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NY Times Editorial: Our Approach to Retirement? It’s Ridiculous

While most people will need about 20 times their annual income when they retire in order to maintain their quality of life after they have stopped working, the reality is that the majority of people have saved less than $30,000 for retirement, writes New York Times contributor and retirement policymaker Teresa Ghilarducci.

The model Americans use today is “ridiculous,” she argues, with most people taking a denial approach to the topic of how they will pay for retirement. For people who think they will work longer, the reality is they probably won’t be able to, Ghilarducci writes. They deny that failure is built into today’s system for retirement planning and savings, she says. 

Not yet convinced that failure is baked into the voluntary, self-directed, commercially run retirement plans system? Consider what would have to happen for it to work for you. First, figure out when you and your spouse will be laid off or be too sick to work. Second, figure out when you will die. Third, understand that you need to save 7 percent of every dollar you earn. (Didn’t start doing that when you were 25 and you are 55 now? Just save 30 percent of every dollar.) Fourth, earn at least 3 percent above inflation on your investments, every year. (Easy. Just find the best funds for the lowest price and have them optimally allocated.) Fifth, do not withdraw any funds when you lose your job, have a health problem, get divorced, buy a house or send a kid to college. Sixth, time your retirement account withdrawals so the last cent is spent the day you die.

As we all know, these abilities are not common for our species. The current model for retirement savings, which forces individuals to figure out a plan for their retirement years, whether through a “guy” or by individual decision making, will always fall short. My friends are afraid, and they are not alone. In March, according to the Employee Benefit Research Institute, only 52 percent of Americans expressed confidence that they will be comfortable in retirement. Twenty years ago, that number was close to 75 percent.

Ghilarducci advocates instead for a mandatory retirement contribution plan, not unlike Social Security. The retirement accounts would be required, professionally managed, come with a guaranteed rate of return and pay out annuities, she says. 

Read the full New York Times editorial on why retirement needs to be fixed. 

Written by Elizabeth Ecker

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