A Feb. 17 Washington Post article highlights the plight of Americans who are unprepared for retirement. The article enumerates several factors driving this, including social changes, the continued decline in the number of DB plans, and a stalled economy at a time when the federal government, struggling under massive debt, ponders whether it can afford to continue the estimated $80 billion tax break for retirement plans.
According to the article, the problem is especially acute for the estimated 53% of Americans 30 years or older who are not prepared for retirement, a number that’s grown from 38% in 2001 and 30% in 1989.
The Post reporter cites the Great Recession for much of the problem, which wiped out an estimated 40% of Americans’ personal wealth, along with continued high unemployment and low interest rates. And while the market has surged recently, many people have not benefitted. While the government has stepped in to help in the past, the problem seems to be bigger than ever to both state and federal governments looking to cut costs. Most people, according to the Post, will have to work longer, double up with relatives or rely on government subsidies.
Inevitably, the discussion turns to whether participant directed plans like 401(k)s are the answer or the problem — with higher income workers, according to the Post, getting a majority of the tax benefits. As workers, companies and the government come to grips with the reality of the Baby Boomers retiring — many without the benefits of pension plans and the likelihood of less government help — scrutiny of the DC and 401(k) industry highlighted in the article will become greater. Expect more scrutiny of all the providers and advisors active in the market — for an example, see this recent tirade by CNBC’s Jim Cramer about high fees and limited choice in 401(k) plans.
For more insight into the industry's perspective, see Brian Graff’s commentary rebutting the claims made in the Post article.
