Bad News About Our Retirements

We won’t be able to save enough. Not even with a 401(k).

Who else is resolving to increase retirement savings in 2017? I’m going to ask my CPA about the SEP IRA, maybe you’re going to increase your 401(k) contributions, and we’re all going to do our best to save as much money as we can, using the tools provided to us!

Except those tools might be broken. Helaine Olen explains:

The People Who Evangelized for the 401(k) Now Think It’s Made Retirement Much Tougher

Herbert Whitehouse, a former Johnson & Johnson human resources executive who pushed the then-new savings vehicle in the early 1980s, now says even he can’t retire until his mid-70s if he wishes to maintain his standard of living, because, Martin writes, his 401(k) “took a hit” in 2008. He’s 65. And Ted Benna, the man most frequently credited for the 401(k) as we know it, says he doesn’t believe “any system currently in existence” can help most Americans finance their financial needs in retirement. Oof.

What happened? Well, The Wall Street Journal did an in-depth report on the failure of the 401(k), and it turns out that our cultural investment in self-funded retirement (with a company match if you’re lucky) hasn’t yielded very good returns.

The Champions of the 401(k) Lament the Revolution They Started

Economist Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis, says she offered assurances at union board meetings and congressional hearings that employees would have enough to retire if they set aside just 3% of their paychecks in a 401(k). That assumed investments would rise by 7% a year.

[…]

Two recessions in the 2000s erased those gains and prompted second thoughts from some early 401(k) champions. Markets have since recovered, but many savers are still behind where they need to be.

Ms. Ghilarducci says she came to realize the 401(k) math she used in the 1980s and 1990s no longer works. The 7% annual compounded investing returns, a pillar of the concept, now seems too rosy. She now believes setting aside 3% of salary isn’t enough.

Okay, then—if 3 percent isn’t enough, what should we be setting aside? At Slate, Olen explains that some experts suggest saving 15 percent of our salary for retirement might be enough, and then lists all of the reasons why that might be difficult: healthcare, housing, education, families, and so on.

Then she writes:

Saving for retirement isn’t simply a matter of willpower, or some behavioral finance trick. Life has become too expensive for many of us to save adequately.

Yes. This. It me. It us. 👍 💸 😭

So where do we go from here? Both Olen and the WSJ say that improvements to the system are largely out of our control; companies could bring pensions back (unlikely), or the government could increase Social Security payments (double unlikely).

Olen also notes the (remote) possibility of a “mandatory savings plan, in which the money would be collected by the government and managed by financial pros,” which sounds like nothing I’d like to be involved in at all, because have you seen what the government is up to lately?

Which leaves us with a question: what do we do with this information? Do we keep saving, hoping that life won’t become too expensive and the market won’t drop at exactly the wrong moment? Do we start thinking about how to stretch our careers for as long as possible, keeping in mind that we’ll be competing with new technologies and increased automation right around the time that we start to look “less attractive” to employers? Do we look for sources of passive income, become landlords, start businesses that we can delegate to other people (or robots) as we age?

What are we supposed to do in 2017 to help save for retirement?

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