One of the reasons companies were encouraged to switch from offering pensions to offering their employees 401(K)’s was that it would make it easy for people to save for retirement. It was also believed that they would have more money in retirement than a pension could provide.
There is nevertheless a looming crisis, since Americans are not saving nearly enough. Many will not have enough money to support themselves when they retire.
The Washington Post recently asked one of the leaders of the move from pensions to 401(K)’s, Ted Benna, and other experts what the problems are with saving.
Their thoughts are presented in an article titled "Why it's so hard for Americans to save for retirement."
They listed several reasons, including:
- 401(K) plans have become too complicated for people to understand. They used to be explainable in a few minutes, but there are now so many options and fees that people get confused.
- People procrastinate, thinking that they will always have time to save later.
- People who do not get a 401(K) through an employer often do not take advantage of their option to get individual retirement accounts.
- The people who most need to save early, i.e. those with the least amount of income, are not the ones who are most incentivized by tax policy to use retirement accounts.
Reference: Washington Post (Sep. 15, 2017) "Why it's so hard for Americans to save for retirement