Your 401 (k) Is Making a Statement

How did this happen? How did the 401(k) go from being everyone's personal lottery ticket, a symbol of the power of democratic capitalism, to a symbol of financial disappointment little different from a late notice from a bill collector? (Most people don't open those, either.) How did that odd mix of numbers, parentheses, and the letter K come to be such a part of common discourse that, with just six characters, it sums up a whole era of exhilaration, excess, and disillusion?

Is the 401(k) still safe? Is it doomed? Is it a path to a comfortable retirement? Or is it just a pyramid scheme? (For the conspiracy minded: The number-one provider of 401(k) accounts is Fidelity. Its symbol: a pyramid.)

I went on a journey to find out. I slipped into a meeting of employers and 401(k) providers to hear what they say about us "participants" behind closed doors. I went to enrollment meetings, talked to random strangers about their accounts, and went inside two of the largest providers of 401(k) accounts. I used the Internet to calculate over and over how much I need to save to have $1 million when I retire -- doing the kind of math in 10 seconds that used to take someone skilled an hour. I even made a kind of pilgrimage -- to visit the man who invented the 401(k) account, to see if he could provide insight, or at least reassurance.

Because, frankly, I love my 401(k) account. And I want it to be okay.

The 401(k): Behind the Numbers (I)
As of the end of 2001, the best estimate was that there was $1.6 trillion saved in 401(k) accounts. Considering that 401(k)s have only been around since 1981, that's a pile of money. As commonplace as the idea of "billions" has become, you don't hear "trillions" very often. According to the Federal Reserve, the value of the U.S. stock market is about $15 trillion -- so from a standing start 20 years ago, 401(k) accounts now amount to the equivalent of 11% of the value of the stock market.

And there is something special about that $1.6 trillion: It's ours. It doesn't belong to corporations or rich people; it isn't in pension funds controlled by employers.

But if you do some simple arithmetic on that sum, it'll sober you right up. About 40 million people have active 401(k) accounts. That's roughly the same number of people currently receiving Social Security retirement benefits.

Those two groups aren't connected -- except in this way: The 40 million Social Security recipients are being paid about $31 billion a month in benefits. That's an average Social Security retirement check of $800 a month -- rudimentary income at best.

The $1.6 trillion that we've so far saved in 401(k) accounts represents just 52 months of retirement benefits for the 40 million of us -- at the level of Social Security. That's less than five years of retirement at about $800 a month. I don't know about you, but I sure hope to be retired for more than five years, and I hope I'm living on more than $800 a month.

It's amazing how small that big number -- $1,600,000,000,000 -- can be made to seem with a pencil and some quick long division.

There's another problem. Let's say we all save enough, and invest smartly enough, to increase our 401(k)s to $500,000 at retirement, a few decades from now. The good news is that sum will comfortably throw off $25,000 a year in income virtually forever.

But the astonishing news is this: Even if it's just the 40 million of us doing that saving, we'll need to save nearly $20 trillion -- more than the current value of the entire stock market.

The Allure of Free Money
Our attitudes about money are as individual, complicated, and stubborn as our attitudes about love -- but we're a lot less open about money. We routinely talk about our love lives with our cubicle mates; we never pass around our pay stubs. That makes the nearly universal embrace of the 401(k) particularly impressive. The 401(k) has become almost a new form of currency. It is the way we talk about our retirement planning -- it's often the reason we talk about retirement planning -- and it is the way we think about saving and judge our progress. The term has become a shorthand way of talking about the participation of ordinary Americans in the stock market.

The 401(k), quite simply, has become an institution, a cultural icon. The term "401(k)" has appeared in 18,178 newspaper and magazine stories this year alone, through the middle of September. That's more often than Enron scoundrel Kenneth Lay (15,711) and more often than Britney Spears (15,214). 401(k) popped up in a story about a glut of rental apartments in Provo, Utah; in a column on Augusta National not allowing women as members; and in a story about 'N Sync-er Lance Bass being dumped from his trip to the international space station. And that was just in a single day. (My favorite recent reference comes from James Young, guitarist for the classic-rock band Styx. Young recommended his band's music, at a head-clearing "115 decibels in concert," to get past the grief of your "401(k) crashing.")