Sen. Tom Harkin (D-Iowa) deserves praise for attempting to tackle our retirement crisis -- one of the few politicians to do so. However, rather than mandate that all employers offer a retirement plan and contribute the equivalent of at least 3 percent of pay, as is the case with the U.K. starting in 2018, Harkin's legislation would simply allow employees who aren't covered by a plan to contribute 6 percent of their own paycheck to a retirement account. Except that individuals can already do this if they invest in a mutual fund on their own!
The lack of mandates for an adequate retirement plan is ironic given that most long-serving members of Congress look forward to more generous pensions than the vast majority of their constituents. A member of Congress retiring with 20 years of service under Federal Employees' Retirement System and a high three-year average salary of $174,000 will get an initial annual FERS pension of more than $59,000 -- on top of Social Security.
A $4000 Annual Paycheck Is No Pension
Compare that pension paycheck to the typical American worker. According to the
Federal Reserve Board, the median amount saved in 401(k) accounts and other savings for those age 55 to 64 was $100,000 in 2010. Observing the 4 percent withdrawal rule, a nest egg of $100,000 turns into a measly annual income of $4,000, or about $77 a week. Even those Americans covered by a regular pension are likely facing pension poverty, as the New York Times recently reported as a result of the stock market crash and benefit cutbacks. The U.S. has one of the least generous pension systems in the advanced world; only six member countries of the OECD have lower pension wealth.
The only thing more scary than a retirement crisis is enabling an industry to sell products that can't make an empty nest egg full.
Ever watch those Prudential ads on Nightly News with Brian Williams, in which a professor suggests that their products can make your nest egg last a lifetime? When I followed up with Prudential and ask what percentage of the population can afford to retire and to explain how their products would make nest eggs adequate they refused to comment, which was also the case with Ameriprise.
What's even worse is that any attempt to get the media to correct inaccurate articles is rebuffed -- if that's not censorship I don't know what is. When I submitted an op-ed to the Washington Post that challenged columnist Barry Ritholtz's insistence that 401(k) plans work just fine if people invest prudently, " op-ed page editor Autumn Brewington's excuse for not printing it was that they get many submissions. Bloomberg Businessweek also refused to run my op-ed/letter to the editor refuting Nick Summers's piece, "Can Washington Craft a Better Retirement Plan" that claimed that because Harkin's legislation would offer an annuity option, people wouldn't run out of money before they die.
Unfortunately, outside of the SEIU, the brains behind the advocacy group Retirement USA, there has been no hue and cry on Capitol Hill regarding the retirement crisis. Here's a link to their report on our $6.6 trillion retirement deficit. As I've said before, we're looking at a perfect storm of economic catastrophe. If the vast majority of baby boomers can't afford to retire, that bodes ill for the next generations' ability to find work. If you agree, please contact your Congressperson to ask Sen. Harkin to hold hearings on this topic. If we can't reform our system, we at least need to communicate to boomers that they need to stay at their decently-paying jobs at least another decade, rather than "retiring" and ending up taking part-time, benefit-less minimum-wage jobs to try to make ends meet.