My father, born in 1966, recently celebrated his 40th High School Class Reunion in South Carolina. As I heard recaps of his reconnections with old friends, I couldn’t help but reflect on the journey he and his classmates have taken—especially as they now stand at the threshold of retirement. They were part of the first generation to navigate the corporate shift from the stability of pension plans to the uncharted waters of 401(k) accounts.
This milestone has fueled my curiosity about the true impact of this financial experiment. By the time I entered corporate America in 2011, the 401(k) had been tested and tweaked, yet it remained a daunting challenge for many vulnerable and financially marginalized households. Despite the passage of time and the availability of more information, the complexities of this retirement model continue to leave too many people struggling to secure their financial futures.
In this landscape, I see a vast opportunity—a call to action for financial professionals who possess the culture, awareness, and brilliance to create solutions with flatter learning curves for our communities. This belief fuels my passion and emboldens me to encourage these innovators to write new rules, to have the audacity to craft financial frameworks that protect and uplift, much as I have strived to do in my own entrepreneurial journey.
Generation X: The Pioneers of the 401(k) Experiment
Generation X, those born between 1965 and 1980, were the first to chart their financial futures under the 401(k) retirement plan, a system that promised independence but often delivered uncertainty. Now, as they stand on the brink of retirement, many find themselves confronting the harsh reality of being the guinea pigs in an untested financial experiment that left them unprepared for the demands of their later years.
According to Vanguard's 2024 report, the median 401(k) balance for individuals aged 55 to 64 is just $87,571. The average balance, which factors in the highest and lowest balances of all accounts for this same cohort, is only $244,750. Fidelity recommends that individuals have eight times their current salary saved up by the time they are 60. Thus, if a person is earning $100,000 by that time, their 401(k) balance should be $800,000 to help them comfortably retire.
Despite decades of saving, the current median balance of $87,571 and the average balance of $244,750 likely fall far short of what most Americans need for a secure retirement. Shockingly, about 40% of Americans aged 45 to 64 anticipate working past retirement age due to financial necessity.
The Birth of the 401(k) and Its Legacy on Gen X
As the 1980s dawned, Generation X was stepping into the workforce just as the 401(k) was introduced as the new standard for retirement savings. This marked a radical departure from the traditional pension plans that had once guaranteed a stable income in retirement. Instead of the security of a pension, workers were handed the responsibility of managing their own retirement savings—often with little to no guidance on how to do so effectively.
For many in Gen X, this transition was fraught with challenges. According to a recent article published by the Wall Street Journal, Gen Xers between 45 and 54 years old had a median account balance of roughly $60,000 in defined-contribution retirement plans at Vanguard Group in 2023 -- a sum that pales in comparison to what is needed in our current economic climate. With longer life spans and escalating living costs, this amount is insufficient to sustain a comfortable retirement, leaving many facing an uncertain future.
The Vulnerabilities Exposed by the 401(k) Model
The 401(k) model introduced a new level of financial vulnerability for households. Unlike pensions, which provided a predictable income, 401(k) plans forced individuals to become investors—often without the financial literacy needed to navigate this complex terrain. This system disproportionately favored those with financial acumen, widening the wealth gap and putting ordinary households at a severe disadvantage.
Although new safeguards, like automatic contributions coupled with employer matches and mandatory contribution minimums, have been introduced in recent years, these changes came too late for most of Gen X. Had these mechanisms been in place earlier, they might have offered a much-needed safety net. Instead, many Gen Xers were left to fend for themselves in a system that demanded more than they could give.
The Historical Context: A Time When Financial Constructs Took Root
The 401(k) plan was first implemented in 1978, about three weeks after Congress passed the Revenue Act of 1978, which added Section 401(k) to the Internal Revenue Code. The 401(k) was originally intended to replace executive profit-sharing plans and include more employees. It allows employees to contribute pre-tax earnings to a retirement plan, also known as "elective deferrals," and avoid taxes on some of their income if they receive the money later. The 401(k) also provides tax advantages for employers.
Benefits consultant Ted Benna is credited with creating the first 401(k) plan in 1980 while researching ways to design more tax-friendly retirement programs for a client. Benna's client declined to use the plan, fearing that the government would repeal it once they realized its tax loss potential. Benna then persuaded his own employer, the Johnson Companies (now Johnson Kendall & Johnson), to use the plan instead.
The 401(k) has since evolved into a popular retirement solution in the United States, with most employers now offering a plan. Some milestones in the 401(k)'s history include:
1983: Nearly half of large firms offered or considered offering a 401(k) plan
1990: 401(k) plans held over $384 billion in assets and had 19 million active participants
2006: The Pension Protection Act made it easier for companies to automatically enroll employees in 401(k) plans
A Call to Financial Visionaries
My hope in writing this piece is to help finance professionals understand that financial constructs that we learn about in college and deploy in corporate America are not immutable. Even the FICO score, a tool now synonymous with creditworthiness, was introduced in 1989 — around the same time the 401(k) was solidifying its place as the go-to retirement savings vehicle! Many of these constructs - though revolutionary at the time - were new, untested, and far from perfect. Yet, they have become entrenched in the financial landscape.
I want brilliant minds from marginalized communities to have the audacity to dream up new, well-aligned solutions for those we love. Today’s financial landscape is ripe for innovation, especially from visionary minds within marginalized communities who can create models that are more aligned with the customs, behaviors, and values of those they intend to safeguard.
The need for this ingenuity is urgent. We have seen the damaging effects of systems that fail to flatten the learning curve or safeguard vulnerable populations. As Gen X enters retirement, many are experiencing financial stress, anxiety, and uncertainty—outcomes that could have been mitigated with better-designed financial products and education. We have an opportunity to do more good in this lifetime.
Blaze Group’s Commitment to Inclusive Finance
At Blaze Group, we champion the cause of inclusive finance that protects, empowers, and sustains the most vulnerable members of society. Financial products must be crafted with a deep understanding of the people they serve, ensuring they are accessible, comprehensible, and truly beneficial for all.
We urge finance professionals to challenge the status quo and inject innovation into the industry. There is ample opportunity to develop new financial models that serve the underbanked and shield them from the pitfalls of outdated systems. Together, we can create a more equitable financial future—one that learns from past mistakes and empowers every community to thrive.
Join Us in Building a More Equitable Financial Future
Blaze Group is dedicated to constructing financial systems that are inclusive and just. We invite you to join us in this vital mission. Visit blazegroupllc.com to explore our services and discover how we can collaborate to build a more equitable financial landscape.
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