D.) who was in the charge of the Federal Reserve in Washington on 9/11. (Alan Greenspan was overseas.)

Roger Ferguson, former vice chairman of the Fed and now CEO of the TIAA-CREF financial services firm, was in town last week. TIAA-CREF manages $453 billion of investments, including 401(k)-like retirement plans for 49,000 participants in metro Atlanta. The plans — actually 403(b)s in the nonprofit sector — include employees of Emory, UGA, Tech, Morehouse, Children’s Healthcare, Fulton County schools and Woodward.

Ferguson told me that despite the complexities in today’s financial world, the same principles still apply — diversify, know your appetite for risk and take the long view.

“The investment rules have not changed in 40 or 50 years,” he said.

By contrast, much has changed for short-term traders, he said, but most investors are not in that category.

“We’re not traders,” he said, referring to TIAA-CREF and pointing out the difficulty of trying to time the market. “I would discourage individuals from being traders.”

While the overall rules may not have changed, the forces affecting employee finances have.

“All the legs of the retirement stool are under stress,” Ferguson, 59, said. One of those three legs is the disappearing, traditional defined-benefit pension plan. The second leg, Social Security, is in trouble and will be getting an overhaul.

The result is that more weight is being placed on the third leg — 401(k)-like plans.

“The 401(k) was never meant to be the main retirement plan,” he said. “We need to rethink the 21st century retirement system.”

What does that mean? The following, Ferguson said:

– There should be automatic enrollment in a retirement plan at work, including an IRA if an employer does not offer a 401(k) or similar plan. Employees could opt out, but they would start out as participants.

– Saving a sufficient amount over your work life to replace most of your pre-retirement income. Counting an employee’s and employer’s contributions, 10 percent to 14 percent of salary needs to be saved each year.

– Over time, increase the percentage deducted for your retirement plan.

– Diversify by choosing among a “reasonable” number of options in the plan. Ferguson believes employers should not offer too many fund choices because they can overwhelm some investors. The optimum number, he said, is 10 to 12.

– Plans should offer wise, objective advice tailored for each employee. The advice should come without any sales pressure to invest in a specific product.

– Employees should consider a guaranteed income for life — an annuity — for part of their retirement mix. An annuity is like “longevity insurance” that tries to protect you against outliving your resources.

– Younger workers starting their careers should try to develop a game plan that prepares them for the different stages of life — marriage, home, kids, college, retirement.

“Plan for a future that’s going to evolve,” Ferguson said.

That’s not a bad idea for any of us.

- Henry Unger, The Biz Beat

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13 comments Add your comment


March 15th, 2011
8:50 am

But it’s to government’s responsibility to provide for me while I’m in retirement. I’m entitled to it. If I have to save my own money, how can I buy a new car every two years?


March 15th, 2011
9:10 am

Sound advice!!! There are four legs on the retirement stool. Mr. Ferguson forgot about savings. 401k and IRA do have some risk. About 10% of your retirement savings should be liquid. Let’s have a 5th leg to the stool — Get out of debt and pay off your mortgage before you retire.


March 15th, 2011
9:16 am

Most employers match up to 5% of the contribution. Some more. 401k=free money so why not enroll. For those people who don’t have any retirement or 401k’s they can look forward to working until the day they die.


March 15th, 2011
9:20 am

Once again a former fed employee who mentions absolutely nothing about getting the government out of the “retirement” business – i.e., “cease & desist” on Social Security.


March 15th, 2011
9:33 am

I would only put a % into my company 401k that is matched by my company.

Remember, all the $ in your retirement account is taxed when you take it out, not at the rate when you put it in.

Do you think tax rates will increase or decrease in the future?


March 15th, 2011
9:43 am

Great advice. 10-14% is quite achiveable for most people.


March 15th, 2011
9:45 am

Rawdog said

“Most employers match up to 5% of the contribution. Some more. ”

Most I know have dropped contributions or dropped it to 3%. You must work for the Govt or a union…


March 15th, 2011
9:51 am

Most employers that dropped contributions have brought them back. 3 to 5% seems common with some lucky ones matching more.

I am not a govt employee or supporter but many do not offer any matches as they put their portion of the money to fund pensions instead.


March 15th, 2011
9:52 am

My employer matches up to 6% and I’m not working for the government or in a union.


March 15th, 2011
9:56 am

Not a good day for this article.

But I predict a full recovery by day’s end.


March 15th, 2011
9:58 am


March 15th, 2011
9:10 am

Very sound advice! It amazes me that so many retirees have huge mortgage payments and continue to live in houses more than twice the size they need with the higher utilities, taxes, insurance and maintenance.

Destin Dawg

March 15th, 2011
11:39 am

I’m with you TnGelding…. we moved to Destin (retired ) in 1998… sold 5,000 sq. ft. home on 3 acres in Ga… for $ 350 k and bought a really nice new brick 2200 sq. ft. split floor plan.. home w/ small yard.. upscale Destin Beach neighborhood… for $ 230 k… kids were out of college on their own… glad to be out of the big home !!!

Paul Petillo of

March 16th, 2011
7:56 am

The IRA rules need to be reformed and broadened, making them as inexpensive as 401(k) plans, increasing the contribution limits and allowing similar tax deferrals (dollar for dollar) as do defined contribution plans. As to the annuity suggestion – if they can write the rules so that an annuity can become gender neutral (a huge plus for women) and be available in a 401(k), then they would be a good idea as part of a diverse tool.