NYTimes Opinion: Our Ridiculous Approach To Retirement

Worth reading.  Prof. GHILARDUCCI has been saying for years that the 401(k) system has failed and her arguments are sound.  While abolishing them may not be the answer, her recommendation for mandatory contributions to retirement accounts may be part of a much better answer.  People simply aren’t saving enough through 401(k)s and incremental changes – like now folks may automatically be enrolled (but with an option to opt-out) are only starting to take root.  Between automatic enrollment, and the new expense disclosure (which goes into effect this month), it’s clear that some of the failings of the 401(k) system are finally being addressed.  Nevertheless, it looks like these are small patches on a massive problem and not nearly enough.

Read the article:


July 21, 2012
Our Ridiculous Approach to Retirement



I WORK on retirement policy, so friends often want to talk about their own retirement plans and prospects. While I am happy to have these conversations, my friends usually walk away feeling worse — for good reason.

Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.

In my ad hoc retirement talks, I repeatedly hear about the “guy.” This is a for-profit investment adviser, often described as, “I have this guy who is pretty good, he always calls, doesn’t push me into investments.” When I ask how much the “guy” costs, or if the guy has fiduciary loyalty — to the client, not the firm — or if their investments do better than a standard low-fee benchmark, they inevitably don’t know. After hearing about their magical guy, I ask about their “number.”

To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security. If you have an income-producing partner and a paid-off house, you need less. This number is startling in light of the stone-cold fact that most people aged 50 to 64 have nothing or next to nothing in retirement accounts and thus will rely solely on Social Security.

One comment

  1. The always informative JoeTaxpayer had some things to say about the issue of how much social security will provide for folks retirements. The NYTimes opinion piece suggests that one needs 20x income *above* SS. That’s far from true, especially for lower-income folks for whom SS may replace as much as nearly half their pre-retirement income. For more detailed numbers, see JoeTaxpayer’s excellent article here:

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