Documentary: Navigating a 401k World

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Early in this new documentary, the director’s message seems to be that retirement finances are messy, elusive, and too complicated for mere mortals to understand. He’s right on all counts.

Filmmaker Doug Orchard reminds us in “The Baby Boomer Dilemma: An Exposé on America’s Retirement Experiment” that there are no easy solutions for Social Security, which economists predict will deplete its trust fund reserves around 2034. Closing the shortfall will probably require some combination of benefit cuts and revenue increases.

Social Security is “one of the most important problems we face as a nation,” The Wharton School’s Olivia Mitchell says in the documentary.

Our other primary program – a 401(k)-style retirement savings plan – seems great when the stock market is going up, as it has until recently. Viewers are reminded of the 2008 stock market crash, which panicked older workers who realized they might not have time to make up their losses before retiring. The stock market rises over long periods of time, increasing the money in retirement accounts, but it entails risks that can be unnerving for workers and force them into making bad decisions about their investments.

Finally, the filmmaker presents a real-world example – in Florida – of the difficult decisions workers grapple with in a U.S. retirement system that has largely transitioned from defined benefit pensions, which provide regular monthly income, to 401(k) and other defined contribution plans, which accumulate a pot of savings that retirees have to figure out how to manage.

“Baby boomers are sort of the guinea pig, and we’ve said, ‘Okay you figure it out guys,’ ” says David Babbel at Wharton.

Case in point: Florida in 2001 gave state workers a choice between continuing in the traditional pension fund or changing to a retirement savings plan. This decision was worthy of intense analysis by the experts who appear in the film. Yet various decisions as complex as this hang over workers in the public and private sectors. Often, they choose to ignore them – at their peril.

Florida’s experience carries a lesson for all workers, says York University business professor Moshe Milevsky: “Pay attention to pension choices!”

In the end, the documentary lands on something the experts can agree on: annuities are good.

Regular income from an annuity like Social Security or a pension provides some security that retirees can cover their daily expenses if they live a long time – unlike 401(k)s, which can run out of money if retirees spend them too quickly.

“We’ve always defined standard of living in terms of income that’s sustainable. That’s what Social Security does. That’s what defined benefit pension plans have done,” says Nobel Prize winner Robert Merton of MIT. “Defined contribution plans have not done that.”

The question that is not answered in this documentary: is there a practical way to make retirees financially secure when voluntarily saving a pot of money and understanding what to do with it is crucial?

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Paul Muther

The problems identified also apply to IRA’s, do they not? Traditional pensions are not coming back. It seems to me that saving 15% of one’s pre-tax income must become imbedded in the culture. In addition, those with IRA’s and 401(k)’s should be encouraged to annuitize a major portions of their balances, perhaps in a laddered manner, e.g. 10% every second year after age 60.

Tom Doncaster

I find that the quote from a famous person is still true today….people would prefer to be entertained than educated….

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