When 401(k) plans emerged in the '80s, they were supposed to complement pensions, not replace them. But as the Wall Street Journal reports, only 13% of workers in the private sector today hold pensions thanks to the 401(k) revolution—and original proponents of the tax-deferred savings plans are now saying they may not be the best way for people to shore up for their golden years. "We weren't social visionaries," says Herbert Whitehouse, an ex-J&J exec who was also an early 401(k) promoter. Not only are the plans—which let workers sock away pretax money—vulnerable to stock market declines (defined-benefit pensions are guaranteed payouts for life), they're also subject to costly manager fees. And Forbes notes that longer-lived retirees may need enough funds to last 30 years or more, making it even more critical that retirement cash can be stretched for the long haul.
One economist says at first she'd tell workers they'd be set if they saved just 3% of their salary—but that was based on projected 7% annual investment returns, an overly optimistic calculation. Plus, per an Employee Benefit Research Institute researcher, only 61% of workers who could be saving for retirement are currently doing so. Based on Boston College calculations, 52% of US households are "at risk" of not being able to live comfortably during retirement. Not that 401(k) plans are complete failures: Advocates say if people start using an employer-offered 401(k) early enough, it can lead to substantial savings. Still, fixes are being proposed, such as mandated savings plans run by either employers or the government. "There was a complete overreaction of excitement and wow" in the early days of the 401(k), laments a retirement services exec. (Research has pointed to this "alarming" anti-401(k) fact for a few years.)