Rowboats for Retirement

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

It feels so good to row your own boat. You're the captain. You can set your own course and speed. According to the boat advertisements, you are almost sure to reach your destination as long as you pay for good advice, rebalance and row hard. Sure, there may be big waves, but you can ride them out, and storms always subside.

A lot of people used to think of 401(k) retirement accounts this way. But in the last six years, most Americans have gained a new appreciation of financial bad weather and the threat of a perfect storm. Stock market volatility, low interest rates and a sagging bond market have discouraged retirement savings.

Persistent unemployment and stagnant wages have left many workers treading water, struggling so hard to stay afloat that they couldn't open a retirement account even if they wanted to.

A new report from the National Institute on Retirement Security, based on analysis of the 2010 Survey of Consumer Finances, shows that about 45 percent of all working-age households don't hold any retirement account assets, whether in an employer-sponsored 401(k) type plan or an individual retirement account.

Among those 55 to 64 years old, two-thirds of working households with at least one earner have retirement savings less than one year's income, far below what they will need to maintain their standard of living in retirement. By a variety of measures, most households, even those with defined benefit pensions, are falling far short of the savings they will need.

The report lends weight to longstanding criticisms of the increased reliance on individual savings in the United States retirement system, including Jacob Hacker's “The Great Risk Shift: The Assault on American Jobs, Families, Health Care and Retirement and How You Can Fight Back” and Teresa Ghilarducci's “When I'm 64: The Plot Against Pensions and the Plan to Save Them.”

Current efforts to encourage 401(k) and I.R.A. accounts primarily benefit those who alread y have substantial savings. The National Institute on Retirement Security report shows that households with retirement accounts have five to six times the non-retirement wealth of non-owning households in the same age group. Recent research on tax incentives in Denmark shows that they encourage shifts from conventional accounts to retirement accounts, rather than increasing overall savings.

Households in the top fifth of the income distribution reap 70 percent of the tax subsidies. Money in retirement accounts (unlike pension benefits) can be bequeathed to heirs, perpetuating wealth inequality.

Employers have little incentive to expand benefits. Some 401(k) fans contend that automatic enrollment (requiring employees to opt out of a regular contribution, rather than opting in) could increase participation. But evidence suggests that employers who use automatic enrollment offer a lower match to employee contributions in order to control their costs.

Many families who manage to accumulate retirement savings are forced to dip into them when they experience unemployment or other unexpected economic stress. The 10 percent withdrawal penalty makes this a particularly costly way of paying bills.

An increasing percentage of workers are being forced to stay on the job longer than they had planned. The percentage of workers expecting to retire after age 65 increased to 33 percent in 2010 from 11 percent in 1991 and 19 percent in 2000. That's a hardship not just for the older generation but for the younger generation waiting for jobs to open up.

That younger generation may also find that their older family members, unable to meet their medical expenses or long-term care needs, will need significant financial assistance.

The National Institute for Retirement Security reports that more than 90 percent of Americans they surveyed would favor a new pension plan that is available to everyone, is portable from job to job and provides contributors with a monthly check throughout retirement.

This sounds a lot like the guaranteed retirement accounts that Professor Ghilarducci has proposed, which would require all workers and employers to contribute to a retirement fund but guarantee a minimum rate of return. This more centralized approach would both lower administrative costs an d pool risks.

Legislation proposed by Senator Tom Harkin, Democrat of Iowa, has similar features, offering the advantages of a traditional pension without forcing individual employers to bear all the risks.

It would put all Americans in the same retirement boat.

No boat is unsinkable. But for long-distance trips to old age, an ocean liner would be a lot more secure â€" and comfortable â€" than a rowboat. It would probably also be safer than the brass-and-mahogany cabin cruisers in which the affluent hope to make their crossing.