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401Ks are a disaster: Column
[bold][italic] Recent and near-retirees, the first major cohort of the 401(k) era, do not have nearly enough in retirement savings to even come close to maintaining their current lifestyles. [/bold][/italic]
We need an across the board increase in Social Security retirement benefits of 20% or more. We need it to happen right now, even if that means raising taxes on high incomes or removing the salary cap in Social Security taxes.
Over the past few decades, employees fortunate enough to have employer-based retirement benefits have been shifted from defined benefit plans to defined contribution plans. We are now seeing the results of that grand experiment, and they are frightening. Recent and near-retirees, the first major cohort of the 401(k) era, do not have nearly enough in retirement savings to even come close to maintaining their current lifestyles.
Frankly, that's an optimistic way of putting it. Let me be alarmist for a moment, because the fact is the numbers are truly alarming. We should be worried that large numbers of people nearing retirement will be unable to keep their homes or continue to pay
According to the Center for Retirement Research at Boston College, the median household retirement account balance in 2010 for workers between the ages of 55-64 was just $120,000. For people expecting to retire at around age 65, and to live for another 15 years or more, this will provide for only a trivial supplement to Social Security benefits.
And that's for people who actually have a retirement account of some kind. A third of households do not. For these people, their sole retirement income, aside from potential aid from friends and family, comes from Social Security, for which the current average monthly benefit is $1,230.
There are good proposals out there for improving the private aspect of our retirement system. Having employer-based 401(k) contributions be opt-out rather than opt-in is one such proposal. There are other commendable suggestions for ways to simplify personal financial management.
But none of these ideas will help people who are nearing retirement. Only the possibility of several decades of compound returns make the personal financing of retirement a realistic idea for most people; those with only a few working years left cannot benefit from this. Absent an unexpected windfall, such as lottery winnings or inheritances, most 60-year-olds lack any capacity to significantly increase their savings.
Even if we do find ways to improve the framework for self-funding retirement, how, exactly, do we expect younger workers, who might benefit from these improvements, to start saving significantly for their retirement? Soaring tuition and fees at universities, combined with the associated soaring student loan borrowing, have led many people to start their working lives already deeply in debt. According to the Project on Student Debt, the members of the class of 2011 with student loans had an average of $26,000 outstanding.
These are mostly 22-year-olds who have never worked full time and who are finding it difficult to find good jobs in the age of the Great Recession. They're beginning their working lives in the hole. Understandably, and necessarily, retiring that debt is going to be a priority over retirement savings. One might imagine that saving for a mortgage down payment and even spending a few bucks to enjoy life might be priorities too. At the very minimum, beginning their personal retirement savings will be delayed by years.
People who go beyond undergraduate education and go on to graduate or professional schools can find themselves even more deeply in debt. The cost of law school is prohibitive for most. Many graduates effectively find themselves with a mortgage-sized debt but without the house.
Those who, for whatever reason, did not choose to further their studies might lack the large levels of debt, but they also generally lack the opportunities to obtain jobs with decent wages and benefits, or any benefits at all.
If the consensus is that we need policies in place to ensure that the vast majority of people have at least a comfortable retirement, then we need to adjust our current failing policies. Expecting people to save sufficiently for their retirement, even if those savings are subsidized by our tax code, is unrealistic.
The 401(k) experiment has been a disaster, a disaster which threatens to doom millions to economic misery during the later years of their lives. Proposals to improve our system of private retirement savings -- even good ones -- will offer little to no help for the baby boomers who are currently nearing retirement, and are also unlikely to be of sufficient help for current younger workers. We need to increase Social Security benefits, now and in the future. It's the only realistic way to provide people with guaranteed economic security and comfort post-retirement.
- The big problem was that people lost employment security, so they couldn't sock away money.
That was a HUGE overhang of poverty that has been hidden, but the real cause is corporate CEOs stealing from their companies at the expense of workers.
- Who cares if the CEO makes 1,000 times what a low paid employee does, and lays off all the middle management to do it? We do, because all those people now have to be supported and the CEO is not paying a tax level to do it.
CEO overpayment is not a victimless crime, and it's why executive compensation should have been strictly regulated a long time ago.
- Something is wrong when the economy overvalues the elite, top tier level. Yes, I get it, they are considered good at what they do and corporations have to pay them ungodly sums to keep them away from competitors.
But something got off track, probably starting in the 1980s, where the rich became the super-rich. And the growing gap between the wealthy and the middle class should be a huge red flag.
No movie star, athelete, entertainer, CEO needs to make such a vast amount compared to the rest of us. Yes, I know the market will pay them what the sub groups are willing to pay for their services. Hence $20 to see a movie instead of $5. But it has tipped the apple cart over and now we're left with a mess that it going to take generations to fix.
"The strength of a nation lies in the strength of its middle class"
- All that research I did to play Fantine made me very sympathetic to the plight of the underclass. Be well poor people!
- Hi, I'm Robert Wagner, and I'd like to talk to you about government backed reverse mortgages.... You CAN have it all!
- Agree with you all.
Corporate CEOs suck and we, as a culture, need to stop worshipping them.
- Why would any retiree expect to maintain a lifestyle they had when they were fully employed? That sounds like a ridiculous idea. The idea of retirement is that you get free time to enjoy your days but in return you obviously have fewer resources.
They need to lift any cap on earned income for social security recipients and, of course, raise the cap on incomes subject to taxation.
And for pity's sake have national health insurance for everyone. Everyone. Until this country gets a national health system or extends a medicare type program to ALL citizens then we ae fucked. Just fucked. No matter how much you have saved.
- There was a report on NPR a few years ago dealing with overhauling the health care system. The reporter brought up an excellent point that I never forgot.
He said, "You walk into the grocery store, a car dealership, a restaurant, or a dept store, etc. and you know up front what the starting prices are for everything you want to buy. There are price tags on the products or some clear indication in the store what the item costs.
"In the healthcare system, most people have NO IDEA idea what the final bill is going to cost them, even they are aware of their deductible levels, plan benefit percentages, etc. It's almost always a crap shoot to see what the medical bill is going to be.
"This is LUDICROUS. There ought to be upfront standardized pricing in this country for any medical service, with leeway given for services given in large metropolitan areas vs rural areas. (Say there's a differenbt standardized cost of having your appendix taken out if you live in NYC and a different standard cost if you have the exact same procedure done in a rural area in South Dakota."
He went on to say that the problems with the health care system were far more complex than this one issue, but that it did seem AMAZING that there is no set price tag for various a medical service (and it could be raised every year for inflation).
The insurance companies and medical /pharmaceutical companies are keeping the system rigged and using wild card math to set medical prices. It's not right and might be one of the many ways the health care system could get back on track.
(I still think if 2 people in the same city had the exact same condition and treatment in the same hospital with the same insurance coverage, I really wonder if their final bills would look identical. Somehow I doubt it. As naive and simplistic as that scenario is, it irks me that the consumers are held hostage to wild card pricing.
We wouldn't stand for it one minute in the grocery store and all other places we shop. Why do we accept going to the doctor or hospital and not know some basic upfront costs.
(Yes, I know the insurance plans lay it out on some level, one night in a hospital will cost this much, etc;. But it's still a crap shoot when the medical bills come in and there should be no surprises!
- [quote]Recent and near-retirees, the first major cohort of the 401(k) era, do not have nearly enough in retirement savings to even come close to maintaining their current lifestyles.
First of all: When a person becomes retired, their life changes. He does not live his daily life -- and does not handle his money -- the exact same way he did while actively working.
George Carlin was right: "[italic]Lifestyle[/italic] is a moronic word. When you think about it, you realize: Attila the Hun had an active, outdoor lifestyle."
All these Wall Street con artists, these financial advisors, want American citizens to just keep pouring their money into their coffers. That, if you keep doing that, you'll be guaranteed set for life. Everyone will attain millions.
One can actually refrain from doing that, save his money in liquid, and end up with enough on which to retire. (Of course that is provided a homeowner has his mortgage paid off before becoming retired.) What none of these greedy motherfuckers will ever say is this: "We realize not everyone will live long enough to retire. We realize three in every ten people become disabled before reaching normal retirement age. We realize those who do live long enough for retirement age are going to stop working, at some point, regardless whether such retirees [italic]feel[/italic] they have enough on which to live (as they had while they were actively working). We do realize that we're completely full of shit because, for all our good advice, so many of us are not following much at all of the advice that we preach."
- "Yes, I get it, they are considered good at what they do and corporations have to pay them ungodly sums to keep them away from competitors."
In 2007, top execs at Supervalu, a supermarket chain based in Minneapolis, whipped out their credit cards to buy more grocery store chains, including Jewel in Chicago, Shaw's in Boston and Acme in Philadelphia.
Because of the enormous amount of debt incurred to buy these chains, the corporate parent can't afford to remodel stores, cut prices or do anything else to remain competitive not only with similar chains, but also with Walmart and Target.
In late 2012, Supervalue sold the same chains at a loss. The executives responsible for this fiasco gave themselves golden parachutes and they're all collecting millions of dollars in severance pay.
That's some real talent there. Kind a brain trust if you ask me.
- When I was a kid, Dad warned us that when the TV and government goes on and on too much about something, whatever it is will soon be dead.
I saw this was true with education, with "healthcare" and now with retirement.