Tuesday, December 11, 2012

The US Retirement System is a Success?

I read a white paper from the Investment Company Institute (ICI) entitled "The US Retirement System is a Success." You can read it here if you like.

I beg to differ. Among the positions that ICI has taken is that the number of people actively saving for retirement and the amounts they are earmarking for retirement are increasing. Both of these may be true, but then again, it may be the way the questions are being asked today and were being asked in the past.

ICI uses 1985 as a reference point for a generation earlier. Interestingly, that's the year that I started in the actuarial consulting world. My perception is that we didn't see many people specifically saving for retirement back then. Most companies didn't have 401(k) plans. However, my memory tells me that the vast majority of American workers were covered by defined benefit plans. And, it was fairly likely that the company that you worked for at age 35 was the company you were going to retire from. Workers just knew that their pensions combined with Social Security would provide for their retirement.

Did it work? In a lot of cases, it did. When I got into this business, most times that a company did a plan design study, they looked at replacement ratios at various retirement ages. They looked at winners and losers. It was not unusual for a typical worker's replacement ratio from just a pension and Social Security to exceed 75% of their final pay as a worker.

ICI says that more recent retirees have higher levels of resources to draw on then prior generations. This may be true. But, focus on the words "recent retirees." More people in 2012 are working to older ages than in previous generations because they can't afford to retire. Many of those who have retired recently got their retirement savings during the dot com boom in the 1990s. Those who missed out on that may, in many cases, never be able to retire.

I've implied it many times in this blog that data is a funny thing. Give people data and an agenda and they can do with that data what their agenda asks them to do. I fear that the ICI has done this.