This year, my 6-year-old daughter, Ella, learned how to count money. I burst with pride when I walked into Ella’s room and discovered her, kneeling on the floor, itemizing the nickels, dimes, and quarters in her piggy bank.
Beyond Ella’s new counting skill, though, it’ll be my job to teach her to appreciate the true value of a dollar. At some point, I’ll need to break it to her (gently) that saving money—and maximizing those dollars via prudent investing—is the only way to guarantee a comfortable future.
Increasingly, we must all fend for ourselves when it comes to living comfortably in our golden years. In 2008 and 2009, people nearing retirement who treated their investment portfolios like toaster ovens they could “set and forget” got burned. Between early 2008 and March 2009, workers ages 55 to 64 lost roughly a quarter of their 401(k) savings, according to the Employee Benefit Research Institute. Some of those losses were preventable. Nearly a third of older 401(k) participants had 70% to 90% of their portfolios tied up in equities, which was inappropriately risk-ridden considering their proximity to retirement.
Building a nest egg takes active involvement. Just a few generations ago, this wasn’t the case. Before the tax law that created the 401(k) went into effect in 1980, employers offered “defined-benefit” pensions that guaranteed workers a monthly benefit check, determined by salary and years of service, upon retirement. My grandfather’s pension from the U.S. Postal Service was a boon to my own family. For at least two decades after his death in 1959, his pension checks arrived regularly in my grandmother’s mailbox each month. What made the old pension plans attractive was that employers were responsible for managing the fund’s assets, and enrollment was automatic.
Future generations won’t have that luxury. In the private sector, defined-benefit plans are dying out. And even the U.S. Postal Service is struggling to meet some of its pension obligations. Americans who don’t have a pension can hardly rely on the Social Security system: In mid-2009, White House economists reported that the Social Security Trust Fund is likely to run out by 2037.
Managing money requires constant self-education. In truth, I’m learning, too—which is why my job as a personal finance editor at black enterprise is endlessly fascinating. On a daily basis, I’m gathering new information that I can apply to my own life, and share with readers, friends, and family. In some ways, today’s popular retirement plans offer freedom. But being in control of our own assets is also a big responsibility. It’s heartening to think that 40 years from now media outlets such as black enterprise will continue to offer my daughter and her peers guidance in this do-it-yourself world of wealth building.
John Simons is editorial director of personal finance for Black Enterprise.