Retirement crisis? What retirement crisis?
Longtime defined-contribution critic Alica Munnell had her road to Damascus moment in late 2015, noting the replacement-rate hit (or lack thereof) that participants take when switching from DB to DC isn’t anywhere near what was once thought.
Jack VanDerhei and crew at the Employee Benefit Research Institute soon followed suit, as did marketing research firm GfK with its global survey of retirement confidence, noting the U.S. outscored China and every cradle-to-grave European social democracy.
Good news, something to be trumpeted, right? Wrong; serenity doesn’t sell, at least not in retirement planning. You want attention, you go with “Agency Predicts $224 Trillion Retirement Gap.”
Thankfully Andrew Biggs with the American Enterprise Institute took issue with one of the biggest purveyors of pension crisis populism, President Trump (wait, what?), noting that as a candidate the latter promised not to cut Social Security benefits as a possible antidote.
Writing in The Wall Street Journal, Biggs provided a flurry of stats to bolster his case, arguing that private plans such as 401ks have allowed more people than ever to save.
“When traditional pensions peaked in the mid-1970s, about 45 percent of American workers had an employer-sponsored plan. In today’s world of 401ks, 61 percent of workers do,” he noted, citing Internal Revenue Service records.
Referencing his own analysis of DOL data, he claimed contributions to private plans have risen from an average 5.8 percent of wages in 1975 to 8 percent in 2014.
And, according to data from the National Income and Product Accounts, payments out of private retirement accounts, after adjusting for inflation, have nearly tripled since 1984.
“In light of rising retirement incomes, why do so many people insist on a coming ‘retirement crisis’? he then rightly asked.
“One reason is that the most prominent government data sets available to researchers dramatically understate retirement incomes. The Census Bureau’s American Community Survey and Current Population Survey count retirement benefits as ‘income’ only if they are paid out regularly, whereas most retirees simply draw down their IRAs and 401(k)s as needed.”
He concluded by calling for the Trump administration to reconsider its pledge not to cut Social Security benefits.
“The program is 25 percent underfunded over the long term, the Congressional Budget Office projects. Yes, Social Security should be protected for the poor, even expanded to dramatically reduce the number of retirees in poverty …But the data prove that providing adequate retirement incomes does not require Scandinavian-level tax rates or multi-trillion-dollar unfunded entitlement liabilities.”