Recently, CNBC’s Kelly Holland wrote a commentary on the apparent failure of the 401K system. She explained that the typical family only had just less than $19,000 in their retirement accounts. How can anyone retire on that?

401Ks were supposed to be the new, better way to save for life after work… a replacement for the old, burdensome pension plan program that has faltered for many years now. With a 401K, you get your own retirement account and get to manage your own destiny!

More importantly, the 401K would take all the pressure off companies. Pensions were a great idea for companies and municipalities during good economic times. They were a draw card for workers. You could offer them good salaries today and pay the rest later. Sounds just like today’s QE policies, wouldn’t you agree?

But during bad economic times, the good ol’ pension plan turned out to be a very bad idea. As a defined-benefit plan, they became too heavy a burden for companies to shoulder, especially as investment returns became more volatile since 2000.

401Ks, on the other hand, put the market risk in the hands of the employee.

As a defined-contribution plan, companies would contribute a certain amount in a 401K, or match a certain amount of employee contributions, but it was up to the employee to invest the money tax-free and get the long-term benefits.

There are just several, glaring problems with this. For starters, 401Ks are mostly voluntary. You can choose to make the investment or not…

So what does Homer Simpson do? Go to Disneyland instead, or buy a new car. Worry about retirement? Please. That’s tomorrow’s problem.

The second problem is that most everyday people do not maximize their contributions. That’s why they have such low balances. You can’t blame that on the performance of the stock markets over the last few decades, or even safer bonds that have gone up in value.

The third problem is that people are bad investors. They pile into a trend in the late stages with the herd, and then pile out when there is a major correction or crash. If the stock market was averaging 10% before, they are lucky to get 4%.

Here is a graphic illustration of how bad this situation really is…

workers with a retirement plan

Today, only 11% of workers in the private sectors have a pension plan in place. There are another 7% or so in the public sectors that have that.

On the other hand, 31% of workers in the private sector just have a 410K.

But there’s an even bigger problem here: How will all of those people with 401K plans fare when most financial assets crash in the next and final bubble burst? If they’re doing so poorly now, the events I forecast for the next several years are going to blow them right out of the water.

There is no doubt that we need a better plan for retirement. Besides delaying retirement by several years — seriously, we live for 20 years longer than we did when retirement was introduced and we can’t sit and do nothing for that long — we need a savings plan that doesn’t leave it all to the employee or employer.

The best I have seen is in Australia. They require a mandatory contribution — not voluntary — to a superannuation fund, that you own and manage, not the government.

Because of that their average citizen has three times the net worth of the average American (they also have the advantage of high housing prices that are continuing to climb).

So I say make retirement plans compulsory, not voluntary. Otherwise our natural inclination to value the present over the future will make them fail as 401Ks have already.

And then implement some guidelines for how participants invest if they   are going to get the tax advantages.

For now, do yourself a favor:

Don’t lose what little, or a lot, you have in your 401K retirement plans. Cash out of any passive investments and get more defensive now!

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Harry Dent
Harry S. Dent Jr. studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of his chosen profession that he turned his back on it. Instead, he threw himself into the burgeoning new science of finance where identifying and studying demographic, technological, consumer and many, many other trends empowered him to forecast economic changes. Since then, he’s spoken to executives, financial advisors and investors around the world. He’s appeared on “Good Morning America,” PBS, CNBC and CNN/Fox News. He’s been featured in Barron’s, Investor’s Business Daily, Entrepreneur, Fortune, Success, U.S. News and World Report, Business Week, The Wall Street Journal, American Demographics and Omni. He is a regular guest on Fox Business’s “America’s Nightly Scorecard.” In his latest book, Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage, Harry Dent reveals why the greatest social, economic, and political upheaval since the American Revolution is on our doorstep. Discover how its combined effects could cause stocks to crash as much as 80% beginning just weeks from now…crippling your wealth now and for the rest of your life. Harry arms you with the tools you need to financially prepare and survive as the world we know is turned upside down! Today, he uses the research he developed from years of hands-on business experience to offer readers a positive, easy-to-understand view of the economic future by heading up Dent Research, in his flagship newsletter, Boom & Bust.