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Big Worries For Your 401(K) Retirement Plan47:57

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Pioneers of the 401(k) retirement plan say that it’s not working and it may be time to bring back pensions.

In this file photo ,Judy and Bob Dienell review their financial statements Saturday, Oct. 25, 2008, in Braselton, Ga. (John Amis/AP)
In this file photo ,Judy and Bob Dienell review their financial statements Saturday, Oct. 25, 2008, in Braselton, Ga. (John Amis/AP)

Financial pros say you should save at least eight times your annual salary to retire. Look at what Americans are actually saving, and that’s a joke. The father of the 401(k) – Americans’ primary vehicle for retirement savings – now says he created a “monster” with the plan. A fellow pioneer says he longs for good, old-fashioned pensions. They’re both with us. This hour On Point, from young to old, the great American savings gap, and what to do about it. Personally. Nationally. — Tom Ashbrook

Guests

Ben Steverman, personal finance reporter for Bloomberg News. (@bsteverman)

Ted Benna, considered to be the "Father of the 401(K), which he created while working at Johnson & Johnson. Co-author, with Brenda Watson Newman, of "401(k)s for Dummies."

Teresa Ghilarducci, professor of economics and director of the Schwartz Center for Economic Policy Analysis at the New School for Social Research. Author of "When I'm Sixty Four" and "How to Retire With Enough Money" and co-author, with Tony James, of  "Rescuing Retirement." (@tghilarducci)

Herbert Whitehouse, director of legal services at ABC Fine Wine & Spirits. Former leader of the team at Johnson & Johnson that introduced the 401(k) to corporate America. (@herbwhitehouse)

From Tom’s Reading List

The Wall Street Journal: The Champions of the 401(k) Lament the Revolution They Started -- "Herbert Whitehouse was one of the first in the U.S. to suggest workers use a 401(k). His hope in 1981 was that the retirement-savings plan would supplement a company pension that guaranteed payouts for life. Thirty-five years later, the former Johnson & Johnson human-resources executive has misgivings about what he helped start."

Bloomberg: Your Next Retirement Plan Could Be Run by City Hall -- "The outgoing Democratic administration of President Barack Obama had wanted to create automatic individual retirement accounts that would follow workers through their careers. That went nowhere in the Republican controlled Congress, but then states started exploring the idea of launching their own, so-called auto-IRA programs."

TIME: Why the “Monster” 401(k) Is Wrecking Retirement Security — "Three decades into the era of the 401(k), millions of workers struggle to make the most of this savings plan—and its inventor fears he created a “monster.” Is it any wonder that, according to new research, only 32% of workers in the U.S. believe they are on course for a secure retirement?"

Teresa Ghilarducci Answers Your 401(k) Questions

My husband and I are in our late 60s and want to know how to proceed to plan for our future. We lost about 12 years worth of contributions to a retirement plan in the market downfalls in 2000 and 2008 and since then have had money in ultra-safe investments since, thus not recouped any of our losses. We would like to plan how to proceed to be financially stable for the long term, while for the time being, continuing to work. — Roberta 

 
I completely recommend the fee-only advisor- you have had a financial trauma and need someone you can trust to help you go forward. The trust needs to be built with full disclosure. Find someone you can trust and I am sorry about your losses in the financial crash as of 2001 and 2008. — Teresa

We have a fixed rate annuity as part of our retirement portfolio.  What are the risks of annuities?  Thank you in advance for your help.  -- Jane

The only risk of annuities are their high fees. Have you thought about just using the IRS minimum distribution rules to guide how much you can draw down your account — hope its with Vanguard — to make sure you don't run out of money? — Teresa
 

I just retired after having earned an average of $750,000 per year over the  last seven years. During this time we saved approximately $250,000 per year and lived on a similar amount with the balance going to taxes. According to the savings of 8 times average income, I should have six million dollars in savings. We actually have about $4 million and own a $600k vacation condo free and clear as well as a $1.3 million dollar house which has a mortgage balance of about $210,000. I am 64 and my wife is 63 and in good health however we have two college age daughters with expected college costs of about $400k. Of this approximately $290k is funded in 529 plans Assuming we sell the condo and the house and buy a $6-700k home cash, are we in good shape to lead a comfortable retirement or did I totally blow it by retiring voluntarily this year when I could have continued to work? — Al

 
You asked a great question.  "Does the saving eight times your average earnings apply to very high earners?" The short answer is usually, no. Now to your case. I will assume you are about 60. About your college age children. I suggest not using a penny of your retirement on their education. You have saved enough in the 529. Let them be partners and figure it out. They may have to work and take loans. Joe does that suggestion make you feel? I'd like to know if it that is doable. If not you have to subtract 400k from joint wealth. You say you live on $250k so you need 8 times that at 65 or $2 million. Now how does the math look? — Teresa


I am retired and have not started pulling money out of my 401k/annuities/roth accounts. I have about $450k total between all the accounts.  I just do not see how this money would last long if I started pulling $50k per year from it. How would does the 8 times what you want as income work? — Carl


 Great question! It doesn't work that way. You take little bits of the money to supplement social security. Did you delay collecting SS? — Teresa
 

With the upcoming bubble of baby boomers beginning retirement is there enough 401 k money out there? I'm not sure if the phrase was meant to be somewhat humorous, or if it was a general observation about the amount of money will be flowing out of investment assets, but it made me wonder about the market's larger valuations being based on demand for investment vehicles versus or along with actual value. When the baby boomers change from being buyers to becoming sellers of investments, primarily stocks through their retirement plans, are there credible sources of information predicting what will happen, when it will begin to happen, and what can individual 401k investors do to protect their savings? — Patrick

 
It wasn't a throw away funny line. We are worried about the impact of boomers selling their assets at the same time. You are a great economist Patrick. Good observation count on 3-4 return. — Teresa
 

I may have missed in your show, as I wasn’t tuned in for entire show. So, in a nutshell, what is the alternative to saving for retirement in the markets? — Barbara

Thanks so much for your trusting me with such personal questions. It's an honor to answer your question about where to put your money.  Here is my answer:  Vanguard Vanguard Vanguard!! I don't have any financial ties to Vanguard. They are a mutual company and give their profits back to the account holders-- you!! — Teresa

What exactly are the ramifications of 'fiduciary irresponsibility', and how/who enforces fiduciary responsibility in any setting? When the 2008 financial implosion occurred, largely due to the large banks 'fiduciary irresponsibility' in regard to mortgage-backed securities and derivatives, the innocent, and already destitute citizens of the country were charged with bailing out the big banks!!, and not one rich banker paid any significant fine for their fiduciary irresponsibility. So, how does fiduciary responsibility get ensured? The larger picture begs an answer to why there is no coordinated, nationwide program as a part of our educational system to train/educate students throughout the course of primary and secondary education on how to provide adequately for themselves and their families financially throughout their lifetimes? — Susan

I don't think a national education program will do much. It's the availability of credit, stagnate wages, and ripoff design of asset accumulation I would  spend my policy time and money toward.  Having a conflicted advisor and not a fiduciary could cause people to lose 20-30 percent of their funds accumulated over their lives. — Teresa
 

I have had investments with the same financial manager at Morgan Stanley for 20 years. Originally, it was just a Legg Mason Mutual Find (he was Legg Mason originally). Now we have our IRAs and kids' ESAs on the Trak program there. It automatically redistributes between stocks and bonds based on distribution horizon. I like that it is hands off, but I worry that I'm losing money in fees and I don't even have a good idea of what kind of fees I'm paying. He is a CFM, so I am comforted by his fiduciary responsibility (and I like and trust him), but I also recognize that SOMEONE is paying his salary- partly me. Question is- how do I figure out what I'm paying and whether it is worth it? — Christy

Thank you for trusting me to answered your question. You are right to worry-- worry a lot. Most people in your situation are well advised to move their money to Vanguard.  I think you already knew that! You can get the same results with less money with Vanguard — they have a ETF age balanced. Breaking up is hard to do. Would you pay an auto mechanic who didn't tell you how much he charges? If he hid the charge?  Your problem is that you don't know what you would have made. The research you would have 20-30 percent more in your account if you were in index funds. The Vanguard people will interact with MS and you can send him a thank you note. Even though you have been with this advisor twenty years one more minute with him loses money for you. That is my advice! — Teresa
 

If one does have a moderate retirement investment with a 20 yr horizon is Buy and Hope the best we can do? I have been misguided by a couple of CFA’s and have no plan to go that route again. — Paul

You asked if someone with a  moderate retirement investment with a 20 yr horizon uses a "Buy and Hope" strategy would that be the best they could do.   You said CFAs misguided you and now you want to know what to do. Ok, without knowing all of your situation I do know that buying and hoping is not only a funny phrase but somewhat correct. But, but, but it matters where you hold the money. You probably know what I'm going to recommend. Vanguard!  -- Teresa

This program aired on January 4, 2017.

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