NYTimes: Our Ridiculous Approach to Retirement

NYTimes Opinion: Our Ridiculous Approach To Retirement
Worth reading.  Prof. GHILARDUCCI has been saying for years that the
401(k) system has failed and her arguments are sound.  While abolishing
them may not be the answer, her recommendation for mandatory
contributions to retirement accounts may be part of a much better
answer.
People simply aren?t saving enough through 401(k)s and incremental
changes ? like now folks may automatically be enrolled (but with an
option to opt-out) are only starting to take root.  Between automatic
enrollment, and the new expense disclosure (which goes into effect this
month), it?s clear that some of the failings of the 401(k) system are
finally being addressed.
Nevertheless, it looks like these are small patches on a massive
problem and not nearly enough.
Read the article:
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[first couple of paragraphs below]
July 21, 2012
Our Ridiculous Approach to Retirement
 
By TERESA GHILARDUCCI
I WORK on retirement policy, so friends often want to talk about their
own retirement plans and prospects. While I am happy to have these
conversations, my friends usually walk away feeling worse ? for good
reason.
Seventy-five percent of Americans nearing retirement age in 2010 had
less than $30,000 in their retirement accounts. The specter of downward
mobility in retirement is a looming reality for both middle- and
higher-income workers. Almost half of middle-class workers, 49 percent,
will be poor or near poor in retirement, living on a food budget of
about $5 a day.
In my ad hoc retirement talks, I repeatedly hear about the ?guy.? This
is a for-profit investment adviser, often described as, ?I have this
guy who is pretty good, he always calls, doesn?t push me into
investments.? When I ask how much the ?guy? costs, or if the guy has
fiduciary loyalty ? to the client, not the firm ? or if their
investments do better than a standard low-fee benchmark, they
inevitably don?t know. After hearing about their magical guy, I ask
about their ?number.?
To maintain living standards into old age we need roughly 20 times our
annual income in financial wealth. If you earn $100,000 at retirement,
you need about $2 million beyond what you will receive from Social
Security. If you have an income-producing partner and a paid-off house,
you need less. This number is startling in light of the stone-cold fact
that most people aged 50 to 64 have nothing or next to nothing in
retirement accounts and thus will rely solely on Social Security.
Reply to
David S Meyers CFP
sounds like adding personal accounts to social security system wasn't a totally crazy idea after all.
Reply to
Pico Rico
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I don't know how we can force people to save more. If a higher retirement deposit becomes mandatory, I can see people just accruing more debt on the side making matters worse. The author seems to ignore social security benefits. "we need 20X our annual income beyond SS"
20x will give an 80% replacement ratio, which is probably as close to a decent rule of thumb as one will get for this process. Last year, I wrote
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to show the replacement rate offered by social security.Earnings Benefit Replaced40000 17749 0.4445000 19349 0.4350000 20949 0.42 It seems to me, at the 40-50K/yr level, nearly half the required replacement rate is covered. Another 20x would put people at 120% of pre-retirement income. Not a bad problem to have, but it requires a higher savings rate than they can afford.
Reply to
JoeTaxpayer
I like to think that one should plan for worst case scenarios, but a local nursing home is charging $12,000 per month for a semi-private room. I don't think that one can easily plan for an extended stay in a nursing home.
401(k)s in my experience haven't had good investment options even for a skilled investor.
The SS trust fund is getting a very low interest rate on current accumulations.
SS could sell immediate annuities to retirees bypassing sales fees and eliminating the worry that a private insurance company would stop payouts.
Reply to
Ron Peterson
Theresa has said many far out things over the years. She is the strong proponent of nationalizing pensions and retirement accounts. This lets the federal government use their economies of scale to better(?) manage such money.
Other countries have done this. Not to protect citizens, but to buy down government debt.
Reply to
rick++

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