Tuesday, October 13, 2009

Time Mag. article proposes replacing 401(k) system with "forced savings + insurance"

Well, everyone ought to peruse the Time Magazine (Oct. 19, 2009, p. 28) article by Stephen Gandel, “Why it’s time to retire the 401(k): Last year’s market wipeout showed the vulnerability of the popular retirement-savings accounts. But the data are telling us that even in the long run, consumers need better options”, link here.

The article discusses the life of an Occidental mechanic, and then goes on to give examples of how people turned out financially if they retired before 2008 compared to during 2008, during the meltdown and “Bailout” crisis.

Companies began to freeze their defined benefit pension plans in the 1990s, in lieu of matching 401(k) contributions. Gandel calls this a con job. Toward the end, Gandel, toward the end of his piece, talks about the idea of wedding savings with insurance. One reason for this is that a huge factor in determining your nest egg is when you retire, and you might be forced to “retire” in a corporate downsizing following a traumatic event like 9/11 (that’s what happened to me), or the 2008 financial crisis. Gandel wants an insurance against this kind of unpredictable “systemic” risk.

The ERISA Industry Committee (ERIC) proposes paying a premium (6%) to a retirement insurance provider, with the end result of a guaranteed “pension” paycheck. But one wonders how insurance carriers of products like this would weather financial hurricanes like than in 2008. Here is a typical link from ERIC, title “ERIC's New Benefit Platform Featured in GAO Report on Alternative Approaches to Current U.S. Pension System”, Sept. 1, 2009.

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