By Richard Conniff, MSN MoneyThe traditional model of retirement planning is like a stool supported by three legs: Social Security benefits, company pensions and personal savings. But the weight is increasingly coming down on just one of those legs -- the savings of middle-class individuals who are struggling just to get by -- and the stool is starting to look pretty wobbly.
Social Security benefits are safe for now. But with baby boomers retiring and a relatively smaller pool of current workers paying the bill, experts quarrel mainly about when (not whether) the system will become insolvent. Meanwhile, many retired couples have no pensions or personal savings, so they struggle to get by on their average monthly benefit of $1,762 a month. 
Can you afford to live longer?
Back in 1980, 35% of private-sector employees had traditional "defined benefit" retirement plans, guaranteeing them a pension for life. That's down to just 18% now. Instead, many companies have switched to "defined contribution" plans, where the employee can opt to have a contribution to a 401(k) plan deducted from every paycheck, and the company usually matches it up to a point. Employees own the resulting capital, but they also have to manage it and make it last -- even if they live to be 100.
That may have sounded like the road to riches in the boom years of the 1990s, when a lot of companies were making the switch, but it hasn't worked out that way. "I hate to say it, but I think workers have basically been duped by the defined-contributions system," says Edward Wolff, a labor economist at New York University.
Companies that made the switch typically cut their share of the retirement burden in half, according to economist Teresa Ghilarducci at the University of Notre Dame. And middle-class households haven't come close to making up the difference. According to a recent AARP survey, half of all working families have saved less than $25,000 for retirement. That's not much, when standard accounting practice says it takes a nest egg of about $1 million to produce a retirement income of $50,000 to $60,000 a year.
As for those who haven't saved enough? Look for them at your local Wal-Mart. "Seventy is the new 17," says Ghilarducci. "You have to take the jobs that teenagers used to have."
Here are some ideas that can help America's middle class handle the looming retirement crisis:
Make retirement savings mandatory. Australia, for instance, created a huge increase in retirement savings beginning in the 1980s with a system that now requires employers to put 9% of each employee's pay into a pension account. Talk back: What can be done to make retirement more affordable?
In this country, the idea of mandatory retirement savings has been struggling to get political traction since at least 1953. But Ghilarducci cites a 20-nation survey showing that people prefer it to the ugly alternatives: raising the retirement age or cutting benefits. Saving is hard, she says, so "people want to be forced to do what they know they should do."
Extend 401(k)-style benefits to lower-income families. At many companies, these plans have replaced old-fashioned pensions, and that's the main reason to contribute: It's the only way you'll have money for retirement, other than Social Security. These plans are also valuable because companies commonly chip in 50 cents for every dollar you contribute, up to 6% of your annual pay. But right now, the benefits of 401(k) plans go overwhelmingly to high-wage earners at big companies. They're the ones who can afford to put away a nice chunk of income -- and the government also helps them save far more. (Think of how the tax system works: If you're in the 35% tax bracket, every dollar you get to put away before taxes costs you just 65 cents. If you're in the 10% tax bracket, saving that same dollar costs you 90 cents.)
Studies show the tax break doesn't make much difference to top earners; they save anyway. It's middle-class workers who really need the incentive. So one current proposal would use a tax credit to make retirement savings a wash for families earning up to $60,000 a year: Put $1,000 into a 401(k) plan, take $1,000 off your tax bill. To pay for it, another proposal would end tax breaks for 401(k) contributions over $5,000 a year. Right now, a wealthy couple over age 50 can use 401(k) contributions to defer taxes on up to $41,000 a year.
Put the 401(k) on automatic. New employees often forget to sign up for their 401(k) plans, so they leave money on the table -- or they don't get around to investing their contributions prudently. But with the blessing of the 2006 Pension Protection Act, many companies are now making the process automatic. Forced to save?
When workers have to opt out instead of in, participation rates rise by about 20%, according to Dallas Salisbury, president of the Employee Benefit Research Institute.
Some companies hesitate to shift to "opt out" plans because they don't really want to put up more matching funds, but a better retirement plan can actually pay off by helping a company recruit and retain top workers. Add it up: How much can you save?
Offer fewer choices. Research has also shown that people often delay planning for retirement out of sheer paralysis in the face of too many choices about where to put their money. So smart companies narrow down 401(k) choices to a few prudent investment options.
Get companies to sponsor IRA plans. Only about 7% of eligible workers bother to set up Individual Retirement Accounts for themselves. So current legislation aims to have small employers do it for them and automatically take contributions from their paychecks. Companies would get a tax credit for the administrative hassle, and they would not be required to match worker contributions. Again, the "opt out" approach would encourage high participation in an economy where pension benefits are scarce.
End lump-sum payouts. Think of this as the shiny-red-truck problem. An employee who switches jobs and gets a $25,000 401(k) payout from his old employer often doesn't stop to think that this is his retirement nest egg, says Chuck Moritt, a client manager for consulting firm Mercer. Spending the money could draw $10,000 in taxes and early-withdrawal penalties; but the $15,000 that remains looks like found money -- maybe the down payment on a shiny red truck, a powerboat or some other toy.
Mandatory rollovers wouldn't be much fun. Then again, neither is being homeless at 75.
Tie pensions to tuition funding. Right now, retirees and college students often see each other as rivals for limited federal funding. Michele Boldrin, an economist at Washington University's Olin Business School, has what he admits is a pie-in-the-sky plan to make each serve the interests of the other.
Think about the model family: Middle-aged workers invest in educating their children; then the kids pay them back by caring for them in old age. Boldrin's plan aims to make it work for strangers. He'd dump the Social Security tax, which he says distorts the marketplace. Instead, he'd have middle-aged workers buy bonds, with the resulting funds available to college students for tuition loans. Repayment over time, once the student enters the marketplace, would fund the retirement of bondholders. The government would stand in between, to administer the loans and chase down deadbeats.
Make fee structures transparent. Right now, 401(k) participants have no easy way to know how much they're paying in fees for the plan administrator, distribution costs (meaning marketing and promotion) and investment management. Together those expenses can total 2% of assets annually. The Congressional Research Service says a typical couple earning the median income and putting 6% of earnings in stocks and bonds over 30 years would end up with only $263,663 in a plan charging 2% annually -- versus $356,434 in a low-cost plan charging 0.4%. Trouble is, the current system makes it hard for plan participants to tell the difference.
It may seem like a small step, but if you want to make the three-legged stool a stable base for middle-class retirees, it helps to stop the termites from nibbling at
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