Joe Nocera is a financial writer for the New York Times; his beat is generally Wall Street. This time his beat is his own back yard — his personal own back yard. Meaning his non-existent personal retirement.
He speaks for many. Nocera, in an essay I find compelling, and yes, personal, writes (my emphasis and some reparagraphing everywhere):
My 60th birthday is less than a week and a half away ... [but] I’m not planning to retire. More accurately, I can’t retire. My 401(k) plan, which was supposed to take care of my retirement, is in tatters."I can't retire." Stark, but true of so many. We think of this as a "401(k)" problem, but it's not. It's a "Reagan-era death of pensions" problem.
In the Reagan 80s, corporations began moving their employees away from defined benefit plans (in which the money in was variable, but the money out was guaranteed) — into defined contribution plans (in which the money in was defined, but the money out could be almost zero).
Here's what that looked like on the ground for one writer [written in 2009]:
The History of the PensionAnd here's what that looked like for young Joe Nocera:
For generations, pensions were the retirement plan standard for just about every employer. This may be hard to believe, but it wasn’t until the early 1980′s [actually the late 1970s] that 401(k)’s even existed. Ironically, 401(k)’s were originally added to the IRS code as a way for companies to offer additional retirement benefits to high ranking executives, above and beyond their defined pensions. This didn’t last long.
Over time, most employers have made the shift from defined benefit pensions to 401(k)’s. 401(k)’s were sold as the fresh new thing, giving employees all of the power to choose their own investments. In reality, they were often times a low to modest cost savings over their defined benefit counterparts. The combination of the appeal to the American individualistic ambition and cost cutting possibilities were the perfect storm to sell 401(k)’s over their elder relative.
A Pension Story that Hits Home
My father retires on May 1st. He put in 36 years with the State of Michigan. At one point in the early 90′s, the State offered him a 401(k) cash exchange for the existing value of his defined benefit pension. He turned it down. It was the wisest decision he ever made.
In May, he will begin to receive over $3,000 per month in pension benefits above and beyond his living expenses. And this doesn’t even include Social Security, or the 401(k) that he started from scratch! He’s set for life and has the security in knowing that his pension benefits are safe and guaranteed.
Could he have had a bigger payout if he switched? Maybe, but most likely not. The stock market hasn’t advanced in the last 12 years[.]
Like millions of other aging baby boomers, I first began putting money into a tax-deferred retirement account a few years after they were legislated into existence in the late 1970s. The great bull market, which began in 1982, was just gearing up. As a young journalist, I couldn’t afford to invest a lot of money, but my account grew as the market rose, and the bull market gave me an inflated sense of my investing skills.A great many companies effectively froze out their pension programs by not offering it to new employees, and by moving existing employees into the sparkling "individualistic" 401(k). The benefit to corporations was obvious — to corporations. The looming disaster may have been as well, but hey ... money is the bottom line.
I became such an enthusiast of the new investing culture that I wrote my first book, in the mid-1990s, about what I called “the democratization of money.” It was only right, I argued, that the little guy have the same access to the markets as the wealthy. In the book, I didn’t make much of the decline of pensions.
And millions like Nocera are in real trouble. Here's Nocera's version of that hell:
The bull market ended with the bursting of that bubble in 2000. My tech-laden portfolio was cut in half. A half-dozen years later, I got divorced, cutting my 401(k) in half again. A few years after that, I bought a house that needed some costly renovations. Since my retirement account was now hopelessly inadequate for actual retirement, I reasoned that I might as well get some use out of the money while I could. So I threw another chunk of my 401(k) at the renovation. That’s where I stand today.Most of his generation will experience worse than he's going through. He gives the numbers:
I’m the rule, not the exception. ... [O]nly 22 percent of workers 55 or older have more than $250,000 put away for retirement. Stunningly, 60 percent of workers in that same age bracket have less than $100,000 in a retirement account. ... [T]he average savings for someone near retirement in America right now is $100,000.Like Nocera, most of that generation will have to work until they die. Unlike Nocera, that work will be (a) work they hate, and (b) work that their bodies may not be able to tolerate. Joe works in a chair and writes, which he loves.
Imagine being 70 on your feet all day, selling fries and making change.
The good news? I'm sure something will be done. After all, this time the damaged aren't Them (the Other), but Us (the Deserving). The shape of that fix, though, is tough to visualize; and I sure hope it doesn't take forever, doesn't take too much suffering to motivate a solution.
Thanks, Joe, for sharing. These admissions are really tough.
(To follow on Twitter or to send links: @Gaius_Publius)