The Modern Retirement Plan: Cross Your Fingers

 

I come in contact with the failure of America's retirement system at my local supermarket. That's where a corps of elderly gentlemen bag my groceries. After the bags are piled in the cart, they ask me with slackened faces if I need help to the car. It's always a mildly awkward question. I am far more agile, and we both know it.

Without fail this thought enters my mind: What went wrong for them?

Maybe nothing, and they choose to hoist heavy bags into shopping carts as they round the septuagenarian corner. But the more likely scenario is that whatever jobs they had as younger men didn't offer sufficient retirement benefits.

I fear that their fate is befalling much more of America. The Great Recession has gutted retirement accounts, which have lost 26 percent of their peak value. As a direct result, nearly four in 10 Americans over age 62 say they have delayed retirement, according to a new Pew Research survey.

I wonder: Is this the new normal?

Americans envision spending their golden years traveling, playing golf, enjoying their grandchildren, volunteering. They don't see themselves having to dust off their resumes or clinging desperately to their old jobs. But what if the big 401(k) gamble we are all taking doesn't pay off?

As I began a career in 1985, I had full faith that whatever job I obtained would offer solid pension benefits. And after a long working life, I'd retire without financial worry.

Had I lived in Denmark or France, that would be true. But it is no longer the case here, where workers increasingly shoulder the financial risk of retirement.

Today's retirement plan is work 40 years, then cross your fingers that the bankers-in-suits on Wall Street have not screwed things up again.

Looking back, the deal we were sold was a bum steer. We were told that building wealth in a 401(k) would bring financial peace of mind with the added benefit of job mobility. We could move our 401(k) from job to job; and, unlike a pension that ends at death, the 401(k) account could be bequeathed to heirs.

Million-dollar nest eggs were dangled in front of our eyes. But only a post-Depression generation would have been blinded by the dollar signs. A stock market crash does wonders for clarity on relative risk. Now it is the baby boomers' turn to learn the hard truth about paper wealth: It can disappear between quarterly statements.

As many retirees and near-retirees who have just seen their retirement accounts shrivel will tell you, real peace of mind comes with a defined-benefit pension where the check arrives every month no matter the acrobatics of the stock market or how long one lives.

International comparisons drive home the point. Nearly a third of Americans between 65 and 69 were still in the workforce last year. In France, where the retirement age is 60 and state pensions are generous, only 4 percent of people 65 to 69 were working or in the job market.

In the United States, Social Security provides the average worker with only 45 percent of their preretirement income, while in Denmark workers can retire with 91 percent of their prior salary.

Americans were supposed to make up the difference through employer-sponsored pension plans. That is, until employers shook off that obligation by exploiting a tax vehicle for retirement savings -- the 401(k) -- that was intended to encourage employees to put money aside for retirement, not upend employer pensions.

With only about 12 percent of workers between 30 and 39 now enrolled in a defined-benefit pension plan, according to the Center for Retirement Research at Boston College, employers are off the hook. They can unilaterally reduce or even eliminate 401(k) contributions.

Which means Americans are on their own. Retirement has become largely a matter of aggressive personal savings and investor savvy. It doesn't matter that most of us are unqualified financial planners; either choose the right risk allocations and timing or hope those bagger jobs are still available.

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Personal Finances - The Modern Retirement Plan: Cross Your Fingers

© Robyn Blumner