The replacement of trustee-managed benefit plans with self directed, defined contribution, investment programs, was part one of a two stage assault on the ability of the average investor to achieve retirement readiness. Part two involved MPT (Modern Portfolio Theory) influenced changes to the once sacred Prudent Man Rule:

“Those with responsibility to invest money for others should act with prudence, discretion, intelligence, and regard for the safety of capital as well as income.”

The “safety of capital” and “income” requirements have been sacked by Total Return worship and a lowest possible cost mantra achievable (coincidentally?) only with mass marketed, one size fits all, Wall Street derivatives.

Today’s market value/low cost paradigm has effectually shelved the classical “QDI” principles of investing (Quality, Diversification, and Income Generation), and effectively clicked profit taking and compound realized earnings strategies to the trash bin.

401k participants are the least likely of all retirees to become retirement ready, and it’s not their employers, plan advisors, or plan fiduciaries who are responsible... it is the structure of the Mutual Fund and ETF products + regulatory emphasis on cost and total return that are guilty.

Think August 20th and 21st (2015) from the perspective of a September 1st retiree... or November 1999 vs. June 2000, or October 2007 vs. February 2009.

These abrupt changes in market value need not have had the slightest impact on retirement income generation at retirement... the fact that it did (and will again) is a problem that no one (professional or regulatory) seems willing to address.

Because they must focus on price, cost, and simplicity rather than on quality and income, they include only products, none of which have a “growing stream of income” as an investment objective...

The employee’s dilemma is exacerbated by a DOL that is inappropriately focusing on market value performance instead of either “safety of principal” or “income generation”. There is no directly “convertible-to-the-personal-IRA” product available from Wall Street... nadda.

Only “self-directed” investment plans can now provide a growing source of dependable income., and you won’t ever see Vanguard types offering a push-button conversion to any individual income purpose programs. If they existed, gazillions of dollars would be swept out of embarrassingly low income producing TDFs (Target Date Funds).

The $21 Billion Vanguard 2015 fund, for example (right now)is 49% invested in at least 6,000 individual stocks...there are less than 400 Investment Grade Value Stock Index companies on the NYSE. The 2015 Fund yield is less than 2%.

Recently, I was “head slapped” into realizing that no “convertible” product specializing in top tier, dividend paying, equities and diversified Closed End Income Funds (yielding over 6%) was ever going to gain traction in the “401k space”... but it’s not difficult to imagine how a retirement savvy regulatory environment could “make it so”.

Retirement ready programs include an “age based income purpose asset allocation never below 40%. Portfolios would not need to be identical, but program managers would assure that every security produces income. Portfolios would be convertible into private IRAs at retirement (managed or not).

Every investment program becomes a retirement income program eventually; the challenge is to find the program that allows retirees to make this statement confidently:

“A stock market downturn will have no significant impact on my retirement income.”