Katherine Sullivan (2:51)

Today, Americans no longer resort to tontines for retirement. We rely instead on three main pillars of pensions, Social Security, and savings. In a 401k or IRA, that system might be less secure than we think.

Jason Zweig (3:07)

People like to call this the three legged stool, but it's oh, the stool is a little shaky.

Katherine Sullivan (3:15)

What would you say is the shakiest leg of that stool? Well, or are they all at equal risk of collapse?

Jason Zweig (3:23)

I. I think all the legs of that stool are a little shaky.

Katherine Sullivan (3:31)

A lot of Americans don't feel like they're financially prepared for retirement. Only about a third of people approaching retirement age report feeling, quote, on track.

Jason Zweig (3:41)

I'm a nurse, he's an electrician.

Katherine Sullivan (3:43)

It's hard, even with the money that we make, to feel like we're putting an adequate amount aside for our future.

James Chappell (3:49)

So I don't get no 401k or

Justin Baer (3:51)

no pension or any of that kind of matter. So I'm in the process of looking for like a side hustle, maybe a little crypto.

Katherine Sullivan (3:58)

I feel like I'm gonna have to work till I die. For more than 100 years, the US has been grappling with what retirement should look like and how we should achieve it. At the same time, the challenge has been growing. People are living longer and have many more post work years than they used to. Who be the responsibility for funding our retirement? And how is that changing? It's Sunday, March 8th. I'm Katherine Sullivan for the Wall street journal. This is USA250, a podcast series connecting America's economic present to its past. We'll be occasionally dropping into your what's News feed over the next few months with stories that interrogate, celebrate and make sense of our economic history. This is episode three, America's Road to a DIY Retirement.

Relativity AI Advertiser (4:47)

The fact that a human life is twice as long now as it was just 100 years ago is this enormous shift just in what we expect a life to be. And it struck me that this is one of the biggest challenges, morally, ethically, economically, politically that modern societies face.

Katherine Sullivan (5:05)

James Chappell is a professor of history at Duke University and the author of the book Golden How Americans Invented and Reinvented Old Age. I asked him about when the idea of retirement began to take hold in

Relativity AI Advertiser (5:18)

the US what emerges in the 20s and 30s is an idea that old age should be a time for relaxation and leisure.

Katherine Sullivan (5:29)

This was a new concept. Until this point, most people just worked until they died or were cared for by their families or went to spend their last years in poor houses. There wasn't yet a vision of older people moving to Florida en masse and organizing their lives around golf or pickleball. But during this time, groups had begun to advocate for a government pension. These groups came from all ends of the political spectrum. One of the most popular and also one of the most outlandish was started by a man called Francis Townshend.

Relativity AI Advertiser (6:00)

Francis Townshend was a physician. He comes out of the tradition of Midwestern socialism. He moves to California and he starts this movement that kind of takes fire. There are talents and movements and clubs across the whole country, millions of supporters. And it is, I think, at least in its pure, uncut form, the crackpot scheme that drove the Roosevelt administration crazy.

Katherine Sullivan (6:30)

President Franklin Delano Roosevelt's administration was focused on pulling the country out of the Great Depression. And to that end, the Townsend plan had a straightforward demand. $200 a month for everyone over the age of 60, funded by a 2% sales tax. That's about $5,000 a month in today's dollars. The catch, you had to spend the whole benefit within the month.

Relativity AI Advertiser (6:53)

This is the middle of the Great Depression, right? One of the problems is how can we save this economy? How can we jumpstart consumer spending in. Townsend's idea is like, okay, let's give old people a huge amount of money and force them to spend it. And so he has a vision where the spending of older people kind of rejuvenates the whole American economy.

Katherine Sullivan (7:15)

Here's a newsreel of Dr. Townsend fielding questions about the program from senior citizens.

James Chappell (7:20)

May I ask a question? Do my wife and I both get the pension? Yes. Husband and wife will each receive $200 a month. I am over 70. How long will I have to wait to get the pension? If we all continue to do our part, we should be able to elect the next Congress of the United States. And the Townshend plan should follow soon after that.

Katherine Sullivan (7:54)

Townshend's slogan was youth for work, age for leisure. The idea took off. Over 7,000 Townsend clubs formed across the country working to advocate for the plan. They organized massive letter writing campaigns to members of Congress and even set up trial versions of the program.

Relativity AI Advertiser (8:11)

And so they did some tests where they found some older couples in random places and gave them all this money. And they're like buying fur coats and automobiles and all kinds of things. And as an attempt to prove the viability of this scheme, the movement put

Katherine Sullivan (8:26)

enormous pressure on lawmakers to create some sort of safety net for older people. And the pressure worked. In 1935, President Roosevelt signed Social Security into law.

James Chappell (8:38)

This Social Security measure gives at least some protection to 30 millions of our citizens who will reap direct benefits through unemployment compensation, through old age pensions, and through increased services for the protection of children and the prevention of ill health.

Katherine Sullivan (9:01)

Social Security, then as now, is largely financed through payroll taxes and is paid out to eligible workers. Based on their years of highest earned income.

Relativity AI Advertiser (9:11)

Historians tend to think that Social Security emerged because, at least in part because the Roosevelt administration knew they had to do something, because this is what people are clamoring for.

Katherine Sullivan (9:24)

Average monthly payments for early Social Security recipients were only about $23, a far cry from Townsend's vision. But the passage of the program took the steam out of the Townsend movement. Its clubs across the country eventually closed their doors and and Social Security became, and still is, the largest anti poverty program in the nation's history. It also became the first leg of Americans retirement stool.

James Chappell (9:50)

Under the Social Security act, most American families are now able to ensure for themselves an income that is guaranteed for life. It's an income provided not by charity or relief, but by federal old age and survivors insurance, Insurance that is bought and paid for.

Katherine Sullivan (10:11)

At the same time, more and more corporations started offering employees pensions, also known as defined benefit plans. Thanks largely to the work of labor unions, growing numbers of American workers added the second leg to their retirement stool, the pension. But there were problems on the horizon that would disrupt the nascent retirement system.

James Chappell (10:32)

When people get up in age and the bottom drops out like what happened to us, it's a crime.

Katherine Sullivan (10:41)

After the break, the stool starts to wobble.

Relativity AI Advertiser (10:46)

Legal teams face more data and more scrutiny than ever. They need AI built for both. Relativity is the AI platform for legal work, delivering defensible AI that handles the tedious tasks. So judgment stays where it belongs with you. Learn more@Relativity.com WSJ.

Katherine Sullivan (11:17)

In 1963, car manufacturer Studebaker went bankrupt and canceled its pension plan for thousands of workers who had been counting on it. And it wasn't just Studebaker that was failing its pensioners. By 1965, over 4,000 pension plans had been terminated over the previous decade, leaving 20,000 workers per year in a lurch. A 1972 NBC News documentary spoke to workers from all over the country who hadn't received the pension they'd been promised from their companies.

James Chappell (11:46)

You wake up in the middle of the night in a cold sweat, knowing all your work, all your life has gone down a drain. I don't know. It's very. It's a deep, emotional thing with me. Sometimes I'm ahead of it, sometimes I'm not.

Katherine Sullivan (12:09)

Complaints about pension failures moved Congress to Act. In 1974, they passed a law that was meant to put guardrails on private pensions and prevent even more widespread failures. It was called the Employee Retirement Income Security act, or erisa. They also created a new tool that allowed individuals to save for their retirement on their own, the IRA or the individual retirement account. James Chappell from Duke says these changes that began with ERISA marked a shift in responsibility. Little by little, the government was encouraging individuals to take on their own retirement planning.

Relativity AI Advertiser (12:47)

And so it's such a big shift from what we saw in the 1930s, where the government is the solution to problems in the late 70s and 80s. Washington is not even claiming that anymore. They're quite clear, like, these are not our problems to solve. These can be solved by you. These can be solved by the private market. This is where Americans start to believe that retirement is no longer a public good, but a private good.

Katherine Sullivan (13:17)

And that belief took off with the failure of several high profile pension funds like Studebaker. The option to take full control over your retirement savings looked pretty appealing. It also looked appealing to companies.

Justin Baer (13:31)

So companies did not love offering pensions.

Katherine Sullivan (13:36)

Justin Baer is the deputy markets editor at the Wall Street Journal. He wrote about this period in a forthcoming book about the financial services Fidelity.

Justin Baer (13:45)

Particularly if you were in a very cyclical business where your earnings may differ widely from year to year, right? And a down year of having to then set aside part of those profits for your pension plan because the market didn't perform well, that was not a great situation to be in. So they were very happy to look for any opportunity to sort of offload that responsibility onto their employees.

Katherine Sullivan (14:11)

Fidelity and other firms like Vanguard had been behind the scenes managing pension funds for companies. But they soon pounced on the new individualized plans that the government had opened the door to.

Justin Baer (14:23)

You know, I think in the case of Fidelity and others, part of the appeal is, oh, this is another platform through which we can sell mutual funds, right, which was for them still very much the biggest business. And the main thing that they did,

Katherine Sullivan (14:40)

investment firms realized they could go directly to individuals to sell them retirement plans. And the IRS continued to pass more regulations allowing for personal retirement accounts. Consultancy firms would scan new tax laws looking for ways to manage savings.

Justin Baer (14:56)

So this guy, Ted Benna, he had been running one of those pension consulting firms at the time, and he was one of those guys that would scour every new law for applications that might benefit his clients.

James Chappell (15:13)

Here's Ted Benna, 1978, one of these end of the year tax bills where things get thrown in, you know, in order to get votes. Section K was added under 401 of the IRS code. It was a page and a half long. That's all it was.

Katherine Sullivan (15:31)

The provision allowed for companies to provide cash or deferred arrangements to employees. Here's Bennett again, explaining his innovation on a financial podcast.

James Chappell (15:40)

So what I came up with was the idea of let's increase the ante. Let's add a matching employer contribution. It says, well, if you're willing to defer this for retirement, you'll get a tax break, but you'll also get additional money and a match.

Katherine Sullivan (15:56)

Bena realized companies could use these matching funds as perks to offer employees. Companies liked them a lot more than traditional pensions.

Justin Baer (16:05)

The industry starts to adapt. They get it.

Katherine Sullivan (16:08)

But employees were skeptical.

Justin Baer (16:11)

There's a funny story where a lot of companies started calling these programs salary reduction programs, you know, which was not very appealing, right? If you're in particularly, you know, you're just starting out and they say, oh, we've got this new retirement plan. It's called salary reduction plan. It's like, well, why don't I get paid less? It's crazy.

Katherine Sullivan (16:33)

Companies eventually rebranded the plans, and by the mid-1980s, major Fortune 500 companies began to embrace the 401K.

Justin Baer (16:42)

By that point, it looks a lot more appealing, right, because the market is really taking off in, you know, and starting in the early 80s, and so suddenly the idea that you'd be picking winners, picking funds you really like, that seemed a lot easier, you know, when the market is rising sharply, as it did for that period.

Katherine Sullivan (17:05)

By the early 1990s, 401k type plans had overtaken the pension. They became the third leg of the retirement planning stool. But when the 401k was introduced, employees may not have understood the trade offs between these types of defined contribution plan and pensions.

Justin Baer (17:23)

I think what was not as well understood by employees was how, yes, over long periods of time, the market goes up usually, but it doesn't always meet your timetable, Right? So I think where it's hurt the most has been when we have disruptions to the market. We have down markets at moments when you have a lot of people who are edging closer to retirement and then losing 20% or 30% of that so close to the finish line is very painful.

Katherine Sullivan (18:05)

That exact thing happened over 15 years ago during the 2008 financial crisis.

Ann Tergison (18:11)

After 2008, I recall I wrote an article even about the 401 and whether it had failed.

Katherine Sullivan (18:17)

Ann Tergison covers retirement at the Wall street journal. She spent 18 years talking to people about how they're managing or planning to manage their retirement. She remembers a moment when it looked like maybe people were not comfortable with keeping their retirement exposed to the stock market. It was in 2008, during the Great Recession, at The bottom of the crisis. In March of 2009, the market had lost more than 50% of its value from its peak in October 2000 and 20, the value of people's IRAs and 401ks plummeted mortgage.

James Chappell (18:48)

Chances are your monthly 401k statement will remind you that you've lost a good chunk of your savings. Trillions of dollars have evaporated from those accounts that have become the prime source of retirement funds for a majority of American workers, affecting their psyche and their future.

Ann Tergison (19:06)

People were really worried about the Reliance on of 401 s on stock market risk. Some fraction of the experts I spoke to were willing to throw in the towel on the 401 and declare it a failed experiment. And people were coming up with alternative ideas. Some wanted to build out Social Security. Others wanted to find ways to go back to pensions. Some kind of hybrid, just something that would reduce the level of stock market risk.

Katherine Sullivan (19:35)

None of these options gained steam and instead Americans embraced the 401k even further.

Ann Tergison (19:42)

And here we are, you know, here we are in 2026 and the 401k is sort of booming.

Katherine Sullivan (19:49)

Auto enrollment in 401ks has tripled since 2007. Roughly 43% of Americans contribute to one. But anxiety about savings hasn't eased.

Ann Tergison (20:01)

I think probably people maybe have greater anxiety about retirement because it's up to them to save in a 401k and then it's up to them to figure out, okay, well, I have a couple hundred thousand dollars. Is that actually, how am I going to make that last?

Katherine Sullivan (20:21)

According to the Bureau of Labor statistics, around 70% of private sector workers have access to a 401k style plan at work, but only about half actually participate in it. While that's up from prior years, it still means a lot of Americans don't have the tools they need to save for retirement. President Trump has floated the idea of providing retirement plans to these workers, but he gave few details of the plan.

Ann Tergison (20:46)

It's one of the big problems that our retirement savings system confronts, which is that we don't have universal access to these savings programs at work.

Katherine Sullivan (20:59)

Lots of big companies offer retirement savings plans, but small businesses don't have the bandwidth to offer matching plans to their employees, leaving those workers at a disadvantage. Dozens of other countries require companies to provide retirement plans for their employees.

Ann Tergison (21:16)

It's always been in this country left up to companies, to employers to decide whether to offer these programs or not. So it's just the bias of the way our system is set up.

Katherine Sullivan (21:28)

After the break we look at new uncertainties coming for the future of our retirement system. There's a discussion going on now about what kinds of investments can go into a 401k. Last August, President Trump signed an executive order allowing 401s to invest in alternative assets. That's things like private equity, real estate, debt and cryptocurrency. According to a poll conducted on behalf of the Wall street journal, only about 10% of Americans are looking for more investment offerings in their 401ks. Ann Tergeson wrote about this.

Ann Tergison (22:15)

I have walked up and down 6th Avenue and interviewed people about this question. And what I generally found on the basis of an afternoon spent doing that is that men in their 20s, especially those who work in the financial services industry, tend to be like, they actively want this. Other people were sort of like, what? What is private equity? Can you explain that to me?

Katherine Sullivan (22:39)

The White House told me the order levels the playing field for individual investors who want access to potentially lucrative private and alternative investments and is, quote, not an endorsement of any particular asset class.

Ann Tergison (22:52)

A lot of the lobbying for this is coming from the private equity industry.

Katherine Sullivan (22:55)

Private equity is looking for access to the roughly $10 trillion currently invested in 401k plans. It would be a lot more business for the sector. But it's unclear whether 401k administrators will be willing to offer these alternative assets. Private equity funds generally come with much higher fees than publicly traded assets. Private markets also carry more risk for investors. Some experts think placing these assets in 401ks is too risky. Former Goldman Sachs chief executive Lloyd Blankfein told the Wall Street Journal about what he sees as a short sighted decision by the private equity industry.

James Chappell (23:32)

I think it's crazy to put those

Jason Zweig (23:35)

assets there and I think it's crazy

James Chappell (23:37)

from their point of view.

Katherine Sullivan (23:38)

They have nice lives. They make a fortune.

Justin Baer (23:41)

The companies are huge.

Jason Zweig (23:42)

They already own their yachts and whatever

Katherine Sullivan (23:44)

it is they want.

Jason Zweig (23:45)

Why are you going into this dangerous territory just to make your business a

James Chappell (23:49)

little bit bigger when that represents such

Katherine Sullivan (23:51)

a big potential problem in the future? There's another potential problem coming in the future, but this one has to do with Social Security. The program is extremely popular. Around 40% of seniors rely on Social Security payments to make up at least half of their monthly income. Between 12 and 15% rely on it for over 90% of their income. But a lot of Americans believe it will run out completely in their lifetimes. Honestly, I feel like there won't be Social Security by the time I end up retiring. I don't rely on it at all, would you? Social Security won't exist by the time because they're still paying people from the 1800s that died. This isn't true. Social Security is not disappearing, but it is facing a budget crisis.

Ann Tergison (24:38)

A lot of people, not everybody, but a lot of people have some level of anxiety that that Social Security will be cut because Social Security is facing a funding shortfall that depending on, you know, who's doing the estimating, it's likely that it'll hit in like 2032, 2033, 2034, somewhere around there.

Katherine Sullivan (25:02)

According to the Social Security trustees report, the funding shortfall will come in 2033 if Congress doesn't find a solution to this problem. Benefits could be cut by more than 20% across the board.

Ann Tergison (25:13)

So people know that this is coming and it's looming and Congress has to come up with a fix.

Katherine Sullivan (25:19)

This year, the Office of the Chief Actuary published a menu of over 140 potential changes that could be made to fund the program.

Ann Tergison (25:27)

People are floating proposals, but often they're not bipartisan. It's clear that it's still early days in the process of fixing Social Security or even addressing Social Security funding shortfalls.

Katherine Sullivan (25:41)

Social Security has faced a funding shortfall before. In 1983, Congress passed bipartisan reforms to shore up the program just months before funding ran out. To close the gap, they made several different changes, including raising both taxes and the retirement age. This time, they have about seven years left to stabilize the program. Despite all the uncertainties in our current system. Jason Zweig, our investment columnist, and doesn't think we should just go back to the old system of pensions.

Jason Zweig (26:13)

I think there's a tendency among a lot of people today who comment on retirement plans to glamorize defined benefit pension plans and to say, oh, back in the 1950s, you know, oh, leave it to beaver. It was a great time to retire. You know, you sat in front of your black and white TV and you spent your monthly pension check and you lived and you had the American dream come true.

Katherine Sullivan (26:45)

Even at their peak, pensions only provided payouts to less than half of Americans. And often those payouts were very small.

Jason Zweig (26:53)

In fact, the good old days were kind of bad. Or maybe another way of putting it is the good old days never were.

Katherine Sullivan (27:02)

In the present, as in the past, a comfortable retirement was never guaranteed. We may have created the illusion that all Americans could retire into a life of leisure, but that was never true for everyone. There's always been some risk.

Jason Zweig (27:17)

If a whole bunch of people are investing to insure themselves against the risk that they'll run out of money and they're putting their money in the stock market. It makes very good sense to remember that the New York Stock Exchange originated at a place called the Tontine Coffee House.

Katherine Sullivan (27:36)

Tontine, as in the last man standing version of retirement insurance. The coffee house, established and financed as an actual tontine, is where some of the earliest trading took place after the Buttonwood Agreement was signed nearby in 1792, creating the stock exchange.

Jason Zweig (27:54)

It shows how inextricably linked these two ideas are. The idea that retirement is an insurance policy against risk and it's pooled with lots of people, and that is inextricably linked to the stock market. It just is.

Katherine Sullivan (28:18)

Is it still all just a gamble?

Jason Zweig (28:25)

It is somewhat of a gamble. There's a common belief that if you hold stocks long enough, you're effectively guaranteed a robust positive return. And both statistically and historically, it's not really true. I hope, and this is the gamble that I'm taking, and everyone invested in the stock market is taking it with me. I hope that the stock market will perform great over the next few decades so that the money I have invested in it for my retirement will continue to grow. But there's no guarantee of that.

Katherine Sullivan (29:15)

And that's it for this special edition of what's new Sunday for March 8th USA 250. America's road to a DIY retirement is produced by me, Katherine Sullivan with supervising producer Jana Herron. Additional support from Falana Patterson and Chris Zinsley. Sound design and mixing by Michael Lavall. Fact checking by Aparna Nathan. Special thanks to Alicia Manel and Anna Maria Andreotis. Michael Lavalle wrote our theme music. Aisha El Musleam is our development producer, Chris Zinsley is our deputy editor, and Fana Patterson is the Wall Street Journal's head of news audio. I'm Katherine Sullivan. And we'll be back in a few weeks with another installment of our USA 250 podcast, what's News? We'll be back with a new episode tomorrow morning. Thanks for listening.

Relativity AI Advertiser (30:03)

Legal teams face more data and more scrutiny than ever. They need AI built for both. Relativity is the AI platform for legal work, delivering defensible AI that handles the tedious tasks. So judgment stays where it belongs with you. Learn more@Relativity.com WSJ.