San Diego Law Review

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America's retirees are faced with a potential financial disaster. Economic security in retirement has long depended on Social Security, private savings, and employer-provided retirement plans. Although much attention has been paid to the financial problems of Social Security and the lack of private saving for retirement, little attention has been paid to an alarming development in employer-provided retirement plans: the likely inability of retirees during the long years of their retirement to manage successfully their retirement funds accumulated in 401(K) and similar accounts. Asking individuals to husband a lump-sum payout from a 401(K) retirement account for the 20 to 30 years of retirement as they physically and mentally declne is a recipe for disaster. Unless we provide a more secure way to stretch retirement dollars into the twilight of retiree lives, we can expect to see more and more elderly retirees slide into poverty. The solution is to create federally guaranteed lifetime annuities that retirees can purchase with the funds accumulated in their 401(K) retirement accounts. We as a society have set up a funding system for retirement that assumes retirees will be able to successfully manage their IRAs for the 20 or 30 years of retirement. We know, however, that most retirees will not be able to perform this task. Some will lack the basic intelligence to do so. Others, although generally smart enough, will lack the knowledge to manage finances. Some will lack the emotional temperament to take on the risk, oversight, and planning needed to stretch out the payments from an Individual Retirement Account (IRA) over their lives. Some will be fine managing an IRA at age 65 but will lose the ability due to physical decline. Finally, millions of aging IRA owners will slip away mentally into the land of dementia. We can do better. But first we must recognize the impending failure of the current world of 401(K) accounts.

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