The Bogleheads' Guide to Retirement Planning Read Free Page B

employer-provided defined benefit plans. Benefits after retirement were typically received through monthly or biweekly payments from lifetime income annuities. Now personal tax-advantaged accounts such as the 401(k), 403(b), IRA, and Roth IRA plans have become the primary form of saving for retirement. These private retirement accounts hold assets that are currently about four times the size of defined benefit programs.
    Self-funded retirement accounts place the responsibility for preparing for retirement squarely on the shoulders of the individual. Workers must have the discipline to save significant sums consistently for many years. And workers in many defined contribution plans must also wrestle with investing their funds. That is not an easy task, and some workers don’t want to do it. Consequently, many participants put their money in low-yielding money market accounts that have no probability of growing faster than inflation over time. In addition, at the time of retirement, the participant has sole control of the rollover assets and must determine what to invest in and when and how to withdraw assets from those accounts. These are not easy decisions for most people. Fortunately, all of these issues are discussed by the authors of this book.
    We could not write a retirement planning book without addressing risk. There is investment risk any time an investor attempts to achieve returns higher than Treasury bills. During 2008, major U.S. equity indexes were sharply negative, with the S&P 500 Index losing 37 percent for the year. As the market moved lower, it translated into corresponding losses in 401(k) plans. The nonpartisan Employee Benefit Research Institute (EBRI) published an analysis of the impact of the recent financial crisis on 401(k) retirement account balances in 2008. The EBRI analysis, published in the February 2009 EBRI Issue Brief, used a database of more than 21 million participants to estimate the impact of market activity on 401(k) account balances.
    Not surprisingly, how the recent financial market losses affect individual 401(k) account balances is strongly affected by the size of a participant’s account balance. Those with low account balances relative to contributions experienced minimal investment losses that were typically more than made up by new contributions. Those with less than $10,000 in account balances had an average growth of 40 percent during 2008, because contributions had a bigger impact than investment losses. However, those who had balances of $200,000 or more had an average loss of more than 25 percent because contributions made up a significantly lower portion of the account balance.
    The loss in retirement savings has a profound impact on future retirement trends. It is likely to take several years before the balances of some workers reach their prerecession highs, and that includes new contributions made during the next few years. But that does not mean people should abandon their efforts; far from it. Some belt tightening may be needed, but the plan must continue. As our mentor, Jack Bogle is fond of saying, stay the course!

ABOUT THIS BOOK
    There is a bull market in uncertainty in America and around the globe. So wide and deep are the issues that it is difficult to grasp all that has changed and will change in the months and years ahead. But one thing has not changed: your need to prepare. You must continue to strive for a viable retirement plan by evaluating the best ways to save, the best accounts to save in, the right amount to save, a reasonable estimate of the role government entitlements will play, how you will insure against setbacks, and how you handle a financial crisis.
    This book was written for all people who are planning to retire at some time in life. We certainly encourage young people to read this book. However, we understand that most young people who enter the workforce for the first time may save for retirement but tend not to plan for retirement. Planning