Among the many perils facing today’s workers and retirees, four in particular stand out: longevity risk, inflation, market volatility, and abandonment risk. I wrote a post on this topic in June.
In this post, I’ll take a closer look at longevity risk — one of the most common retirement concerns. In fact, the risk of outliving their savings is a worry that keeps about one-third of workers and retirees awake at night, according to the Principal Financial Well-Being IndexSM (third quarter 2011).
I would be the first to agree the U.S. retirement system is not perfect. More Americans need access to retirement plans and those who have plans, need to save more. There is no question improvements should be made. But that doesn’t mean we need to throw the baby out with the bath water.
Far too often, critics ignore the benefits of the current system. They instead point to losses during the financial crisis when equity values plunged; overlooking the fact that account values for the majority of those who have continued to contribute now exceed the highest balances prior to the market downturn.
Some critics argue the answer is to do away with defined contribution plans and go back to defined benefit pension plans—but that oversimplified and unrealistic answer ignores the fact that global competition puts great pressures on most employers today regardless of size. In this environment, defined benefit pension plans create financial obligations on employers that, for many, are just not sustainable. Read more
A new report on 401(k) plan loans and withdrawals has spurred a number of articles in the media and, in some cases, significant misunderstanding. One article in particular in the Washington Post paints a distorted picture alleging that “widespread breaching” of 401(k) accounts is on the rise and is “undermining” retirement security.