Americans' dreams of
retirement are more likely to resemble fitful
nightmares unless they do more to plan, say
numerous studies that show many workers fail
to adequately prepare for life after work.
Several forces undermine their
efforts to save enough. These include an erosion
of traditional retirement programs that have
served as financial safety nets, less-than-diligent
personal money habits, skyrocketing health
care costs and potentially unrealistic expectations
about their ability to work long enough to
Yet, studies contain some bright
spots, too. Most individuals do save for retirement.
Older workers seize opportunities
to save more and do a decent job of getting
back on track. Meanwhile, all workers receive
more guidance, thanks to tools such as automatic 401(k) enrollment and life-cycle
funds that make it easier to invest wisely.
where Americans stand.
era of retirement
Today, retirement can stretch out for decades,
bringing both the promise of extended leisure
as well as a steep price tag. It's one Americans
increasingly must fund themselves.
Consider that between the years
1985 and 2005, the number of major U.S. employers
funding old-style pension plans on behalf
of their workers dropped by nearly one-third,
from 91 percent to 61 percent, Hewitt Associates
reports. Qualifying for pensions by working
long enough to be vested is a different matter
entirely. Fidelity Research Institute estimates
only 51 percent of American households expect
to get a pension with median benefits of $18,000
Other polls put the percentage
of pension recipients far lower. Boston College's
Center for Retirement Research says 16 percent
of households are entitled to defined-benefit
pensions, down from 31 percent in 1983. An
additional 21 percent of households will get
pension benefits plus benefits from a so-called
defined contribution plan such as a 401(k).
That's down from 29 percent in 1983.
Though numbers differ, the trend
"The displacement of defined-benefit
pension plans by defined compensation programs,
of which the 401(k) is the most
popular, places more responsibility on the
employee," says Anthony Webb, an economist
at Boston College's Center for Retirement
Research. "Participation is usually voluntary.
You decide how much to contribute, how to
invest your funds and how to withdraw funds
during the course of retirement. And those
choices are opportunities to get things wrong."
getting on board ... slowly
The message of do-it-yourself planning isn't
lost on workers. Despite rules that generally
make it pricey to cash out of them before
age 59-1/2, 401(k)s are becoming
cornerstones for the 47 million participants
enrolled in them. That's more than twice the
21 million in private-employer pensions, the
Investment Company Institute (ICI) reports.