Can You Afford to Retire?
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Join the Discussion: What are  your views on America's retirement system, given the vanishing lifetime pensions and  inadequate 401(k) savings?  If you're an aging baby boomer, can you afford to retire?  Share your story.

Dear FRONTLINE,

At the risk of being accused of partisanship, I wonder how many of those who are complaining about lost jobs, lost benefits and the trashing of the middle class voted for the presidents and proponents of Supply-Side Trickled-On economics? There's nothing new here;fat-cats have been pitting people at the bottom slippery rung of the ladder against each other forever. Now in the guise of protecting the middle class from "welfare queens", they sawed off all the rungs in the middle, too.

They say a fool and his money are soon parted, and it's hard to feel sorry for the fools who asked for it; but I am sorry the rest of us got crushed in the fall, too.

Tom Cordle
Tellico Plains, TN

Dear FRONTLINE,

The program seriously distorted the value of employer provided plans and could have a negative effect on an employee's willingness to save for retirement. Its conclusion that there will be no more retirement is not only incorrect, it is dangerous. Why sacrifice today saving for an event decades in the future if we will have to work until we die anyway? Further, anyone believing that employees watching this program are more likely to save in their 401(k) plan is mistaken. Today's reality is that workers save in a 401(k) or not at all. As a result of this program more will be doing nothing at all.

In the United States we have set aside over $14 trillion for retirement in addition to the $1.4 trillion that has accumulated in the Social Security Trust Fund. The great majority was facilitated by employers using defined contribution plans like 401(k)'s and defined benefit pension plans. Defined contribution plans and traditional pension plans are like apples and oranges - they are both fine fruits, but they are not the same. A defined contribution plan amasses wealth that a worker may use for retirement or pass on to an heir. A defined benefit plan targets a predetermined retirement income flow but no residual wealth. Both plans have pros and cons and any effort to distinguish one as superior to the other is pointless and counterproductive.

A critical factor in maximizing a traditional pension plan benefit is very long tenure with one employer - a feat more difficult for women and lower-paid workers. The discussion of the Nebraska state system, which was used to indict the 401(k) system, did not disclose that the comparisons used were based upon an assumed tenure of 30 years. While it may be typical for government employees in Nebraska to work 30 years for the same employer, this is not the case in the private sector where shorter job tenure favors the use of a 401(k). Contrary to the program's conclusion, we have not reached the "end of retirement." The vast majority of employers offering a 401(k) plan provide a matching contribution or a nonelective profit sharing contribution. They review plan investment options under a strict fiduciary requirement to insure that they are appropriate investments and that plan fees are reasonable. Working in concert with their service providers, they provide extensive education to help participants make wise investment decisions. The average 2005 account balance was $100,000 for the millions of participants with more than 5 years in the plans maintained by Fidelity Investments. Employer sponsored defined contribution plans like 401(k)'s work for employers and their employees and will help America's workers retire with the financial security we all desire.

Employees should not be deterred by what was presented in "Can You Afford to Retire." If they have not already done so they should join their employer's 401(k).

David Wray,President, Profit Sharing/401(k) Council of America


Chicago, Illinois

FRONTLINE's editors respond:

Read Wray's interview here; read PSCA's full press release on the FRONTLINE program here; read a response by the Employee Benefits Research Institute (EBRI) defending the FRONTLINE program here [note: pdf file]. While we welcome David Wray's comment and thank him for participating in the program, we dispute his characterization of the program's conclusion. We agree with him that "employees should not be deterred" from participating in their 401(k), and we think the program makes that clear. The program and the companion Web site both offer advice as to how much workers need to be saving to afford to retire. The fact, which Wray does not dispute, is that most workers approaching retirement age have not saved enough in their 401(k); the $100,000 average balance Wray cites -- a difficult statistic, because it includes workers of all ages -- is still well below the 8-10 times annual salary many retirement experts estimate retirees will need. A younger worker with such a balance may likely enjoy a comfortable retirement -- if they continue to save wisely. Older workers with such a balance may find themselves in a tough position. Regarding the program's conclusion about the "end of retirement," we asked Professor Teresa Ghilarducci, who made that pronouncement, and two other experts to expand on this point on our Web site. Evidence shows that employees are working during their "retirements" for a variety of reasons, chief among them because they need to supplement their retirement savings. Finally, producer and correspondent Hedrick Smith has this to add: "By noting the difficulties that employees are having in managing their 401k accounts, the program is suggesting that companies which still have defined benefit plans are serving their employees well and should keep them, and that those which have 401(k) plans need to do much more to help employees set concrete financial goals should for retirement and offer them more generous matches and continuing mandatory education to enable employees to build up larger nest-eggs for their senior years."

Dear FRONTLINE,

I'm sure this will be an eye opening program for many people.

I think a large part of the problem is that most people got into 401k plans concurrent with the long bull market of the 90s. They thought that 15-20% returns would go on forever and that saving 5 or 10% of their salary was more than sufficient. They got slammed by the 2000-02 bear market and with the current lower returns may never be able to make up for not fully investing early and making bad choices. I educated myself and lived below my means so I could max out my contributions, but I know I'm in the minority of 401k participants. We need mandatory education for all employees as well as opt-out, better plan defaults, and automatic contribution escalation plans to protect employees from themselves and give them a fighting chance!

Charlotte, NC

Dear FRONTLINE,

I respect John Bogle greatly, and I have been a Vanguard customer since 1991. I believe Mr. Bogle's philosphy that reducing mutual fund costs will improve long term performance. However, I find a serious flaw with his calculations for his example in this episode on pbs.org"The example I (Mr. Bogle) use in my book is an individual who is 20 years old today starting to accumulate for retirement. That person has about 45 years to go before retirement -- 20 to 65 -- and then, if you believe the actuarial tables, another 20 years to go before death mercifully brings his or her life to a close. So that's 65 years of investing. If you invest $1,000 at the beginning of that time and earn 8 percent, that $1,000 will grow in that 65-year period to around $140,000.Now, the financial system -- the mutual fund system in this case -- will take about two and a half percentage points out of that return, so you will have a gross return of 8 percent, a net return of 5.5 percent, and your $1,000 will grow to approximately $30,000. One hundred ten thousand dollars goes to the financial system and $30,000 to you, the investor."My calculations for a single $1,000 payment, with no annual contribution over 45 years at 8% results in an ending balance of $34,474, not $140K. When you factor in 2.5% per year in fees, the ending balance reduces to $10,738, and the total fees year over year sum up to $4,881. These two numbers add up to $15,619 not $34K because the mutual fund company takes their fee every year, and essentially spends it on whatever they find appropriate (fund manager, shareholder dividends, new computers, trading fees etc). (Of course Vanguard also takes a percentage for this purpose, but they may be more judicious in their spending, that's why I'm a customer). Using this revision, the total of fees is exactly and always 31.25%, not 80% as Mr. Bogle suggests.This calculation holds up for different years, or examples of an annuity of $1,000/year or any amount. It also happens to be the exact ratio of 2.5/8The substantial difference between our calculations is the counting or discounting of future gains on amounts deducted as fees. If the fees are mostly spent (wisely or unwisely) then it's hard to say that 70-80% of the gains are absorbed by the mutual fund industry unless the fee income was 100% invested and not a dollar was spent on people, technology, regulatory compliance and shareholder dividends.

Michael Lewis
Fairfield County, CT

FRONTLINE's editors respond:

Brooks Hamilton wrote into FRONTLINE to point out that Bogle's example was based on 65 years of compounding (from age 20 to age 85); carrying Bogle's calculations over this length of time bears out his totals. Also, it is important to note that this example does not mean 65 years of actively saving; it is 65 years of compounding on an initial investment. UPDATE: For a detailed explanation of these calucations, see this table

Dear FRONTLINE,

I used to work for IBM a little over three decades, when the Company got in trouble, the carnage on older workers was outrageous and immoral. I tried to understand why the most admired and profitable Company according to Tom Peter's book Excellence in 1981 and IBM slid into trouble eight years later. In my 3 decades, I saw good times come and go, the company tightened its belt during bad times but usually came out of it OK. But the trouble in 1991, when Louis V Gerstner Jr was hired from outside the Company, the term "Downsizing or rightsizing" became the buzzword but the bottom line was 150,000 older employees were forced out over a five year period, way before they could afford to retire.I watched how the Fortune 500, large companies, were claiming higher profits, CEO's boosted their pay from 40 times to 400 times the average employees that built the company. How older workers were being forced out before their Definec Benefit pensions maximized and the erosion of DB plans from 125,000 Corporation plans at the end of the 80's to 17,000 today. At IBM, the pensions were cut, the maximum years of service was reduced to 30 years from unlimited and the multiplication factor was reduced from 1.5 times years service to 1.35 times. I estimated my pension was halved. Since my force out, IBM has frozen the DB plan as puny as it is.

With the blessing of Congress, Corporations were allowed to keep the money through vapor profits that came from the discontinued Defined Benefit pensions plans, with Magic Accounting and loopholes. Then came the Stock Options that were outrageous in the case of Gerstner at IBM giving himself 20 million shares in 1999. Had he kept the stock option until 2008, 9 years after he left, he would have netted $1.4 Billion from his options. Where did the money come from? From the 401K's, 403B's, IRA's, Roth IRA's, DB and other retirement plans with 60% managed by the likes of State Street.

The biggest theft of the babyboomer retirement nest egg has taken place that is probably $ trillions.

Looking at the loss of all the gain of the last decade in the market since 2007, many people in their 60's will be working longer. In order to recover the losses, the dow will have to return to 14,000 from its present 8900. A long way to go.

Thanks to Front Line for this program. Too bad, it was not aired in 1991 when the first scheme by Corporations to funnel DB plans funds to their "vapor profits" bottom line was dreamed up.

Seems that all we can do is look back instead of look at ways to prevent this kind of thing from happening. Your Conclusion of "Working for Life" is absolutely right on. However, what you fail to disclose is that forty five per cent of people over age 65 have a physical disability that prevents them from working full time.

Really sad what is in store for the American People as they age. This all started in 1974 shifting to high gear in the 90's.

Ted Turner put it in good context "Looks like the American People will have to reduce their standard of living in the twenty first Century".

While, the shift to the Rich that is and has taken place, the top 1% will be the only ones that will live the American Dream along with Congressional retirees and Public Employee retirees.

Riverton, Utah

Dear FRONTLINE,

Much of what is said in the program applies to citizens of other countries, too. I am Canadian.

An important point entirely missed in this program is the effect on the economy of impoverishing a significant portion of the population. There will be lower overall demand for goods and services generally. Deflation will be the result.

In 2008, we already see the effect of reduced demand from bankrupted homeowners and laid-off manufacturing workers. In the next decade or so, millions of people will be forced to retire due to ill health or employer perception that they are too old.

The real story is not simply "You didn't save enough. You will be poor." The whole society will be poorer for the corporate policy of discarding people who have worked hard all of their lives, claiming that it owes them nothing.

Wealth is relative. Those few of us who have avoided the trap of overconsumption and debt may find that our retirements are not so unaffordable after all. But we will be living in a poorer society. The polite comfort of middle class living will be just a memory of better times. Conspicuous consumption will be seen as rude and an invitation to criminals.

The "retirement crisis" is the end of a long story. We boomers were ripped off all of our lives. That's why we needed two incomes to accomplish what our parents achieved on just one.

Significant changes are long overdue to ensure that hard work benefits all. As your new president says, "Yes we can!"

Jonathan Coles
Ottawa, Ontario, Canada

Dear FRONTLINE,

About retirement, you are just shooting in the dark if you don't create a computer spreadsheet to visualize retirement funding. And it is simple.

Essentially, you have one column for growth (based on a cell into which you place your expected return, say 5 percent). Then you need another column for your withdrawal rate (based on a cell into which you place your expected inflation, say 3.5%). You also need columns for end-of-year net and so on.

Run the columns from this year till you are 110 and see where you go broke.

At the end of each year, you replace the hypothetical gain and withdrawal figures with the actual results - like losing $50,000 this year instead of making 5%. And you need a column showing what you did make, reflecting the actual figures you entered at year end.

Unbelievable how helpful it is to create such a spreadsheet and play with it. For example, you can plug in at age 75 what happens when you sell your $350,000 house and move to a $150,000 condo or apartment, putting the difference into an investment and changine your withdrawal to reflect lower housing costs.

Ben Barkow
Toronto, Ontario

Dear FRONTLINE,

Here are some easy investment facts. Start young. 20-65 gives your investment 45 years to grow. Invest at regular intervals, no matter what the market. The average increase in stock values has been over 10% since 1916. Vanguard indexed funds (which follow the DJ, SP, whatever you want) cost about .2% (that's POINT 2 %). Using a financial calculator $1000 invested every year for 45 years with an average return of 10% (OK, 9.8% with Vanguard's commission) comes to over $857.000. I found an easy calculator at http://www.hellodollar.com (I have no connection with them). All this is a no-brainer. Over 45 years the ups and downs of the market average out, and you do pretty well--probably very near the 10% plus. Calculate yourself with your own variables. Compounding interest and regular investing can perform miracles.

Michael Griffee
Cassopolis, MI

Dear FRONTLINE,

Our economy's health is based on people buying things. So we have a choice, we can all save more and buy less, but the economy suffers. If the ecomony suffers, companies close. If companies close, we lose our jobs. Then we can't buy things or save. So live for today, because the fat cats will just steal it tomorrow. Finally, I'm not in a union, but unions aren't the villians, although that is what corporate America would like us to believe. The United employees should have had a strike bigger than Texas.

jack steinfeld
san antonio, tx

Dear FRONTLINE,

I have never had a job with a pension. I have had 401ks and they came with a person who explained them and with opportunities to make investment changes a couple of times a year. 401ks are not the problem. The problem is that the vast majority of employers would provide nothing other than a small paycheck if left to their own devices. Most employers (but not all) despise employees because employees cut into their profits. If you think despise is too strong of a word, consider the early 1900s when many employers did not care if a worker lost his/her arm in an unsafe machine while working and worked children and adults in dirty, depressing and unsafe factories. If you don't believe that many employers do not care about employees, consider today's situation. Families and individuals are losing jobs and homes while many executives continue to provide to themselves millions of dollars and benefits. If anyone thinks these types of employers don't go to bed at night and sleep just fine, wake up.

Bernadine Hetler
Charlevoix, Michigan

Dear FRONTLINE,

This is an update to my employer's policy allowing employees to retire and work part time after retirement. Apparently the IRSdid not like this idea and has ordered that my employer cannotimplement this type of hiring, as it appears to be double dipping.Personally, I think that rehiring older workers is a good idea; the best retirement allows us to remain active and contributing members to our community without the responsibilities and stresses as full time employees. You may wish to investigate this furthersince my employer is the UC system at California.

Los Angeles, ca

Dear FRONTLINE,

Check this out! An article on retirees vs. post-bailout/W.S. crash-http://www.courant.com/news/nationworld/hc-retirees1002.artoct02,0,382046.story

...and my favorite sentence at the end of the article...Morningstar Vice President John Rekenthaler said investors can expect to wait as long as three years to recover the market losses they see in their 401(k) or other investment accounts.

David Burian
Bethel Park, PA

Dear FRONTLINE,

Thank you for your show. It was right on the money as usual. America is becoming more and more like a "survival of the fittest" jungle. Health care, retirement, now they wanted to privatize Social Security. It is a brutal world. America used to be a strong middle class country, and now it truly is the haves and the have nots. Most of the educated Americans have become very cynical because we know that nothing will change no matter how many news specials. The corruption is that deep. Maybe it is time for a lot of us to move to Canada or back to Europe. That may be the only way that a middle class family can have a civilized, decent life anymore. You are certainly not going to get a good life in the future, broke America.

Chicago, Illinois

Dear FRONTLINE,

I wanted to make a comment about the heartlessness of some of the comments made by viewers of the program. The main point of the program was to show that the 401k system is really most beneficial to those that understand how to invest (or spend the time learning to) and not everyone is capable of doing so. To claim that those who are not capable are somehow not worthy of retirement is completely insane and unfair. Also, to claim that the show is socialist is similarly incomprehensible. While capitalism has its strengths, it also is not set up for everyone to get ahead. This is why we have a very small upper-class and a large middle and lower class... Only some of us can get through the pearly gates of the elite, and most of us that do are those that had a leg up.

I say this as someone in her late-20s who grew up with almost every advantage there is. I came from a family that made six-figures and could afford to send me to college. I also had the financial stability to invest heavily in my retirement funds from the beginning. Not everyone has privileges, or education, or experience to know what to look for or how to invest. That was the point. So, is the point of some of these viewers that if you didn't have the advantages, you don't deserve to retire?

I think it's ludicrous that someone can sit back and say that because we are living longer now, we don' need to retire at 65. Is this someone who even sat down long enough to think whether someone would hire an 85-year-old? We hardly have enough jobs available that pay a living wage right now. That doesn't even include costs going up and wages staying the same.

New, NY

Dear FRONTLINE,

Your report was an eye opener. One very major point not discussed was taxes. Do we believe that tax rates will be the same or lower in the future? American were sold on the idea that to defer the tax to the future because you will be in a lower tax bracket. We are in one of the lowest historical tax rates ever, with the largest debt ever. I think it's a good bet tax rates will rise. Does it really make sence to defer to certainly higher future rates. Americans are really in for a big big tax whammy, and no one talks about it.

Everyone focuses on first two of four stages, contibution and accumulation. The most important are the last two; withdrawal and transfer. It's not what you make that matters it's what you get to keep.

Bryan Daly
Jupiter, Florida

Dear FRONTLINE,

Why do people houses that they cannot afford by using adjustable rate loans? Why do people build houses in flood plains? Then the expected results occurs they cry to the government.

I have a 401K and a pension, my 401k does better and is more likely to be around when I retire. The pension could easily be missmanaged and lost and it is completely out of my control.

Albany, Oregon

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posted may 16, 2006

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