No doubt you’ve read articles in recent years lamenting the demise of the traditional pension system and claiming that the economic outlook for today’s retirees is grim. But at least one expert says, “Not so fast!” The future of retirement, he writes in this Bloomberg article, is actually brighter than ever. We thought we would share his views with you to see how you react: are we or are we not in a “retirement crisis”?
The author is Ramesh Ponnuru, who not only writes for Bloomberg but is also seni0r editor of National Review. It’s long past time, says Ponnuru, for Americans to “stop mourning the loss of traditional pensions” as evidence for retirement pessimism. In the Bloomberg piece he cites one recent article in the Washington Post that tracked a group of retirees in Oklahoma whose pensions had disappeared in 1994. For this group of nearly 1,000 retirees, the outcome turned out to be grim. The Washington Post story, according to Ponnuru, “features bankruptcies, lost homes and long-deferred retirements. It’s compelling [and] it’s sad.” But is it “a useful guide to the future of American retirement?” Definitely not: instead, says Ponnuru, articles like this one – and there have been many – are part of a chorus of negative journalism “that laments the decline of the traditional defined-benefit pension and the rise of defined-contribution plans such as 401(k)s.”
The reason Ponnuru takes issue with this notion that the “good old days” of retirement pensions were so rosy, and the newer model of 401(k)-style plans so dangerous for retirees, is that he believes journalists who makes these claims overlook the facts – and in some ways he may have a valid point. Writing in Bloomberg, Ponnuru cites four specific areas in which negative stories about loss of pensions miss the mark.
First, he writes, these articles “gloss over how rare defined-benefit pensions really were.” We tend to think that a generation or so ago every worker enjoyed pension benefits, but that’s far from the truth. “Even at the mid-1970s peak of defined-benefit plans,” writes Ponnuru, “fewer than 40 percent of private-sector workers had them.” By contrast, he says, more than 60 percent of private-sector workers are now participating in a retirement plan, and among all workers the percentage vested in any retirement plan has risen by 80 percent since 1979.
Second, the articles that lament the loss of pensions tend to misrepresent the advantages of 401(k)-style plans. Under the old system, says Ponnuru, benefits were dependent on total years worked and the worker’s final salary. If a worker lost his or her job in their 40s, they were actually at a permanent disadvantage. Ponnuru speculates that some of the Oklahoma workers written about in the Washington Post article “might well have been better off if the shift toward 401(k)s had happened decades earlier” because those savings would have lasted longer and continued to grow over time.
Third, Ponnuru’s Bloomberg article says many of the doomsayers are guilty of using misleading statistics to prove that America is in a “retirement crisis” because so many families have lost their pension benefits. In fact, he says, this pessimism is unwarranted because more workers participate in retirement savings today than in the past. “Count all retirement plans” – pension and 401(k) – “and nearly three-quarters of near-retirees have them,” Ponnuru writes.
Fourth, he criticizes the retirement nay-sayers who fail to look at how much the lifestyle for today’s retirees has actually improved. If the loss of pensions were really driving retirees to the brink of poverty, statistics would show it, but the opposite seems to be happening, suggests Ponnuru. One telling fact: if you compare the median income of senior households between 1989 and 2013 – even after adjusting for inflation – you would find today’s seniors enjoying an income that is one-third higher than their predecessors.
Is Ponnuru suggesting that everything is rosy in Retirement Land? No, he does acknowledge some major issues: people aren’t saving enough, and, despite improvements, not all workers have access to retirement saving plans. He also has a few other suggestions to make things better for retirees such as adjusting payroll taxes on older workers and making changes to Social Security. But on balance, the tone of the Bloomberg article is positive, maybe a bit too positive, we think. While it may be true that old-style pensions were never the panacea some claim they were, here at AgingOptions we are dismayed to read of the paltry rate of retirement savings that continues to plague many workers, even older ones. For example, this Time magazine article from a few years ago reported that more than one-fourth of financial survey respondents over 55 had no retirement savings at all, and another 26 percent had balances of $50,000 or less. This may not represent what Ponnuru calls a “retirement crisis” but it sounds like one to us.
However, the real retirement crisis is not merely the failure to save, but the failure to plan. In our experience at AgingOptions, even setting aside plenty of savings is no guarantee of a secure retirement, because few financial plans can survive a true retirement emergency. Instead you need a truly comprehensive plan in which finances, legal protection, medical coverage, housing choices and family communication are all working together interdependently. We call that an AgingOptions LifePlan.
If you’re intrigued and ready to find out more, there’s a simple way to do just that: accept our invitation to attend a free LifePlanning Seminar with Rajiv Nagaich, at a location that’s convenient for you. This could well be the most important few hours you’ll ever spend when it comes to securing your retirement future. Click here for our Upcoming Events page where you can register for the seminar of your choice, or call us for assistance. It will be our pleasure to help guide you into a secure and fruitful retirement – and there’s no time like the present to get started. Age on!
(originally reported at www.bloomberg.com)