We mentioned in a previous post that Charles Schwab (full disclosure, we use Schwab as our custodian) is working to introduce an ETF 401(k). We believe that there may be advantages for ETFs in retirement plans. However, in an interview with the Wall Street Journal, Steven Anderson, the head of Schwab’s retirement plan business made a point that cannot be over-emphasized.
“There’s been a fairly significant shift of risk from employer to employee in the past 30 years. Individuals weren’t prepared at that point, nor are they prepared today to save for retirement. Low balances put a general stress on the system, forcing people to work longer and make do with less, and education hasn’t been the tool we’ve been hoping it would be.”
The 401(k) type plan – referred to as a “defined contribution” plan has largely replaced the “defined benefit” – or pension – plan for most employees. As these employees age, it becomes increasingly important that they make smart decision about how their money is invested. Since most people are not sophisticated investors, being able to get professional guidance is critically important. Providing guidance for this generation is our goal.