Planning for Life

If You Haven't Saved Enough for Retirement, You're Not Alone, and It's Not Your Fault

Posted by Harry S. Margolis on August 20, 2019

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By Harry S. Margolis

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In her new podcast series, Reset Retirement, New School of Social Research economics professor Teresa Ghilarducci interviews Baby Boomers and others about their retirement situations, which are mostly dire, and experts about why this is the case.

Very few workers today, other than public employees, have pension plans. Instead, except for Social Security, we are all dependent on our own savings. The result is that very few Baby Boomers have enough saved for retirement, with only 15 percent having more than $500,000 in savings according to the following chart:

Baby Boomer Savings

Less than $50,000

37%

Between $50,000 and $100,000

13%

Between $100,000 and $200,000

14%

Between $200,000 and $300,000

12%

Between $300,000 and $500,000

9%

Over $500,000

15%

 

 

 

 

 

 

 

Source: The Motley Fool

Causes

Clearly, very few Baby Boomers are going to have a comfortable retirement with these levels of savings. Why are they so low? There are a lot of reasons, including:

  • When we were young, we didn't save. Remember, we were part of the Woodstock generation that wasn't worried about material things. And given that prior generations were more likely to benefit from company pension plans, the need to start saving early was apparent. The result is that we lost the benefit of compound interest.Fortunately, there's some evidence that Millennials are more likely to start saving for retirement early, having lived through the Great Recession and seen their parents' financial situation.
  • Not enough income. Most people have enough trouble just getting by and can't afford to set aside money for retirement.
  • Stuff happens. Professor Ghilarducci interviews people who lost their jobs, got divorced, or suffered illnesses that both devastated their retirement and cut into the number of years they had to work and set aside savings. The Great Recession cost a lot of Baby Boomers their jobs and their savings.
  • Failure to maximize 401(k) plans. Many companies, while not offering pension plans, do provide matches to contributions to 401(k) plans. for the reasons stated above, many employees do not take full advantage of these matching opportunities.
  • Rapacious investment companies. Most people have no idea about the costs of their 401(k) plans or the investments offered through them. Even a seemingly small 1% annual charge can erode an employee's retirement by 40% over 40 years, not counting the compounding effect of such a deduction. MIT was recently sued for its cozy relationship with Fidelity Investments, which the lawsuit claims cost its employees millions of dollars. Read more about the lawsuit here.
  • Shame. Professor Ghilarducci argues that many workers and retirees are ashamed of their lack of financial resources and this gets in their way of making changes or asking for help. No one should be ashamed, she says, with everything stacked against us.
  • Lack of investment acumen. If you withdrew all of your investments from the stock market after the Great Recession, you missed one of the largest upswings ever experienced by the market.
  • No 401(k) plan. Many workers, especially those who work part-time or for small companies, don't even have access to 401(k) plans.

Solutions
With all these forces working against a stable retirement for American Baby Boomers and the generations that follow them, are there any solutions. Professor Ghilarducci's experts suggest a few:

Secure Choice

This law, which has been adopted in California, Oregon and Illinois, requires all employers with 25 or more employees either to offer a 401(k) plan or to participate in a state-facilitated retirement plan. This also switches the presumption for participation from opt-in to opt-out. In other words, the employee will be automatically enrolled in the plan and would have to affirmatively choose to opt out. (Employers already have this option, which we have chosen in our firm plan.)

Fiduciary Rule

Currently, managers of retirement plans are only required to offer employees "suitable" investments, which can be very expensive. At the end of the Obama administration, the Labor Department was planning a rule requiring that managers of 401(k) plans follow the so-called "fiduciary" rule that they put the employees' interests before their own. The Trump administration repealed this rule.

Fix Social Security

The Social Security trust fund is projected to begin running out of money in 2034. It would not take a lot of adjustment to prevent this from happening, just some political will, which we seem to be lacking at the present time.

Keep Working

While this is an individual rather than a policy solution, many Baby Boomers are going to have to keep working much longer than to age 65 to make ends meet. The policy part of this is that many older workers face subtle or explicit age discrimination. The AARP is pushing a bill in Congress to give older workers the same protections as those on the book for employment discrimination based on ethnicity or disability.

Topics: Retirement Planning

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