When Retirement Advice Goes Viral : The Indicator from Planet Money So how much should you have saved for retirement? We wanted to know, so we asked the guy who invented the 401k.

When Retirement Advice Goes Viral

  • Download
  • <iframe src="https://www.npr.org/player/embed/618025975/618026701" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

DANIELLE KURTZLEBEN, HOST:

A few weeks ago, a tweet about retirement advice caused an uproar on Twitter. Here's what it said. By 35, you should have twice your salary saved, according to retirement experts. This tweet was from the new site MarketWatch promoting an article about retirement goals. And it touched a nerve.

CARDIFF GARCIA, HOST:

Oh, yeah.

KURTZLEBEN: People had feelings about this tweet, Cardiff.

GARCIA: So many feelings.

KURTZLEBEN: And they ridiculed it heavily.

GARCIA: Yeah. Some of the responses to it were painfully true. One person also on Twitter wrote, by age 35, you should run into friends and say, we should hang out soon twice a week. You will never hang out. You'll just scream this at each other until one of you dies. By the way, just to be clear, that was the tweet. That whole thing was the tweet.

KURTZLEBEN: Yeah. Although that's just kind of how life goes. I mean...

GARCIA: It's common sense.

KURTZLEBEN: All right, some of these tweets, they got '80s pop music - this one got Talking Heads stuck in my head all day. By 35, you should have a beautiful house with a beautiful wife. And you should ask yourself, well, how did I get here?

GARCIA: One person wrote, I think you meant to say by 35, you should have debt twice your salary. And that's the kind of tweet that I think really said the most. Saving twice your salary by a relatively young age just seems outlandishly impossible to so many people. It did to me. In fact, we have what appears to be a retirement crisis in our country because lots of people approaching retirement right now just aren't ready financially, and a lot of younger workers also aren't tracked to retire either.

KURTZLEBEN: On today's INDICATOR, people are freaking out over retirement. And maybe they should be.

(SOUNDBITE OF SONG, "ONCE IN A LIFETIME")

TALKING HEADS: (Singing) How did I get here? Letting the days go by, let the water hold me down.

KURTZLEBEN: If you're around 35 and that tweet freaks you out, you might be wondering, how do I stack up to that? Before anything, let's talk about what people do have. Today's indicator - 59 percent. Now, here's what that number signifies. Take all the workers between age 35 and 44 with 401(k)s. The typical person in that group has 59 percent of their salary socked away for retirement. So if that person were making $50,000, for example, they'd have not quite $30,000 put away. In other words, nowhere near that twice-your-salary amount that MarketWatch was tweeting about.

So that's what they do have. Let's get to what they should have. Here's what one retirement expert thinks of that twice-your-salary-by-35 rule.

ALICIA MUNNELL: That seems like a lot.

KURTZLEBEN: That's Alicia Munnell, director of the Center for Retirement Research at Boston College. But it's important to get at why Alicia thinks that seems like a lot.

MUNNELL: First of all, the lower your income, the more you rely on Social Security, and therefore the less that you have to save. And the higher your income, you're relying much more on your 401(k) accumulations, and so you need to save relatively more.

GARCIA: Alicia explains why these benchmarks are so slippery. It's because they depend not only on your income but also on things like when you start working, how long you plan to work, how well you invest your money, and also - not that you always have control over this - when you die - or alternatively, how long you live. So a directive like save twice your income is not one-size-fits-all. To be clear, though, this doesn't let 35-year-olds or anyone else off the hook when it comes to retirement saving.

KURTZLEBEN: So I had a researcher from the center do some quick math for me. He found that a 35-year-old making $50,000 who has been saving for around a decade should have around 100 percent of their salary saved right now. At 59 percent, that person would be falling short. For someone who's been saving a shorter time - say five years - that 59 percent might be more reasonable, the researcher told me, if that person is saving enough. Bottom line, though, there are a lot of retirement calculators and guides out there. Some say twice your salary by 35. Some say less. But while there is no right answer, multiple ones we looked at seemed to say that 59 percent just isn't enough for most 35-year-olds.

GARCIA: And this is where we need to take a pause and acknowledge something super important. Even talking about savings, we're missing a big part of the picture.

KURTZLEBEN: There's just a whole lot of people who don't have 401(k)s, right? I mean, I don't know...

MUNNELL: I mean, that's just a whole nother - that's my pet peeve, is that the people with 401(k)s are the lucky ones. Only - if you take a snapshot of the private sector workforce at any moment in time, only half of private sector employees are in any type of retirement plan, an old-fashioned defined benefit plan or a 401(k).

KURTZLEBEN: The point here is that goals like two times your salary, they miss the point for so many people. Around half of workers don't have a retirement plan at all. So Americans seem to be in bad shape retirement-wise.

GARCIA: And why is that? Well, first things first, a lot of people just don't have the room to save for retirement. Remember; as we reported earlier this week, 4 in 10 Americans wouldn't be able to come up with $400 in an emergency unless they borrowed from friends and family or sold something.

KURTZLEBEN: In addition, a lot aren't even offered retirement plans. And on top of that, of course, some people just aren't great with money.

GARCIA: Those reasons demand attention. But this also raises questions about how fundamentally flawed our retirement system is. Is there something about 401(k)s themselves that makes saving kind of tough? And who better to ask than the ultimate 401(k) source? Ladies and gentlemen, the creator of the 401(k).

KURTZLEBEN: You're known as the - you know, the father of the 401(k) or the inventor of it. What - how do you feel about those titles? Are those (laughter)...

TED BENNA: I'm fine with them.

KURTZLEBEN: OK.

Meet Ted Benna. Back in the early 1980s, he worked at a benefits consulting company. And the bank had asked him to design a replacement for cash bonuses for its employees. At the time, there was a relatively new provision in the tax code - that is Section 401(k) - and it would allow people to put off receiving part of their salary, invest that money in a retirement account and allow employers to match.

I've read that these were originally called salary reduction plans. Am I right on that?

BENNA: Well, yeah, exactly, because that's what they were. That's what they are.

KURTZLEBEN: That's - I know. It's just - it's not great marketing, right? I mean, it's - if I think of it as a retirement savings plan, I feel great about it. When I think of it as a salary reduction plan, I think, oh, never mind.

BENNA: Well, that's why one of the articles - I think it ran in The New York Times - one of the early articles was "How Would You Like To Take A Salary Reduction?"

GARCIA: Yeah, it was technically The Wall Street Journal, but whatever.

KURTZLEBEN: And by the way, the fact that he created this in the early 1980s, it means that 401(k)s themselves aren't much older than 35. Anyway, even though Benna is the father of the 401(k) and he's proud that they've helped save people trillions of dollars, he knows the 401(k) is not perfect - not by a long shot. In fact, he was quoted a few years ago saying he created a, quote, "monster" and that he wanted to blow up the 401(k) system.

BENNA: When I quoted as blowing it up, really what I was talking about was the investment structure, the way that's operated today. And a combination of the fact that it's become much too complicated for the average employee and then, you know, the fees are way in excess of what they need to be.

GARCIA: Ted thinks there are some simple ways that the 401(k) could be improved. First, auto-enroll people. In other words, make it the default setting that you are going to pay into the plan. Second, you could automatically increase people's contributions over time. Third, you could find some way to help people not be intimidated by all of the different investing options they have when they get into a 401(k).

And over the years, Ted has given a lot of advice for how people should best manage their retirement money. And in fact, back in 2001, he published his own benchmarks. And he also said that a 35-year-old should have about a hundred percent of their salary saved. On top of that, he told us that he stands by that advice today. And he has advice to anybody daunted by that kind of a recommendation.

BENNA: Remember; these are ideals. You know, I don't include them here to make anyone feel defeated.

KURTZLEBEN: But lots of people do feel defeated. I mean, it can be easy to look at rules of thumb like save the equivalent of your salary or what have you and to just get intimidated and go, well, why even try? But Benna says, you know, first things first here - goal number one is to start saving anything.

BENNA: Yeah. My - I've always said, hey, look; start at 1 percent. You know, get in the game.

KURTZLEBEN: Interestingly, while we were working on this episode, a new analysis came out from Alicia Munnell. It showed that millennials are in fact saving less for retirement than their parents did. And remember; today's retirees are already very unprepared for retirement. Munnell's prescription - you just might have to work a few extra years. It's not fun. It doesn't sound great. But for a lot of people, it beats going broke in retirement.

(SOUNDBITE OF MUSIC)

Copyright © 2018 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.