By JLP | July 25, 2012
Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts.
That stat came from Our Ridiculous Approach to Retirement Planning by Teresa Ghilarducci, a supposed expert in retirement planning.
Not clear what “nearing retirement” means but the number is pretty sad for anyone over 30.
Her piece is interesting. I’ll share a couple of highlights:
…it is irresponsible for Congress to deny that regardless of how much you throw 401(k) advertising, pension cuts, financial education and tax breaks at Americans, the retirement system simply defies human behavior. Basing a system on people’s voluntarily saving for 40 years and evaluating the relevant information for sound investment choices is like asking the family pet to dance on two legs.
Not yet convinced that failure is baked into the voluntary, self-directed, commercially run retirement plans system? Consider what would have to happen for it to work for you. First, figure out when you and your spouse will be laid off or be too sick to work. Second, figure out when you will die. Third, understand that you need to save 7 percent of every dollar you earn. (Didn’t start doing that when you were 25 and you are 55 now? Just save 30 percent of every dollar.) Fourth, earn at least 3 percent above inflation on your investments, every year. (Easy. Just find the best funds for the lowest price and have them optimally allocated.) Fifth, do not withdraw any funds when you lose your job, have a health problem, get divorced, buy a house or send a kid to college. Sixth, time your retirement account withdrawals so the last cent is spent the day you die.
The coming retirement income security crisis is a shared problem; it is not caused by a set of isolated individual behaviors. My plan calls for a way out that would create guaranteed retirement accounts on top of Social Security. These accounts would be required, professionally managed, come with a guaranteed rate of return and pay out annuities. This is a sensible way to get people to prepare for the future. You don’t like mandates? Get real. Just as a voluntary Social Security system would have been a disaster, a voluntary retirement account plan is a disaster.
Professionally managed? Did you catch that?
UGH! I don’t like this at all. I would rather the government require people to save a certain percentage of their income and invest it how they see fit than to have some sort of one-size-fits-all approach to retirement planning. Afterall, if I read and understand how to save for retirement, why should I be penalized? Her solution is nothing more than another social program. If people don’t want to save for their own retirement, then they should be left to suffer the consequences. I know for a fact that some people did not save for retirement because they knew social security would be there for them. In other words, social security provided an incentive NOT TO SAVE.