The state of the private sector retirement system

Atrocious, especially for old people.



That's the average; the mean is probably half that. Even assuming a very aggressive generous 5% ROI on investments and a 15 year eating down the balance before you kick the bucket that's a whopping ~$15,000 a year or so, fiddling around in excel.

This also does not count the nontrivial portion of people who don't have 401(k)s at all. So it's actually worse than that.

The term average doesn't imply a specific method of averaging, and when used sloppily without specifying, it's normally taken to be the arithmetic mean.

Correctly stated, that chart shows the "average" (arithmetic mean) balances. Drum posits that the mean is skewed upward by virtue of very high outliers and that the median would provide a more accurate, and more dismal, outlook. I am falling asleep, but I am not sure I'm on board with that reasoning.

The low end (people without 401Ks) are already excluded. The high end (people with portfolios big enough to make the question irrelevant) are included. Why would this not shift the arithmetic mean higher than the median?

Yeah in this case the median would tell you the amount the 'average' person had in their 401k. The mean just tells you what the average person would have in their 401k in a world where the entire amount in all 401k's was equally distributed. If there is one thing we know for sure about America its that anything to do with money is never even close to equally distributed. I would suspect given general wealth patterns for the top 10% of 401k owners to have around 50% of all savings in 401ks. Though that is contingent on any unique features in the way 401k's are administered/regulated compared to other forms of wealth as government insurance programs often are.

In the article linked,

So that's about two to three years comfortable living in the average place in america? How long does the average retiree live after retirement, I'm betting it's a lot longer than that.

Assuming your mortgage is paid off, there are a lot of places you can live for quite a while on 150k.

Not that they are places I would want to live. Which is why I'd like to have about...20 times more than that when I retire (in 2013 dollars) :)

Presumably there is some number greater than zero of people with 401(k)s who don't have very much money in them. I have no idea which end of the distribution is bigger. Do you?

Yes. Since wisbechlad has already posted that the median average is $50,000 the upper end of the distribution is bigger to be able to pull the mean up to $150,000.

Either way, it's still jack shit for money. Social security is going to pay the bulk of their retirement.

How much should I have in my 401k when I go to retire? To live comfortably, not extravagantly.

Depends on when your're retiring and what you mean by comfortable. If its 30 years from now, and you're making high 5's now, you'll probably want something like total assets 2-3 million dollars (750K-1 million in today's dollars).

This entirely depends on your lifestyle and circumstances. If you want to keep your lifestyle as is figure out what your debt situation will likely be and how much you spend on non-debt related things (bills, home maintenance, food, clothing and entertainment) multiply that by the number of years you're expected to live after retirement (probably want to add a few extra years and some emergency cash) and there you go. Answer will likely be far more than you think.

Most those without 401k just don't retire. My dad was working til he went in the hospital, 6mths later he was gone. He had approx 100k saved up but most of that was for the business in various ways. Much of that went away as he was being treated.

Todo: research project on the demographics of retirement. Interesting questions:
- What percentage of the working population actual retires (defined as 0 wage income for x consecutive years) at given ages?
- Likewise semi-retirement (50% drop in wage income) or non-retired.
- What are the demographics of these groups like?

The sad thing is I know whatever I save won't be enough to get me cyborg implants and whatever gene therapy they have at the time to keep my body from aging.

401K plans were first invented in 1978, so we shouldn't be too super-surprised that people in their 60s-70s don't have real high balances there. Most people in their 60s-70s were raised on the idea of pensions and social security. The underlying paper examines both age and tenure in 401K plans.

Median tenure (at current employer, see the footnote) = 8 years.
% 401K participants > 30 years = 5%
% 401K participants 20-30 years = 10%

From the section entitled Relationship of Age and Tenure to Account Balances on p13:

There is a positive correlation between age and account balance among participants covered by the 2011 database. Examination of the age composition of account balances finds that 51 percent of participants with account balances of less than $10,000 were in their 20s or 30s (Figure 11). Similarly, 61 percent of participants with account balances greater than $100,000 were in their 50s or 60s. The positive correlation between age and account balance is expected because younger workers are likely to have lower incomes and to have had less time to accumulate a balance with their current employer. In addition, they are less likely to have rollovers from a previous employer’s plan in their current plan accounts.

There is also a positive correlation between account balance and tenure among participants in the 2011 database. A participant’s tenure with an employer serves as a proxy for the length of time a worker has participated in the 401(k) plan. Indeed, 62 percent of participants with account balances of less than $10,000 had five or fewer years of tenure, while 77 percent of participants with account balances greater than $100,000 had more than 10 years of tenure (Figure 12). Examining the interaction of both age and tenure with account balances reveals that, for a given age group, average account balances tend to increase with tenure. For example, the average account balance of participants in their 60s with up to two years of tenure was $25,678, compared with $208,892 for participants in their 60s with more than 30 years of tenure (Figure 13). Similarly, the average account balance of participants in their 40s with up to two years of tenure was $14,582, compared with $128,158 for participants in their 40s with more than 20 years of tenure

The distribution of account balances underscores the effects of age and tenure on account balances. In a given age group, shorter tenure tends to mean that a higher percentage of participants will have account balances of less than $10,000. For example, 92 percent of participants in their 20s with two or fewer years of tenure had account balances of less than $10,000 in 2011, compared with 58 percent of participants in their 20s with between five and 10 years of tenure (Figure 14). Older workers display a similar pattern. For example, 64 percent of participants in their 60s with two or fewer years of tenure had account balances of less than $10,000. In contrast, fewer than one-fifth of those in their 60s with more than 20 years of tenure had account balances of less than $10,000.

In a given age group, longer tenure tends to mean that a higher percentage of participants will have account balances greater than $100,000. For example, 16 percent of participants in their 60s with five to 10 years of tenure had account balances in excess of $100,000 in 2011 (Figure 15). However, 44 percent of participants in their 60s with between 20 and 30 years of tenure with their current employer had account balances greater than $100,000. The percentage increases to 50 percent for participants in their 60s with more than 30 years of tenure.

Not that this makes everything awesome, but it does kind of temper things a touch. It also shows that running stats across vastly different age groups here will yield literally no good conclusions.

I have too much personal debt to even consider planning for retirement. I expect to work until I drop, and the banks and the credit card companies will still be feasting on my withered body.

There are only two or three good reasons to purposefully get into large debts: home mortgage, car/transportation, and school (and even those should be done with care and forethought). Otherwise, getting out of debt as much as possible is the #1 most awesome thing to do, especially with modern changes in interest/fee laws, bankruptcy laws, and so on.

Middle one isn't even one, I wouldn't say. Mortgages and school loans are also potentially investments if they're well-planned.

Absolutely yes. Not to turn this into a personal finance thread too much, but:

is, no offense, exactly the wrong attitude. Paying off your personal debt is planning for retirement. If you have so much debt that you literally could not possibly pay it off in time to retire at a reasonable age, you should consider looking into your bankruptcy options. If the problem isn't that unbelievably far gone, you can absolutely still plan for your retirement; paying off that debt is just the first step of the plan, that's all.

It's pretty far gone, sadly. I make decent money but far too much of it goes towards paying down debts. My credit rating is excellent now, because I'm the perfect debtor - I make enough money to meet all my regular payments but not enough to dent the principal. My student loan debt is protected from bankruptcy proceedings, and the line of credit I obtained under my corporation is likewise unaffected. I'm not even permanent at my job, so if they ever let me go the waters will rapidly rise over my head.

Oh, as to the larger situation: education is desperately needed on the way savings and debt actually affect your life. It's shameful that I was twenty-nine years old before I had a good understanding of personal finance, and even then it was only because I got interested and did a lot of reading on the subject. Lots of people go their whole lives not knowing where there money is going or how they could be saving or what their current savings rate is going to mean for their retirement, and far too many of the ones who do start understanding that later in life do so when they realize how hamstrung they are by a couple of bad decisions they made years or sometimes decades earlier. We need to do a much better job of impressing upon people early on just how much money they'll have later if they save a reasonable amount now, and just how much money they're throwing away by taking on debt.

You could have corporation declare bankruptcy, which wouldn't affect your personal credit situation. Then declare bankruptcy yourself and clear any personal debts, except the student loans, and go from there. Your credit rating will be destroyed but if you're not paying down your principals as it is you shouldn't be incurring more debt anyway. Your credit rating is useless if you can't actually make the payments on any loans it might enable for you.

I don't know much about your situation, but have you considered trying to buy a (cheap) house? Hear me out.

You have a good credit rating, are up-to-date on your debt payments, and are currently employed. So in general highlights: buy a house, get a second mortgage to pay off all that personal debt stuff, then continue making payments as now but with an improved tax position (mortgage interest is deductible while CC interest is not). If your second is large enough to cover the student loan then you have in a sense just turned that into bankrupt-able debt also.

(I have no experience/knowledge in the personal corporation arena, so won't even try to think of ideas there.)

This is another thing that people need to know, by the way. People are bombarded day in and day out almost from birth with messages about how important their credit rating is. Don't declare bankruptcy--it'll ruin your credit rating! Better take out some credit cards to use for every day purchases--that way, you can build up a credit rating! Don't forget to check in on your credit rating every month to see how you're doing!

And it does matter--although the degree to which it matters is kind of also the bullshit result of a corrupt system--but it doesn't matter so much that you should throw money away in pursuit of a better one.

That is something I've considered, but it would be something that follows on being single, which is a rather significant step in itself (and somewhat offtopic for the scholarly political forum, heh).

TheTrunkDr - I couldn't bring myself to declare bankruptcy unless everything else was broken. It'd be like accepting that everything I've done to this point in life has been a failure.

This!

I been maxing my 401k every year since I started working(5 years), the company actually have a very nice incentive too, they give you 20% of your 401k investment, you get $20 dollars for every $100 you put in your 401k. I'm friends with a lot of my coworkers, and sometimes we talk about financial stuff, and buying a house etc etc... most of them put only 5% in their 401k or 2-3%.. It totally boggles my mind, instead they just upgrade their cars or spending on pretty useless stuff(IMO, do you seriously need 10 pairs of Nike or every skins in League of legends)

This is a position that you hold by dint of having been manipulated into it by creditors. There is nothing immoral or broken about taking a legally-available, explicitly-laid-out default option; the system's built around it.

I can't like this enough. Added to which, whatever shame you (unnecessarily imo) associate with bankruptcy will pass, but when you drop dead on the factory floor at 80 your last thought will not be "at least I never declared bankruptcy."

.....in other words, for people nearing retirement who've always been on 401ks, their account balances are 25% higher than the graph I included. Which means they're still atrocious; they get 25% more than I though, which isn't much because the baseline was low.

More seriously, the last time this was discussed there's studies showing specialized education has virtually no effect on investment behavior. A few hours of classes, or even a couple semesters of classes, doesn't turn the average person's terrible investment decisions into good ones.

Amen to that! It's amazing how effective that manipulation has been in our society too. I have a friend that recently found herself in a seriously untenable financial position. She'd taken out some hugely high interest loans to cover some medical debt and barely made more than minimum wage. The loans had grown and grown over the years as the payment were structured so that the minimum payment for any given month wasn't enough to cover the interest so the total loan kept growing despite years of punctual payments. Despite living in a fleabag apartment with almost nonexistent expenses she was buried in debt. I had to propose the idea of bankruptcy multiple times to get her to even consider it, despite it being the completely correct solution to her problems.

Am I misunderstanding you? I'm not talking about teaching people to make better investment decisions, I'm talking about programming people from a young age to save money and not take on debt, in much the same way that people are currently programmed from a young age to do exactly the opposite of those two things.

A few things, first The Mad Hatter lives in Canada and mortgage interest is generally not tax deductible here. Depending on his situation he may be able to claim some amount of the space in his house as that of the corporation he owns and would be able to deduct a portion of the interest on his corporate taxes. That's not likely to be a significant amount though and I'm not sure what that would mean in the case of the corporation going bankrupt.

Second, obtaining a second mortgage is considerably more difficult in Canada, at least for any significant amount. It would result in a lower interest rate than credit cards so it's an option for whatever amount he could get. If he even owns his own home or qualifies for a mortgage.

I'm not sure what being single has to do with it at all, other than it could cut your expenses I suppose.

You're taking a very pragmatic topic and making it emotional. Financially you're in the shitter the only thing to do is get yourself out of it. Not having a plan to improve your situation is simply waiting for disaster. Get a plan together that moves you in a positive direction with respect to your finances. If that means declaring bankruptcy then that's what you do. There's no shame in it and once you start to get ahead of your debt you'll feel better and once you're debt free you'll feel fantastic.

"Save money and don't take on debt" is exactly the same sort of counter-impulse as being able to make good financial decisions in the first place; it's just risk under the hood.

In a hypothetical society society where the private sector and popular culture totally loved gambling and spent tons of time and money pushing it on people, ruining the lives of a huge number of people, would you think counter-education from birth was an appropriate or effective response?

Just cut out the middleman and just fucking start banning and regulating shit, for chrissakes. Society does not need to be highly leveraged to function.

My $90K in student loans are directly from the government (not Sallie Mae, not some bank, not anyone else, but direct) and yet they require $900 per month minimum in payments on a standard* plan. I appreciate where your thoughts are on this, but unregulated middlemen aren't always the problem. Also, as we have since learned (or at least me), The Mad Hatter is Canadian and so appeals to fixing the US system of things doesn't exactly address the issue.

*no forgiveness, no deferrals, no graduated payments over time; my loans include both subsidized and unsubsidized, which stops mattering once the student graduates in any case.

So? It's almost like the government should just be paying for college itself rather than turning it into a financial instrument.

All of the developed countries have financialization destroying people in one way or another, the US is just the worst at it.

It is an emotional issue though. Perhaps it shouldn’t be, but the reality is different. I’d rather keep on making my payments and remain a good citizen consumer, clinging to the bourgeoisie for as long as I’m able. I’ll be okay as long as I keep my job.

Just to note - this is entirely my fault. I had many chances to get out of this mess and either failed to take them or did so in a half-assed way. I should have done many things very differently. I’m a bad example for those looking for reasons to improve the regulatory process.

Taking a thoroughly-defined, well-regulated option that's written into your goddamn contract is not somehow at odds with being a good citizen consumer. You have an adversarial relationship with your creditors, but you're treating it as a non-adversarial one. This is roughly akin to not just punching yourself in the dick every morning but buying accessories to enable you to punch yourself harder and more painfully, expensive accessories, simply because it's the cool thing to do among the hip crowd.

If someone is deciding between two different investments they're comparing risks; one might be better than the other, different things might happen, either decision could pay off and it might be hard to know which one is better. But there's literally no chance that taking on credit card debt will turn out to be a better choice than not taking on credit card debt. There's no chance that saving a decent portion of your income is going to leave you on less sound financial footing than spending it. But people act counter to those simple things all the time, and it has nothing to do with evaluating risk (because the optimal behaviors don't carry any) and everything to do with not understanding either the true consequences of those decisions or what their options fundamentally are.

Yeah, I probably would. Is this a trick question? Yes, if I lived in a society where people were taught from childhood that they should gamble away all their money, I would think that teaching them the opposite thing instead would be a good idea.

Ok, I will. Oh wait, I forgot that I'm not the Emperor of America, so I actually can't. Turns out it's pretty hard to mandate retirement saving and make credit cards illegal, huh? But what people can do is be informed and inform others. You want to know why the numbers are the way they are? It's because people have been tricked into accepting a whole mess of things as fundamentally true that are massively destructive to them: that you just need credit cards to get along in the world, that retirement happens at 65 if you're lucky but more realistically 70 or more these days, that a 15 or 20% savings rate is a great thing to strive for but it might not be realistic for most middle-class people, that it's normal to just have a car payment almost all the time, maybe with a year or two off here and there when a car lasts a little longer than normal, that the concept of being able to afford something means nothing more than having enough combined money and credit to pay for it, etc.

So yes, I think that if you get the real information out to people, it motivates them to do better. When you let someone know that their Civic cost as much as a Corvette because of the financing, that might make them think twice about financing their next "economy" car. When you explain to someone that the fact that they're making minimum payments on their credit cards means that they will literally never be able to retire in their life, maybe that makes them get a little more serious about paying them off. But more importantly, if we can get to people before they make those mistakes, we might be able to get them to think "oh hey, why would I pay the price of a Corvette and drive around in a Civic, just to make these lenders richer?" or say "no thanks asshole, I can't believe what you do is even legal" to the guy on their college campus handing out credit card applications. Maybe they decide when they're twenty that they'd like to retire at thirty, and they're able to, and all it took was knowing it was an option.

Or maybe not. Probably some people would and some people wouldn't. But that's better than what we have now, a situation where almost nobody makes the right choices regarding debt and savings and relatively few people are even capable of making an informed decision in the first place.

I Am Not An Economist, but it strikes me that if you DID actually encourage people en masse to not get into debt and to save more from an early age, that would have unfavourable macroeconomic consequences. It's good advice for an individual, sure...