I'm used to it now, the deer-in-the-headlights look of fear from couples in deep financial trouble, particularly with no sound, or even feeble, retirement plan. Capital Region families are like all Americans in this case, the goals and dreams of their parents' golden years ruined by greed, exploitation, a docile media.
It was a bad idea from the very beginning, written as a tax shelter for executives at Kodak and Xerox, but my experience shows that America’s 401(k) revolution has left us even worse off than we thought.
Statements unread, or placed in the trash
Thirty years ago, as capitalism-first took hold of America, policy-makers decided that do-it-yourself retirement plans, otherwise known as 401(k)s, 403(b)s, Deferred Compensation, would magically secure our future. It was an unprecedented shift in thinking: Instead of having predictable streams of income from traditional pensions, profit-sharing plans, etc., ordinary people with little financial expertise would suddenly and miraculously transform themselves into financial wizards, putting money aside and managing complicated investments. Many people I know simply can't or don't or lack the time to read their quarterly statements and put them aside or in the garbage.
There were warnings along the way. 401(k)s were originally supposed to supplement pensions, but corporate corporate cost-cutters decided that voluntary individual accounts would replace them. Supplement does not mean replace. Throughout the 1990s, the national savings rate fell. Real wages dropped. Americans started borrowing against retirement plans to pay the mortgage or send the kids to college. The media would not address the story, and politicians maintained the fiction that individual retirement accounts would encourage savings and turn us all into professional money managers. With no education.
Then the market dive of 2008
In 2008, the financial crisis destroyed America’s retirement dream. Jobs evaporated. The stock market took a steep drop. Millions of Americans who had worked hard, straining to sock away a portion of their salary for 401(k)s, watched helplessly as a black cloud formed over their golden years.
Today, the balance in our retirement accounts falls wildly short of what we need to keep us from destitution in old age, much less to secure a comfortable existence. According to the Vanguard Group, in 2012, the average account balance in our 401(k)s was $86,212 — and that number is skewed by high earners at the top. The amount experts say we need? $1 million or more, depending on how much you make now.
Median retirement savings today stand at a unhealthy $44,000. But if you consider affluent America, the picture changes dramatically. A household at the 90th percentile of the retirement savings distribution had nearly 100 times more socked away for retirement than the median household. Households at the highest income levels had stashed more than $1.3 million in retirement account savings.
The shiver is already being felt in all age groups. Unless addressed quickly, it’s going to be bad not just for the aged: A country full of poor elderly people is bad for everyone. What to do?
- Get educated--consumerists are out there, not advertising on television like Tommy Lee Jones or Chuck Schwab who represent companies that work only for the already secure. Connect with them.
- Spread the word: tell your friends, come to meetings, learn and take control. You're not alone.
- Realize that we must in some major way repair the three-legged stool of retirement (Social Security, pensions, savings) now in sawdust. Social Security is good for another 25 years and longer is politicians would increase the contributions of the wealthy. With proper education, individual retirement accounts, especially the Roth IRA, are excellent vehicles for people to take control of their future.
It’s time to say good-bye to the failed 401(k). And don’t let the door hit 'ya where the good Lord split 'ya.
And cheer up. Help is available and for free. I bear bad new, but also good news. So don't get mad at me. And if you do, I'll really try to understand. Really...let's get solutions.
Dave Balog teaches financial essentials to Capital Region families. 952-1257. firstname.lastname@example.org