The Necessity of Social Democracy: Duncan Black Points Us to Joe Nocera
… and notes that Joe does not seem able to add 2 and 2:
Take The Next Step, Joe: It's time to increase Social Security benefits.
My Faith-Based Retirement: My 60th birthday is less than a week and a half away, and if there is one thing I can say with certainty it’s that 60 is not the new 50…. I’m not planning to retire. More accurately, I can’t retire. My 401(k) plan, which was supposed to take care of my retirement, is in tatters.
Like millions of other aging baby boomers, I first began putting money into a tax-deferred retirement account a few years after they were legislated into existence in the late 1970s. The great bull market, which began in 1982, was just gearing up. As a young journalist, I couldn’t afford to invest a lot of money, but my account grew as the market rose, and the bull market gave me an inflated sense of my investing skills.
I became such an enthusiast of the new investing culture that I wrote my first book, in the mid-1990s, about what I called “the democratization of money.”… The bull market ended with the bursting of that bubble in 2000. My tech-laden portfolio was cut in half. A half-dozen years later, I got divorced, cutting my 401(k) in half again…. I bought a house that needed some costly renovations. Since my retirement account was now hopelessly inadequate for actual retirement, I reasoned that I might as well get some use out of the money while I could. So I threw another chunk of my 401(k) at the renovation. That’s where I stand today….
I related my tale recently to Teresa Ghilarducci…. The sad truth, she told me, is that I’m the rule, not the exception. “People have income shock, like divorce or loss of a job or a health crisis,” and those crises tend to drain retirement accounts, she said. But even putting income shocks aside, she said, most human beings lack the skill and emotional wherewithal to be good investors. Linking investing and retirement has turned out to be a recipe for disaster.
“People tend to be overconfident about their own abilities,” said Ghilarducci.
They tend to focus on the short term rather than thinking about long-term consequences. And they tend to think that whatever the current trend is will always be the trend. That is why people buy high and sell low.
Financial advisers — at least the good ones — are forever telling their clients to be disciplined, to create a diversified portfolio and to avoid trying to time the market. Sound as that advice is, it’s just not how most humans behave….
[O]nly 22 percent of workers 55 or older have more than $250,000 put away for retirement. Stunningly, 60 percent of workers in that same age bracket have less than $100,000 in a retirement account….
What, then, will people do when they retire? I asked Ghilarducci. “Their retirement plan is faith based,” she replied. “They have faith that it will somehow work out.”
I laughed, but it’s not funny. “The 401(k),” she concluded, “is a failed experiment. It is time to rethink it.”