January is the month when many Americans review their financial progress of the past year, and specifically review the values of their retirement plans. For some people, however, there isn’t anything to review.
Almost half of U.S. households have little or no retirement savings. Private-sector pension plans are rare, and the public’s embrace of IRA, 401(k) and other retirement plan options has been underwhelming. The result is that as more baby boomers reach age 65, the nation’s retirement problems are growing larger.
Corporate 401(k) plans began in the early 1980s, replacing many pension plans. Today, experts say the bright future they once envisioned for them hasn’t worked out. Put plainly, far too many workers did not take advantage of a 401(k) plan, and saved little or nothing. The reasons are many, but high among them is that a pension plan didn’t require a worker to do anything … they were covered. A 401(k) plan, however, requires workers to do quite a bit and many simply weren’t prepared to assume that responsibility.
For workers who accept the 401(k) concept and commit early to a sensible savings and investment plan, the rewards can be great. They can have not only an adequate retirement income, but also a financial asset that can be passed along to their heirs.
Unfortunately, too many workers don’t have this experience. Some employers did not offer a plan, and even for those who did, some employees declined to enroll to avoid reduction in take-home pay. Some did participate, but along the way they “raided” their accounts for current needs, so their balances at retirement are inadequate. With a pension plan, this cannot be done.
Bringing back the old pension plans has been suggested by some, but we doubt they will work. Private businesses were correct in worrying about the future costs of their pension plans. Today, cities and states are burdened with underfunded pensions, and taxpayers will eventually be presented with very high bills to cover the gap. Nebraska’s pensions are said to be adequately funded, but only if one assumes they will experience average earnings of 7.5 percent. Not all are willing to make that assumption.
New ways to fund retirement need to be explored. What we are doing now simply doesn’t work for too many people.
Jan 12, 2017
Source: BH Media Group, Inc.
Retrieved from: www.theindependent.com