Train wreck ahead: are your retirement plans about to be derailed?

• Author: Strubbe, Patrick A.
• Position: Business & Finance

"Our nation's system of retirement security is imperiled, headed for a serious train wreck," warns John Bogle, founder and CEO of The Vanguard Group. This is a very tough time to stop working for Americans. To help understand this, let us review the developments in modern retirement history.

Pensions probably have been around longer than you think. American Express, for instance, established one in 1875. The first government pension plan was established in Germany in 1889 for any nonworking German over age 70.

In 1911, Massachusetts became the first state to develop a system to cover its state employees. By the time Social Security was being developed during the Depression, 30 states had established pensions. Pres. Franklin D. Roosevelt then proposed the Social Security Act of 1935, which mandated that workers pay--at least in part--for their own old-age insurance.

The real growth in retirement programs came after World War II. In 1940, about 4,000,000 people (less than 20% of all employees in government and industry) were covered by private pensions. By 1982, more than 51,000,000 wage earners and salaried employees, including about one-half of all workers in private business and three-fourths of all governmental workers, were enrolled in nearly 600,000 retirement programs.

At this point, the U.S. retirement system looked like a powerful and unstoppable locomotive. Most Americans retired very comfortably and had few financial concerns about their retirement funding.

The first step toward the feared wreck was the legislation that established individual retirement accounts and ultimately led to the creation of the 401 (k). While IRA and 401k accounts are not bad, their existence has given companies the opportunity to move further and further away from offering pensions. The numbers are shocking. In 1979, 87% of nongovernment workers had access to a traditional pension. That is down to 20%. U.S. companies now realize that traditional pensions are extremely expensive. Many are working to do away with pensions altogether.

The Social Security surplus, meanwhile, has been gobbled up by the Federal government even though, based on legislation from 1983, this surplus was supposed to be placed into a Social Security Trust Fund.

Instead, here is what happened, as explained by Allen W. Smith in The Looting of Social Security: How the Government Is Draining America's Retirement Account: "Most Americans are totally unaware that not a single dollar of the...