A new report from the National Institute on Retirement Security, based on analysis of the 2010 Survey of Consumer Finances, shows that about 45 percent of all working-age households don’t hold any retirement account assets, whether in an employer-sponsored 401(k) type plan or an individual retirement account.

Among those 55 to 64 years old, two-thirds of working households with at least one earner have retirement savings less than one year’s income, far below what they will need to maintain their standard of living in retirement. By a variety of measures, most households, even those with defined benefit pensions, are falling far short of the savings they will need.

The report lends weight to longstanding criticisms of the increased reliance on individual savings in the United States retirement system, including Jacob Hacker’s “The Great Risk Shift: The Assault on American Jobs, Families, Health Care and Retirement and How You Can Fight Back” and Teresa Ghilarducci’s “When I’m 64: The Plot Against Pensions and the Plan to Save Them.”

Current efforts to encourage 401(k) and I.R.A. accounts primarily benefit those who already have substantial savings. The National Institute on Retirement Security report shows that households with retirement accounts have five to six times the non-retirement wealth of non-owning households in the same age group. Recent research on tax incentives in Denmark shows that they encourage shifts from conventional accounts to retirement accounts, rather than increasing overall savings.

Households in the top fifth of the income distribution reap 70 percent of the tax subsidies. Money in retirement accounts (unlike pension benefits) can be bequeathed to heirs, perpetuating wealth inequality.

Employers have little incentive to expand benefits. Some 401(k) fans contend that automatic enrollment (requiring employees to opt out of a regular contribution, rather than opting in) could increase participation. But evidence suggests that employers who use automatic enrollment offer a lower match to employee contributions in order to control their costs.

Many families who manage to accumulate retirement savings are forced to dip into them when they experience unemployment or other unexpected economic stress. The 10 percent withdrawal penalty makes this a particularly costly way of paying bills.

An increasing percentage of workers are being forced to stay on the job longer than they had planned. The percentage of workers expecting to retire after age 65 increased to 33 percent in 2010 from 11 percent in 1991 and 19 percent in 2000. That’s a hardship not just for the older generation but for the younger generation waiting for jobs to open up.

That younger generation may also find that their older family members, unable to meet their medical expenses or long-term care needs, will need significant financial assistance.

The National Institute for Retirement Security reports that more than 90 percent of Americans they surveyed would favor a new pension plan that is available to everyone, is portable from job to job and provides contributors with a monthly check throughout retirement.

This sounds a lot like the guaranteed retirement accounts that Professor Ghilarducci has proposed, which would require all workers and employers to contribute to a retirement fund but guarantee a minimum rate of return. This more centralized approach would both lower administrative costs and pool risks.



The book of Patrick Kelly, The Retirement Miracle and Tax-free retirement , described another way of retirement income strategy (start at $300 to $1500 per month, 8% growth rate, zero market risk), not the 401k, where some lost more than half to taxes when they withdraw at age 65 yrs old or older.

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