The vaunted 401(k) revolution has left few Americans with a
nest egg.
How’s your 401(k)
doing?
Working Americans ask
themselves this question — and angst about the answer — a great deal these
days. And why not? For most Americans, retirement reality has turned chillingly
stark: Either you have a robust set of investments in your 401(k) or you’re facing
some really rocky happy years.
A generation ago,
working Americans didn’t have to obsess about retirement savings accounts.
Americans had pensions back then, not 401(k)s. These pensions represented a
commitment from employers to workers: You work here a set number of years, you
can count on a monthly pension at a set amount.
In these traditional
pension plans, the risk rested with employers. They shouldered the
responsibility for funding a pension plan’s “defined benefits.”
With 401(k)s and the
like, employees have no promised “defined benefit.” Their future retirement
income depends on how well their 401(k) investments end up doing, not how long
or how diligently they’ve worked over the course of their careers.
In other words, the
retirement risk has shifted, from employer to employee.
Among America’s most
affluent 20 percent, 88 percent have savings sitting in a 401(k) or similar
retirement savings account. The savings in the accounts of these affluent
Americans averaged $308,674 in 2010, the most recent year with data.
In America’s statistical
middle class, by contrast, a totally different reality. Only 52 percent of
Americans in the middle fifth of the nation’s income distribution have savings
in retirement accounts, and these accounts average only $34,981.
And America’s poorest
fifth has an even bleaker retirement outlook. Only 11 percent of those
Americans have any 401(k) savings, and these savings average just $7,543.
These unequal outcomes
should surprise no one. Participants in 401(k)s and similar plans have to
contribute to participate. In an era of shrinking real paychecks, many
employees simply can’t afford to set aside much, if any, money for their
retirement.
Those Americans with
comfortable incomes who can afford to set aside the maximum possible savings in
their 401(k)s go on, in turn, to benefit from both the standard employer’s
401(k) matching contribution and the tax breaks that all 401(k) savings enjoy.
The predictable
result: The gap between the affluent and everyone else stretches even
wider.
We have moved, in
short, from a traditional pension system where “many retirees could count on
predictable, constant streams of income,” as the new EPI study notes, to a
system where most Americans can’t afford to retire.
“For a large swath of
America,” Marketwatch analyst Matthew Heimer adds,
Social Security has become “the only remaining financial crutch for
retirement.”
In the meantime, many
of the same corporate execs who’ve cut back on traditional worker pension
coverage are spearheading the charge for cutbacks in Social Security.
Last fall, my
Institute for Policy Studies colleagues looked at the
71 big-time CEOs pushing the “Fix the Debt” campaign to trim Social Security
and other major federal “entitlement” programs. These 71 top execs have
accumulated, on average, $9 million each in their own personal company pension
plans.
A dozen of these CEOs
have over $20 million in their pension accounts.
If at age 65 these
dozen converted their assets to an annuity, the Institute for Policy Studies
researchers note,
“they would receive a monthly check for at least $110,000 for life.”
OtherWords columnist Sam Pizzigati, an
Institute for Policy Studies associate fellow, edits the inequality weekly Too Much. His latest
book is The Rich Don’t
Always Win: The Forgotten Triumph over Plutocracy that Created the American
Middle Class. OtherWords.org