Inside Financial Services

The Retirement Crisis Is Starting To Arrive At Last

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As members of the baby boom generation begin to retire, things aren’t looking so good:

[T[here’s . . .  a slow-moving time bomb out there, and that’s the gradual retirement of workers in an era where 401(k)-style defined-contribution plans have become dominant, replacing defined-benefit pensions. A new study of the state of U.S. retirement shows that this change leaves Americans woefully unprepared for their non-working years, with resources too meager to uphold their standard of living. . . .

Nearly half of all working-age families have no money in retirement accounts at all. The median family has $5,000 saved. Even for people between the ages of 56 and 61, the median retirement account savings is a paltry $17,000. While the top 10 percent have at least $274,000 saved, the bottom 50 percent have next to nothing. [Emph. added.]

This is going to be a disaster. Economist Monique Morrisey of the Economic Policy Institute has done a study, and the numbers aren’t pretty. Since 1989, she found, the percentage of U.S. families enrolled in defined-benefit retirement plans—that is, the kind of plan that can be counted on to provided ample and dependable post-retirement income—has fallen to 21% from 41%. The proliferation of defined-contribution plans such as 401(k)s over that period was supposed to pick up the slack, but hasn’t. Overall participation in any kind of retirement plan has fallen to 53% from 58%. And of families that do have DC plans, funding has been anemic. As noted above, the balance of half of working-age families’ accounts is zero.

None of this is new news, of course. People have been bemoaning workers’ and their employers’ failure to adequately fund DC plans for years. But now that a vast demographic, the baby boom generation, is finally set to retire, the effect of all those years of scant funding is about to be felt. It will be very unpleasant for the workers themselves, and probably not so great for the economy as a whole. Plus, as more retirees come to depend on Social Security for the bulk of their retirement income, any effort to overhaul the system to preserve its solvency (a tough sell even on a good day) will be harder than ever.

I wish I had an easy solution to this problem, or at least a satisfying scapegoat to lay the blame on. But I don’t. If you’ll be relying on a DC plan to fund part of your retirement you should probably be contributing more to it than you already are.

What do you think? Let me know!

12 Responses to “The Retirement Crisis Is Starting To Arrive At Last”

  1. SW Pilgrim

    Walmart will soon be flooded with “Greeter” applications. 75 is the new 65.

  2. Saver

    I hate to write this, but it’s time to raise the taxable wage base.(perhaps to $200k?) I’m willing to give up a portion of my late-year “raise” to be sure that my SS benefits don’t get means tested away! In addition, we should look to see if companies have truly become “more competitive” with overseas counterparts as a result of ending DB plans. That was the cry 30 years ago as they fought to dump the plan. Maybe that was NOT such a good idea!

  3. World B

    Sad but oh so true. And now the DOL will make it all that more difficult for financial professionals to speak with people about the importance of saving for retirement.

  4. Anonymous

    Ed B

    The problem with DC plans is that it requires in most cases the employee to forgo current consumption to secure future benefits. Actually it makes no difference if it is a 401(k) or simply savings. To most of our citizenry, this concept of deferred pleasure is just plain UNAMERICAN.

  5. Concerned

    For better or worse our society has become more complex…the individual citizen bares more risk and responsibility. The greatest generation bought a home, worked for the same company most of their working life and earned a pension, health insurance and related cost was never an issue, higher education was affordable. We now ask people to figure out how to plan for retirement…..figure out how to manage the ever increasing cost and complexity of a high deductable health care plan, and save for college cost that have become ridiculous …… All which is doable, just takes a lot more thought, effort and resources…..

  6. Retired CPA

    It takes time. The book entitled, “Retire Rich” mislead. Reduce consumption. Save the difference. Invest wisely. Live within yourself and your means.

    Start now. The boomers are in trouble. Political solutions will probably make it worse.

    I remember the answer to the question on the CPA exam about the tax-ability of SS was no. When I applied, one year later than I was promised the year of the exam, the answer is 85%.

    Benefits will be reduced on a sliding scale, means tested. Dreadful. Pogo was right, “we have seen the enemy and he is us”.

  7. A. Trujillo Escareño

    Reagan and Jarvis were right “The government is the problem, not the solution.”

  8. c smith

    “…U.S. families enrolled in defined-benefit retirement plans—that is, the kind of plan that can be counted on to provided ample and dependable post-retirement income…”

    Oh, don’t you mean “the kind of plan that…WILL BE PAID FOR BY OTHERS…” ???

    How much of the seething resentment propelling Donald Trump is a result of ordinary Americans (i.e.; non-public employees) comparing their own measly 401K balances with the kingly pensions of so many public workers?

  9. L.C.

    When all of the ”unfortunate” people were running to Disney World and taking cruises and going on vacations some of us were saving our money and being conservative. Same old story with all of these types. Now its time to cry to the Government, gee I cant retire . You spent yours now you want to spend mine .


    • Retired physicist

      And now they’re coming after yours (and my widow’s).

  10. Clive Hamilton

    Everyone is missing the point and engaging in first stage thinking. Sure there is not enough money in these accounts but the real issue is no one is talking about decreasing the cost of living. Instead of thinking how $30,000 can get more in the future we think about just giving $40,000 instead. The demographics are bad and if we give more money to more people while goods and services do not increase at the same rate with reasonable margins then it will do no good at best.

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