For nearly 40 years now, we’ve been hearing that 401(k) plans are the key to a comfortable retirement. By giving a tax break to workers contributing part of their paychecks to their retirement nest eggs, the plans were designed to supplement Social Security benefits and employer pensions.
Instead, they’ve become substitutes, not supplements, for employer pensions and bulwarks against continuous attacks on Social Security benefits. A new survey from Boston College’s Center for Retirement Research demonstrates, however, that 401(k) plans are destined to fail millions of Americans. They’re not offered by enough employers, they’re not taken up by enough workers, and for most people, their balances aren’t large enough to provide for a decent retirement.
All these factors weigh most heavily on middle- and lower-income workers, the segment in which the participation rate and balance accumulation are disproportionately low.
The survey authors, Alicia Munnell and Anqi Chen, point to an important difference between 401(k)-type defined contribution plans on the one hand and traditional defined-benefit pensions and Social Security on the other. The latter provide lifetime benefits; the former provide steady retirement income only if they’re managed carefully by their owners during retirement.
– LA Times