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!