Teenagers flipping burgers, stocking shelves or studying for finals don't think about their retirement. The government does, however, and the prognosis isn't good.
More than one out of every three American workers born in 1990 will have zero dollars in a 401(k)-style plan at retirement, a government report said Tuesday, an ominous sign considering many businesses are dumping pension plans.
The Government Accountability Office report "makes it especially clear precisely how important it is to make sure every American worker has the opportunity to save for their retirement," said David John, a retirement expert at The Heritage Foundation.
The GAO report estimated 36.8 percent of today's 17-year-olds will have no money in a 401(k) or similar plan when they retire. The numbers will be worse for low-income workers: 63 percent of them will have zero dollars in a 401(k)-type account when it comes time for them to retire.
With the reduction of pension plans and the uncertainty of Social Security, that number means millions of Americans will face rough going when it comes time for today's teenagers to retire, lawmakers said.
"Today's workers will more likely struggle to make ends meet during retirement than previous generations," said Rep. George Miller, D-Calif., who is chair of the House Education and Labor Committee.
Part of the problem is because people withdraw part or all of their retirement savings, the GAO said, and they don't participate in retirement plans when they're offered.
Only 36 percent of workers in 2004 participated in 401(k)s and similar accounts when offered, the most recent data available, according to the report.
Making it automatic is key, John said, because people freeze up when left on their own.
"They know that this is a really important decision and that if they don't make the right choice, they can look back and really regret it when they reach retirement age," John said. "And what they do, like so many of us who are faced with that, they're paralyzed, inertia takes over, they don't do something."
GAO found that automatically enrolling workers in 401(k)s and similar plans would cut the number of those without money in those plans to 17.7 percent. Automatic enrollment would halve the number of low income workers with zero retirement dollars from 63 percent to 30 percent.
Defined contribution plans are becoming more important to workers. Social Security provides about 40 percent of preretirement income for current retirees but that's projected to fall by the time today's young adults retire.
And the number of pension plans being offered is dropping fast. In 1980, pension-style plans had 38 million participants and 401(k)-style plans had 20 million participants.
By 1994, 401(k)s and other defined-contribution plans included 64.6 million participants, while pension plan and other defined benefit plans included only 41.7 million participants - a fraction of the total U.S. population, which is about 301,139,947, according to the CIA.
Another problem is availability, John said.
The GAO report noted that in 2004, only 62 percent of active workers were offered any kind of retirement plan - pensions or 401(k) style - by their employer. John and others advocate an "automatic IRA," which would allow employers to transfer money into an individual retirement arrangement for the 75 million employees who don't have a 401(k) option.
Automatic 401(k) investments mean employees who freeze up on retirement decision still have some type of plan, John said. "What we've got to do now is take the same sort of thing and apply to the workers who don't work for a company that offers a 401(k)."
By Jesse J. Holland