Mel Abraham explains how companies ditched pensions that guaranteed lifetime income and shifted the entire burden to workers through 401(k)s. Now employees must decide how much to save, where to invest it, and manage their own retirement, often without financial training. Most make no contributions or bad choices, leaving millions unprepared.
In an industrial age mentality, back in the day, there was pension plans. And that meant you worked for the company for 40 years. And to reward that dedication, when you retired, they would pay your salary or a pension to you for the rest of your life. But they got more expensive, especially as we started to live longer. And so companies did away with it. But when we had the pension plan, the only decision we had to make is, am I going to work for the company and how long am I going to work? We didn't have any decision to make about investing, about what the money was doing. It was being done in the background for us. But when they did away with the pension and they replaced it with the IRAs and the 401s, not only did they do away with the lifetime income, they threw it in your lap. The employee's lap. And they said, here you go, we're gonna match your 401. But now they're saddled with, how much do I put in? Where do I put it? What do I invest in? Does it make sense? I don't know any of this. And so they do nothing. So they literally put the responsibility and took it from one single choice to a bunch of choices without the education and dumped it in their lap. And that's why there's— they're struggling.
