When I'm Sixty-Four: The Plot against Pensions and the Plan to Save Them

By Teresa Ghilarducci | Go to book overview

Chapter 10

Rescue Plan for American Workers' Retirement:
Averting the End of Retirement

Retirement with dignity and security after a lifetime of hard work is a cherished feature of a civilized society. To whatever extent and for whom it may have been possible, the ability to retire with adequate income is lessening in the United States. It is lessening because of a badly functioning system of retirement income security. That disquiet was expressed in the first chapter of this book and is the concern woven throughout all the following chapters as well.

The overall system of retirement is faltering not because Social Security, as the pillar of retirement income for Americans, replaces only 40% of preretirement income for the average wage earner when retired. Social Security is not designed to provide all the income a retiree needs. The system is faltering because pensions and savings are failing. Americans are expected to obtain the rest of what they need through employer pensions and their own savings. But that expectation is not going to be realized because the employer pension system is broken and savings rates are falling or nearly nil.

Much of the reason the employer pension system is broken is that defined contribution plans have replaced employer pension plans, and these new forms of retirement accounts—most of these are either 401(k) accounts or similar—will not fill the gaps created by the loss of employer pensions. (Defined contribution plans have different names depending on who is qualified to contribute, among other particular rules. The common types are Individual Retirement Accounts, SIMPLEs, SEPs, 401(k), 403(b), 457 plans, and Keoghs.1)

Defined contribution plans are not good substitutes for employer pensions for several reasons: DC plans charge high administrative costs; workers make serious investment mistakes; and workers withdraw income from their

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