The 401(k) Problem

©Grainne Rhuad 2013

©Grainne Rhuad 2013

By: Grainne Rhuad

Generation X is creeping up on middle age, or in a lot of cases already there and as they do so they are beginning to worry about the things people in the middle of their lives do; how will I live out the rest of my life (I don’t want to be a Wal-Mart greeter!) and what sort of legacy am I leaving?  What have I achieved/accomplished?

It’s a bit ironic that the Gen X’ers who eschewed both the societal rules of their grandparents and the peace, love and brown rice of their parents are now sitting where we all sit eventually:  In the shadow of our own humanity, wondering if it all was worth anything.

Being a Gen X’er myself I can remember the immense promise of the future that was being sold to us.  The Regan era was full of pop-culture references to how bright a future we had.  The economy was looking good, albeit artificially so.  After school specials assured us that if we just said “no” to drugs we would be a-okay in any endeavor we chose.  And not just in business although that was a great booming industry.

Tech-nerds had it going on with Silicon Valley blowing up.  I can remember living in Vallejo for a while in the 80’s and it was a city consistently under construction.  Little Box homes popped up seemingly overnight with lush lawns following.  Moving trucks were always pulling up and unloading a new family of 4 complete with bikes, skateboards, matching furniture, new fangled kitchen gadgets.  There were parks for these kids, mini-golf, grocery stores.  I can remember the huge shift once Apple took off.  The one grocery store for every town (Alpha Beta in mine.) grew to 5 or 6 and was quickly followed by big box stores which required memberships and made every head of the household feel important for being able to be a member of something.

The big big message I got was if I went to college, no matter what major I chose, I would be well taken care of.  I would find a job, a house, a husband, a child under a cabbage leaf all healthy and fat-not necessarily in that order.

This would be true if I chose art, history of something obscure or journalism.  Every sort of art was being bought up seemingly for no good reason other than to invest.  Cross sections of cows were funded by the national foundation of the arts for crying out loud.  Graffiti was being sold to collectors.  Stupid rap artists were making money off of stupidly designed clothing with their names on them.  Hell, for a while you could even buy clothes that stupidly changed colors when you sweated on them.  Journalism was having a hey day with larger than usual news teams even in small towns, talk shows, start up public access radio stations were being funded by private citizens and then bought up by national syndicates.  You could seemingly do anything as long as you showed up to class often enough to turn in important papers and take tests.

What happened is a disappointment on such a large scale that it hardly needs going into.  Greed and low morals and possibly the influence of the fictional character Gordon Gecko resulted in everything crashing harder than a dealer who uses his/her own product.  Gen X was promised the world and they believed they could have it and along with their burnt out hippie parents they crashed the train while they were partying.

Now we are looking at how we will make it in our golden years and it isn’t looking good.  Social Security, the temporary stop-gap that was never intended to last forever has been on the chopping block for as long as we can remember.  And if we are all honest with ourselves, even if we keep it, there simply is not going to be enough money to cover all of the deposits we have made all of our lives.  Part of this is due to the huge drain of the baby boomers by sheer number.  Part of it is due to bad economics.

There have been other measures taken for retirement like the infamous 401(k) or 457 for public employees.  But this isn’t going to work out for Gen X’ers either. The big problem with these retirement packages is too many workers don’t understand that they aren’t a straight forward retirement savings acct.  They are instead an investment and like all investments they are a gamble.  But, they aren’t ones that can be easily managed.  They are sold to workers as packages in varying levels of risk from high –with the traditional expectation of big returns should your stocks go well but equally big losses. – To lower risk investments which typically include things like government contracts and other slow growth stocks and bonds.  These were sold to workers as safe, if slow growing, but guess what?  They have done really shitty the last eight years too and so most people’s 401(k) accounts have shrunk a great deal.  People are lucky actually if they have stayed consistent at the level they invested.

Not only are American workers suffering from these losses but so are companies, counties and states because one of the big selling points of these investment retirement programs is the fact that your job will match whatever you invest.  So, they are losing money too.

But that’s not all, As early as 1986, only a few years after the widespread debut of the 401(k) and the idea that American workers should self-fund their own retirement accounts based on savings and stock market gains, Karen Ferguson who was then, as she is now, the head of the Pension Rights Institute, warned in an op-ed published in the New York Times, “Rank-and-file workers have nothing to spare from their paychecks to put into a voluntary plan.”

And this is entirely true.  With the majority of Americans including the diminished “middle class” living paycheck to paycheck, there isn’t a lot left to contribute to a 401(k).  It is likely one of the first cuts made when restructuring pay schedules in hard times.  Workers with families are definitely going to opt out of this instead of medical insurance if given the option.  Indeed when the housing crash occurred an inordinate number of people with 401(k)’s and 457 plans plead for a withdrawal of funds in those accounts to try to save their homes.  In many cases even when this was granted due to hardship it didn’t work, so homes and retirement was lost.

The frightening thing about this program of retirement is how many people still believe it will be enough for them to live off of.  This is mostly due to the incredible financial sector lobby who regularly reminds us that Americans have $20.8 trillion in retirement savings, divided between individual retirement accounts, defined contribution plans, defined benefit plans, government plans and annuity reserves.

What this doesn’t take into account is what the median amount individual families will actually have to live on, which is more like $100,000.00 if they retire somewhere between 55 and 65.  With people living well into their 80’s with regularity, does that seem like enough money for you to live off of without working?

We are continuing to be sold this snake oil because it is a big money maker for the financial sector.  No matter how good or bad the market is the financial services sector wins on these retirement accounts. It is however incredible hard to ascertain exactly how much they make, financial institutions being incredibly cagey about how much they earn. In 2008, Bloomberg magazine polled a group of pension consultants and came to the conclusion that 401(k) fees alone totaled $89.1 billion annually. Theresa Ghilarducci, who recently took a more all-encompassing look at American retirement assets, and included IRAs and pensions in her total, pegged the number at $500 billion.(source:

So what are the Gen X’ers, Gen Y’er and everyone else going to do to support themselves in their old age?  One of the biggest problems is that too many people are not bothering to figure this out.  We know finances are not there for us, are not likely to be there.  We aren’t stashing money away in accounts or mattresses or jars in the back garden; mostly because we have nothing extra.  Yet most of us are still thinking there will be a day when we will “retire” and travel or watch birds or do whatever it is people do without jobs.  We really watch too much Downton ‘Abbey, we want a lifestyle that really is unobtainable.

What we don’t understand is it never was really obtainable for most of the population.  There aren’t many Dowager Duchesses and the American middle class famously misunderstands the job and duties of nobility in any case.

As a recent article in Salon Magazine states, “The truth is this: the concept of a do-it-yourself retirement was a fraud. It was a fraud because to expect people to save up enough money to see themselves through a 20- or 30-year retirement was a dubious proposition in the best of circumstances. It was a fraud because it allowed hustlers in the financial sector to prey on ordinary people with little knowledge of sophisticated financial instruments and schemes. And it was a fraud because the mainstream media, which increasingly relies on the advertising dollars of the personal finance industry, sold expensive lies to an unsuspecting public. When combined with stagnating salaries, rising expenses and a stock market that did not perform like Rumpelstilskin and spin straw into gold, do-it-yourself retirement was all but guaranteed to lead future generations of Americans to a financially insecure old age. And so it has.”

So many of the articles and advice columns, well meaning though they may be, still set in our minds that this is” the first time in living memory, it seems likely that living standards for those over the age of 65 will begin to decline as compared to those who came before them” (source:

This simply is not so.  In fact WWI saw the first generation in which a “retirement” was even a “thing” before such time you may have slowed down or taken on different responsibilities as you aged such as caring for the younger generation or mentoring an apprentice, but you would not have retired from working until you were on your death bed.

And this is another thing to consider, our life span and the quality thereof.  Many studies point to the fact that an active life equals a longer life.  So, while you may not want to greet people at Wal-Mart or anyplace else.  Any type of work keeping you physically and socially engaged will ensure a longer and better quality of life.  People who stop doing anything suffer from a sort of failure to thrive.  When you no longer have a purpose, more of the normal breaking down of an older body and mind becomes harder to manage, because…why?

What this generation needs to think about more than how they are going to pay for their retirement is how they are going to engage themselves as they age.  Do they have skills to do a job they can manage in their golden years?  Are they doing what they love?  Or are they just doing a job that pays the bills?  Now would be the time to plan for continued activity in areas interesting to individuals.  It would also behoove people to figure out where and how they are going to house themselves.

Another habit we have fallen into is the ideal of being self sufficient and living alone.  We may need to think in terms of extended families whether those be blood relatives or families of our choosing.  We all need each other.  The elderly need young people and young people need the wisdom and experience of elders.  It’s time to change up our societal structure.

If we can do that, we can stop worrying about governments providing for us and 401(k)’s and we can get on with the business of living for real.  With intention and joy.