Don't Put All of Your Eggs In One Basket!

Hey everybody,

At a conference that Andrea and I attended not too long ago one of the speakers mentioned that he had recently read an article, originally from Time Magazine, which detailed the importance of not relying solely on 401(k)'s (or RRSP's for us Canadians) when thinking of retirement income.

There was a time when the relationship between employee and employer was much more dependant. Employee's could rely on the company that they worked for to take care of them and in return, employer's could rely on the loyalty of the employees working for them. I am speaking of the defined pension plan system.

Sadly, as we slowly watch one company after another eliminate their defined pension plans , the trend has been to replace those plans with some kind of matching contribution plan. Basically, the employee pays into a 401(k)/RRSP of his/her choosing and his/her employer matches that contribution, usually up to a certain level.

The major reason for this shift is that these days, with so many jobs being outsourced, companies are looking for places to cut operating costs. Unfortunately the easiest way for them to do this is by reducing employee wages, cutting employee perks (like the defined pension plans), or by cutting positions entirely.

The large misconception is that the system we have fallen back on, namely the joint contribution plan, was intended to REPLACE the defined pension plan. The truth is, contributing to these tax savings vehicles was only EVER intended to provide supplementary income for people during their retirement.

So the rule of thumb for anyone who has ever only been funneling money into a 401(k)/RRSP up to this point is that they may want to strongly consider diversifying into other avenues as well. Remember, don't put all of your eggs in one basket!

I have listed a link to the Time Magazine artible below, if you have a few minutes it makes for a solid read, cheers!

Why It's Time to Retire the 401(k)