Well, i. I wish it was simple. If you want to gamble with your retirement money, be my guest. Narrator tonight frontline, the retirement gamble. Frontlinis made possible by contributions to your pbs station from viewers like you. Thank you. And by the corporation for public broadcasting. Major support for frontliis provided by the john d. And catherine t. Macarthur foundation, committed to building a more just, verdant and peaceful world. More information is available at macfound. Org. Additional support is provided by the park foundation, dedicated to heightening Public Awareness of critical issues. The ford foundation, working with visionaries on the front lines of social change worldwide. At fordfoundation. Org. The wyncote foundation. And by the frontline journalism fund, with major support from fund, with major support from jon and jo ann hagler. In this bad economy are borrowing from their 401 k s. The number of workers borrowing from their accounts has reached a tenyear high. A Record Number of workers now raiding their 401 k s. Martin smith lets begin with one simple fact america is facing a retirement crisis, and the statistics are grim. Half of all americans say they cant afford to save for retirement. One third have next to no Retirement Savings at all. I just dont know if ill be able to save that much. God willing, Social Security will still be there. For someone like me, itll probably be enough to keep me out of poverty. The Retirement Fund gets sliced and diced and divvied up for wall street to play with. Im just going to have to somehow find a way to save 10 of my salary or 15 of my salary, which is probably what i need to actually be saving to have any shot of retiring, you know, not on food stamps. Yeah, i dont know. Hope to be able to retire. Recently ive started to look into how to make more money, how to increase my income while still teaching. Its tough to really worry about retirement right now because i know its so far off, and i know that worrying and stressing over it is an easy thing to do. But im also of the mindset that as long as i dont have too many bills or anything, too many debts, then i could essentially live off of whatever i get. I guess plan b would be to keep working, but im really banking on plan a. Otherwise, yeah, no, i dont have a plan b. Its hard to imagine even at this point in my life being retired. I just dont see it. You know, living the American Dream of having your house and being able to retire. Nobody has a pension anymore. It wasnt like it was in the 60s or 70s where people worked for, you know, Good Companies and had a pension plan. I think thats a harsh reality for a lot of people. I do think that well be working until. sighs well definitely be working until our probably mid70s, if i had to make a. Unless we can make up some big ground soon. engine revving you know, i consider myself middle class. I dont have the luxury of a couple Million Dollars in savings. The cost of living is going up. Your water bill goes up, your utility bill goes up, your gas bill goes up, your food goes up. Retirees are getting stressed because their nest eggs, their savings are not producing any income for them, so theyre all wondering where theyre going to make ends meet. Im fortunate i can live at a higher standard, because i have a little bit of a nest egg in my Retirement Savings. But others, theyre at poverty level. Smith as for me, im almost 65. I started saving for my retirement in my late 20s. But along the way, i dipped into my nest egg not once, but several times. So this is my ira and 401 k and. Which will be cleaned out over a certain amount of time. Smith and now, like millions of other baby boomers, i too dont have enough. The key to your retirement working out is having enough return on your assets. Smith most of my savings went to pay for my kids educations. Well, this is where fees would really hurt you badly as well. This is where fees would hurt you badly. Smith a divorce and the crash of 2008 didnt help either. It looks like my own personal fiscal cliff. Im now planning to work for as long as i possibly can. This whole plan is predicated on working fulltime until 70. Yes. Smith and at 70 . From age 70 to 75, i have you working parttime. Smith these days, many baby boomers are planning to delay their retirement. Some may never stop working. Its hard. Without knowing exactly how long youre going to live, its difficult to guess how much you need to put away. Most people seem to feel that at retirement, to be okay, you need ten or 12 times pay. And maybe 15. So if you make 100,000 a year, you need one and a half million to be okay. You need to save more, you need to start sooner. You cant start work when youre 20 or 22 and decide to get serious about this in your 40s. The boat has sailed. Smith so what can we do . Time has come today. Smith today, americans entrust over 10 trillion to thousands of big and small Financial Service providers. I just bought stock. You just saw me buy stock. No big deal smith with expensive marketing, these Companies Compete for our money. Yes, im for picking, im for buying. Super, super strong buy. Smith but there are so many choices, its hard to understand. When it comes to mutual funds, its often hard to tell what youre looking at. Smith rather than a system, its more like a freeforall. I dont really see it as a real system. I see it as maybe a retirement mess, is a better word for it. Looking for reallife answers to your retirement questions . If youre lucky, you have a 401 k . Roughly half of Companies Offer a 401 k . If you work for a small business, chances are you dont have access to such a thing. Some companies then offer other supplements, and then of course theres things you can do on you own, like the individual retirement account. Smith so its entirely confusing. Right. Smith so where does one begin . Lets talk about that 401 k you picked up back in the 80s. Smith about 60 million americans have signed up for their company 401 k plan. These are your 401 k election forms. As you can see, there are numerous options to choose from. And remember, this is your retirement, so make your selections carefully. Smith but most people remember their first 401 k meeting as dumbfounding. Any questions . I had no idea. I was so confused. I came out of that meeting and i was like, oh, my god. It was overwhelming for me, the knowledge that you had to have in order to invest. I really was kind of clueless. I didnt know what i wanted to invest in. I really didnt know anything about it. I had learned somewhere something about, if youre young, you should be more willing to take risk. You have time. So other than that, i really knew nothing. And thats one of the best aspects of this. They showed you the plan. You either had your choices between an aggressive investment, moderate, or conservative. You know, there was nobody there managing my money; it was all up to me. So traditional pensions dont necessarily let you take it all in a lump sum. The 401 k is one of the only products that americans buy that they dont know the price of it. Its also one of the products that americans buy that they dont even know its quality. Its one of the products that americans buy that they dont know its danger. And its because the industry, the Mutual Fund Industry, had been able to protect themselves against regulation that would expose the danger and price of their products. Smith it used to be much easier. In 1970, 42 of employees had a pension a guarantee by your employer that you would get a good percentage of your salary and benefits upon retirement. This is the life. What with my Retirement Plan and a few dollars i had saved, i didnt have a thing to worry about. Smith workers didnt have to figure out how to manage their own savings plan. It was done for them. It was very simple. The employee really didnt know any of the mechanics behind it. They just knew when they came close to retirement that they were promised a benefit, a secure income over their entire life. So they had this income until they died. Smith and so what was wrong with that system . Absolutely nothing, to be honest. It was a great system. The problem was that over the last decade, the rules of the game changed. Smith what changed was that people started living longer. New accounting rules, global competition and market volatility too affected the cost of maintaining a pension plan. The old system became an expensive system, i think, from an employer standpoint. They have to know how to manage investment risk and they have to know how to manage longevity risk. Smith and they have to spend a good deal of money. And they have to spend a good deal of money. And if the market doesnt do what they hope it will do, they can lose some of the cash that theyve actually put in from a funded status standpoint. So its pretty complex. One of our Major Concerns is to protect our accounts against risk. Smith it was then that corporations found a new loophole in the Internal Revenue code. What essentially happens is that the 401 k comes in in the late 70s, early 80s. It starts as a Corporate Tax dodge, basically. Its if youre a high earner, youre going to put some of your money aside. Nobody ever thought that this was going to apply to the rest of us. I mean, there was never any thought of that. Smith so not quite by design, a new retirement system was born. traders yelling big brokerages and banks saw an opportunity to expand their business and helped employers set up and run their new plans. They promoted the arrangement as a win for everyone. From the individual perspective, the 401 k actually opened up the opportunity to save for retirement for many individuals who worked for businesses that didnt have a pension. And it also allowed them to have a portable, vested amount of money that they could take with them, as americans started changing jobs more frequently. Smith its as simple, though, isnt it, as the businesses decided to get out of the business of providing pensions and shift the burden to employees . I would express that more as a sharing of the responsibility for retirement between employers and employees. Smith but while some employers contribute to employees 401 k plans, all of the risks fall on the individual. 401 k plans really place the burden on the individual participant to have an adequate retirement. And the vast majority of ordinary people dont know how to do that. Its a very complex task. We wanted them to be able to figure out how much they needed to save for retirement, how to invest that money, and then once they had a lump sum once they retired, how to withdraw the money so they didnt outlive their assets. So thats three different risks. Picking and choosing the right investments requires very careful handling. Smith enter the Mutual Fund Industry. People in the Mutual Fund Industry realized that there was a huge opportunity here, right . I mean, not only could they sell their mutual funds directly to investors, but they could make the mutual funds the very foundation of the 401 k plans. 1981, nobody knew what a 401 k was. By 1989, its in the lexicon. Its being written about, its being talked about. Throughout the 90s, now all large employers effectively have plans in place, people are participating, and it continues to grow from there. Start saving 300 a month when youre 23 and you could retire a millionaire. Smith the boom happened in lockstep with the roaring bull market of the 80s and 90s. Mutual funds were charging high Management Fees, but nobody seemed to care. The returns were great, so no one thinks about, how much is this costing me . When theyre earning 15 or 20 . Smith Star Mutual Fund managers Like Fidelity magellans peter lynch encouraged all of us to jump in. You shouldnt be intimidated. Everyone can do well in the stock market. You have the skills. You have the intelligence. It doesnt require any education. All you have to have is patience, do a little research, and youve got it. Smith saving for retirement seemed as simple as betting on the market. It was a great time. Employees who participated in these plans and invested in the stock market couldnt wait to open their monthly statements to see how much the value had gone up, you know. So things seemed to be working nicely. Well, i was invested in everything stocks, mutual funds, you name it. We would get monthly reports things were growing, everything was growing. In the 90s, you could not lose money in the market even if you were a dumb investor. I mean, it just kept growing and growing and growing. Internet stocks drove a powerful surge on wall street today. Internet stocks suddenly. The economy was doing great. I mean, you had all kinds of gains in the stock market. That was kind of the dotcom era. Those internet stocks continue their meteoric rise. You really didnt have to Pay Attention to. You know, you got your statements at the end of every quarter and you were making money. It was exciting because just gradually over time, we would have a day where we would make 7,000 or. And as much as 30,000 in a day as it built, and even more. In 1996, we had, like, doubled our money. We had, like, 400,000, almost 500,000. Smith Steve Schullo and Dan Robertson believed they were headed for early retirement the day their portfolio topped 1 million. It was november 11, 1999. Oh, that was a very nice day, that day, wasnt it . What happened november 11 . See, he doesnt. Its when our portfolio went over a million, silly. Oh that was just amazing. It was like, well, yeah, this is how investments work. You invest it and it grows. I mean, thats how i thought about it. It was a manic monday in the financial markets. Stocks plunged. Traders are standing there, watching in amazement and i dont blame them. Smith but in the spring of 2000, the market collapsed. Traders are working the phones today. A lot of their customers are freaked out. We did not know. This was our mistake. We didnt know it was a bubble. We just didnt know. Our portfolio had gone all the way down to where it was in 1996, from 1. 5 million to 500,000. 460,000, i think. All that was gone. Smith at the height of the internet bubble, americans had also stuffed 19 of their retirement money into company stock. Should we invest all of our 401 k in enron stock . Absolutely. Dont you guys agree . crowd laughing smith for savers like debbie skoczynski, who worked for comdisco, a computer leasing company, the fall would be precipitous. I was close to a halfMillion Dollars i had in my 401 k with company stock. You know, it was like, wow, look at all the money we have. Look at what is happening. You know, i can retire probably when im 45. The dotcom failures continue to mount. Smith skoczynski not only lost her savings, she lost her job. Comdisco today filed for chapter 11 bankruptcy protection, including another 200 job cuts. They joined a whos who list of corporate bankruptcies. The day i got laid off, i lost it. I thought, oh, my god, im a single parent. I have no job. I have a house, i have a house payment. What do i do . You know, and. I was scared. Really scared. I didnt have much of a retirement left. I couldnt even borrow against it. And it was just something that i never foresaw ever, you know, losing my job, ever. Never. Smith the worst was yet to come. Concerns about shaky home mortgages are triggering fears of a financial meltdown on wall street. Smith eight years later, savers were hit again. Turmoil in the Mortgage Market is far from over. This is volatility we havent seen, of course, since way before you and i were born. Smith when the housing bubble turned into the crash of 2008, it put retirement even further out of reach. The economic turmoil of recent years is putting a comfortable retirement at risk for many americans. It was like, holy smokes, how do you stop the bleeding . The reality of what youve lost is huge. I mean, not only have you now lost half of your 401 k , but your house is not worth anything anymore, either. So anything that you thought you were going to have there is gone, and now half of your 401 k is gone. Its daunting. You know, if it took 13 years to accumulate 80,000 and one year to lose half of that and then try to get that back in another 13 years and only be at the 80,000 that you were 13 years ago . Math doesnt work. The math doesnt work. Smith debbie skoczynski was already in a hole with next to nothing to cushion the blow of a second shock, and now her house was worth less than the loan she owed the bank. You know, theres some days where its like you just want to go scream, you know, in the backyard, just scream, because you have your choice do you pay this or do you pay this . Smith her bills were piling up. She did what a quarter of americans have done she dipped into what was left of her 401 k . I freaked out when i took the money out of my 401 k . It was hard. I mean, you know, you never. Every day on the news, id listen to it and id be like, oh, god, its really bad. Will i be able to keep my house . You know, what if my car breaks down . I cant afford a car payment. It just cant be this hard to make money. It cant. You hear these Big Companies with these people taking these huge bonuses. Youre thinking, well, what happened to the average joe . They just dont care. They made their money already. Growing outrage over those bonuses on wall street. Smith the year the markets crashed, wall street doled out 18 billion in bonuses. The latest bonus bombshell is sending shock waves across washington. Smith Robert Hiltonsmith entered the workforce in 2003. He taught for a bit, worked at a coffee shop and then went to grad school, where he ran up 40,000 in student loans. But on the bright side, he had no savings to lose during the 2008 crash. When he graduated with a masters in economics, he was hired at a small think tank in new york. They had a 401 k , and he began to make regular contributions. But even in a relatively good market, he began to sense that Something Else was wrong. I have a 401 k . I save in it. It hasnt seemed to go up. Its awful. I kept checking the statement and id be like, why does this thing never go up . This is weird. I mea