Our 401(k)s are letting us down
Los Angeles Times
“401(k) plans haven’t helped you save enough for retirement,” said Michael Hiltzik. For decades, economists have debated questions such as whether the plans, compared with older-style pensions, “leave too many workers behind” or increase inequality. We now have some answers, and they are not encouraging. In a new study, two experts—one liberal, one conservative—collaborated to find out how well 401(k)s have fared “and reached agreement that the plans haven’t been working well enough to help workers save for retirement.” The two experts postulated that if workers earning median wages invested consistently into their 401(k) plans from age 25 to 60, they should expect to accumulate $364,000. “The typical 60-year-old with a 401(k), however, has only $92,000.” Some of the shortfall comes from workers starting to save late; 401(k) plans “began to surge only toward the end of the 1980s.” Still, even workers who started saving at 30 should have $270,000 by age 60. So what else is happening? For one thing, many workers spent part of their career with employers who didn’t offer the plans. More insidious is “the cumulative loss from early withdrawals.” There’s a big early-withdrawal penalty, but that doesn’t deter “workers with small balances and larger needs”—a painful reflection of our economic inequality.