401K and the economy

As we move toward our senior years we have to secure at least our future if not that of our loved ones. A $1.75 trillion market in assets as of 2001 and $2.7 trillion by the end of 2006, the 401K plan is an easy way for individuals to do just that through their employers. Employers can offer this benefit in post-tax or pre-tax basis.

As of 1990, there were 19.5 million participants with 5.3% in a pre-tax method for lower paid individuals and 6.4% for higher paid employees. There are many reasons why someone would or would not decide to participate in a savings plan such as 401K. Among these reasons to participate are:

· Funding retirement
· Company match
· Tex-deferred status of contributions
· Payroll deduction feature

And the people that do not participate may have the following reasons:

· Not being able to part with money for the plan
· Not being able to save
· Not liking the plan features
· Not understanding the plan features

The key problem here, especially in the recent economic trend, is that many employees are either doing away with 401K plans all together or at the very least are not offering company matching 401K. One of the more attractive reasons why a person would think about investing in a 401K is that the company matches the employee contribution up to a certain percentage.


As mentioned earlier there has been a $1 trillion increase in assets of 401K plans in only 5 years. This could mean that many more people are understanding the plan features as well as deciding that they have to do something to secure their future. The trend in this movement and investment activity differ depending on the age of participants. The younger the participant the more likely they would go toward equity funds. On the other hand the older the participant is the more likely they lean toward the fixed-income securities. The reason behind this, as you might have guess, is that the younger the person is the more time they think they have to make up any losses that they might suffer.