Our Disfunctional Retirement System

Most Americans near retirement age aren’t financially prepared for retirement. Some people like to blame people for not taking responsibility, but the system of saving for retirement is poorly-designed. Congress put together a system that doesn’t work and couldn’t work given the realities of how people act and how careers develop. Sunday’s New York Times had a good column by a retirement policy academic about why the system doesn’t work. What many people don’t want to acknowledge or don’t realize is that 401(k) plans never were meant to be a primary vehicle for retirement savings. They were supposed to be a tax-advantaged way to supplement traditional defined benefit plans. But people aren’t going to save enough voluntarily and can’t be expected to become investment experts in addition to their regular careers.

If we manage to accept that our investments will likely not be enough, we usually enter another fantasy world — that of working longer. After all, people hear that 70 is the new 50, and a recent report from Boston College says that if people work until age 70, they will most likely have enough to retire on. Unfortunately, this ignores the reality that unemployment rates for those over 50 are increasing faster than for any other group and that displaced older workers face a higher risk of long-term unemployment than their younger counterparts. If those workers ever do get re-hired, it’s not without taking at least a 25 percent wage cut.