Retirement Dreams Disappear With 401(k)s

60 Minutes: Older Americans' 401(k)s Have Plummeted; Many Fear They Will Never Get To Retire

(CBS)  There are legal fees, trustee fees, transactional fees, stewardship fees, bookkeeping fees, finder's fees. The list goes on and on.

Miller's committee has heard testimony that they can eat up half the income in some 401(k) plans over a 30-year span. But he has not been able to stop it.

"We tried to just put in some disclosure and transparency in these fees. And we felt the full fury of that financial lobby," he said.

David Wray, a lobbyist for the 401(k) industry, says he favors disclosing the fees, but his partners in the financial industry don't.

Asked if he thinks most people know these fees exist, Wray said, "I think they know that there are fees. They don't know exactly how large they are."

"Why do you think the financial services industry is opposed to fee transparency?" Kroft asked.

"I don't know that they're opposed to it. I think the issue is that…," Wray replied.

"You don't think they're opposed to it?" Kroft asked. "You're a lobbyist in Washington, right? You know they're opposed to it. …George Miller hasn't been able to get a bill to the floor."

"I think they want to keep the systems as simple and not make changes. They like the way things are. And whenever you push people out of their comfort zones, you know, it's an issue," Wray replied.

"I mean, they're comfortable with the situation because they're making a ton of money or they have made a ton of money," Kroft said.

"Well, and their systems are set up in certain ways. You know, this is gonna be a big change," Wray replied.

60 Minutes wanted to ask Wray, who's been so bullish on 401(k) plans, one last question about what the future holds for people like Terry and Donna McNally and Kathleen Coleman.

"Most of the people that we've talked to are 50 and 60 years old and have sustained these losses say there is no way they're ever gonna make them back. Do you agree with that?" Kroft asked.

"I think we have to be truth tellers," Wray replied. "I think that when a person has hit this point, and we've had this unfortunate situation, I don't think we can misrepresent what the possibilities are."

"And reality is that money's not coming back that they've lost," Kroft said.

"They can't count on it," Wray replied. "They have to…it may. Maybe they have long, maybe if they work ten more years, it'll come back by the…but it's important that they not have unrealistic expectations."

[60MinutesFan567]

It is indeed frightening that so many people have been so mis-educated about 401ks. And I have to say that while I love 60 Minutes and their usually high-quality investigative journalism (I even bought the 60 Minutes mug from the CBS store on a trip to NY!), I was thoroughly disappointed by the sloppiness of this segment and its intellectually-lazy and superficial approach to the issue.

In these times, it?s very easy to stand up and say woe to those who have lost so much and blame the most obvious candidate?the 401k system. But what they didn?t address is 1) what are the alternatives to the 401K system? And 2) what were the real problems it was facing? Was it really market volatility that can cause losses in a savings plan and some undisclosed fees? Or was that Americans weren?t saving enough for retirement to begin with, and when they did, they often unknowingly allocated it into risky investments?

There are 30 somethings who have all their money in cash (won?t be able to outpace inflation over the long term) and 50 somethings who have their 401K in company stock (ask some of the employees of Enron how that worked out for them).

Some studies have suggested that 15 % of someone?s salary, including company contributions, needs to be saved. Most people save more like 7% with their employers match, and that?s only the average among those who contribute. Many don?t even sign up for their companies 401K plan, not even to take advantage of the match. Those whose companies don?t have a 401K, often don?t bother to open an IRA or Roth or something that would enable them to build some kind of nest egg.

Americans were all around saving too little and spending too much in recent decades, and the 401K/retirement savings is no exception to that. I was blown away that the 60 Minutes segment didn?t even mention this. We were on the path to a crisis before the market collapse, as an aging baby-boomer population who had saved far too little was approaching their golden years.

With regard to the poor asset allocation choices many investors made, of course it can seem like you?re gambling your retirement if you?ve invested it unwisely. I?ve often been amazed that our education system will teach you trigonometry and baking brownies in home economics, but won?t teach the masses what is a stock and bond.

Perhaps its because so many teachers and government employees have such generous pensions that they never need to worry about retirement savings and asset allocation strategies. But the vast majority of us are going to actually have to manage our own savings, and they have done nothing to address the financial literacy gap and adopt the education curriculum to modern times. People at least need to speak the same language as their financial advisors, and if they can?t afford an advisor, then that?s all the more reason they should be educated on how best to manage the money the do have.

Speaking of pensions, it?s increasingly obvious this system has its flaws too?something else this segment didn?t address: what are our alternatives to 401Ks?

Pensions are the perfect solution for someone who spends most of their career at one stable company. However, in the unstoppable churn of globalization, what companies are sure-fire solid decades now? GM employees thought their company was solid, and why wouldn?t they after it topped the list of Fortune 500 list of conglomerates? Polariod employees thought the same, but after Polariod went under, their pensions were wiped out. Even municipal governments across the country are grappling with near insolvent pension plans that could blow up without Federal stimulus money or having to hike taxes.

Some have proposed a government guaranteed retirement system. With mounting federal deficits and Social Security eating up close to one-fourth of the federal budget, I don?t see how that?s possible.

Social Security, as we all know, has its problems as well. It?s surprisingly similar to a giant ponzi scheme where pay-ins by younger workers support retirees pay-outs. This is great when the demographics are in favor, but when you have a younger population supporting a growing older population, as we do now, the plan hits obstacles.

Social Security is not yet in crisis (at least not like Medicaid), but without efforts to reform it, this could be the case in a few decades. The last thing we need is another cripplingly expensive government plan that would and replace 401Ks.

So while the 401K system may be in need of reform that would further encourage more savings and sounder investment selections, it?s probably one of the best solutions we have. For 60 Minutes to devote a segment to easy populist-pandering sob stories and fees, and ignore the real problems, was borderline irresponsible.

So while I?ll depart my soapbox and I?ll still watch the show, I?ll do so with perhaps a more skeptical eye of their research collecting.

[1jhnerd2]

The ignorance I'm reading on these pages is not just appalling, but dangerous. Ignorance isn't a bad thing, but hopefully we have the motivation to at least learn enough to know what we don't know. Anyone who feels that 401K plans were designed by greedy businesses to exploit the average worker is delusional. How about the greedy workers who invested too much of their savings in stocks rather than more conservative bonds and money market funds.

Reading these posts, it's evident that when faced with adversity people react in two distinctly different ways. Those who thrash around looking for villians and those who focus on making the best of the hand they've been dealt.

Again, shame on CBS for playing into this easy, emotional hit. We need our media to play more of a moderating voice of reason and elucidation rather than fanning the flames of ignorance.

[stevenduval]

This is something that independent 7702 Private Plan representatives have been preaching for a long time. There is just way to much control of your retirement with unregulated and greedy people with a 401k Plan. But things are changing, every month thousands and thousands of people dump the company plan and set up their own 7702 Private Plan. Interest is earned tax deferred and there is no market risk - further because of heavy regulation the person representing the 7702 Private Plan administrator must present a detailed retirement illustration that discloses all costs and fee's. In most States they even have to show you what would happen if you put your money in, and the market kept going down, all the way to zero.

The 7702 Private Plan is new, it became IRS approved in 2005, but it is already gaining mainstream popularity - that is the best way to get back at these greedy people. Pull you money out of a 401k (or at least stop putting money into it ) and start your own 7702 Private Plan!

[SgtLucifer]

It's a good thing that we had an MBA president to get us into this mess.

[1jhnerd2]

Although I feel sad for all of us who have lost so much of our retirement savings, I?m repelled by those who would blame 401K plans. They are wonderful savings vehicles?forced discipline, freedom of choice, tax deferral and for most, employee matching, free money. I doubt any 401K plans required employees to invest in stocks and most 401Ks are relatively low cost. Additionally, most companies have sophisticated employee communication plans to educate employees on their investment decisions.

So why would 60 Minutes engage in an irresponsible, superficial and pandering negative 401K piece? because it sells. But in this case, it will work against the program, because their motive to exploit all of us who have been hurt by the current economic tsunami is so evident that the program will lose its credibility going forward.

[AmericanWillow]

Please tell me that lovely woman (the "career gal") got a job. I'm unemployed too, and 52, but I've been thinking about her since the episode aired. Please update us. I'm hoping that she'll get a few nibbles from your story.

Good story, by the way.

[scout331]

Thank you for doing a story on this. My husband has a standard pension and will get a guarenteed lump some or a guarenteed monthy annuity. My company did away with pensions and my 401K has never produced the earnings touted by those who support this. Corporations took the opportunity to "sell" this to employees when the steelk industry collapsed and when the tech boom was creating millionaires. If you told someone you would take your savings to Vegas and try to win big, they would think you were nuts. Well, investments of any kind are a gamble and are different than savings. Bring back pensions and let people who want to invest do so with their disposable income.

[dlkndsn]

When the 401K was introduced, it was claimed to be the solution to everyone's retirement worries. Just put some money in it, your company will match some of it, and you will be able to retire with no problem at all. The missing link is that noone is given any information on how to manage their money. One thing our schools should teach is how to manage money. How do you determine what to invest in? Who should you go to for help? How do you determine how much money you need to retire? How do you "grow" your money? I think the 401K is a good investment vehicle, but people must learn how to manage it. My wife and I were fortunate to find a really good, honest investment advisor. Yes, they are out there, but you must look very hard. Many of the schools in the Minneapolis area where we lived had Adult Education classes that were focused on retirement. Over the years, we went to many of these classes. Part of the class involved the financial advisors giving the class providing the students with a free retirement plan. Through this mechanism, we met many financial advisors and learned a great deal about what questions to ask and what to look for in an advisor. Secondly, while everyone was busy upgrading to bigger and bigger houses, we stayed in our house for many years. We put as much money as was practical into our 401k's and have a good retirement because of it. We have lost some portion of our 401K's, but thanks to our due diligence in learning how to find an advisor, we have done quite well. We never have owed anyone money, aside from our mortgage, and didn't run up thousands of dollars in credit card debt.

You do have to be proactive. Learn as much as you can. Most of all, live within your means. Don't trust anyone who says they can get you 12% returns no matter what the market does like Madoff did. That's impossible.

Go to investment seminars, ask questions, but don't yield to high-pressure sales pitches. Talk to many advisors. If an advisor doesn't really believe in a good asset allocation strategy, run like mad. It's hard work to find a good one, but it is worth it. Usually, advisors at these seminars push one kind of investment. It may be life insurance, stocks, bonds, mutual funds, whatever. They are basically pushing the one thing they make the most money at. Remember asset allocation.

I really feel sorry for sorry for people who have lost a lot of their retirement. We haven't yet, but this mess isn't over either.

The 401K is a good vehicle if you educate yourself.

[Yadyee]

azirine1, The markets started collapsing way before Obama was elected. It started in Sep. 2007. I am talking about the regulation needed on Wall Street so the corruption and greed does not continue (e.g., housing crisis). More transparency. We can't leave the candy store unattended. By the way, I was personally out of the market 100% in Dec. 2007.

[401kmaster]

Bernie maddoff would still have done what he did in a regulated system. Theirs honest people and bad in every field. Financial planners at a broker dealer is just a salesman you have to understand the difference. Fee only advisors not fee based, fee only our the true best. They have full discourse full transparency and have to give you up front all conflicts of interest. Anyone with a seris 7 licenses falls into suitably and don't have the best interest of their clients. So don't be afraid to ask your planner, salesman if they have the seris 7 license. Remember its harder to become a beautician than a financial planner.
Napfa.org is the best place to start. When your paid a fortunate not to realize your hurting your clients its easy not to realize it.