By James W. Russell.
You may be excused if you failed to notice that last week was National Save for Retirement Week. Promoted by the financial services industry, which profits handsomely from each extra dollar placed in 401(k) and similar retirement savings accounts, the week does not exactly compete with Halloween and Thanksgiving for public attention.
The financial services industry would like for us to believe a number of things. We can save enough for retirement if only we will do it and stop wasting our money on frivolous lattes instead. It is our moral obligation to do this. It will be no one’s fault but our own if we don’t save enough for a secure retirement. It is there to help us be provident as a responsible custodian of our surrendered savings.
I began to question this in the 1990s, long before my own retirement age was imminent. You see, I made the single biggest financial mistake of my life in 1986. In beginning the public university job that I still hold, I was given the choice between a tradition public pension plan and TIAA-CREF, a 401(k)-like plan, that relied on personal stock market investing. Numerous people assured me that the 401(k)-like plan was by far the better choice. But several years later I was in for a rude shock when I compared the actual benefits. Even in the bull markets of the 1990s, the projected benefits of my 401(k)-like plan were half those of the traditional pension plan I had rejected.
My experience was typical. Over the last 30 years, millions of Americans have had secure traditional pensions replaced with shaky 401(k)-like investment schemes that have failed to provide adequate retirement security, producing the current retirement crisis. While these plans don’t work for retirees, they very much work for the financial services industry which rakes off billions in commissions, administrative fees, and other forms of profits.
The more I investigated the growing retirement crisis in the United States caused by the development of the 401(k) approach, the more I discovered that it was part of an international problem signaled by the wholesale privatization of Chile’s social security system in 1981 under conditions of a rightwing military dictatorship. The World Bank would later promote the Chilean retirement privatization model in Latin America and the former communist countries of Central and Eastern Europe; and that is one of the origins of campaigns to privatize or reduce the benefits of Social Security in the United States.
The 2008 market meltdown which took 401(k) balances with it exposed the insecurity of this approach to all. That led me to organize my coworkers to demand that we be allowed to roll our 401(k)-like balances into the traditional pension, a struggle that obtained success in 2011. It also led me to write Social Insecurity: 401(k)s and the Retirement Crisis to explain the personal, domestic, and international dimensions of this institutional expropriation of worker retirement savings and what we can do. Beacon Press will publish it in 2014.
So, when you think about National Save for Retirement Week, if you think about it at all, realize that it is part of a gigantic financial services industry smokescreen to convince workers to surrender more of their savings to it rather than to demand the return of traditional pensions or expansion of Social Security—systems that actually work to produce retirement security.
James W. Russell is the author of eight books, including Double Standard: Social Policy in Europe and the United States. An authority on retirement policy in the United States, Europe, and Latin America, he led one of the first employee movements to successfully challenge the dominant trend and replace a 401(k)-like plan with a more secure traditional pension plan. He has taught at universities in the United States and as a Fulbright professor in Mexico and the Czech Republic. He lives in Storrs, Connecticut.