Stop Relying Solely on Your 401(k)! Here's Why... 👀💸

The effects of the current economic crisis have touched everyone. Even if you still have a good job and a paid-up mortgage, chances are your monthly 401 statement will remind you that you've lost a good chunk of your savings. Trillions of dollars have evaporated from those accounts that have become the prime source of retirement funds for a majority of American workers, affecting their psyche and their future. If you're still young enough, there's time to rebuild and recover. But if you're in your 50s or 60s or beyond, the consequences can be dire. And it's drawing attention to the shortcomings of a retirement system that's jeopardized the financial security of tens of millions of people. It was a gray, chilly morning in Midtown Manhattan, and a line of unemployed, mostly white-collar workers stretched for blocks around the Radisson Hotel. More than 1,000 middle managers, stockbrokers, consultants, secretaries, and receptionists had come here hoping to find a job. If you are just arriving, please step this way.

Good morning.

It was called a career fair, but there was no merriment here, only a whiff of desperation.

Do you have any openings in the IT industry?

Many of these people had been out of work for months and burned through their liquid assets. Their future even bleaker than the present. Alan Weir, who turned 60 this month, showed us his latest 401 statement, which he hadn't had the courage to open up.

I'm afraid.

You're going to open it now?

You want me to? Let's do it.

There's good reason for his trepidation. Nearly half of his life savings have vanished in a matter of months. It went down again. How much are you down overall? Oh, about $140,000. Do you think you'll ever get it back?

I'll probably never see it come back. I was looking to retire probably when I hit 62.

I can't do it now.

I'll probably be working until I'm at least 70.

I'm a Microsoft Office diva.

Until she lost her job, Kathleen Coleman had spent nearly 30 years working as an executive assistant on Wall Street. She doesn't have much to show for it. Tell me about your 401.

Um, does this answer the question?

This is, uh, what it was in 2005, 2007, 2007, you're down below 2005.

Right.

And another one went down almost $40,000. One was $80,000, $88,000, and then it went down to, like, $50,000. How old are you? 54, and I live alone.

I don't have any children.

I've been a career girl all my life. And it's been a great career, and I don't deserve this. I'm sorry.

Sorry. Have you had any nibbles?

All the nibbles I've had, I get beat out by top models who can type. And, and, and it's— I have experience and dedication and loyalty, and I can make any boss shine. I can. If you're out there, I'll relocate anywhere for you.

What, um, psychologically, what does this piece of paper do to you?

Oh, it, uh, it crushes any, any rest I may get when I'm 65. I'll have to work for the rest of my life.

The saddest part of this story is that it's being repeated all over the country. In eastern Pennsylvania, 59-year-old Iris Hauntz lost her accounting job and half of her 401 investments. She's now back in the workforce as a part-time cashier in a grocery store.

Your debit card. You have a great day.

In Dearborn, Michigan, Terry and Donna McNally are barely holding on. He lost his sales job in August. The condo they bought 15 years ago is worth less than their mortgage, and 40% of his 401 retirement savings is gone. Donna is the main provider now.

Let me hear you count to 10. Can you count to 10?

Running a daycare center out of their home.

7, 8, 9, 10.

Are you here for Joan?

Yes.

Terry considers himself fortunate to have found part-time work greeting the bereaved at a funeral home and making lattes at Starbucks, where colleagues young enough to be Nevia's grandchildren have taken him under their wing. What's the hardest part?

I'm no longer sitting at a computer or driving in a car to a call. You know, suddenly I'm standing for 4 to 6 hours and greeting people or making drinks or trying to learn the process and the food business thing, which is very difficult.

It's tough, but I'm proud of him. At his age to be doing what he's doing.

The 401 drop was tremendous. Is tremendous at this point in time. And that's where the savings was. That's our hurt right now.

We can't live our vision of our dream of retirement. That's the worst part. Many people can't.

And what was your dream?

Our dream was to have a log cabin up north, Leland area, and just live a nice quiet life. And we can't do that.

You think you'll ever be able to retire?

I don't see that day. I can no longer see that day.

What kind of a retirement plan allows millions of people to lose 30 to 50% of their life savings just as they near retirement? David Wray, president of the Profit-Sharing 401 Council of America and a lobbyist for the 401 industry, says it's one that empowers people to make their own investment decisions.

401s is the absolute best way people can save for retirement. They absolutely are the best retirement vehicle we have.

How can you say it's the best available if it has let down tens of millions of people at the time they need the money the most?

That's not a 401 problem. That is our entire investment system. This is about the markets went down for everybody. Nobody was saved in the current, uh, in the current thunderstorm.

Ray says that many people still have more money in their 401s than they've actually contributed. He says everyone had multiple investments investment options, including low-yield guaranteed returns. And he believes people who lost money have no one to blame but themselves.

In America, uh, you know, it's a, it's a society based on freedom and choice and personal responsibility. We need to help them understand these responsibilities and execute them to the best they can. 401 is part of that. There are no guarantees.

What about the people who are 63 or 64? A lot of those people were thinking about retiring. Well, and now they aren't. Well, I mean, there are more retired and have to go back into the workforce.

Well, but that That's not a 401 problem. That's an investment system problem. The markets go up and down, and if those people chose to take equity risk, there was a logical outcome.

But in fact, the 401 plans that have become the primary source of retirement income for 60 million Americans were never designed to be retirement plans in the first place. They were created in the late 1970s as a savings plan and tax shelter for ordinary Americans. The idea was that workers would make voluntary contributions and employers would match a portion of them. The taxes would be deferred until the employee reached the age of 59 and a half. It was supposed to supplement the two traditional income streams for retirees: Social Security and pensions. One leg of a three-legged stool that would support American workers into their golden years. But it didn't turn out that way.

The three-legged stool, if you will, has gone to two legs and it's wobbly, and it's wobbling, and I'm not sure that it's going to support anything. And that's the scary part, and people are afraid.

Brooks Hamilton has helped design retirement plans for some of the country's largest corporations. He says 401s turned out to be so much cheaper than funding pensions that many companies decided to freeze their pension plans and replace them with 401s. The decision created millions of new employee investments. For Wall Street and the financial community, and they pounced on the opportunity.

If you go back and track the mutual fund growth in assets and you track the growth in 401 plans, it looks like a railroad track leading to the sky. They are parallel tracks.

So the big beneficiaries were the mutual funds?

That's right. That's correct.

When employers began turning 401s into retirement plans, the financial community was not shy about promoting them as such. The prospect of trillions of dollars in the hands of unsophisticated investors opened the door for all sorts of potential abuses.

The fact is that the typical 401 investor is a financial novice. They don't know a stock from a lime. And we give them a list of 20 or 30 mutual funds with really, really powerful names. You know, they sound like, gee, that's where I want to have my money.

What are generally the quality of the mutual funds in 401 plans?

Mediocre. I'm going to be real honest with you. With half the funds on the list really dogs, what people would characterize as dogs, shouldn't be on the list to start with.

There clearly has been a raid on these funds by the people of Wall Street, and it's cost the savers and the future retirees a lot of money that would otherwise be in their account, independent of the financial collapse.

Representative George Miller of California is chairman of the House Committee on Education and Labor. And a staunch critic of the 401 industry, especially its practice of deducting more than a dozen undisclosed fees from its clients' 401 accounts.

Now you got a bunch of economic wizards jumping in and taking money out of your retirement plan, and they don't want to tell you how much. You can't decipher it in simple English, and they're not interested in disclosing it or having any transparency about it.

And most of the people that look at their 401s have no idea that these fees are being taken out?

No.

Where would you find it? Where would you find these fees in this prospectus? You can look on any page you want, and when you're all done reading it, and you will find some of the fees and the commissions here, but you won't find them all, and I bet you won't find half of them.

There are legal fees, trustee fees, transactional fees, stewardship fees, bookkeeping fees, finder's fees, and the list goes on and on. Miller's committee has heard testimony that they can eat up half the income in some 401 plans over a 30-year span. But he has not been able to stop it.

We tried to just put in some disclosure and transparency in these fees, and we felt the full fury of that financial lobbying.

David Wray, a lobbyist for the 401 industry, says he favors disclosing the fees, but his partners in the financial industry don't. You think most people know these fees exist?

I think they know that there are fees. They don't know exactly how large they are.

Why do you think the financial services industry is opposed to opposed to fee transparency?

I don't know that they're opposed to it. I think the issue is—

You don't think they're opposed to it?

Well, they want to keep the—

You're a lobbyist in Washington, right? You know they're opposed to it.

Um, the—

George Miller hasn't been able to get a bill to the floor.

I think they want to keep the systems as simple and not make changes. They like the way things are, and whenever you push people out of their comfort zones, You know, it's an issue.

I mean, they're comfortable with the situation because they're making a ton of money, or they have made a ton of money.

Well, and their systems are set up in certain ways. You know, this is going to be a big change.

We wanted to ask David Wray, who's been so bullish on 401 plans, one last question about what the future holds for people like Terry and Donna McNally and Kathleen Coleman, who you met at the beginning of this story.

Dedicated, loyal. I can be there. There's nothing standing in my way. Thank you. Need a babysitter?

Most of the people that we've talked to are 50 and 60 years old, right, and have sustained these losses, say there is no way they're ever going to make them back, right? Do you agree with that?

I, I think we have to be truth tellers. I think that when a, when a person has hit this point, and we've had this unfortunate situation. I don't think we can misrepresent what the possibilities are.

And the reality is that money is not coming back that they've lost.

They can't count on it. They have to— they— it may— maybe they have long— maybe if they work 10 more years, it'll come back by the— but it's important that they not have unrealistic expectations.

For more information on your 401, go to 60minutes.com.