the private-sector workforce, fewer than half the people working have any type of employer-sponsored retirement plan. This figure has changed little over the past 30 years. The plans themselves, however, have changed substantially from defined benefit plans to defined contribution plans. Defined benefit plans promise a specific monthly benefit upon retirement; defined contribution plans—such as 401(k) plans—are characterized by contributions from the employer or employee (or both), and the balance of the account is available to the employee upon retirement. In the early 1980s, 62 percent of those with pension coverage had a defined-benefit-only plan. By 2007, 63 percent of those with pension coverage had a defined-contribution-only plan. Such plans shift all responsibilities to the individual. With a 401(k) plan, the individual must decide whether to join the plan, how much to contribute, how to invest those contributions, and how to change the portfolio over time. And as Munnell observed, “people make mistakes every step of the way.” About 20 percent of people who are eligible fail to participate in 401(k) plans. Of those who do, only 8 percent contribute the maximum; 92 percent do not. Decisions regarding investment are also faulty, with 42 percent of people failing to diversify and putting all their funds into stocks or all into bonds. Furthermore, people do not change the investments as they age. When the stock market fell, people age 55 to 65 held two-thirds of their assets in equities and did not roll over their investments. In sum, people do not have much money in their 401(k) plans. In 2007, the average 401(k) plan had $60,000 in the account, considerably below the potential.

The final support of the three-legged stool is personal savings, which is currently completely inadequate for retirement needs. And with the booming housing market of the 1990s, as many people borrowed on their homes and spent beyond their incomes, the savings rate went negative.

The solution to the retirement income challenge is straightforward and similarly threefold: people should remain in the workforce longer, make better use of retirement assets, and save more.

Working longer, Munnell argued, “is really the most powerful thing people can do to have a secure old age.” An individual retiring at age 62 receives 75 percent of the Social Security benefits that would come at the full retirement age which is moving toward 67, while an individual who continues working until age 70 gets 132 percent. Social Security benefits, in Munnell’s view, are “backbone income”: they are lifelong, adjusted for inflation, and unavailable in the private sector. Working longer also gives the assets in a 401(k) plan more time to grow. Finally, working longer shifts the ratio between working years and years in which support will be required.

There are several obstacles to working longer. Employers’ perceptions of older workers are a problem. In survey responses, employers say they

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