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The American retirement dream is not dead ... yet

American retirees are screwed. The 401(k) experiment has failed. Social Security's going bust. Savers haven't saved nearly enough and don't have the means to improve the situation.

However hyperbolic, this is the message that has been sent and, for many, is indeed the way it feels. But how do the facts play out?

Pension facts:

  • Many companies have abdicated the role they once played in helping support employees' retirements through defined benefit pension plans by promoting and then under-supporting defined contribution plans, such as the 401(k).
  • Most pensions that remain — even those run by states and municipalities — are "upside down," lacking sufficient funds to pay what they've promised. The entity conceived to insure underfunded pension plans is also underfunded.

Senior couple retirement
Stephanie Hager | HagerPhoto | Getty Images

401(k) facts:

  • Some large financial firms have filled many of the 401(k) plans they manage with overpriced, underperforming funds, and offered little in the form of substantive education for the masses now left to their own devices.
  • After a six-year effort to ensure that financial advisors who manage retirement assets would be required to act in the best interests of their clients, there's a corporate and political movement afoot for firms to reclaim potential lost profits if they were forced to do right by their clients.
  • Even some of the individuals who initially conceived the 401(k) concept and lobbied for it have recanted their support, regretting it ever started.

Social Security facts:

  • The program intended only to be a safety net has become the primary financial resource in retirement for too many.
  • The surplus funds received when the huge baby boomer generation paid in — which are now being used to help replace the inherent shortfall of smaller generations — are projected to run out in 2034, thereby reducing the system's ability to pay benefits by 25 percent.

There — how does that feel, now?

Not any better? The concept of retirement used to be considered a three-legged stool: pension, Social Security and personal savings. Now, it looks like a pogo stick — sans the foot peg! So, where's the hope?

Hope for a comfortable retirement

We're looking a lot at comparisons between generations, and our penchant for romanticizing the past has painted a picture that retirees are worse off today than they were "then." But isolating the ways that circumstances are worse today also tends to ignore other ways that things were worse then.

For example, in 1979, only 38 percent of private-sector employees were supported by a pension — but approximately zero percent of them had a 401(k)! Individual retirement accounts were barely on the radar, and the only access that most people had to the markets came through high-priced brokerage firms that horded the information that would enable typical "eligible workers" to make good investment decisions.

Relying on a single company's promise of a pension "back then" handcuffed many people to jobs that weren't fulfilling and likely led to a miserable 9-to-5 and lower lifetime earning potential.

And, by the way, you — the employee — and your financial well-being were never your company's first priority. For-profit companies weren't primarily altruistic entities designed to ensure the present and future financial stability of employees. Then or now.


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Yes, Social Security is in some trouble, but it's backed by the entity that prints the money. Younger generations absolutely should expect to see the age at which they can receive Social Security rise, the amount they receive be reduced if they have higher incomes in retirement and a general devaluation of the dollar (thanks to all the money printing). But you shouldn't expect a generation of politicians who need your vote to go back on the pledge of Social Security. It'll be worth less, but it'll be there.

And today, while they may not be saving enough, 61 percent of Americans are saving something for retirement. Information has been democratized, and we have access to a host of low-cost brokerage firms and investment options.

If anything, there may be so much information and so many different options that the inaction of Americans is a result of analysis paralysis. Therefore, here are three ways to help you make the most of the retirement reality:

1. Contribute: It was never a good idea to abdicate the responsibility of saving for your future to anyone else. The grandfatherly wisdom of (giving and) saving 10 percent of our income isn't new. And, believe it or not, it still works.


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If you lived a linear life and saved 10 percent of your income each year of a 40-year career, and invested it in a balanced portfolio expected to earn 7 percent averaged annually in your retirement plan, you'd have almost exactly 10 times your inflated salary to show for it. Fidelity suggests having eight times your income to be reasonably comfortable in retirement.

Of course, life isn't linear. Once kids come (and grow), your household income may drop while your expenses certainly will rise. Therefore, I recommend saving more than 10 percent when you're more able — typically at the beginning of your career (when your expenses are lowest) and at the end (when your income is highest).

And for goodness' sake, take advantage of the matching 401(k) plan contribution from your company. Many companies with a retirement plan match 3 percent of your compensation — as long as you do. If you did the linear 10 percent yourself and your company added another 3 percent, you'd hit Fidelity's 10 times threshold in 35 (and-a-half) years.

Not at the beginning of your career? Behind on savings? Well, you're not alone, but the situation isn't going to improve by joining the chorus of naysayers. Begin by doing everything you can to meet the matching contribution requirement of your employer, and then pledge half of your COLA increase annually to your 401(k) plan contribution.


"With a little hacking, flexibility and a simple willingness to sacrifice through saving and investing well, a comfortable retirement is still within our grasp."

Regardless of your generation or your income, you are still the number one predictor of your retirement success. And always have been.

2. Allocate: Start simple. But not too simple. In my opinion, target date funds — those that simply match an allocation to your expected future retirement date, periodically reallocating the portfolio to become more conservative as you near retirement — are (much) better than nothing. But they are inherently oversimplified (and could cause problems as a result) because they only factor in your presumed time horizon before the funds are needed.

Because investing losses hit us twice as hard as investing gains buoy us, we must address our gut's willingness to take risk — and err on the side of conservatism. Therefore, I recommend starting with a simple, evidence-based portfolio and calibrating to be more aggressive or conservative based on your willingness, ability and need to assume risk.

Depending on your plan (note the institutional dilemma I mentioned earlier), it may be easier or harder to match each recommended slice of the pie with an available fund, but there is a (positive) movement in the direction of including index funds in 401(k) plans that should help. Otherwise, this is precisely the type of stuff that financial advisors exist for.


Source: Tim Maurer, Buckingham and The BAM Alliance

3. Maximize: Maximize what? Your retirement income. One decision can have a huge impact, and that is working longer. This has a compounding benefit, because by working longer—and waiting to take your Social Security retirement benefits (until as late as age 70)—you'll meaningfully increase your fixed income source while (hopefully) increasing your personal retirement savings, as well. Then, phase into retirement semi-employed while you're able.

If working longer isn't an option, then moving to an area with a lower cost of living can be a powerfully positive boost to one's retirement readiness.

I'm not wearing rose-colored glasses or advocating for the status quo. But I refuse to submit to pessimistic apathy, either. Pensions are almost extinct, Social Security is endangered and the retirement plan space is conflicted. But with a little hacking, flexibility and a simple willingness to sacrifice through saving and investing well, a comfortable retirement is still within our grasp.

— By Tim Maurer, director of personal finance for Buckingham and The BAM Alliance.


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