5
The 401(k) system doesn't work
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
Jeremy Hobson: So what are we doing all of this hard work for? If it's not because we love it. ot could be because we've got a goal in mind. Say... retirement.
But commentator Teresa Ghilarducci says without government intervention all our labors could be for nothing.
Teresa Ghilarducci: For most Americans, the point of a lifetime of hard work is retirement, and for more than 30 years, we've seen the 401(k) as the means to that end. But after a generation-long experiment, it's obvious a new retirement savings model is necessary.
The case against the current system starts with horrific statistics about the vulnerability of soon-to-be retirees. Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. Almost half of middle-class workers will be poor or near-poor in retirement, living on a food budget of about $5 a day.
Our do-it-yourself pension system has failed because it expects individuals to know when when they will lose their job, get sick, get divorced, lose a spouse and eventually die.
Few realize that to maintain living standards into old age, we need roughly 20 times our annual income in financial wealth. If you're earning $100,000 the day you retire, you'll need to have savd $2 million above and beyond what you'll get from Social Security if you want to continue the lifestyle you're used to.
That number may sound exaggerated, but people underestimate the high costs of aging. Consider this: If you start saving for retirement at age 25, you'll need to hold on to 7 cents of every dollar you earn and your investments will need to earn 3 percent after inflation and fees, if you hope to get to the magic number. If you didn't start saving until you were 55, you'll need to keep 30 cents of every dollar and you might make it.
Scared? Good. We need that fear to motivate us to get real. The coming retirement income security crisis was not caused by a set of isolated individual behaviors; the system was simply never realistic.
We need government-mandated, guaranteed retirement accounts on top of Social Security. These would be professionally managed with a guaranteed rate of return paid out as annuities. This is a sensible way to get an aging society prepared for the future.
Afraid of mandates? For most, the alternative to a successfully executed retirement plan is much scarier.
Hobson: Teresa Ghilarducci is the Bernard Schwartz Professor of Economics at the New School for Social Research in New York City.
> at age 25, you'll need to hold on to 7 cents of every dollar you earn ...
But if the Social Security tax rate is already saving 10% of my income, I should be set for life ( baring unexpected emergencies like illness, unemployment, a new car ). This eventual payout is the only pension many will receive, even though it may feel like holding a low interest junk bond. If you do not trust the government with your money, save your own 10%.
Think about what you're recommending. In the 1930's, people were out of work and no retirement. Enter SSI, a forced retirement, administrated by the Gov't, whereby 12+% of your income (6+% from you, and 6+% from your employer) was 'managed' by the gov't so workers could have a "guarantied supplement" to their retirment saving/pension. Like any ponzi scheme, those early in the program benefited, but after a generation and 1/2 it was realized there wasn't going to be enough because the gov't programs kept raiding the surplus, enter the 401k program. Workers failed to save for their retirement - oh and by the way, SSI may not be there for you either. So now you want to go back to a gov't controlled forced retirement / anunity? We've did that, and it didn't work. Better you read Esop's fable about the grasshopper and the ants. Instead of teaching the liberal bias in elementary / high schools, and colleges, better to teach them some life skills, like savings for a rainy day. It's not SSI that failed, or the 401k idea. Both programs worked, but people either abused the program and failed to plan for the future. Corporations may be accused of planning for quarterly performance - true enough, but workers live for 'today' and fail to plan for tomorrow.
Garbage logic from the outset. The 401(k) program, with its tax shelter, works fine when people use it. Your aggressive 20x earnings formula harkens back to the Bush days of “privatizing Social Security” which was quite popular in Washington and on Wall Street – until the stock market crashed. And wouldn’t that 20x be applied to net earnings instead of gross? So $100K gross becomes $50K net after savings and taxes. If that’s what you live on before retirement, why would that number increase during retirement? Might not $1 million in savings be enough? Finally, at an income level of $100K over ten or fifteen years, Social Security will be over $25K per year – half your basic living costs. So couldn’t the retirement savings goal be set to $500K? Or were you planning to renew the call to wager the Social Security Trust fund on Wall Street?
Abortion, Social Security, SEC, IRS, Federal Reserve, USA in WWI and WWII, these are products of Democrats. The reason why retirement is so convoluted in preparation for the future is that the majority trust intellectuals like you Ms. Ghilarducci. You may label this scheme progressive, history may characterize it as a grand illusion or fraud. Your ideas do not liberate because state control can never lead to freedom. Only imbeciles would want more of the same from our rulers.
So the "fix" to the retirement system is to force people to pay a tax on top of the Social Security tax so they can get a second payment on top of Social Security? Seems to me it would be easier to just increase the FICA tax and increase the pay out of SSI.
Calling the existing system a failure because people have bought into the idea that Social Security will provide for them is wrong. Most people seem to think that 401k, pensions, IRA's et al are to make your life a bit better on top of Social Securities $1,600 a month (what i'm told by the SSA I will get if I work till i'm 67).
Where is the responsibility for retirement? The job of the government? or the job of the person? If the government has the responsibility to take care of me, house me, and feed me when I get old, then why should I save money? Or even work hard?
