The 3 Big Problems with Your Retirement Savings and What You Can Do About Them

Saving & Investing / Thursday, April 25th, 2013

Did you watch “The Retirement Gamble” on Frontline Tuesday night? (If not, and if you’re interested, it’s available to watch online.)

This wasn’t one of my favorite Frontline programs, but it did raise some interesting and important points.

After watching it, I dug further back into the Frontline episodes and found one from 2006 – “Can You Afford to Retire?” – that I also watched online.

While I found “Can You Afford to Retire?” the better of the two episodes (and surprisingly still relevant despite all that has taken place economically since 2006), together the two programs paint a troubling picture of how prepared American workers are for retirement.

Specifically, there are at least three big issues with retirement planning in the US today:

1. The cost and decision-making have shifted from employers to employees.

Over the last generation, the country has moved away from pension plans, whose cost and decision-making was the responsibility of the employer, to IRAs and 401(k) plans, where the cost and decision-making are with the worker.

Among the things American workers now have to sort out:

• What plans are available to them?
• Which to participate in?
• How much to contribute?
• Where to invest the money?

It’s confusing and overwhelming for many (most?) and we’re not doing such a hot job with the decisions we’re making.

2. High fees can cost us a big part of our retirement.

“The Retirement Gamble” spent a lot of time on this point. 401(k) and mutual fund fees can make a surprisingly big difference in how much money you have at retirement.

A fee of 2%, which sounds kind of low, actually isn’t low at all.

Over the course of a lifetime of retirement investing, even a small difference in fees can affect an investor’s retirement by hundreds of thousands of dollars. That, in turn, can translate into having to work more years.

Many employees aren’t aware of the kind of impact that fees can have (I certainly wasn’t).

3. We’re not saving enough for retirement.

The “Can You Afford to Retire?” program made these points:

• 25% – 30% of employees eligible for a 401(k) program don’t participate (and many don’t even have one available to them)
• Less than 10% contribute the maximum allowed

Also, leakage (or using 401(k) savings for things other than retirement) can leave us with a shortfall at retirement.

The Good News

Despite all this scariness and general negativity, there is some good news for you and me.

Namely, that all of these things are within our control.

We can educate ourselves on the options, look for low fee investments, and start finding ways to contribute more.

And it’s important that we take control where we can because there are things outside of our control such as:

• Social Security: Will it still be there for us so we won’t have to be completely dependent on our own savings?
• The stock market: will our retirement investments continue to grow?
• Inflation: Will it stay in check, so our retirement dollars will actually buy something?

First Steps to More Control

My husband watched the first program with me and we’ve found ourselves talking about retirement over the couple of days since.

We’ve been doing things like:

• Pulling reports and paperwork on our investments.
• Requesting paperwork from my husband’s company.
• Pulling our Social Security statements.
• Talking about when and how we want to retire.

It’s been empowering and even kind of fun.

Finally, a couple of other things I found interesting in watching the two Frontline programs:

  • The 401(k) plan was originally designed to be a tax loophole and, even when it became more widely used, was only supposed to supplement other kinds of retirement plans.
  • Many employees want investment decisions made for them and that might be a trend we see more of in the future.

Did you watch “The Retirement Gamble?” What are your thoughts on saving and investing for retirement? Let’s talk about it in the comments.

8 Replies to “The 3 Big Problems with Your Retirement Savings and What You Can Do About Them”

  1. My husband and I watched it with great interest. Although on the boring side, it did spark us to pour over our investments and evaluate the fees we were being charged. Thankfully we have quite a few Vanguard accounts with really low fees, but there were some investments we are getting out of.
    We are now saving almost 15% of our gross income, conservatively, paying down our home, investing outside of retirement, and staying debtfree. Hopefully that will be enough to keep us comfortable in retirement.

    1. Interesting that it sparked conversations between and you’re husband too, Sharon. We’re Vanguard investors like you.

      You plan sounds very simple and sensible. I envy your 15% savings rate.

  2. Hi Julie! Visiting from the Kansas Women Bloggers linkup today :)

    I didn’t see this the first time around, but I’ll be catching up online thanks to your post! Since my husband and I crossed the 40 threshold, retirement’s on my mind a lot more. I see his mother struggling in her 60s because she had no savings and no plan. We have his 401(k) but very little else. When you mentioned that this was never intended to be our sole source of retirement income, I got very nervous. But right now it’s hard enough to keep up with our regular bills, much less save ANYTHING. Can you, or should you, try to invest when you have debt to pay off?

    1. Hi Erin. Thanks for stopping by.

      Your question about debt and investing is a complicated one. Even the financial experts don’t agree. We did invest while we were getting out of most of our debt and — while we still have a mortgage and a car loan — we’re investing more aggressively now. I hate to see the years of potential growth go to waste.

      Let me know what you think about Frontline program after you watch it. I’d be curious to know.

  3. As a recent retiree, I hope and pray our planning was enough. So far, so good! :-) I’ve linked up through Kansas Women Bloggers and appreciate you sharing your expertise!

  4. Thanks for the heads up about the Frontline program. I watched the whole thing and was blown away by the graphic concerning the longtime consequence of high fees. My dad has always preached index funds, and, luckily, I’ve mostly followed his advice. I, too, pulled our records looking for fees. The highest was 1%, but we don’t have much in that one. However, I had no idea we were being charged that much. I appreciate the informative topic.

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