3 Steps for Fixing a Broken Retirement Plan
Ron DeLegge, Editor
December 7, 2009

SAN DIEGO (ETFguide.com) – These are trying times for America's 401(k) savers. The average 401(k) balance for a participant in their 60’s, according to Hewitt Associates, is around $93,000. That’s barely enough to last some people a few years.

On top of that, companies have cut or eliminated matching contributions. 

“For too many Americans, 401(k) plans have become little more than a high stakes crap shoot,” stated House Education and Labor Committee Chairman George Miller. “We are realizing that Wall Street’s guarantees of predictable benefits and peace of mind throughout retirement was nothing more than a hallow promise.”

What can you do to fix your retirement plan?

Stop Overdosing on Company Stock!
By now, the epic collapse of AIG (NYSE: AIG), Citigroup (NYSE: C), General Electric (NYSE: GE) along with a long list of other individual stocks should’ve taught everyone about the hazards of over-concentrating one’s retirement money on company stock. Are people listening? The surprising answer is no.

Instead of reducing their financial risk to individual stocks, new evidence shows that 401(k) investors have gone absolutely mad out of their minds. In January 2009, Hewitt Associates reported, that millions of 401(k) participants put more money into company stock than in any other single retirement plan option, including conservative bond funds. No wonder so many retirement plans have been roasted beyond recognition! People are repeating their mistakes by overdosing on company stock. How much more money will they need to lose before they stop?

Don’t Leave Your Money Behind
Most people would never think of leaving their wallets and purses unattended, yet millions are doing that with their 401(k) plans. If you’ve been let go or recently left a job, did you remember to take your 401(k) money with you? Don’t make the fundamental mistake of leaving your valuable retirement money with an ex-employer. Did you know that leaving your 401(k) money behind limits your menu of investment choices? It also places severe handicaps on your retirement plan distribution options.

Alert 401(k) investors have taken the decisive step of rolling over their retirement money into a traditional IRA account. This allows them to avoid IRS tax penalties associated with pre-mature retirement distributions. It also allows them to control their retirement future and to invest in other effective investment options, like low cost index ETFs.

Diversify Beyond your 401(k) Plan
Many 401(k) plans claim to offer diversification, but the facts say otherwise. For example, most 401(k) plans fail to offer workers market exposure to major asset classes like commodities (NYSEArca: GSG), gold (NYSEArca: GLD), international bonds (NYSEArca: BWX) and international real estate (NYSEArca: RWX). We are entering the kind of financial and economic turmoil where a traditional mix of stocks, bonds, and cash may be inadequate.

True diversification begins with broad market exposure to major asset classes, not just stocks and bonds. Unfortunately, the product structure of mutual funds does not accommodate assets like gold or commodities. In contrast, these key areas can be reached in a cost effective manner, via exchange-traded funds (ETFs). Isn’t it time that 401(k) plans start offering ETFs as a main investment option? What are lawmakers and third party admistrators (TPAs) waiting for?

Conclusion
Speaking about the shortcomings of 401(k) retirement plans, Alicia Munnell Director of the Center for Retirement Research at Boston College said “401(k) plans were asked to do something they were never intended to do. They were supposed to be a supplementary retirement plan for people who already had traditional pension plans but instead it’s been asked to serve as the main supplement to social security. It wasn’t designed for that.”

If you’re stuck in a 401(k) plan with inadequate investment choices, high fee funds, no matching employer contributions and a deadbeat boss that doesn’t care, it’s time to fight back! It may be time you consider investing outside of your 401(k) plan. Consider 401(k) alternatives like traditional IRAs and Roth IRAs. The latter will allow you the financial flexibility of investing in low cost ETFs that give your retirement portfolio better investment choices.

Don’t be confused, startled or distracted by the madness of the financial markets. Reaching your financial goals with the least amount of cost, taxes, and risk can be achieved!