It’s easy to feel woefully inadequate when it comes to your retirement savings plan.
And you’re not alone: Fidelity Investments puts 55 percent of Americans in “danger of not fully covering even estimated essential expenses like housing, healthcare, food in retirement.” A Wells Fargo/Gallup survey found that 46 percent of their participants were either “very” or “somewhat” worried about outliving what they were capable of saving for retirement, with concerns about whether they could rely on Social Security checks alone.
The top financial services institutions make it sound so easy: Sock away a portion of your paycheck, put it in long-term retirement plans like your workplace 401(k) or an IRA (that these same companies can provide — and profit from, thanks to fees), and then just wait for the money to kick in at retirement.
But if it’s supposed to be so simple, why isn’t retirement working the way it should?
Apparently, we don’t prioritize saving, and we’re poorly educated about money management skills, according to Springleaf Financial surveys. On the whole, this country is not ready to retire — but those aren’t the only reasons why.
“The issue is not that people don't prepare properly,” says Helaine Olen, author of Pound Foolish: Exposing The Dark Side of the Personal Finance Industry and co-author of The Index Card: Why Personal Finance Doesn't Have to be Complicated, coming in 2016.
The inability to save isn’t because we’re wasting money on kitchen remodeling or fancy coffee, but rather because the cost of living has gone up — thanks to rising health-care costs and housing costs — while our salaries have stagnated or declined. And millennials have the extra burden of staggering student debt.
Even if you do manage to save, the financial products that have been set up to protect us — like 401(k)s and related retirement plans — cannot accomplish what they are touted to provide. 401(k)s, for example, were simply not designed to be our main retirement fund, according to a Frontline interview with Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School for Social Research.
Instead, the 401(k) was established “as a way for high-earning executives to put part of their salary aside on a cash-deferred basis. Even after the Reagan administration said all employees were eligible to use a 401(k) account if an employer offered it, no one thought it would supplement pensions,” explains Olen.
Even John Bogle, founder and former chief executive of The Vanguard Group, says the retirement options offered by financial institutions are fiction — what he called a “train wreck” in his appearance on Frontline.
IRAs and 401(k)s weren’t designed to be retirement plans but savings or thrift plans. And the returns are small: After adjusting for inflation and subtracting taxes and fees, “you’re down into a pretty paltry return, 1 or 2 percent,” according to Frontline, which Bogle confirms. “We don’t tell people that, you see, in this business,” Bogle adds.
The most appalling aspect of all of this is that we have no choice — we are locked into a system designed to fail. You may think you can just postpone retirement and get in a few more years with income; maybe you’re convinced you can wait until 70, as Fidelity, for example, advises. But “the great myth of retirement” is that you get to choose how and when you’ll retire, says Olen.
The truth is that people are frequently forced to leave the workforce.
According to a report by the Government Accountability Office (GAO), “[m]any people retire for reasons they did not anticipate or are out of their control”; health problems, changes in the workplace, or caring for a spouse or family member were the main reasons people hung up their briefcases.
A 2012 Health and Retirement Study noted that 43 percent of retirees who participated felt that they were forced into retirement. The 2015 Employee Benefit Research Institute’s Retirement Confidence Survey found similar results: 50 percent of retirees left the workforce earlier than they had planned.
So, what’s left for us?
According to the GAO, more than half of Americans will have to rely solely on Social Security benefits, a monthly payment from the government that is adjusted to yearly cost-of-living changes and doled out. But don’t count on a comfortable standard of living if you plan to live off Social Security — the GAO says it provides only about $17,000 a year. The GAO also says this fund will be insolvent by 2034, leaving many of us with nothing at all.
One way to change this, suggests Olen, is by wielding our votes. A 2014 Gallup poll shows that most Americans are worried about retirement — 59 percent listed retiring as their top financial worry. And the Pew Research Center found that the majority of American oppose cuts to Social Security.
Most Americans are actually willing to pay more in order to see Social Security preserved, according to a National Academy of Social Insurance study. Those millions of Americans should make sure they’re heard in the polls, both when it comes to their congressional and presidential candidates.
Ghilarducci suggests that we should get politically active about demanding a guaranteed retirement account — one that’s not run by the private sector without guaranteed returns. Mandatory contributions would be deducted from your paycheck and then the Social Security Administration would manage the pooled assets. Upon retirement, you would get access to a “low-priced, fair annuity product” without any extraneous private interests.
If the future doesn’t sound clear, it’s because it isn’t. Between impossible savings goals, financial products that can never accomplish what they promise, and a lack of government-funded support, the cards are firmly stacked against us.
Nevertheless, it’s important to note that you should hardly abandon contributing to your retirement funds. At this point, they are the best you can do in a broken system.