Tags: 401k | retirement | saving | pension

RCM: 401(k) Revolution Was a Victory for Retirement Savers

RCM: 401(k) Revolution Was a Victory for Retirement Savers

(Dreamstime)

By    |   Tuesday, 17 January 2017 10:47 AM

Half of U.S. households are at risk of not having enough money to cover expenses, but that’s no reason to disparage 401(k) savings plans, says Andrew Biggs in a blog for RealClearMarkets.

“Here’s the reality: in our 401(k) world, more Americans are saving larger amounts for retirement than ever before,” he writes. “Retirement savings are at record levels, retirement incomes are rising, and Americans are less dependent on the financially troubled Social Security program.”

Pension plans that promised a defined benefit payment to retirees also have proven to be an inadequate substitute for personal savings, he says. Also, the plans never covered more than 38 percent of the workforce, leaving millions to fend for themselves.

“Even if you did participate in a DB plan, it didn’t mean you’d get a solid benefit,” Biggs writes. “Many employers required that employees retire with at least 15 years of job tenure before they could qualify for a pension. If you were forced to leave your job mid-career, you potentially lost hundreds of thousands of dollars in future retirement benefits.”

401(k) plans this year have faced renewed criticism, with The Wall Street Journal reporting that the major proponents of retirement savings plans regret their creation.

“Some say it wasn’t designed to be a primary retirement tool and acknowledge they used forecasts that were too optimistic to sell the plan in its early days,” the newspaper reported. “Others say the proliferation of 401(k) plans has exposed workers to big drops in the stock market and high fees from Wall Street money managers while making it easier for companies to shed guaranteed retiree payouts.”

Biggs says that the advantage of a 401(k) plan is their accessibility to a wider group of employers.

“Today, 61 percent of all employees are actively participating in an employer-sponsored retirement plan, far higher than during the defined-benefit pension era,” Biggs writes. “More savers means more saving: retirement plan contributions are also up, from less than 6 percent of employee wages in the 1970s to 8 percent today. That’s a more than one-third increase in the amounts that Americans are setting aside for retirement.”

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Half of U.S. households are at risk of not having enough money to cover expenses, but that's no reason to disparage 401(k) savings plans, says Andrew Biggs in a blog for RealClearMarkets.
401k, retirement, saving, pension
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2017-47-17
Tuesday, 17 January 2017 10:47 AM
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