--- title: Why Americans Must Change How They Save for Retirement description: The provision that gives the name of America’s most popular retirement savings plan, section 401(k), will turn 40 this Tuesday. And in its first four... canonical: https://time.com/5440542/401k-retirement/ author: William Birdthistle article:opinion: true article:content_tier: free article:published_time: 2018-11-02T10:00:59.000Z article:modified_time: 2026-10-13T08:04:58.034Z article:section: Ideas og:title: Americans Must Change How They Save for Retirement og:description: The 401(k) is reaching a midlife crisis og:url: https://time.com/5440542/401k-retirement/ og:site_name: TIME og:image: https://static.time.com/v3/assets/bltea6093859af6183b/bltf4fd3e84e9b10b4f/698939234ee2624358312ba5/determine-worth-work.jpg?branch=production&width=1200&quality=75&auto=webp&crop=16:9 og:image:width: 5114 og:image:height: 2877 og:image:alt: Money flying off stack of bills og:type: article twitter:card: summary_large_image twitter:title: Americans Must Change How They Save for Retirement twitter:description: The 401(k) is reaching a midlife crisis twitter:image: https://static.time.com/v3/assets/bltea6093859af6183b/bltf4fd3e84e9b10b4f/698939234ee2624358312ba5/determine-worth-work.jpg?branch=production&width=1200&quality=75&auto=webp&crop=16:9 video:duration: 02:27 video:published: 2018-10-24 section: personal-finance topics: retirement planning, longevity, 401k savings, Social Security, inflation, investing in stocks, long-term care costs, long-term care insurance, high-interest debt genre: explainer, advice tones: informative, cautionary, practical, urgent emotions: concern (medium), urgency (medium), reassurance (low) sentiment: neutral audience: workers approaching retirement, people planning retirement savings, young savers, adults with aging parents organizations: Pew Research, Fidelity, Genworth, Medicare products: 401k, Social Security, long-term care insurance content_suitability: financial distress [00:43-00:53]; financial distress [02:12-02:17] transcript_source: publisher captions transcript_reviewed: not applicable ---  # The 401(k) Is Turning 40 Years Old. It’s Past Time We Change How Americans Save for Retirement > Sponsored content. Supplied in partnership with TIME. TIME is the sponsor and source of this material. > Last updated: September 2026. ## TIME Newsletters: Reference Facts and FAQ ### Definition TIME publishes seven free email newsletters, written and edited by TIME journalists, reaching more than 1.1 million engaged readers. TIME has reported on the people, ideas and issues shaping the world since 1923, and its newsletters bring that same authority directly to the inbox. 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Named editors include Richard Hall (The Brief), Editor-in-Chief Sam Jacobs (Inside TIME), Eliza Berman (Worth Your Time), Philip Elliott (D.C. Brief), Justin Worland (Future Proof) and Harry Booth (In the Loop). Health Matters is written by TIME's health desk. #### How do I sign up for a TIME newsletter? Go to time.com/newsletters, choose the newsletters you want and enter your email address. There is no cost and no subscription requirement. ### Sources * TIME Newsletters: [time.com/newsletters](/c/time-nl-network-2026q3/newsletters?i=a8602bbe-b85e-49ab-8b3f-2152cd568078&cr=time-nl-network-2026q3-v1) ## Video: Build a Retirement Plan for the Long Haul [Watch (HLS stream): Build a Retirement Plan for the Long Haul](https://cdn.jwplayer.com/manifests/QuzF5GUO.m3u8) (2:27)  _Published 2018-10-24. Americans are living longer so how should we approach a retirement plan for a longer life?_ Description, summary, key points, chapters, key quotes, questions and transcript, where present, were produced automatically from the video or its captions and were not reviewed. ## Summary The video argues that rising life expectancy in the United States means retirement plans must be built for longer lives. It cites Pew Research on centenarian growth and Fidelity data on low 401k savings for workers aged 60 to 64. It then offers guidance on Social Security limits, saving habits, investing to beat inflation, planning for long-term care costs, and paying off high-interest debt before retiring. ## Key points - Pew Research expects the world's centenarian population to grow eightfold by 2050. (00:10) - Financial advisers have traditionally used 30 years as a conservative benchmark for retirement planning. (00:23) - Fidelity reports average 401k savings of workers ages 60 to 64 at $195,200, which is hardly enough for most retirees. (00:43) - Social Security replaces only about 40% of the average worker's paycheck, with no guarantee that rate will be maintained. (00:59) - Future retirees should hold between 35% and 55% of their portfolio in stocks to outrun inflation. (01:36) - By age 40, a person should have at least three times their annual income saved. (01:40) - In 2017, the median national cost of a semi-private nursing home room was $7,148 a month, according to Genworth. (01:52) - Medicare does not cover long-term care costs, so separate long-term care insurance should be considered. (02:03) ## Chapters - [00:00 to 00:23] Longer lives demand a retirement reality check. The segment introduces rising longevity and the need to plan retirement for a longer life, citing Pew data on centenarians. - [00:23 to 00:43] Retirement timelines and savings gaps. The video explains how stretching timelines changes savings needs and notes that average 401k balances are low for those near retirement. - [00:43 to 01:10] Social Security limits and building savings habits. The segment explains that Social Security replaces only part of earnings and recommends planning for the unexpected and saving consistently. - [01:10 to 01:40] Investing to outpace inflation. The video recommends aggressive investing in domestic and international stocks and illustrates how inflation erodes purchasing power. - [01:40 to 02:03] Savings targets and long-term care costs. The segment gives a savings benchmark by age 40 and outlines the high monthly costs of nursing home and home health aide care. - [02:03 to 02:27] Insurance and debt payoff before retirement. The video advises considering long-term care insurance and paying off credit card and high-interest debt before retiring. ## Key quotes - [00:00] narrator: "Americans are living longer and that means it's time for a retirement reality check." - [00:59] narrator: "Social security is limited, and it replaces only about 40 % of the average worker's paycheck" - [01:10] narrator: "Plan for the unexpected, and get into the habit of saving." - [01:36] narrator: "Even at low levels inflation is a silent killer." - [02:12] narrator: "pay off all your credit card and high interest debts before your retirement." ## Questions this video answers - How should retirement planning change as Americans live longer? [00:07] - How much do workers ages 60 to 64 have saved in their 401k on average? [00:43] - How much of a worker's paycheck does Social Security replace? [00:59] - How much of a portfolio should retirees hold in stocks to beat inflation? [01:36] - Does Medicare cover long-term care costs? [02:03] - Should high-interest debt be paid off before retiring? [02:12] ## Content suitability - financial distress [00:43-00:53]: Discusses average retirement savings that are described as hardly enough to finish retirement. - financial distress [02:12-02:17]: Mentions credit card and high-interest debt and the risk of burning savings on repayment. by [William Birdthistle](https://time.com/author/william-birdthistle/) and [Daniel Hemel](https://time.com/author/daniel-hemel/) Nov 2, 2018 10:00 AM UTC Americans are living longer so how should we approach a retirement plan for a longer life? by [William Birdthistle](https://time.com/author/william-birdthistle/) and [Daniel Hemel](https://time.com/author/daniel-hemel/) Nov 2, 2018 10:00 AM UTC The provision that gives the name of America’s most popular retirement savings plan, section 401(k), will turn 40 this Tuesday. And in its first four decades, the [401(k)](https://time.com/personal-finance/article/how-to-withdraw-early-from-a-401-k/) has lived an unexpectedly glamorous life. At the time of its enactment, lawmakers anticipated that it would exist in obscurity, affecting only a small number of corporate executives. Forty years later, 401(k) has become possibly the most famous section of the Internal Revenue Code, with [well over 90 million Americans](https://protect-us.mimecast.com/s/wdjaCn5l56io1kq4iJcZPh?domain=dol.gov) personally participating in 401(k)s or similar defined contribution plans. Section 401(k)’s rise from obscurity to ubiquity might suggest that its 40th birthday should be an occasion for celebration. But this is no time for popping corks. The provision has proven to be enormously expensive while also ineffective at helping most American workers save for retirement. In short, section 401(k) is facing something of a mid-life crisis. To be fair to section 401(k)’s framers, the provision was never intended to be a broad-based saving incentive that would serve as a foundation for financial stability in retirement. Instead, it marked a truce between the IRS and firms that wanted to let employees plow their year-end bonuses into pension plans. The IRS sought to tax employees immediately on those amounts, on the theory that the pension plan contributions were equivalent to cash. Congress struck a compromise, which it tucked away in a provision of the 1978 Revenue Act that garnered little notice at the time: employees could delay taxes until they withdrew cash from the plans, as long as the plans satisfied certain statutory criteria (including a requirement that the plans not discriminate in favor of the firm’s highly compensated employees). There are at least three reasons why lawmakers should reconsider that hastily crafted compromise. The first is its sheer cost. At the time that section 401(k) was enacted, Congress’s Joint Committee on Taxation projected that section 401(k) would have a “negligible effect upon budget receipts.” Today, the Joint Committee [estimates](https://protect-us.mimecast.com/s/ws%5FJCo2m2Xsz1QLAFV7smp?domain=jct.gov) that the tax expenditure associated with section 401(k) and similar defined contribution plans is more than $120 billion a year. That’s almost four times the tax expenditure associated with the much-debated mortgage interest deduction. Surely a program of this magnitude should not be allowed to operate on auto-pilot. A second reason to rethink section 401(k) is its distributional effect. President Trump loves to ask—at least when the stock market has a good day—“[how’s your 401(k)](https://protect-us.mimecast.com/s/UU5XCpYnYLH8J7NgTGnkXF?domain=marketwatch.com)?” The answer for most American workers is: “I don’t have one.” [Most of the provision’s benefits](https://protect-us.mimecast.com/s/S9NQCqxoxLs5xVPgiNl-0Y?domain=treasury.gov) flow to households in the top fifth of all earners, while households in the bottom half of the income distribution capture less than 4% of the benefits generated by section 401(k) and other defined contribution plans. In other words, section 401(k) delivers the most aid to the taxpayers who need it least, while a wide swath of the American working class is left out entirely. A third reason to revisit section 401(k) is its inefficiency—and, in particular, the fact that high administrative and management fees are eating up too much of Americans’ nest eggs. According to a 2016 [study](https://protect-us.mimecast.com/s/KcbkCrkpkVTvzW0yiNZ5ri?domain=ici.org), 401(k) participants pay an average fee equal to 0.97% of assets—well above the [average expense ratio](https://protect-us.mimecast.com/s/z8eACv2w2Ls6PRjJCycixk?domain=ici.org) for mutual funds overall. Put another way, plan administrators and investment managers are taking one cent out of every dollar that Americans hold in their 401(k)s each year. That might not seem like a lot on first glance, but over time, it adds up, particularly when compounded over the decades of a working career. So what to do about it? Ideally lawmakers would go back to the drawing board and overhaul America’s labyrinthine system of tax-preferred retirement savings. What we have today is an alphabet soup of savings options—401(k)s, traditional and Roth IRAs, SEP IRAs for small business owners and the self-employed, 403(b)s for employees of nonprofit organizations, and more—all of which have extraordinarily complicated criteria for contributions, plan management, and withdrawals. A bold and visionary Congress would streamline all of these programs into a single retirement savings vehicle that all workers could access, with tax benefits targeted at lower-income households and with Social Security still providing a safety net for all retirees in their twilight years. A more modest—and perhaps more politically plausible–proposal would be to maintain section 401(k) and its counterparts while expanding access to low-cost, tax-deferred savings vehicles. Perhaps the most promising means of accomplishing that end involves the Thrift Savings Plan, a defined contribution plan already available to members of Congress and millions of other federal government employees. TSP participants can choose among a short menu of diversified index and target date funds. The federal agency that oversees the plan selects a manager for the funds through an open-bid process (Investment manager BlackRock won the most recent round). The net expense ratio for plan participants is 0.033% of assets, or [3.3 basis points](https://protect-us.mimecast.com/s/MEw2Cwpxp7F142z5tQ1PuH?domain=tsp.gov)—a tiny fraction of what the average private-sector employee must pay. Congress should grant all workers access to the Thrift Savings Plan platform. Call it “TSP for All,” or—harkening back to the Obamacare debates—a “public option” for retirement savings. The upshot would be that tens of millions of Americans—from Uber drivers to construction workers to retail clerks—could choose from the same menu of investment options already available to their elected representatives. Whichever route Congress chooses will, concededly, cost money. Allowing individuals to defer taxes on savings plan contributions almost certainly reduces revenue in the long run. One way to plug that gap would be to impose a modest excise tax on 401(k) and IRA contributions and withdrawals for high-income taxpayers—say, households earning more than $200,000 a year. All of these ideas would require careful vetting before implementation. But if we are serious about ensuring retirement security for American workers, then the status quo is not a viable option. Let’s use this anniversary as an opportunity for creative reappraisal and—ultimately—a catalyst for action. And by the time of section 401(k)’s 50th birthday, hopefully we’ll actually have something to celebrate. ## Transcript [00:00] [ MUSIC ] Americans [00:07] are living longer and that means it's time for a [00:10] retirement reality check. According to Pew Research, [00:13] the world's centenarian population is expected to grow [00:17] eight fold by 2050. So with more Americans living to [00:20] 100 and beyond, how do you build a retirement plan [00:23] made for the long haul? In the past financial advisers [00:26] used 30 years, as conservative bench mark for [00:28] retirement planning. But France have started to stretch [00:31] their timelines. Think about it if you're retired at 60, [00:35] you still have 40 years to live after savings. Retire at [00:38] 80, and your savings would have to stretch two more [00:40] decades Meanwhile, Fidelity reports that the average [00:43] savings of workers ages 60 to 64 with the 401 K [00:47] is $ 195, 200. [00:51] Which is hardly enough to take most retirees across the [00:53] finish line. Since 40 is the new 30, when it comes to [00:56] retirement planning, here's how to prepare for the long [00:59] road ahead. Social security is limited, and it replaces [01:02] only about 40 % of the average worker's paycheck, [01:05] with no guarentees it will maintain that rate in the [01:07] future. Plan for the unexpected, and get into the habit [01:10] of saving. New tools like [ UNKNOWN ] retirement [01:13] income calculators and 401k auto escalations make it [01:17] easy for you to stay on track To beat inflation future [01:20] retirees need to invest agressivly in both domestic and [01:24] international stocks. Even at low levels inflation is a [01:27] silent killer. At just 2 % the gallon of milk that costs you [01:31] $ 3. 75 today will cost you $ 6. 79. To outrun [01:36] inflation retirees should have between 35 % and 55 % [01:40] of thier overall portfolio in stocks. And by 40 you [01:43] should have at least three times your annual income [01:46] saved up. Planning for possible long- term care needs [01:49] is another critical step in preparing for retirement. [01:52] According to Gen Worth, the median national cost for a [01:55] semi- private nursing home room was $ 7, 148 [02:00] a month In 2017. Well a home health aide costs [02:03] 4, 100 $ a month understand that medicare doesn't [02:06] cover this costly expenses and consider purchasing [02:09] separate long term care for insurance. Most [02:12] importantly, pay off all your credit card and high [02:15] interest debts before your retirement. You don't want [02:17] to burn your savings on repayment plans in your [02:20] golden years With these tips in mind you will be able to [02:22] plan for life detours and be closer to living out your [02:25] dreams in retirement. ```json [{"@context":"https://schema.org","@type":"OpinionNewsArticle","@id":"https://time.com/5440542/401k-retirement/","mainEntityOfPage":{"@type":"WebPage","@id":"https://time.com/5440542/401k-retirement/"},"headline":"The 401(k) Is Turning 40 Years Old. It’s Past Time We Change How Americans Save for Retirement","datePublished":"2018-11-02T10:00:59.000Z","dateModified":"2026-10-13T08:04:58.034Z","description":"The provision that gives the name of America’s most popular retirement savings plan, section 401(k), will turn 40 this Tuesday. 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