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Has the shift to 401(k)s been a disaster?
And if so, as liberal economist Duncan Black asserts, what should we do about it?
 
Only 22 percent of workers over age 55 have more than $250,000 saved up for their retirement.
Only 22 percent of workers over age 55 have more than $250,000 saved up for their retirement.  Jamie Grill/Tetra Images/Corbis

Over the past few decades, most employers have moved from the post–World War II model of offering workers pensions and other defined retirement benefits to subsidizing (or not) personal tax-deferred investment plans, most famously the 401(k) — named after section 401(k) of the Internal Revenue Code — which was added with little fanfare in 1978. The first crop of workers who spent their careers under the 401(k) regime is nearing retirement age now, says Duncan Black, better known as the blogger Atrios, at USA Today. So, how is this "grand experiment" in retirement economics working out for employees? "The 401(k) experiment has been a disaster, a disaster which threatens to doom millions to economic misery during the later years of their lives."

Black points to research that shows the median household 401(k) and/or IRA balance for workers ages 55 to 64 was just $120,000 in 2010, "only a trivial supplement to Social Security benefits" for couples who hope to live at least 15 years past retirement at 65. And a third of households have no retirement account, leaving them mostly or wholly dependent on Social Security.

We need an across the board increase in Social Security retirement benefits of 20 percent or more. We need it to happen right now, even if that means raising taxes on high incomes or removing the salary cap in Social Security taxes.... Proposals to improve our system of private retirement savings — even good ones — will offer little to no help for the baby boomers who are currently nearing retirement, and are also unlikely to be of sufficient help for current younger workers. We need to increase Social Security benefits, now and in the future. It's the only realistic way to provide people with guaranteed economic security and comfort post-retirement. [USA Today]

Hold on — when did "a comfortable retirement" become the goal of Social Security? says Tom Maguire at Just One Minute. "To be fair, this is a dreadful time to be retiring, with both housing prices and 401(k)s wiped out by the Great Recession." But that doesn't mean we should turn Social Security into "a full welfare program for the elderly," especially with the expectation that someone else's higher taxes should ensure "comfort" for people who didn't take care of their business. "If people want comfort, they can get it on their own dime."

Not to worry: Nobody in Washington is seriously arguing that we should raise Social Security benefits, says Martin Longman at Booman Tribune. Quite the opposite. But "as for 401(k)s being a disaster, I have long felt that way, too." And it's a bigger problem than just that "people do not (and often cannot) sock enough income away in their accounts." IRAs and 401(k)s give people the illusion "they have skin in the game on Wall Street." Unless you have a ton of money in your account, "you are not a player." You're a guppy in a shark tank.

The bottom line is that if you're 55 and above: Good luck, says Libby Spencer at The Impolitic. At this rate, you'll be lucky if Congress doesn't "fix" Medicare in such a way that you're stuck with more of your medical costs, probably leaving you "to face an early death." Not to get too cynical about it, but as far as the bean-counters in Washington are concerned, that actually makes for "a great cost-saving scheme." As Matt Yglesias says at Slate:

Failure to provide adequate social services to unemployed 61-year-olds not only saves money because you don't need to pay for the benefits, it saves even more money when it leads to that guy dying at 71 rather than 74. To some, those are three extra years to spend with your grandkids. But to the Congressional Budget Office, that's just more Social Security checks and more Medicare bills. [Slate]

 

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