Wednesday, December 10, 2008
PBS Frontline: Baby boomers can't retire (we've defined retirement out of existence)
Some PBS stations are rerunning a stinging segment “Can You Afford to Retire?” They’re saying at the end, “the baby boomers will keep their standard of living if they keep working.” Then they ask, what does retirement mean? We’ve defined retirement out of existence (just like marriage).
What's particularly disheartening is that boomers might expect to work at their passion in retirement, but have to give it up to make ends meet of their "passion" doesn't pay returns quickly enough.
The earlier part of the program showed the United Airlines bankruptcy, and how much of its pension obligations were put on the government, specifically the Pension Benefit Guaranty Corporation, or PBGC. A worker who had retired at 53 was facing a drop in his pension from $3000 to $2000. Bankruptcy judges have the authority to take it out on employees and sometimes retirees, who may not get their full amount from the PBGC. Many companies have underfunded pensions, and have counted on stock market advances (no longer) and accounting tricks to get away with.
The show went on to discuss the shift from defined benefit pensions to defined contribution programs, notably 401K’s, which became popular by accident. 401K’s were originally envisioned as a technicality in tax law for executives. No one imagined that employers would use the 401K, even the match, as a way to terminate defined benefit pensions. No one imagined that employers would expect employees to manage their own 401Ks (the ownership society). So some employers were starting to make attendance at HR 401K sessions mandatory.
The average contribution would need to be about 18%, including employer match, to provide the same standard of living in retirement. Most people have a contribution of 10% or less.