michaelrosenow.com

This year 4.1 million Americans will turn 65, a “silver tsunami” of people reaching the traditional retirement age.

They most likely began earning a paycheck in the 1970s in the wake of bell bottoms, side burns, the OPEC crisis, and the Watergate scandal. There were a handful of retirement systems already in place when they joined the workforce. They would have likely started paying into the Social Security Administration to build eligibility for old-age pensions mandated by the 1935 Social Security Act. They may have also landed a job with a union contract that promised a defined-benefit pension that had been a priority for workers in collective bargaining agreements since World War II. Then of course, they probably got a lot of advice from parents, grandparents, and even Uncle Ed to pinch, save, and invest in a do-it-yourself approach to amassing a nest egg that could sustain them through their golden years.

Then, a new retirement strategy became available in 1980. It was a provision tucked in the Revenue Act of 1978–Section 401(k). The 401(k) began a national experiment in a defined-contribution retirement account that held the potential to free employers from the obligations of providing defined-benefit pensions and allowed individuals, in theory, to grow their own retirement savings through shrewd investments in stocks, bonds, or whatever else the market could cook up.

Now in 2024 the first generation that had access to the 401(k)–that silver tsunami–is nearing retirement. Did the 401(k) deliver them to a sun-soaked beach with little umbrellas in their drinks?

According to journalist Michael Steinberger, the answer appears to be mainly, no, but its complicated. Overall, Steinberger’s reporting suggests that 401(k)s have benefited corporations and the wealthiest Americans. The gambit removed the defined-benefit obligation from corporate ledgers and made retirement savings an individual gamble. Lower-income workers with access to the plans haven’t built suitable savings, while many workers have been excluded entirely.

Some points of note from Steinberg:

• In 2017, 49 percent of Americans ages 55 to 66 had no personal retirement savings.
• Teresa Ghilarducci, an economist at the New School in New York and author of the new book Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy, has long predicted 401(k)s would exacerbate inequality and leave a wide swath of Americans without the financial means to retire.
• Ghilarducci coauthored a paper with Kevin Hassett, a senior economic advisor to President Trump, in 2021 calling for expanding access to the Thrift Savings Plan, a defined-contribution plan currently limited to US government employees and members of the military. This bipartisan effort led to a proposed new law, the Retirement Savings for Americans Act.

In an appearance on the New York Times‘s podcast, The Daily, Steinberg said the facts raise a fundamental question:

At the end of the day, this all comes down to a very basic question — should we think of retirement as a privilege or as a right? In the 1950s, ‘60s, and into the ‘70s, the heyday of pensions, it seemed that we were moving towards an answer. And the answer was that it was a right. The 401(k) system seems to have taken us in the other direction.

This is, indeed, an important question and historical trend to ponder.