But wait....401K's are supposed to provide enough money for old people to own vineyards and B&B's, or live on cruise ships. To give sage advice to their children while they golf at posh courses. Don't you watch the commercials for the financial services companies?

They've always been a joke, but the Baby Boomers loved them. No stuffy old pensions for them! They could manage their own money better than any pension plan!

When we are forced to reopen the county old folks homes, I'm sure they'll be quite comfortable.

Social security is also a looming disaster.

I have faith that republicans will find a way to blame the government for the failure of 401k's.

Replacing conscientious-managed institutional pension funds with RIDE THE LIGHTNING 401Ks is the next bubble to burst (well, maybe after the Student Loan bubble). Our society has shifted to allow the middle class only two alternatives to destitution: 1. Pray that Social Security will still be around (if we can sustain it in spite of the rampant calls for austerity) or 2. Feed your income into the maw of Big Finance and hope your returns can keep pace with its inevitable collapses and manufactured bubbles.

Maybe if people thought seriously about contributing to and managing their 401(k) accounts there would be a better outcome? Most of my fellow drones when I was still working looked at their 401(k) like some sort of damp-ish day fund. They borrowed for vacations, they borrowed for flat-screens, they borrowed for this non-essential and for that new shiny object, and when it was time to retire they did, indeed, have $120,000 or so (several of them retired with less than $50,000) in their accounts. But it's possible to amass a healthy amount in twenty years, much less a working life of forty, and then turn it into an income-producing account, and it has been done. You have to be serious about it, yes, and you have to be disciplined, but it's possible.

Damn. I was afraid that trusting the stock market with anyone's "guaranteed" future would be a bad idea. Yay capitalism...

I'm really glad I won't be retiring in the next 5-10 years... everything I've been reading suggests the economy isn't going to get better in the short term.

Arg.

Also people put what.. 3, 4% into their 401K and then complain they don't have enough to retire on. No shit you don't...

@6, my wife is a university professor with a defined contribution plan. I, also, had a defined contribution plan as a corporate drudge. Because we can both do math, we have always contributed the maximum allowable to those plans to get the maximum employer match. I am 65 and retired, she has 6 more years of work before retirement. Our current net worth, almost entirely in IRAs, is >$2M. The income from that plus our combined Social Security income of ~$50K will be comfortable.

Defined contribution works if people make the necessary contributions.

Those retirement savings numbers are truly frightening but the main thing being measured by the 401k experiment is the failing of our education system. They have to teach these basic retirement principles in public schools and drive them home. Find a 401k calculator and put conservate estimates of a 4% return on contributions of 10% of your salary for 35 years with no employer match and you'll have hundreds of thousands of dollars. Put in a more historical rate of return and bump up the contribution amount a bit and you'll easily be in 7 figures.

Invest in assets that generate money. Real estate, people.

The portfolio you choose for the 401K investment has to make sense. Overloading it in the volatile stock market has never made sense and still doesn't. It's a slow and steady return that yields without a lot of risk, not the immediate gratification some folks look for. Retirement investment would be a good and practical math class for kids. We need to take more responsibility for ourselves and pay ourselves first when the paychecks come - invest in our health, retirement, etc. The trend will continue to be toward people needing to take more responsibility for themselves, their family, their present and their future. There's some common sense to this that we could use a dose of. If you own a home, creating rentable space for revenue in retirement (and now to get the house paid off) is a good idea. It's one of the best returns on investment you can make in my experience.

@10 Congrats for you. But the fact that 401Ks can work for some people does not make up for the fact that they are not working for most people. That's the point. Blame people for being irresponsible if you want, but 401Ks are not working for most Americans, if by "working" you mean saving retirees from destitution.

All y'all tempted to tut-tut at people for being too stupid to make the system work, read this, my favorite recent piece on how fucking asinine the status quo is:

So it’s not surprising that denial dominates my dinner conversations, but 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.

http://www.nytimes.com/2012/07/22/opinio…

I think the people who are saying, "Well, I made it work. No problem!" Are missing the point. Sure, it'll work if you dump a ton of money into it for decades. The actual problem is that hardly anybody does that, and the results of those cumulative poor choices will have a societal impact of some sort.

@14 - The point is that a 401k is a tool. If you don't use it (or don't know how to use it) then where does the problem lie? Given the 10%+ market return over the past 25 years, it would be impossible to have amassed only $120K if you used a 401K throughout a career.

@5:

For many of us playing "Retirement Roulette" that bubble burst several years back when the economy tanked and the average 401(k) lost 30 - 50% of its value. Many of us are just now returning to pre-recession contribution levels, and we're looking at the very strong possibility of a "double dip", as failing European austerity and pending U.S. budget sequesters (among other things) continue to drag down global economic growth.

So, for those of us depending on our 401(k)'s to provide a substantial amount of our post-retirement income, the options look pretty dire: you either have to continue to invest in volatile, high-risk/high-reward stock markets, and hope to Hell you can make up any impending losses in the long-term; or else you follow the plan of "decreasing risk over time" and plan to continue working well into your 70's - assuming you can hold down a reasonably well-paying job that allows you to keep making contributions for that long.

Personally, I'd prefer the comparative safety and stability of a defined benefits plan over my current defined contributions plan any day of the week, even if it meant I was contributing some of my own income as part of the process. Anybody who says any differently has been sold a bill-of-good, plain and simple.

You guys are STILL missing the point. I understand market returns, investment portfolios, etc because I went to college and live the kind of lifestyle where my friends chat about investments. My parents would be completely lost in the discussion going on in this comment thread, and THAT is the point. In order to be viable, a system has to work even for the people who didn't go to college and don't understand investments, and/or have a poor ability to minimize risks/maximize returns, whether because of bad choices or bad circumstances. I wouldn't let my parents become homeless, but you can bet supporting them in their old age is going to suppress my consumer activity and ability to save for my own retirement & kids' education.

@1 if you live in Mexico or Puerto Rico or one of the French, Dutch, or British Caribbean nations, it can.

I'm not so thrilled with DBP or DCP plans as COMTE is, based on my own personal experiences with them.

My main problem with the 401(k) or Roth 401(k) approach (and 403(b) siblings) is that most companies use them as an excuse to cut total benefit costs. If the amount of money set aside was the same as for older plans, they'd be ok for the most part, but they're used to cut the amount set aside.

A decade ago I was on unemployment and had no savings (in fact I was in $40,000 debt). I also was liable for alimony and child support, so from the very generous $496 a month WA paid me per week I sent half to my ex. That meant I had about $1000 a month to live on. My rent was $595 and utilities another $100, so I had $100 a week to buy food and other necessities. I used the library for computer access and rode my bike for transportation like the other bums. I didn't starve but came close the time I misjudged and had only $10 for food for 4 days. I bought a restaurant sized can of beans, some rice and some chili powder and ate that...for 4 days. I remember sitting by the window waiting for the mailman to come at 2:30pm on Friday so I could grab that check.

But I didn't starve, and I was not unhappy for those 8 months.

@20 the best way to do that is come from Scottish, Jewish, Russian, or Northern European heritage, according to statistical analyses in Economics journals. They do well, even in the 3rd or 6th generation, but everyone else just spends like there's no tomorrow.

I suppose you could marry into such a family.

@10 has a point. You should really put aside at least 6 percent of your income, and 10 percent if they allow you to. If you did this starting in your 20s, you'd be a lot better off than most people. Or at least increase it by 1 percent whenever (ha!) you get a raise.

This is one of the few times I'm going to agree with Will in Seattle. If Boeing wants to offer an enhanced 401K in lieu of a defined pension they should offer a pay increase comparable with what their current contribution is to the employees' pension fund. Anything less amounts to a pay cut.

@Bailo- you really think Slog is your own little LiveJournal where you can babble on about whatever idiot thing drifts thru your head if it has at least some of the same words in it as the discussion the adults are having?

It isn't, and nobody cares about the idiot hydrogen-fueled drivel you spew.

Given the crookedness of big business, I'm failing to see how pensions are guaranteed.

So what I'm hearing from a lot of people is that either you advance in your career well enough to have money to spare(because there are so many jobs that allow people to support themselves and save for retirement), have enough discipline that you could become a monk(sorry, I can't afford to have a social life/have children/buy food that isn't swill, I have to save to be able to eat extra nice cat food when I'm 70), and get the equivalent of a minor in finance(because it's a no brainer to figure out what directions investments will go in when you account for the increasing wages in China, the austerity measures in Europe, and the current technological research happening globally) or you fully deserve to spend your "golden years" quite possibly homeless and starving, is that right?

Because make no doubt, that is exactly what you are talking about when you say, "well they should have saved more". You are saying that the horrible mistake of not knowing how to properly manage money is punishable by malnutrition, homelessness, and an early grave.

Stop shifting around and own the end result of your social Darwinian libertarian bullshit.

My friend has saved only a modest amount, after working 20 years at the same job. Is he an irresponsible bozo? No, he has raised 2 children, and paid off debts from his wife. So before the blame lands at his feet, consider that many folks, who work hard and are frugal, cannot simply produce the $10 grand or more savings needed per decade.

@23 my mother *is* Scottish.

I did marry into a family of well-off, financially savvy people.

@23 My parents didn't "spend like there's no tomorrow". We grew up in a very frugal fashion. They made some poor decisions, sure, but probably would have been okay if the last child hadn't been born with such profound disabilities. Or if my dad worked in a better factory with better insurance (do those even exist anymore?) My family illustrates how not having the right education, or the right job with the right insurance, or not having the "right" kids, can set a family up for failure in the 401K system. I'm sure you meant no offense, but I do hope you comprehend my point.

@22 Glad you made it through.

Pensions are magic! Without the fraud and mismanagment endemic in the private pension system, plaintiff's class action attorneys would have to bang skanks in their league. The ha-rah!

@28 - You talk as though living costs a fixed amount. I'm not the only not-highly-paid worker who kept living expenses as low as possible without actually cutting out anything I really loved, but still managed to put the maximum into my 401(k) each year and leave it there. And I don't know about your experience, but I've never worked anywhere where the 401(k) depended on the beneficiary's knowing how to cope with a volatile stock market -- mine have always had financial institution consultants who helped us make decisions about where to invest the money so it could grow more or less safely. Of course there were down times, and I'm sure there will be again, but I didn't have to take college courses in finance to get to a fairly comfortable retirement. I'm not rolling in dough, but I'm not eating cat food, either, and it's not because I'm a financial genius -- it's because I have always been terrified of ending my days hungry and on the streets. It was a powerful long-range motivator.

I seem to recall that 401ks were originally intended as a supplement to retirement, rather than the whole shebang.

And yeah, I know of what I speak. But there's a reason you have actuaries and nerds in suits running real retirement plans. That way you can spread the risk over thousands of participants and multiple decades, and pay the sharks as little as possible.

Or you can outsource the whole thing to Wall Street, and if the market happens to have a bad decade, well, tough shit. You get to work another decade or two while it recovers.

#35 -- ERISA (HotBot it) *requires* employers to diversify pension plan investments. Is there some secret, non-corrupt investment market available for this legally required investing that mythical corporate white-knights are so carefully taking care of for you? Pension plans are about as in the market as most personal 401k's. Your dichotomy is false, as is your knowing of what.

@14 Can we really protect people from their own incompetence? Should we?

@37 - Despite the anecdotal evidence about flat screens and vacations (somehow the argument trotted out every time a fiscal crisis emerges), most people who take money out of their 401k do so because of a financial emergency like illness, loss of a job, etc. There are 140 millions people who do not have the reserves to sustain themselves 3 months at the poverty level in this country, which suggests quite clearly that wages for most aren't sufficient to allow for retirement savings.

> Black calls for an immediate 20 percent increase in Social Security benefits in order to stave off the economic misery looming for millions of retiring Baby Boomers.

Yeah, like the fucking Baby Boomers aren't going to pull that ladder up behind them too. Cheap college, 20% extra social security, jeeze, they don't want much do they?

One thing about the original article I thought was a bit strange: the concept that you retire and live in the same home you raised your kids in.

Why? You don't need a four-bedroom house. You don't need to heat and clean and climb up stairs in a two-story house.

You'd be a lot better off living in an energy efficient condo near transit and services. Then your expenses would go down.

@15: exactly, thanks.

(Jesus fucking Christ, I'm screwed.)

I'll put in my two cents in here. I have a disabled sister that I help out financially, and I have a decent income, but I've sucked it up and put 26% of my income into my 401(k). I'm in my mid 40s, and I was putting a lot less in to my account not too many years ago. I guess I'm fortunate that I don't own a home, so I'm not underwater in my mortgage.

I also don't go out much, rarely eat out, and I live a very modest lifestyle. I'd say that I live a much more modest lifestyle than most of my co-workers and friends. I used to think I was really doing something wrong, because I sure didn't have the lifestyle of those around me, but after the great recession, many of my co-workers/friends also lost their homes and filed bankruptcy. So, as our grandparents would have said, sacrifice now for a better future.

Having said all this, I don't understand why the social security tax isn't extended to all income. A person making $1M a year should still pay the same 6.2% of their income in to the Social Security fund as I do. No, they will never receive all of that money back, but living in a society sometimes means helping those less fortunate than yourself.

@41, I'm right there with ya!

One point not made is that defined contribution plans are basically a way to further reduce compensation, in an environment where compensation has already eroded. Even though I make a "good" living, adjusting for inflation and the cost of living difference, I make less than what my father (who was also a professional) did. The only reason we live comfortably is that we have 2 people making that kind of income and generate income from sources outside of our primary employment. And then I'm expected to pony up 10-15% of that already reduced income to pay for my own retirement. We do it because we have to, and we're lucky our employers still offer some kind of a match, but it's kind of bullshit that the model has shifted so wildly so quickly that it's perfectly reasonable for an employer to say "if we're feeling generous and the company is doing well for its stockholders, we'll give you 5% of your salary towards retirement, if - and only if - you throw 10% into the pot yourself, and we have NO responsibility if the market doesn't return enough to support yourself on that."

Of course, people have a responsibility to save money on their own, but the level of saving demanded to finance what we're expected to is getting ludicrous. People borrow against their retirement accounts because saving for retirement, emergencies, and other goals (homeownership, cars if you need one, college for the kiddos if you have them, etc.) is overwhelming. We save *25%* of our *gross* income, and I'm still not sure we have enough for everything. We can do that because we're well-paid, dual-income professionals without kids who live in a modest house in the worst neighborhood we're willing to stomach and don't own cars. If we had kids, we'd need to at least move to a bigger home (with one kid, around 1K square feet could be managed (maybe a little less with a good layout), with more than one, we'd HAVE to get a house, since they're generally cheaper than condos with enough space for 4-5...something like 1200-1500 square feet), and we'd likely want to move to a neighborhood with better schools so we didn't have to dole out thousands for private school or hope we won the charter lottery. But then we'd need the down payment for a house or bigger condo. Anything in a decent neighborhood near transit is going to be $400K+, so now we need to come up with $40-80K for the down payment (SOME of that could be covered by profits on selling our current properties, a few years down the line all of it, maybe, but we can't exactly bank on that and would be wise to have some savings for it).

So, yeah, the model of "Imma pay you less, and then demand that you save for all your needs in the future" is not workable except, sort of, for childless professional couples, if their employer throws them a bone in matches and the stock market holds up. 2-3% rates of return are simply NOT enough to get people there "safely." Even if you plan to work for 40 years and retire for only 10, you need to set aside a ludicrous amount of money to finance even that, at low rates of return on "safe" investments. By most calculations, we would be fine to have 80% of our income from investments with NO other benefits for 10 years, saving 10% of our income with a 50% match and a just slightly greater than 3% rate of return, but when you add that 10% onto the rest of the savings goals (my brother is putting aside about 1% yearly of *our* gross income (theirs is less, owing to a cheaper cost of living) for each child for college, times 21 years, times 2 kids (and that only covers tuition, not room, board, books, or misc. expenses, though they could work for some of that); to get up the down payment on a family home, most people need to save an additional 5% for the first 10 years they work; to have an adequate emergency fund, most people need to save 2-3% per year; you need to set aside 1% of your home's value every year for repairs and maintenance) you're quickly facing down saving 20%+ of your gross income, which can be 30% or more of your net income. Even if you're making $100K (national median income for college-educated professionals x 2), after you pay taxes and then save for all that, you're left with only about 50%, or $50K, of your income left to spend on housing, food, bills, and everything else. After only a reasonable (national average) house and utilities, the USDA's "moderate" food budget for 4 people, and ONE car, they'd be little left for more than reasonable clothes, insurance and other medical bills, daycare, and a very small amount of disposable income (less than $7K annual for the family for everything from daycare/child care to toilet paper to vacation and dance lessons or whatnot). And don't even say that a family making $100K should have to give up ALL vacations or take out or a small amount of niceties. That's MORE than middle-class, if THEY can't afford a couple meals out a month or a reasonable family vacation once a year, we're all doomed.

Well, if you read all the way through, 46, you'd see that the only way they could do so would be to not really live a "middle class" life. Do SOME people spend exorbitantly on luxuries? Sure. I have no sympathy for them if they can't sustain that. But middle-class people should be able to live decently. Now, I'll admit, $400K for a house is not "normal" in most parts of the country, but it's actually below average here. I based my "2 average professionals" on buying a $200K house, which is right around the national median. Middle class implies that you can buy a home, food, clothing, and other necessities for your family without putting your future in danger. When you're told that you should just "expect" to make less, finance an ever-more-expensive education with little support, AND finance your own retirement, that's no longer middle class living. By all rights, we AND my brother and his wife should be living large(ish). We both make more than median incomes for our areas. But we're not. We live frugally (us in a small place in a not-great neighborhood that I've owned for long enough that it's a real steal (it's about what I paid in rent *9* years ago), them with *just* enough space in a "handyman special" because my brother is handy and can do the upkeep and improvements himself; us without a car because its feasible here, them with older cars because they can keep them running themselves; us hanging onto furniture long beyond its useful life (I have fixed my kitchen chairs - which I got USED in college - more times than I can count), them doing clothes swap-meet parties for the kids; etc.), and because of that we'll be okay in the future. But, for people who are at the median, or forbid a little below it (not poor, not even "lower-middle-class," just shy of the median), things get hairy.

Plus, what do you think stopping ALL spending on ANY niceties (a meal out or takeout here and there, a decent (NOT luxurious) vacation from time to time, new clothes regularly instead of only when the old ones can't be made to fit or are falling apart, etc.) would do to our economy? It's a vicious death spiral, where as people spend less, fewer people are employed and those who are makes less...

People *should* save. 10-15% is reasonable. When you start getting over 20% savings to meet all your needs and goals, the sacrifices start to become extreme. Since I, my family, and other responsible people I know have concluded that 20-25% (gross) savings is what it takes these days, that's asking a for a whole lot of "frugality." That percentage would be higher if we weren't making "above average" wages. And if the trends of reducing real incomes for all but the richest people continues, that percentage will only continue to grow. What do you consider reasonable, as a percentage of a typical income (overall, ~$53K national median household; $49K individual for those with a college education)? Please show you math as to how that level of savings will provide for, at least, a home and retirement.