Baby Boomers Take Huge Hit On 401k Plans. Now What?

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I've spent the better part of my career administering retirement plans, and have seen with my own eyes what Atrios observes in this article for USAToday:

Over the past few decades, employees fortunate enough to have employer-based retirement benefits have been shifted from defined benefit plans to defined contribution plans. We are now seeing the results of that grand experiment, and they are frightening. Recent and near-retirees, the first major cohort of the 401(k) era, do not have nearly enough in retirement savings to even come close to maintaining their current lifestyles.

Frankly, that's an optimistic way of putting it. Let me be alarmist for a moment -- because the numbers are truly alarming. We should be worried that large numbers of people nearing retirement will be unable to keep their homes or continue to pay their rent.

According to the Center for Retirement Research at Boston College, the median household retirement account balance in 2010 for workers between the ages of 55-64 was just $120,000. For people expecting to retire at around age 65, and to live for another 15 years or more, this will provide for only a trivial supplement to Social Security benefits.

Yes. This is the consequence of shifting the responsibility not only for saving, but also for investing. People saving for retirement via 401k plans have taken at least two very deep hits to their investments over the past thirty years. But even if they hadn't, 401k accounts would not be sufficient.

Popular theory at the time dictated that retirement assets should consist of three different things: Social security, personal savings and/or home equity, and retirement savings via IRAs and 401k plans. We all know home equity is gone, thanks to the real estate crash. IRAs and 401ks took a hit during the early 90s, recovered some in the late 90s, and then crashed in 2008.

The solution is one that won't be popular with the "privatize everything" movement:

We need an across the board increase in Social Security retirement benefits of 20% or more. We need it to happen right now, even if that means raising taxes on high incomes or removing the salary cap in Social Security taxes.

I don't see that happening anytime soon. The current generation of soon-to-be retiring baby boomers is screwed. Between health care costs eating through retirement savings, the housing crash, and the likelihood that many of us who lost jobs in 2008 probably won't ever find one again, we're the biggest victims of Reagan 'trickle-down' theories.

Atrios offers a solution: Voters should be demanding that we should not only refuse cuts to Social Security, we should demand they be expanded.


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