Many Americans are likely to have to work until they are dead, not as a result of Social Security shortfalls but because of their inadequate 401(k) savings or the fact that they have no retirement plan at all. This disaster has not dawned on the mutual fund companies that manage retirement assets, much less been debated on Capitol Hill. Given that the first wave of Boomers is scheduled to turn 65 in 2011, attention must be paid.
Here's the raw deal in a nutshell: Unless you've got Chief and Executive in your job title -- including "Ousted Disgraced CEO" -- you are probably pension-poor, even if you earn a six-figure salary. That's because only 11% of the private sector population is covered by a regular pension. Unlike during the postwar Fabulous Fifties and the Soaring Sixties when America was a "fortress economy" and almost half of the private sector was covered, currently even most employees of big companies can't count on one. Only 17 of the Fortune 100 companies offer a traditional pension to new hires.
The 401(k) plan that has replaced pensions was meant to be the icing on a pension cake when it was created 30 years ago, not a substitute for a pension. While 401(k) plans have been criticized as risky, the more important failing is the typical stingy employer "matching contribution" equaling 3% of pay, the second lowest in the world. (There are some exceptions, universities typically contribute the equivalent of between 7 to 10% of pay.)
The rarely discussed rule of thumb for nest egg adequacy is that you need the equivalent of 10 times your "final pay," or your salary near retirement, in your 401(k) AND rollover accounts. Unfortunately, most people will be lucky if they have a little more than "one time their final pay." According to the Employee Benefit Research Institute, the median amount workers in that age group have saved is a mere $77,000 and the median salary for that age group is $61,000. What's even worse is that 50% of the private sector population isn't covered by any plan at all -- pension OR 401(k).
While I have a feeling that President Obama would support genuine 401(k) reform if he knew what a pension pickle we're in, his so-called 401(k) experts simply support "automatic enrollment," in which employees with a 401(k) plan contribute 3% of their pay -- one third of what is needed -- without requiring a minimum employer contribution. In addition, these adherents of Rubinomics also endorse "automatically annuitization" of 401(k) account balances at retirement, ensuring lifetime employment for annuity salesmen but insufficient income for annuity owners. As for the 50% of the Americans with no plan at all? They get an "automatic IRA," in which employees can contribute but employers don't have to. Automatic inadequacy! Thanks, guys!
At least the UK's leadership is planning a fix to that country's private pension system -- because they don't equate employer mandates with Godless Communism -- even though a greater percentage of their population is covered by a plan and their 401(k)-style plans feature employer contributions that are twice as generous as that in the U.S.
Starting in 2012 virtually every UK employer that doesn't currently offer a pension must enroll employees in a 401(k) style plan that features a minimum employer contribution of 3% of pay and 3% from the employee (smaller employers are phased in). Oh -- and the government's plan is for the account assets to be pooled, professionally managed and feature fees that are no more than .3% of account assets -- about a third of what 401(k) participants pay on funds in their accounts.
It's a disgrace that the most advanced country in the civilized world not only has the worst retirement system in the civilized world but leadership that can't be bothered to fix it. But don't just get mad, tell your elected officials to take action. I've proposed legislation that would require most employers to contribute the equivalent of 9% of pay -- the same rate that Australian employers are required to shell out. Here is the link to the page on my company's website that describes it. It contains a description of the bill, along with the names if the members of Congress who have oversights over pensions that your Congressperson needs to be in touch with.
John Perkins: Mr. CEO, Can You Spare a Job or a Free Lunch
Americans should not have to live in indentured servitude because the economy cannot provide a job for them at a living wage, often because the banks and corporations use their undue influence in the political process to shape the economy for their own purposes, not for the good of the country.
I do recall scare stories about the elderly reduced to eating pet food because their pensions weren't able to keep up with inflation. (401K didn't exist yet then in any meaningful way, employer pensions were the gold-standard of retirement planning.)
One of the problems with pensions is that companies tended to use them as a source of funds for bond issues, etc. - which is a serious problem if the company is failing, and it was hard to determine if a company was failing during the inflation of the 70s due to the chaos induced by inflation. (This certainly argues against my offered solution of "inflation" to correct the "underwater mortgage" problem.)
I've heard of similar problems with 401Ks - where 401K plans offered by companies tend to favor investments that favor the company rather than the employee/owner of the 401K. (I don't think I suffer that problem - my employer is a public university and doesn't issue stock, and my plan is through a set of companies that serve public education insitutions.)
and hey the government try an increase from 60 to 62. Of coarse here the media keep us in the dark with spinning gossips.
Instead here they increased, and everybody is "Mute" And eventually will increase it to 75 (5 years before the average joe gets ready for his last "Shave"
No one was ever held to account for this strategy of deliberately wrecking the Corporation, in order to avoid sharing the wealth with employees. Restructuring and "Re-organization" allowed them to slip all the liablilities, and there was no law against it. Such Rogues became the new American Corporate Heroes, and that is who runs all the Corporations and Banks today, as a result. No consequences. The march toward "De-Regulation" under Reagan paved the way for all this, and look where it has gotten the American public/the American worker.
CBS Sunday Morning aired a piece they did on BMW's aging workforce where the company decided to retool the work process so that their best people who are aging can continue to make a superior product. It seems our focus should be on business development and people development like BMW instead of killing a company so that five people can be rich.
WORK TILL YOU DROP DEAD. Meanwhile, work for Minimum Wage, while the Republicans work feverishly to ELIMINATE Minimum Wage, so that you can be "paid what you are worth". AND, don't forget that anyone who suggests otherwise is guilty of SOCIALISM..SOCIALISM..SOCIALISM...
I have a problem with pensions that operate like a ponzi scheme. They are fine as long as the company is growing. But if a company promises benefits in the future that they didn't pay for now how do you know they will be there?
Pensions are not demands from the employer. Pensions are a tool for an employer to sweeten the pot if they cannot afford to pay employees the going rate. They were intended to be a promise to put aside the portion of the salary they cannot pay employees upfront, i.e., deferred compensation. As an employee, I agree to take less upfront because my employer is agreeing to put the difference in a fund and pay me the principal/interest in the future.
If they are a Ponzi scheme, then they were started by businesses, not employees. Its not my problem that an employer chooses not to "fully fund" the pension plan because they believe market returns will cover the gap (this is the reason why the benefits are not there).
At any time, employers can update the agreement (for future employees) so they can adjust for changes in the business climate.
while people over 50 have not been laid off at a particularly high rate, those of us who have lost our jobs are simply NOT being hired. i am in my late 50s and was laid off in may08, early in this economic crisis. i waited more than a year and was finally hired for a new job ~ though at a MUCH lower salary ~ but after four months was laid off AGAIN when the company lost a client and the owner chose to retain a longtime employee and more her into my position.
the result is that except for a four-month job, i have been out of work essentially for 27 months. i have NO resources left ~ no 401k, no savings. nothing left for me post-retirement but ss. and i am not alone. after more than two years without a full-time job — make-do, part-time “junk jobs” and consulting projects notwithstanding — most of us have nothing left. In order to survive, we have had to liquidate most, if not all, of our resources. etirement funds have been exhausted, health insurance is a dream from the past.
this will create a new underclass of retired Americans who, despite having lived solidly middle-class, professional-class lives, will face retirement in near poverty. this is not what my parents had in mind as they raised me, educated me, and regarded my adult life with pride.
everything we worked most of our lives for has been taken away in a malevolent dust storm, leaving us with nothing but the Social Security the fiscal conservatives now want to limit. i watch the current battle for political supremacy with dismay. it appears that some seek a return to the age of the robber barons, except that today that class seems to have been replaced by oil barons and defense contractors.
what is a middle-class, middle-aged american to think in watching this spectacle? what are we to do? do they want us to set ourselves out to sea on an ice floe?