Gotbaum: Don't ignore retirement insecurity

When American Airlines went into bankruptcy in November, our phones started ringing. I'm with the federal Pension Benefit Guaranty Corp. We insure private pensions, and American told its 130,000 employees that they would lose theirs. They called us to ask what would happen: What would they get when they retire?

Fortunately, American just announced that it's backing away from its threats, though there's still a risk for its pilots' plan. Still, it's not surprising that the airline's employees are nervous. Unfortunately they're not alone. Most of us are nervous about retirement.

In a recent survey, 83 percent of people said they're concerned. A 2011 Gallup survey found that more people were worried about retirement than health care costs or monthly bills.

A century ago, to be old was to be poor. Thanks to Social Security, Medicare -- and pensions -- today's seniors are more secure. But tomorrow's seniors are worried, for good reason.

The bad news starts with good news: People are living longer, healthier lives. Fifty years ago, the average person lived about 14 years after retirement. Now, it's 20 years -- more than 40 percent longer. But today's pensions aren't 40 percent bigger. Calls to cut Social Security and Medicare add to the concern.

Since people are living longer, many say "they" should just work longer. The fact is, people already are. Since the mid-1990s, the average retirement has been deferred by two years. That was before the market collapse; now folks expect to work even longer. Unfortunately, almost 40 percent of current workers who expect to work until age 70 will find they cannot, according to a Transamerica Retirement Survey released last year.

Even as people keep working and defer the start of their retirement, retirements are getting longer. That means they are going to cost more, and without changes, many of tomorrow's seniors could run out of money. There's been lots of talk about "boomerang kids" who are forced to live with their parents after graduation. Increasingly, they will have to share space with their "boomerang grandparents."

For most people, personal savings and Social Security are the only retirement funds they have. If workers do have a retirement plan, these days it's probably a 401(k).

These were originally designed in the 1970s to supplement pensions, but for most folks they're now the only employer-provided option. In theory, they sound great -- it's your money and you decide how much and how to invest. Unfortunately, most of us aren't very good at that. People tend to set aside less than they need and they get worse results than professionals (even when they invest with professionals). According to a recent report, the average 401(k) balance for someone 55 or older is $234,000. That sounds like a lot of money -- until you try to fund 20 years of retirement with it. Or if, just before you hoped to retire, the market drops 20 percent.

In fact, funding 20 years often isn't enough. While the "average" person lives 20 years in retirement, about one in four reaches 90. Most retirees are married -- the chance of at least one member of a couple reaching 90 is at least 50 percent. If their retirement planning covers 20 years, that's a 50 percent chance that someone could end up with no savings, living on ramen noodles or depending on their kids.

So what can we do?

We can start by working to preserve the plans we already have. I hear lots of claims that (aside from public-sector workers) "nobody has a traditional pension anymore." That's just plain wrong: More than 75 million Americans still have defined-benefit pensions.

Also contrary to the conventional wisdom, in the private sector, 80 percent of people in defined-benefit plans are still earning benefits -- their plans aren't frozen. People who have traditional defined-benefit plans feel more secure than those who don't -- and they are. One study found that households without defined-benefit plans are six times more likely to be poor than households that have them.

Second, we can face some realities: Retirement is going to cost more. That doesn't mean that employers will write blank checks to cover everything. They won't. People will have to save more, too, both inside and outside their 401(k)s. Putting aside 10 percent of your pay is a useful guideline.

We should also recognize that these are long-term challenges and our responses should be thoughtful and long-term, too. Of course, some will call for immediate, drastic action, but those actions might not look so smart 10 or 20 years down the road.

Retirement shouldn't be a race to the bottom. Unfortunately, some of those without good pensions think other people should lose theirs. "Beggar thy neighbor" is not a way to make us more secure.

Instead of envying those with some security, we should be developing new options -- options for employers and employees to share responsibility for saving and to reduce the administrative and marketing costs of retirement plans.

There are continuing efforts to combine the benefits of traditional defined-benefit plans and of 401(k)-type plans. For example, many companies now offer cash balance plans that provide an account and portability like a 401(k), but the employer handles administration and investment choices. There are also efforts, within the 401(k) framework, to offer the kind of lifetime income that is the hallmark of traditional defined-benefit plans.

All of this is complicated, but that's not a reason to avoid talking about it. Quite the opposite: It's a conversation we need to have. People will need to save more, however long they work. But that's not enough. We need to strengthen our institutions, not gut them.

Retirement security has for generations been a partnership of governments, employers and the American people. Government helps by providing Social Security, encouraging and providing education about private plans, and making sure that our oversight of retirement plans isn't so heavy-handed that employers decide not to provide them.

Of course, conversation is not a substitute for action. But it is a necessary first step. The grandparents of the future will be better off if we start.