One Journalist’s Personal 401(k) Story and Lessons Learned

Joe Nocera is a bright guy. Over the course of a lengthy career, the former Fortune executive editor who now hangs his hat at the New York Times has won numerous awards for excellence in business journalism and recently co-authored a penetrating analysis of the financial crisis, All the Devils Are Here: The Hidden History of the Financial Crisis.

Mr. Nocera also stands out for his willingness to discuss the sorry state of his personal finances, a startling admission for a world-class financial journalist. As his 60th birthday approached, he revealed to readers in “My Faith-Based Retirement,” that his 401(k) is “in tatters.” Some of the culprits are familiar: A concentrated strategy during the technology boom put a big dent in his portfolio, and a divorce several years later inflicted similar damage. A third source of difficulty is harder to fathom—the decision to raid his 401(k) to fund a home remodeling project.

Mr. Nocera acknowledges that good financial advisors provide sound advice regarding discipline and diversification, but he doesn’t appear to have consulted one. Mr. Nocera found a sympathetic ear in Teresa Ghilarducci, a behavioral economist at The New School. She was not the least bit surprised by his experience—most humans, in her view, have neither the skill nor the emotional stability to be successful investors. She finds the entire concept of a participant-driven 401(k) a “failed experiment.”

In Ms. Ghilarducci’s recent op-ed piece for the New York Times, she mentions the following terrifying facts about the future retirement prospects for many Americans.

  • Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.
  • To maintain living standards into old age, we need roughly 20 times our annual income in financial wealth. If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security.
  • Only 52 percent of Americans expressed confidence that they will be comfortable in retirement. Twenty years ago, that number was close to 75 percent, according to the Employee Benefit Research Institute in March 2012.
  • It is now more than 30 years since the 401(k)/Individual Retirement Account model appeared on the scene. This do-it-yourself pension system has failed, because it expects individuals without investment expertise to reap the same results as professional investors and money managers. What results would you expect if you were asked to pull your own teeth or do your own electrical wiring?

Perhaps the 401(k), in its current form, is indeed a “failed experiment” for a substantial portion of the workforce. Another interpretation is that the 401(k) was never intended as a centerpiece for retirement funding, and the enrollment process cries out for improvement. And when it comes to charting one’s financial future, it appears even journalists skillful enough to unravel complicated financial puzzles can benefit from an objective second opinion.