Notes From the Fieldby Martin Weil

March 16, 2013

“401Ks Are A Disaster”

Many, many, years ago, a colleague who happens to be an actuary complained to me at every opportunity about what the emerging change from pensions (defined benefit and social security) to retirement schemes like 401ks was going to mean for the future of retirement savings. “No good will come of this,” was the essential message. He groused that individuals would make poor investment choices, save insufficiently and only discover the resulting shortfalls when it was too late. Of course, this was the mid-1990s. Stock markets were routinely going up 20-30% per year and individual retirement accounts were soaring. Richard’s was a lonely voice indeed. Since then of course, we have had the Dot-Com collapse and the 2008 financial crisis, which combined to bring us the infamous phrase “201K.”

Duncan Black (aka the political commentator Atrios) writes in a USA Today editorial with the above title:

The 401(k) experiment has been a disaster, a disaster which threatens to doom millions to economic misery during the later years of their lives. Proposals to improve our system of private retirement savings — even good ones — will offer little to no help for the baby boomers who are currently nearing retirement, and are also unlikely to be of sufficient help for current younger workers….

Black’s op-ed is just one more voice adding to the chorus of concerns that baby-boomers, and even worse, those who follow, are facing a very much less financially secure future than that of their parents’ generation. In hindsight, this is just one further manifestation of the persistent over-spending (under-saving) we as a nation indulged in from 1980-2008. In this morning-after our twenty-plus year party, the bills are just starting to come due. And I do not see these fiscal imbalances being easily resolved or without considerable pain. The vitriolic political fights that are our steady diet are simply a factional debate over how to apportion the burden of these accumulated obligations.

Richard, it was 1995 and you were so right.



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