For millions of Americans, the 401(k) plan is a miserable failure — it simply is not shielding enough people from financial struggles in their retirements, according to a CNBC
The Employee Benefit Research Institute
estimates the median amount in U.S. 401(k) accounts is a paltry $18,433 and almost 40 percent of workers have less than $10,000 in those instruments.
"In America, when we had disability and defined benefit plans, you actually had an equality of retirement period. Now the rich can retire and workers have to work until they die," Teresa Ghilarducci, a labor economist at the New School for Social Research, told CNBC.
The business network said millions of Americans approaching retirement are exiting the workforce with savings that "do not even approach what they will need" for even just healthcare.
Since they were started under federal law in 1978, 401(k) accounts mushroomed to $4.5 trillion in assets by the third quarter of 2014, according to the Investment Company Institute.
"But a funny thing happened as 401(k) plans began to multiply: defined benefit plans started disappearing," CNBC said.
A major difference in the two retirement vehicles is that while pensions provided lifetime income, 401(k) plans offer no such certainty and are also optional.
Anthony Webb, a research economist at the Center for Retirement Research, has concluded that another shortcoming — high 401(k) fees — mean that the accounts "are about 20 percent less than they need otherwise be."
Terrance Odean, a professor of finance at the University of California, Berkeley's Haas School of Business, told CNBC that another problem with 401(k) accounts is that both the companies that sponsor them and the workers that participate in them tend to make poor financial choices in their holdings.
Sen. Ron Wyden, D-Ore., complained at a recent hearing on the issue that "something is out of whack. The American taxpayer delivers $140 billion each year to subsidize retirement accounts, but still millions of Americans nearing retirement have little or nothing saved."
CNBC noted that a 2014 Harris survey found 74 percent of Americans were worried about having enough income in retirement, and a separate survey by the National Institute on Retirement Security (NIRS) that found 86 percent of respondents agree the U.S. faces a retirement crisis.
The gulf between the haves and the have nots is growing when it comes to retirement security.
According to a NIRS study
, one way to ease the problem is to strengthen Social Security, since it and Supplemental Security Income make up more than 90 percent of income for the bottom 25 percent of retirees, and 70 percent of income for the middle 50 percent of retirees.
The study concluded that the ways to do that include raising benefits for low-wage workers, eliminating the payroll tax cap and adjusting the benefit formula so it keeps up with living costs.
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