A Widows and Orphans Retirement

By Dian Vujovich

I’ve never been a 100 percent fan of defined contribution plans like 401(k)s. It’s not that they’re not a good idea. It’s just that so many of us don’t know how to select the appropriate mutual fund(s) to plunk our hard-earned cash into in them.

Yes, their bells-and-whistles are wonderful, particularly when your employer adds to your account. That really is free money. And if the company you work for is large and/or wealthy enough you may get some good direction and education about the funds offered. Even still, most of us aren’t very good at making the right selections.

Add volatile market conditions to the mix, along with hidden fees of one sort or another, and these aren’t the kinds of retirement products suited for widows and orphans.

That term “widows and orphans” was one brokers used in the old days when suggesting stocks and other kinds of investments to their clients. It was more popular at a time when defined benefit plans ruled in the retirement world, corporations took better care of their employees and there was less bull on Wall Street.

But the days of defined benefit plans are sadly almost all gone. As a result, planning for some secure monies coming in during retirement via one’s 401(k) carries more investment risk than an ordinary employee knows how to handle or wants to.

Results from a Watson Wyatt survey showed employees between the ages of 50 and 64 are much less confident today that they’ll have enough money to retire on then they were just two years ago. In 2007, 63 percent felt confident that they’d be comfortable in retirement five years after stopping work—today it’s 44 percent.

Look out 15 years and only 18 percent are confident that they’d have enough money.

On the other hand, 55 percent of those with defined benefit plans felt very confident about having enough money to live comfortably for five years; 26 percent felt the same about their retirement monies looking out 15 years.

One of the many things the past few years has taught all of us, investors and non-investors, is that depending only on stocks to secure one’s long-term financial future is like building a home on a shifting sand pile. I’m hoping one take-way lesson from our current market conditions is that companies decide to go back to the days of defined benefit plans and the kind of secure retirement thinking that required. I know it’s a long shot but it’s a better shot for all involved—the company, its retiring workers and particularly widows and orphans.