When 401(k)s were first introduced, the sales pitch was exactly the same as it was years later when Republicans pushed to have Social Security funds invested in the stock market -- that the returns would be better than with conventional pensions, that you would "control your own money." And in most cases, there were matching funds from the employer, which meant a return on your money right from the minute both contributions were made. Of course, as more companies did away with pensions so that the ONLY retirement vehicle you had was the 401(k), and more recently, as companies have started to cut or eliminate the company contribution part of their plans, and we've seen just how rigged the markets are against the ordinary investor, enthusiasm for these plans on the part of workers is waning:
U.S. workers are increasingly cautious about investing in corporate retirement funds, having shifted money out of stocks, reduced how much they contribute and, in some cases, stopped contributions altogether or withdrawn money, according to a study released Monday.
The study by Hewitt Associates, which administers 401(k) plans for corporations, found the average U.S. 401(k) plan balance was down 14 percent through October to $68,000 from $79,000 in 2007.
That's all? My balance from my last job is down 14 percent just since I was laid off at the end of August. Let's not even TALK about the IRA I set up thirteen years ago to consolidate money from other jobs' retirement plans. It's just too depressing.
When I signed up for the plan at my new job, I decided to put 80% of my contributions in cash, which generates 3%, but at least it's guaranteed, as I watch my more stock-intensive accounts ebb away.
In 2006, the PBS series Frontline ran an episode examining the United Airlines bankruptcy effect on that company's pension fund as a backdrop to the entire retirement savings mess. The program interviewed Jack VanDerhei, Senior Research Fellow at theEmployee Benefit Research Institute, who said:
If you have nothing but Social Security and your 401(k) accounts, if you want to retire at 65 [with 80 percent of your pre-retirement income] and you're male, [you have to have] about 6.3 [times your pre-retirement annual income]; if you're a female, about 6.7. The reason, of course, is you have a longer life expectancy if you're female than male. If you want to retire early -- say, at age 60 -- those numbers are going to increase up to about 6.9 [times pay] if you're male, and about 7.2 [times pay] if you're female.
The bottom line is that AT MINIMUM, you need to put away a combined 15-18% of your annual salary if you're going to be able to retire, including both employee and employer contributions. If your employer does not match, you are on the hook for the entire amount. If you only contribute for 20 years because you, as I did, have a career that didn't really get going until your thirties, you need to earn an annualized rate of return of 8% per year on your contributions. That's not likely to happen now for a long, long time, given current market conditions. So is it any wonder that many of us are going for the smaller, but sure thing, instead of pouring our money into an empty hole?
Retirement? What's retirement? We're all, starting with the middle-stage baby boomers like me, going to have to get this notion out of our heads that we can check out of the workforce at age 66 years and two months and go off to make pottery and garden and volunteer to read to schoolchildren, or whatever picture we have of not having to get up in the morning every day, drive in insane traffic, and spend 8-10 hours in an office, followed by an equally insane drive home, dinner, Olbermann, and exhausted sleep. All this assumes, of course, that we're even going to be ALLOWED to stay in the workforce, as more companies cut staff and send jobs overseas.
It's easy to sell a bill of goods like the 401(k) when markets are booming. But they never tell you how the dice are loaded in favor of the investment companies.
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