Helaine’s Blog

Your 401k won’t save you | Helaine Olen

March 19th, 2013 | via The Guardian

Most of us have less than $100,000 in retirement savings, less than half what some estimate is needed

Most of us respond to questions about our financial prospects after retirement with sentiments that could be best be compared to the look on Captain Quint’s face when he realized he was about to be eaten by the shark in the 1970s classic Jaws.

There is a $6.6tn gap between what we collectively have on hand and what we will need to see us through our post-employment lives, The Center for Retirement Research at Boston College estimates. Experts routinely say the next generation of retirees will be the first to live more hardscrabble lives than their parents in old age in decades.

American families saw their net worth decline by almost 4% between 2007 and 2010, mainly due to the impact of the real estate crash. As a group, Americans have $9.5tn in retirement savings accounts. It sounds like an enormous sum of money but, in fact, it is nowhere near enough.

Most of us have saved less than $100,000 for our post-work lives. That number creeps up to a median $120,000 for those aged 55 to 64, according to the Center for Retirement Research. The math here is ugly: Fidelity Investments predicts that a couple who retired in 2012 at the age of 65 will need $240,000 for medical expenses alone. Just this month, Deloitte Center for Financial Services discovered that 60% of future retirees are convinced all their savings will go to health care expenses. They’re not wrong. Or at least not too far off.

And, no, the recent record-breaking streak by the Dow is unlikely to save us. Only about half of us have investments in the markets, and even then, for most of us, the amounts are mere trifles. It’s estimated that the top 10% of households when it comes to wealth own 80% of all stocks and mutual fund investments in the United States.

This is the end result of the slow, 30-year dismantling of the corporate pension system in favor of 401ks. The 401k was not, as it turned out, “a pretty easy way to make a million bucks by the time you retire,” as Kiplinger’s magazine promised in the fall of 2007.

Instead, it turned out to be a long, strange trip to a penurious retirement for all too many members of the Baby Boom generations and the ones that will follow. Never mind the psychedelic sideshows of the internet and housing bubbles. In black and white, we’re all but broke.

But does anyone in Washington care? It sure doesn’t seem that way. Even as 10,000 baby boomers will turn 65 each day for more than another decade, each cohort seemingly poorer than the next, we’re being told we need to make do with less. Almost all the talk in the capital is about how to make cuts and adjustments to programs like social security and Medicare that seniors – not to mention future seniors – see as vital to their economic prospects.

“We are having a debate about federal budgets and not personal budgets,” says Debra Whitman, executive vice president for policy at AARP. “We are not having a debate about if we downsize the federal government’s share on social security what will make it up.”

So we want help. And help, for the most part, is not what we are getting.

Instead, we’re told we should stay in the workforce longer and to save more money than we are currently doing. Just how to do this in an environment where median household income has fallen by more than 5% since 2009, and workers in their fifties who do lose a job have little chance of finding a new one within a reasonable period of time at anything resembling their former salary goes unsaid.

So what is to be done? As of right now, what little positive action there is on the retirement front is going on at the state level. California is now in the very early stages of setting up a state plan that would work like this: employees who aren’t covered by a workplace retirement plan could set aside 3% of their salary in a way where it would be pooled with that of others. When they retire, they would get an annual income. A similar plan was recently introduced in the Illinois legislature.

In Washington itself, Senator Tom Harkin plans to introduce legislation later this year offering his own retirement planning solve, one that is similar to the California plan. However, it would also allow people covered by workplace plans to put additional money aside. It would also – again, like California’s plan – be portable, that is, it would be attached to a worker and not a particular employer.

There are still problems. While saving 3% of one’s salary is better than not saving anything at all, experts routinely say we need to put aside anywhere between 10 and 15% of our money to ensure we will have enough money to live on after our work lives end. As for Harkin’s plan – well, given how things are progressing in Washington these days, no one is giving it much of chance, at least right now.

Most importantly, none of these retirement reform initiatives require employers to make any contribution at all – continuing to leave all planning on the employees.

Be afraid of what lurks in the retirement waters. Be very afraid.

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