Work Until You're Dead? That May Be the Only Option for Many Americans

Many Americans are likely to have to work until they are dead, not as a result of Social Security shortfalls but because of their inadequate 401(k) savings or the fact that they have no retirement plan at all.
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Many Americans are likely to have to work until they are dead, not as a result of Social Security shortfalls but because of their inadequate 401(k) savings or the fact that they have no retirement plan at all. This disaster has not dawned on the mutual fund companies that manage retirement assets, much less been debated on Capitol Hill. Given that the first wave of Boomers is scheduled to turn 65 in 2011, attention must be paid.

Here's the raw deal in a nutshell: Unless you've got Chief and Executive in your job title -- including "Ousted Disgraced CEO" -- you are probably pension-poor, even if you earn a six-figure salary. That's because only 11% of the private sector population is covered by a regular pension. Unlike during the postwar Fabulous Fifties and the Soaring Sixties when America was a "fortress economy" and almost half of the private sector was covered, currently even most employees of big companies can't count on one. Only 17 of the Fortune 100 companies offer a traditional pension to new hires.

The 401(k) plan that has replaced pensions was meant to be the icing on a pension cake when it was created 30 years ago, not a substitute for a pension. While 401(k) plans have been criticized as risky, the more important failing is the typical stingy employer "matching contribution" equaling 3% of pay, the second lowest in the world. (There are some exceptions, universities typically contribute the equivalent of between 7 to 10% of pay.)

The rarely discussed rule of thumb for nest egg adequacy is that you need the equivalent of 10 times your "final pay," or your salary near retirement, in your 401(k) AND rollover accounts. Unfortunately, most people will be lucky if they have a little more than "one time their final pay." According to the Employee Benefit Research Institute, the median amount workers in that age group have saved is a mere $77,000 and the median salary for that age group is $61,000. What's even worse is that 50% of the private sector population isn't covered by any plan at all -- pension OR 401(k).

While I have a feeling that President Obama would support genuine 401(k) reform if he knew what a pension pickle we're in, his so-called 401(k) experts simply support "automatic enrollment," in which employees with a 401(k) plan contribute 3% of their pay -- one third of what is needed -- without requiring a minimum employer contribution. In addition, these adherents of Rubinomics also endorse "automatically annuitization" of 401(k) account balances at retirement, ensuring lifetime employment for annuity salesmen but insufficient income for annuity owners. As for the 50% of the Americans with no plan at all? They get an "automatic IRA," in which employees can contribute but employers don't have to. Automatic inadequacy! Thanks, guys!

At least the UK's leadership is planning a fix to that country's private pension system -- because they don't equate employer mandates with Godless Communism -- even though a greater percentage of their population is covered by a plan and their 401(k)-style plans feature employer contributions that are twice as generous as that in the U.S.

Starting in 2012 virtually every UK employer that doesn't currently offer a pension must enroll employees in a 401(k) style plan that features a minimum employer contribution of 3% of pay and 3% from the employee (smaller employers are phased in). Oh -- and the government's plan is for the account assets to be pooled, professionally managed and feature fees that are no more than .3% of account assets -- about a third of what 401(k) participants pay on funds in their accounts.

It's a disgrace that the most advanced country in the civilized world not only has the worst retirement system in the civilized world but leadership that can't be bothered to fix it. But don't just get mad, tell your elected officials to take action. I've proposed legislation that would require most employers to contribute the equivalent of 9% of pay -- the same rate that Australian employers are required to shell out. Here is the link to the page on my company's website that describes it. It contains a description of the bill, along with the names if the members of Congress who have oversights over pensions that your Congressperson needs to be in touch with.

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