The retirement crisis in America is fairly well defined: Six in 10 people expect to delay retirement; just 14% are confident they’ll have enough to live comfortably and 17% say they will never be able to quit work altogether.
If that doesn’t bring you down, make sure you tune in to the PBS Frontline special Retirement Gamble tonight. Serious depression is sure to follow. Hopefully, though, so will remedial action on the part of anyone who identifies with the handful of struggling working class Americans in this documentary.
Retirement doesn’t break new ground. Anyone who’s been paying attention understands that corporate America has shifted the burden of retirement to individuals over the past 30 years. Traditional pensions have been supplanted by 401(k) plans, which have proved to be massively ineffective as a primary source of retirement security. Billions of dollars in savings have leaked out of these plans over the years and trillions were wiped away in the market collapses of 2000 and 2008.
The program takes us through all this gory history and makes the case that our retirement programs are not a system but a “free for all.” It concludes that saving for retirement is a “bewildering and frightening challenge.”
For emphasis, Retirement even dredges up the $18 billion in bonuses paid to Wall Street the year of the mortgage crisis, when people were losing their jobs or their homes or both. The point is one that I’ve made over and over in this space: You are on your own out there; it’s time to start paying attention.
You can’t help but identify with one subject in particular, a well-spoken man of retirement age who gleefully recalled the day in 1999 when his 401(k) portfolio crossed $1 million. “I just thought this was how it works,” he says. The market took back all his gains within a couple years.
The special takes aim at the confusing and multi-layered fees that accompany many 401(k) plans and which are difficult to sort out in smaller plans. John Bogle, the low-cost index-fund champion at Vanguard, is interviewed at length. So it’s no surprise that the program’s chief advice seems to be: Stick with index funds. It’s a fine conclusion, of course. As Bogle notes in the program, over the course of a lifetime a seemingly low annual fee of 2% can reduce what your balance would have been by more than 60%—adding years to your working life. A typical index fund charges about a tenth of the costs of a typical fund.
The program also highlights:
- On any given street, one household may be paying 10 times as much to invest in a 401(k) as the household next door.
- Popular 401(k) providers often charge a plethora of hidden fees, burying them under opaque names like “Expense Ratio.”
- Many financial advisers are not required to provide advice that is in their clients’ best interest; they are only obligated to give advice that is “suitable.”
If you’ve been paying attention to the changing retirement landscape, this program won’t add much to your understanding. It will mostly remind you what has gone wrong. But most will find it illuminating. You are all but certain to identify with one or more subjects in the program, and it may provide just the jolt you need to start paying attention to investment costs and save 10% of every penny you earn.