The Feds Want You to Think That the 401(k) Crisis is Getting Worse So They Can Come After Private Retirement Accounts
The 401(k) crisis is getting worse
October 21, 2015
Bloomberg - Tim Egan has been
working since he was 14. He’s now 56 and has spent most of his career as
a restaurant manager. He has virtually nothing saved for retirement
and, until last month, never had a 401(k) account.
Little wonder: Only two of the 20 restaurants where Egan has worked in the past four decades had retirement-savings plans.
Little wonder: Only two of the 20 restaurants where Egan has worked in the past four decades had retirement-savings plans.
“The restaurant business is what I’m good at, but few owners, especially of small places, offer retirement benefits, no matter how much money you help them earn,” says Egan, who worked his way up from dishwasher to waiter to bartender before rising to manager 20 years ago.
Egan’s
story isn’t unusual among the legions of Americans who work part time,
switch jobs frequently or earn their livings at small companies, which
generated two-thirds of all new jobs last year. Even as people live
longer and must save more for old age than prior generations, most can
not depend on any help from employers. Almost half of U.S. workers
didn’t have a company-sponsored retirement plan in 2013, compared with
39 percent in 1999, according to an analysis of Census Bureau data by
the Schwartz Center for Economic Policy Analysis at the New School for Social Research in New York.
The
lack of plans is fueling a retirement-savings crisis. Few workers save
anything outside of employer-sponsored plans. Only 8 percent of
taxpayers eligible to set aside money in an IRA or Roth IRA did so in
2010, according to the IRS.
Egan
set up an IRA in his 40s. In a bid to make up for the years he hadn’t
saved, Egan invested mostly in equities and lost a lot of his savings
during the financial crisis. He currently has less than $20,000.
Low-income Americans have long relied mostly on Social Security.
Now middle-class professionals and managers are increasingly doing the
same. But the average Social Security benefit -- $15,700 a year --
doesn’t come close to replacing the earnings of those with mid-five and
six-figure salaries.
Those most vulnerable include both millennials at startups and managers in their 40s and 50s who’ve gone from corporate jobs with benefits to small businesses without them. Some 58 percent of the 68 million wage-and-salary workers without a company-sponsored retirement plan in 2013 worked for a business with fewer than 100 employees, according to the Employee Benefit Research Institute.“There’s a huge coverage gap that needs to be addressed,” says Debra Whitman, chief public policy officer at AARP, the 37 million-member organization for people 50 and older.
“The current 401(k) system was designed for a workplace that doesn’t exist for most people: lifetime careers at big corporations that offer benefits,” says Teresa Ghilarducci, an economist at the New School who researches retirement policies. “Saving consistently -- which you need to do for just a modest retirement income -- isn’t remotely likely.”
With 10,000 baby boomers
turning 65 each day, concerns are mounting about how to fix a system
that excludes so many. There are plenty of ideas but little consensus
among government officials, business executives, economists and others.
Small
companies are among the most resistant. Many aren’t convinced it’s
their responsibility to help employees save for retirement. And owners
often balk at the costs and complications of offering a 401(k), even
without a matching contribution. Only 45 percent of companies with fewer
than 100 employees had 401(k)s in March, according to the Bureau Labor
of Statistics.
Joel Freimuth,
former chief executive officer of Chicago-based Blue Pearl Consulting,
has advised about 500 small manufacturing and medical technology
businesses. Only about 10 percent have a 401(k) plan. The vast majority
fail to see that such a benefit helps retain talent and reduces
recruitment and training costs.
Freimuth’s own company offered a 401(k)
plan with matching funds to its 25 employees before he sold it to
Immediate Solutions, a medical technology startup in New Jersey.
“Most companies I’ve worked with have said doing this isn’t worth the trouble or the administrative costs and potentially higher liability insurance,” he says.
Plenty of Options
Financial-services industry executives say employees still have plenty of options.
“They can walk into any bank, broker or credit union -- or even go online, and open up an IRA funded with payday deductions,” said Marin Gibson, managing director of the Securities Industry and Financial Markets Association in New York.
Yet
even the most disciplined savers can come up short without the boost of
a company match. Employees can stash as much as $5,500 annually in an
IRA and an additional $1,000 if they’re 50 or older. A worker who
consistently saves $2,500 between the ages of 25 and 65 and earns 4
percent annually would accumulate about $247,000 upon retirement,
according to EBRI. Those savings will provide only about $10,000 a year,
assuming seniors withdraw 4 percent annually, the amount financial
planners recommend to ensure the money doesn’t run out.
To address the retirement-savings crisis, President Barack Obama last year announced a plan to create “My Retirement Accounts,”
or MyRA’s, that would allow those without 401(k)s to direct part of
their pay into accounts that invest in government bonds. Progress on
that proposal has been slow.
Three
states -- California, Illinois and Oregon -- have approved laws to
create IRAs that would automatically deduct 3 percent from employee
paychecks, although none is expected to begin withdrawing money until
2017. Similar laws have been introduced in about 20 other states with
Democratic-controlled legislatures.
Generous Plan
Those
changes will come on the late side for Egan and the millions more like
him. Earlier this year, fed up with his job in New York and his lack of
benefits, he moved back to Minneapolis and landed as a manager at
Smashburger, a chain with more than 300 company-operated and franchise
outlets nationwide -- and a generous 401(k) plan for corporate
employees.
“One of the first questions I asked was when I’d be eligible and what’s the match,” Egan says.
This month, he became eligible for the plan, which matches 100
percent of employee contributions, up to 6 percent of earnings. He is
determined to get the full company match.
“If I can work here at least 10 years and continue to advance,” Egan says, “maybe I can save enough to be able to retire some day.”
Congress proposes a chilling resolution on Social Security
ValueWalk - We always hear politicians say that ‘Social Security is going to be just fine’. So this Board of Trustees must be a bunch of wackos. Who are these guys anyhow? The Treasury Secretary of the United States of America, as it turns out. Along with the Secretary of Health and Human Services. The Secretary of Labor. Etc.
These are the folks who sign their name to the report saying that Social Security is going bust, and that Congress needs to give people time to prepare. And prepare they should.
The US Government Accountability Office recently released a report showing that tens of millions of Americans haven’t saved a penny for retirement; and roughly half of Baby Boomers have zero retirement savings. This means that there’s an overwhelming number of Americans pinning all of their retirement hopes on Social Security. Bad idea.In a recently proposed resolution, H. Res 488, Congress states point blank that Social Security “was never intended by Congress to be the sole source of retirement income for families.”
Apparently they got the message from the Social Security Trustees and they want to start preparing people for the inevitable truth. This is no longer some wild conspiracy theory. The Treasury Secretary is saying it. Congress is saying it. The numbers are screaming it: Social Security is going to fail.
Ultimately this is a just another chapter in the same story– that government cannot be relied on to provide or produce, only to squander and fail.
Sure, their intentions may be noble. But this level of serial incompetence can no longer be trusted, nor should we be foolish enough to believe that some new candidate can fix it.
If you’re in your fifties and beyond, you’re probably going to be OK and at least get 10-15 years of benefits.
If you’re in your 40s and below, you have to be 100% prepared to fend for yourself.
Fortunately you have time to recover. Time to build. And time to learn.
Financial literacy is absolutely critical here, which includes the ability to both generate income and manage money, two things that aren’t taught in the government controlled education system.
You might also consider some lifestyle adjustments, which may include moving abroad where your money can go much, much further.
Ultimately, learning to rely on yourself is no easy task, but it is an incredible opportunity to become more free.
And in doing so, one day you will no longer panic about the decisions being made by incompetent bureaucrats, because you will be the one in control of your own fate.
The Coming Obama Retirement Trap Has Started! [Excerpt]
Ron Holland, LewRockwell.comJanuary 28, 2010
Your Retirement Plan Will Soon Become Washington's ATM Machine
Today over $15 trillion is sitting in tax-favored retirement plans, including $4 trillion in IRA accounts. Retirement savings make up 35% of all private assets. Washington is broke, the deficit is soaring, and Congress simply can’t wait for Americans to retire so they can start taxing these funds. The politicians are tired of waiting; they need your money now.
The Trojan Horse
The nationalization will begin with a modest proposal to increase retirement security and basically create a new, third level of mandatory retirement benefits in addition to private plans and Social Security. This will be described as a Guaranteed Retirement Annuity or Account.
Teresa Ghilarducci is the author of this leftist plan which first appeared in 2007 at the Economic Policy Institute: Agenda for Shared Prosperity. In 2008, she became the new Director of the Schwartz Center for Economic Policy Analysis at the New School for Social Research. In her book When I’m 64: The Plot Against Pensions and the Plan To Save Them, she hypes her retirement solution for millions who do not have adequate retirement savings.
Her ultimate solution is to confiscate most of the retirement assets of successful and wealthy Americans.
Teresa Ghilarducci's words can be heard starting at 33 minutes and 23 seconds into the video of the hearing:
"I propose … that the Congress allow workers to swap out their 401k assets, perhaps at August levels, for a Guaranteed Retirement Account. Just a one-time swap, trading your 401(k) for a Guaranteed Retirement Account that will be composed of the equivalent of government bonds that pay a 3% real return."
The initial problem for productive, successful Americans is that Washington will require, in exchange for their contribution, that all working Americans contribute 5% of their annual salaries or income into this new "guaranteed account" managed and run by the hard-working bureaucrats at the Social Security System. Successful Americans will of course complain about losing the deduction for this contribution, which is little more than a new 5% tax on income.
But this is just the beginning of the problem for Americans with substantial retirement savings and outstanding benefits.
The Devil Is In the Details
Different proposals would delay retirement age until age 64, and some even later.
The Guaranteed Retirement Annuity would be structured to allow the government to hold and invest the money. Unlike your current private plan, it would be very difficult for members to withdraw their money before and even after retirement, except over the life expectancy of the participant.
I fear, following implementation of the contributory GRA program, a future legislative action by Congress would be to end the tax deductions and tax-deferred growth of all retirement plans, thus forcing these funds into the government controlled annuity.
Your forced retirement contributions would be pooled and professionally managed by Social Security.
Also, beneficiaries would be cheated out of half of any benefits remaining at the death of a participant because Ghilarducci’s plan has 50% of all balances at death reverting to the Feds, not the beneficiaries.
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