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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
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
Dear FRONTLINE,
I watched your program last night and was taken back at how some can fail with their retirement objectives. I recently retired at 65 with a critical mass comprising of my 401K, IRA and company defined benefit plan. I took full distribution of my company retirement plan and rolled it into an IRA. My objective was to manage my retirement funds to pace inflation as a minimum while realizing an additional capital gain as a maximum. I might add that I realized sufficient gains in my 401K and IRA's to where I could live a full life without the company defined plan. I did this as a middle class worker making less than 75k per year while investing in index funds since 1980. With my present critical mass, I can really live better than before I retired which makes me living proof that one can succeed with proper planning.I started to plan for my retirement in 1985 and was able to achieve my retirement goals. All it takes is knowledge of the government rules, fundamentals of Capitalism and plan accordingly along with desire to plan for retirement. The unfortunate thing is that the government rules can change which can disrupt ones plans- much like the sunset of current tax laws promulgated by the "tax cut" for the rich income redistribution (socialism) mentality these days. There is very little education of the public towards Capitalism and investment strategies. It is not taught in pre-college schools where it should be taught. After all, we live in a Democracy with and economic engine called Capitalism. I can visualize where the thrust of your program could cause our politicians to change the rules that could threaten those who are planning a retirement. Why don't you folks emphasize those who have done well with personal retirement planning and not simply display the failures? Capitalism is a great force to achieve freedom and would be a great topic for PBS to embrace.
Dave Ruggles
East Hampton, Connecticut
Dear FRONTLINE,
Thank you for producing an outstanding program. The pending crisis will be an overwhelming burden on our society. During your show it was noted that several employees do not participate or underfund their accounts. The younger baby boomers, gen X and the boomerang generations have a tough road ahead. The income level has decreased while the cost of living has increased forcing more of us to save less and use credit more.
One area that was not touched on was the increasing debt load to offset our income defiencies by the midstream middle class. How can one expect to increase their 401k contribution, if you can bearly buy gas to get to work?
America loves their "stuff" and I for one do not see long term reduction in instant gradification to fund retirement accounts. Our lifestyle now is full of conveniences that cost money on a monthly basis. 20 years ago we did not have the monthly internet, cable/satelite, cell phone, gym membership, HOA dues, movie rentals, college tuition, etc. to fund month after month.
On another note, our parents depended on their heritance and pensions. Both are gone. Future generations will inherit debt left behind from their parents. We are currently pinched between taking care of our college children and parents financially. Our college students depend more and more on their parents and have no consideration for the element of time- they have their entire lives to pay back loans, instead parents are borrowing against their 401k to fund the education. This is a disaster waiting to happen when retirement rolls around.
In closing, I would like to commend Frontline for a job well done
Thank you.
Albuquerque, New Mexico
Dear FRONTLINE,
Shocked? I'm shocked that there was nary a mention of the fact that a whole generation is becoming virtually unemployable. As a mid-50s female with many friends and colleagues, both male & female, all college-educated high-functioning professional folk living in both urban and rural areas, who have already experienced mutilple lay-offs and major difficulty regaining employment in their chosen field, let alone any employment at all, I find it almost unbearable that there have not been more responses aimed at the "What Jobs?" issue. A previous writer said she is approaching her late 50s & beyond with terror. I think most of us have already experienced a taste of that. We can't all find employment at Home Depot--a solution that the "experts" seem to feel is out there. Those of us who can, will try to pursue an entrepreneurial course, but we're not all cut out for that. What else will be out there for us?
As the show made clear, corporate America is not willing to function without the fat cats at the top maintaining their pots of gold; no matter how they spin it, salaries frequently are not high enough to cover more than subsisting, with perhaps a movie thrown in once a month or so. How can anyone assume that we're just not trying hard enough to save when we--especially us urban middle-incomers--can barely survive on what we're making? And that does not begin to address the pressure added as we develop health problems. We have to remember that, not only will many of us aging boomers be unable to cover our health expenses, but we may also be rendered even more unemployable. Then what?
Lynne Arany
New York, NY
Dear FRONTLINE,
Thanks for picking this topic for a special report. I thought you did an excellent job of covering the big issues in one, easy-to-watch hour. I've seen the program twice (the second time last night), and read the discussion. I can offer one thought that I haven't seen so far.
It seems to be an article of faith that nobody could "live on just Social Security". Hence, it's important to save lots - with the "experts" saying that most people will need 8 to 10 times their annual earnings in order to retire.
I find this hard to believe. In fact, I think that millions of middle income workers are "living on just Social Security" today. It hardly makes sense to tell them to reduce their spending today so they can spend more after they retire.
I know this is heresy, let me explain. The Social Security retirement benefit for median income workers who work to "normal retirement age" is about 40% of their before-retirement earnings.
Compare that to a working married couple, with a median income, two children, and a mortgage. About 15% of this couple's wages go to withholding taxes (FICA, FIT, and state income tax). Maybe another 20% covers the principal and interest on the mortgage. They spend about 25% for their children's' food, clothing, medical care, education, and transportation. This leaves (I'll admit, a little too conveniently) 40% of their income to pay for utilities, home maintenance, and the parents' food, clothing, medical care, and transportation.
Retired people don't pay FICA. If they have "just Social Security", they don't pay income taxes. If the house is paid for, and the children are on their own, the retirees can live just as well as the workers even though their gross income is less than half.
Now, all the experts know that the retired couple can't possibly make ends meet on "just social security". So, how is the working couple supposed to make ends meet, and find the dollars to build up a nest egg of 8 times earnings? I think the experts are giving good advice to their wealthy neighbors, who earn multiples of the median income, but aren't connecting with the people across town.
A better plan for the median couple is find a house with a mortgage that they can pay off before they retire. Then set a realistic goal for a get-out-of-debt age. If that age is before their Social Security normal retirement age, they might be able to start saving when they are debt free, and then retire a little early or retire a little better.
(I understand that if they have a 401k available with a good company match, a sharp pencil may show they're better paying off just the highest interest debt and then funding the 401k before retiring the mortgage. However, that calls for sophistication that your program says most people don't have. When in doubt, their best form of "saving" is to get out of debt.)
This doesn't sound like a retirement filled with foreign travel, and it isn't. As you know, real incomes in the US aren't going up. Most careful spenders will be able to "afford to retire". However, median income people should expect to carry the same very careful spending habits they developed when they were working into retirement.
On a completely separate issue, your experts point out that people who do build up big 401k balances have a problem determining how much of that they can really spend each year. If retirees really prefer the pension format, they can buy an inflation adjusted life annuity from a few companies. For a 65 year-old, Vanguard will convert a $100,000 lump sum into an annual income of about $5,500, which will increase annually with the CPI. I'm sure that more companies would offer this product if they believed there were a demand for it.
Paul Lawin
Waverly, Iowa
Dear FRONTLINE,
I was surprised that there was no mention of the role a personal financial planner plays in working with people to help them acheive their financial goals. The program made it sould like there is no help for people in making their decisions on how to allocate their 401k's, spending vs saving rollover money, not realizing how much they may need in retirement and how to use their funds for income. There is a whole indusrty of professionals available to help people with these life decisions. I agree that most Americans do need that help. The show would have been a great opportunity to add a positve note that help is available and people do not need to be on their own.
Delmar, NY
Dear FRONTLINE,
I have to say I was extremely disappointed with this parade of victims and pessimists. I am 38 years old and participated in a 401K for 8 years and was still able to amass $135,000 in that short time even with the 3-4 down years after the dot com bubble burst. (I am still waiting for my Dupont stock to get back to even.) The notion that we are all entitled to a retirement is bogus. I would suspect that there were very few people that "retired" before the advent of Social Security in the 1930's. In short there are no guarantees in life, so the best thing we all can do is take control of our own finances and live well within our means when we're young. Abide by the philosophy of pay now and play later. Save aggressively, diversify and get your house paid for as soon as possible.
Drew Brumbaugh
Eleele, HI
Dear FRONTLINE,
Some posts criticize your program while others applaud it. I applaud your efforts at creating discussion on the retirement policy of the US, both private and public sector. Between traditional DB and 401(k), union plans (known as multi-emplyer), public sector government DB and DC plans, social security, AND Medicare and corporate retiree medical plans, there is significant underfunding or no funding at all. And the bill to pay these benefits is coming due - either to companies or to taxpayers. The accounting and funding rules are only one factor affecting why corporations are making the changes that they are. Unions and governments are not making as many changes, at least not as fast. If as a nation we don't have a fundamental discussion of how we will pay for all of these benefits and what our country's retirement philosophy is, then depending on ourselves and our savings will be all some of us will have. We need leadership in Congress and the White House to stand up help us address these issues.
William Walter
New York City, NY
Dear FRONTLINE,
Lets not worry to much. Sure all of us are worried about surviving our old age, but did anyone ever think about retiring in another country. I have been to Mexico, Central America, South America, and even southeast Asia
In some of these countries especially the Philippines, Thailand, and Mexico a retiree could easily live a nice life. Even with $90,000.00 (yes ninety thousand dollars) In American standards this amount would probably not last long, because of the high cost of living, and expensive healthcare costs. Forget Florida, Nevada, Arizona. Go abroad.
A small pension, social security, 401K (even if the amount is small) and any savings a person has would go very far in some developing countries.
I plan on retiring in the Philippines.
People have to discipline themselves and find a way to save.It can be done.
I myself do not make much money per year (under 25,000.00) but have managed to save quite a sum.
So get out your swimming trunks, beach balls, and suntan lotion.Stop being stressed. Relax and enjoy life.
John Lanzillotti
Chicago, Illinois
Dear FRONTLINE,
Dear Frontline,
While an interesting and unfortunately sad story, no mention or comparison was made of the only "class" of people whom do not confront the uncertainy of retirement and losses of benefits.This would be the 20% in this country employed by the municipal, state, and federal governments. Somehow, while the rest of us scramble and try to figure out how to fund our retirements and are told we must look forward to working well into our 60's, government workers put in 30 years, and are guaranteed lifetime pensions and many times, benefits by law regardless of their age at retirement. Why are these glaring differences between what the "private" and "public" sectors are now faced with never considered in these discussions. Maybe if it were, people might wake up to the other part of the retirement scam we are all stuck paying for, demand some way over due changes.
carl mclean
barrington hills, illinois
Dear FRONTLINE,
It's great to see some media attention on this subject, and I think the Frontline story provided even-handed coverage.
I happen to work for one of the legacy airlines that is not under bankruptcy protection, and I'd also like to see a story on the burden placed on competitors when a poorly run company like United Airlines is rewarded for its poor management (the greedy and short-sited unions also play their role). The company I work for is trying to honor the commitments made to employees through pension plans which continue to be funded year after year, but how long can a company successfully compete when the competition doesn't have to play by the same rules (or any rules at all)?
Congress' pension reform act (H.R. 4) only served to enhance the position of poorly run airlines, with Delta and Northwest (also in bankruptcy) receiving special treatment over the other airlines that have to compete with them.
Please consider doing a follow-up story on the developments in these areas since the original Frontline story was done.
Thanks!
Bryan Jones
Houston, Texas
Dear FRONTLINE,
I'm concerned about the statment that John C. Bogle made where he warns 401(k) investors about mutual funds' often hidden costs and fees which, over the long term, can consume a huge portion of investors' returns. Do I need to worry about what money I will have at the time of my retirement because of hidden costs and fees? Where can I research these hidden costs and fees? I really don't want any surprises when I retire.
Herman Caballero
Elkin, nc
Dear FRONTLINE,
Some comments from watching this program: "Retirement" is not an inalienable right. Life expectancy is much greater now than when defined benefit plans were originally conceived creating a much greater liability on a company. A company today could continue to provide a defined benefit plan if the payout was equivalent to that of years past. I felt that the editorial slant of this program tried to lay the blame for poor financial planning on employers, not on individuals who fail to save for their own retirement. Again, retirement is not right, but a privilege to those who plan and sacrafice to meet goals.
WE ARE NOT A SOCIALIST ECONOMY.
Kenneth Smith
Tucson, AZ
Dear FRONTLINE,
I found it extremely funny when the Boston College lady came on and said that the problem with 401K's is that they have to be managed by the individual. She then states that there needs to be some sort of change to it such as management by a higher body, but hasn't she noticed social security. Even the government can't properly manage a pension plan either, so in the end, I think I WILL control where my money is.
The problem is people aren't responsible for the way they live. I max out my Roth ($4000) and 401K employer matching contribution (6%) and will be doing so during my 33 year planned working career. I research where my money is being invested, I understand the tax codes that go along with my plans, and I have a good estimate of how much I'll need to retire when I'm 55. The underlying theme here, GET EDUCATED! I have no pity for the person who had a plan of $120,000 and then ended up with $26,000 because of taxes and downturn in the economy. He should have never done a lump sum withdraw to avoid taxes and he should have rolled it into a money market account where he can get a consistent 4.5% which will be better than any banks interest. Just like most things in life, people with an education get ahead.
Jonathan Bugman
Peoria, Illinois
