Social Security better for workers than 401(k) plans

Traditional pensions and Social Security are better and safer retirement plans for American workers than 401(k) plans. Period. End of story.

Remember that as pensions and Social Security are attacked relentlessly. Because you'll hear bullshit false promises about how workers can get a better, safer return if they invest their money themselves.

Take traditional pension plans vs. 401(k) plans:

• From 1990 to 2002, traditional plans earned a 7.4 percent average return compared to 6.9 percent for 401(k)-style plans.
• In 2009, traditional plans outperformed 401(k) plans. Traditional plans had median investment returns of 19.11 percent, while 401(k) plans only saw a return rate of 18.5 percent.
• In 2008,  traditional plans outperformed 401(k) plans by about 2.7 percentage points.

And take Social Security. According to a calculation in the Wall Street Journal, a 50-year-old man would have to immediately invest $436,517 into an annuity to match the present value of his Social Security benefits if he lives until 90.

David Dayen at firedoglake writes that this shows what a raw deal these 401(k) plans are for workers. He argues that Social Security could be put on a sound footing simply by raising the income cap on the Social Security tax.

...it’s affordable to the government simply by changing the dynamic that Bill Gates does not pay into the system at the same rate as a guy earning $110,000 a year. Increasing inequality is more responsible for the long-run funding gap in Social Security than virtually any other event, including the baby boomers retiring. 93% of all compensation gains in the recovery from the Great Recession has accrued to the very top. Practically none of that money flows into the Social Security trust fund. Fix that, and you fix the problem.

By the way, the growth of 401(k) plans may be one reason so many Americans don't have enough money to retire. The Center for Retirement Research at Boston College reports,

...evidence is overwhelming that Americans are ill-prepared for retirement: In 2010, the typical U.S. baby boomer households had $42,000 in their retirement plans at work, a few bucks lower than their 2004 balances, according to the Center for Retirement Research. More than half of all Americans are “at risk” of having a lower standard of living once they retire, up from 43 percent in 2009, the Center estimates.