A Bad Example
The piece, laboriously titled “Millions of baby boomers are getting caught in the country’s broken retirement system” is light (and selective) on data (they managed to get hold of a 2016 report by the Economic Policy Institute subtitled “How 401(k)s have failed most American workers,” some datapoints from the National Institute on Retirement Security (for those who have forgotten some of the issues with their database, see Data ‘Minding’” and a couple of quotes from none other than Teresa Ghilarducci). Indeed, the article isn’t really about factual data; rather it’s mostly reliant on the anecdotes of six individuals the author has somehow stumbled upon.
Weirdly, the article’s author (who is said to cover energy as his regular beat) does manage to find a kind of silver lining in these individuals’ predicaments, noting that “the coronavirus pandemic has scrambled the lives of these six boomers just as it has everyone else’s, though with no savings to worry about at least it hasn’t directly hurt them financially.”
And while the article claims that “none of these stories is an outlier,” well—judge for yourself.
One 70-year-old “had some good jobs over the years,” but her two divorces “involved lawyers, the need to set up new households, and a general drain on savings.” She admits that “I would rather be happy today than miserable 25 years from now. And so I made choices based on that rather than on the economics, which, you know, one could argue fairly successfully that I made some pretty stupid decisions.”
Another says he came down with non-Hodgkins lymphoma, figured he didn’t have long to live and was fed up anyway with life in “corporate America”—and so “retired”… at age 52. Thereafter he says he sold his house and cashed in his 401(k), which had about $100,000 in it, wound up stuck with back taxes, penalties and the like, but also bought a new car, gave some money to family members who needed it and, yes, went on a cruise because he thought he’d die soon. He admits, “I went through a lot of money very quickly.”
Other examples cited one individual who chose to pursue passion—and traded full-time employment for part-time—living in Manhattan. Another, a former truck driver, retired at 62—with $10,000 in his 401(k)—opting to retire now “because my body’s been beat up so bad after 40 years of driving.”
Not to demean or dismiss the financial hardships of the individuals chronicled in the article, but it was hard not to see in nearly all of these stories an abundance of personal choices that lead to their post-retirement “plight.” A point that the individuals featured make no bones about.
It’s not like dissing the retirement system or the 401(k) is a new “sport” for the media. And let's be honest - some will run short of money in retirement, and some—like the individuals featured in the article—may well be forced to make the tough decisions late in life that different decisions earlier could have forestalled.
It may not be the lifestyle they might choose, but many will nonetheless be able to replicate a respectable portion of their pre-retirement income levels, certainly if the support of Social Security is maintained at current levels. In fact, an analysis in 2014 by the non-partisan Employee Benefit Research Institute found that current levels of Social Security benefits, coupled with at least 30 years of 401(k) savings eligibility, could provide most workers—between 83% and 86% of them, in fact—with an annual income of at least 60% of their preretirement pay on an inflation-adjusted basis. Even at an 80% replacement rate, a full two-thirds (67%) of the lowest-income quartile would still meet that threshold—and that’s making no assumptions about the impact of plan design features like automatic enrollment and annual contribution acceleration.
It would be naïve to argue that the voluntary nature of the 401(k) design works for everyone, certainly not for those who don’t take advantage of the option, and it most assuredly won’t work for those who don’t have access to its benefits. That said, 401(k)s are working for far more people and in much more varied circumstances than the fear-mongering headlines acknowledge. It’s one thing, after all, to acquiesce to what has become a journalistic “creed”—that “if it bleeds, it leads”—and something else again to wield the knife.
It’s well past time to call out these reports—that “normalize” these “bad” examples—for what they really are: at best a naïve and misinformed parroting of surveys with questionable samplings and methodologies, and at worst serving as the agent of a long-standing and deliberately intentioned “plot” to kill the 401(k). They do so first by undermining its value, discounting and demeaning the modest tax deferrals that encourage most who have access to such programs to set aside their natural preferences for spending—and then discrediting as “rich”[i] those who do take advantage of the option and make thoughtful preparations for retirement (and who, ironically, may well wind up supporting those who didn’t via higher tax burdens because they actually have retirement income).
It’s been said that “a lie unchallenged becomes the truth.” If those of us who know better don’t start speaking up—and speaking out—you can bet that the drumbeat of coverage about the failure of the 401(k) will one day become a self-fulfilling prophecy.
- Nevin E. Adams, JD
[i]You
don’t have to be rich to do so—even among modest income workers
($30,000-$50,000/year), we’ve seen that workers are 12 times more likely
to save via a workplace retirement plan than to open that individual
IRA.
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