THE ECONOMIC BLUEPRINT: Will a 401(k) work in ­retirement? The proof is in the pudding


The proof is in the pudding. What does that even mean? If I'm searching for an answer, do I eat some delicious chocolaty pudding? No, it's just one of those things people say without really knowing what it means or where it came from.

Here's something else people say without researching its origins: Max out your 401(k).

To analyze whether this is good advice for your clients, or just an old-fashioned proverb, we need to go back to the beginning. Not to the beginning of time, just to the beginning of "retirement."

A very, very brief history of retirement

Retirement is actually a relatively recent concept. In 1900, average life expectancy for American men was 46 and for women it was 48. People rarely retired. Instead, they often worked until they died.

The whole concept of retirement was created only a little more than 100 years ago, in late 19th-Century Germany. The concept crossed the Atlantic shortly thereafter, and in the early 20th Century many American employers were providing support for their employees during their advanced ages.

A watershed moment in the history of retirement came in 1935, when the Social Security Act was passed as a cornerstone of FDR's New Deal. Through the 1970s individuals primarily relied on their employers and the government to finance their retirement. Then, on January 1, 1980, another watershed moment occurred when Section 401(k) of the IRS Code became effective and the retirement world changed.

You see, before 1980 people expected their employers to help them with retirement. As of 1980, 60% of private sector workers had defined benefit programs (i.e., pensions) only and 17% had defined contribution only (401k, IRA, etc.). By 2006 the statistics had completely reversed: 10% of private sector workers had defined benefit only and 66% had defined contribution only.

What is a 401(k) and how does it work?

A 401(k) is essentially a basket of mutual funds intended to help people save for retirement. Individuals are not taxed on the dollars they contribute, and then that money grows tax-deferred. The money is taxed, however, when they withdraw it in retirement. In my next column, I'll provide more detail on the workings of a 401(k).

The proof is in the pudding

So, is "max out your 401(k)" good advice? A sound retirement plan is one that will provide enough money to maintain your lifestyle for the rest of your life under multiple circumstances. Building upon the very brief history of retirement presented in this column, my next column will seek to answer that question.

By the way, the original proverb was "the proof of the pudding is in the eating," and it dates back hundreds of years to when pudding actually meant sausage. To answer whether maxing out your 401(k) will help your clients achieve their goals, the proof is in the pudding.


Attorney Kyle Zwiren works with Financial Architects Inc., an independently-owned company located in Farmington Hills. Kyle and his team serve attorneys and other professionals to help them design financial plans in line with their goals and based on optimal efficiency. Kyle practiced law prior to becoming a Financial Architect and left the practice to follow his passion. To talk to Zwiren about other topics featured in The Economic Blueprint, email him at or call him at 248-482-3622.

Published: Fri, Jun 21, 2019


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