For most of the twentieth century, retirement in the United States had a clearer structure. Many people worked for decades, retired, and received a pension that paid income for life.
That distinction matters.
A pension was not just a savings account. It was income. It gave retirees something predictable to rely on, usually for as long as they lived.
Today, many people are retiring under a very different system. Instead of guaranteed pension income, they are relying heavily on individual retirement accounts. The 401(k) can be a valuable tool, especially when it includes employer matching contributions and the ability to invest consistently over time.
But it was never designed to carry the entire retirement plan by itself.
That is the retirement problem many people were never fully taught.
The 401(k) was added to the tax code in 1978, and the IRS formally issued rules for it in 1981. In the early years, large employers often offered 401(k)s as supplements to traditional pensions. In other words, the 401(k) was not originally treated as the whole plan. It was one piece of the plan.
Over time, that changed.
Employers moved away from pensions for understandable reasons. People were living longer. Companies were facing decades of guaranteed payments to millions of future retirees. Traditional pensions became expensive and difficult for many employers to maintain.
So the retirement burden shifted.
The old system gave many retirees predictable income. The new system gave workers an account balance.
That may sound like a small difference, but it is not.
An account balance has to be turned into income. It has to survive market downturns, keep up with inflation, last for an unknown number of years, and possibly help cover healthcare or long-term care costs.
That is a lot to ask of one account.
This is where the numbers become impossible to ignore.
Vanguard reported that participants age 65 and older had an average 401(k) balance of about $299,000. Using a conservative 4% withdrawal rate, that would produce about $12,000 per year before taxes.
That is the average.
$12,000 a year is not enough to replace a paycheck. It is not enough to cover a normal adult life. It is not retirement income in any meaningful sense. It is a shortfall.
And the average does not tell the whole story.
Averages can be pulled higher by people with very large balances. The median gives a clearer picture of the typical worker because half of participants have more and half have less. For participants age 65 and older, Vanguard reported a median balance of about $95,000.
Across Vanguard participants at the end of 2025, the average account balance was about $168,000, but the median was about $44,000. Fidelity’s 2026 data showed an overall average 401(k) balance of about $141,000, while Baby Boomers averaged about $260,000.
The point is not that every retiree is in the same position. The point is that even the averages show a serious income problem, and the medians show how much worse it is for the typical worker.
This is why younger Baby Boomers are facing a very different retirement reality than many people before them. Older generations were more likely to retire with pensions. Younger Boomers are more likely to retire with 401(k)s, IRAs, Social Security, and the responsibility of figuring out how to make it all last.
That responsibility is not small.
The risk also changes after retirement.
When someone is younger and still working, a market downturn can be painful, but there is usually time to recover. Contributions may continue. Investments may rebound. Time is still on their side.
But when someone is retired and withdrawing money, a downturn can do more damage. If investments have to be sold while values are down, those assets are no longer there to benefit from a later recovery. This is called sequence of returns risk, and it is one of the biggest reasons retirement income planning is different from retirement saving.
That is why the phrase “the market always comes back” can be misleading.
The market may come back. But a retiree who is withdrawing money may not recover in the same way.
The lesson is not that 401(k)s are bad. It is not that investing is a mistake. And it is not that people did something wrong by saving into the retirement plan available to them – it is that a 401(k) was asked to replace something it was never designed to replace on its own.
Retirement planning cannot only be about building a balance. It also has to be about creating income, managing taxes, protecting against bad timing, preparing for inflation, and making sure money does not run out too soon.
A 401(k) can be one important piece of that plan.
But one account should not be expected to do every job.
Retirement was never meant to be a gamble.
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