401(k)s have failed most Americans, says a new chartbook, and proceeds to count the ways.
The "Retirement Inequality Chartbook: The State of American Retirement," looks at 401(k) plans and how the retirement wealth they represent chalks up against the needs of an aging population and other changes in how retirees keep up with their bills.
The chartbook was written by Monique Morrissey from the Economic Policy Institute, a think tank that conducts research and analysis on the economic status of working America and includes on its board such luminaries as labor economist Teresa Ghilarducci of The New School for Social Research.
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It makes the case that "[t]he shift from pensions to 401(k)s has disproportionately harmed disadvantaged groups and exacerbated inequality, benefitting only the very rich."
Pointing out that 401(k)s were never intended as a replacement for pension plans and are "poorly designed for this role," the chartbook says that retirement wealth for the population as a whole did "more than [keep] pace with incomes over the past quarter century, growing faster than income in the 1990s and rebounding after two stock market downturns in the 2000s."
In fact, it said, "Retirement wealth nearly doubled as a share of personal disposable income between 1989 and 2013, with retirement account savings exceeding pension fund assets after 2012 (and briefly in the late 1990s and mid-2000s)."
But—and you knew there would be a but, didn't you?—retirement wealth should have increased even more, according to the chartbook, because it has to not only pay the needs of an aging population but must also offset Social Security cuts and hedge against increased longevity risks and investment risks that have arisen out of the shift from traditional pensions to individual savings.
In fact, when reviewing only the incomes of seniors age 65 and older, "401(k)s and IRAs are not an important source of retirement income," with retirement account distributions accounting for less than 3 percent of seniors' total income.
Social Security is the most important source of income for seniors, it found, and pensions—defined benefit plans, as opposed to defined contribution plans—"remain an important source of retirement income" despite their decreasing presence in the marketplace.
Women are much more vulnerable, it found, because of lower lifetime earnings and longer life expectancies, and minorities are handicapped in retirement as well; for both groups, Social Security and DB plans rather than DC plans provide the great majority of their income.
The chartbook concludes that "The shift from pensions to account-type savings plans has been a disaster for lower-income, black, Hispanic, non-college-educated, and single workers, who together add up to a majority of the American population."
And even many upper-income white college-educated married couples do not have enough retirement benefits or savings.
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