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Bogle: U.S. Retirement System a 'Train Wreck'

Vanguard founder Jack Bogle warns of the significant problems in the defined-benefit and defined-contribution spaces and suggests solutions to get retirement planning back on track.

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Christine Benz: The last thing I would like to cover with you, Jack, is our retirement plan system. I think we can agree probably that we have this looming catastrophe with people so far undersaved for retirement, the great 401(k) experiment for many folks has not gone well at all and you do discuss the retirement system in the book [The Clash of the Cultures]. Let's discuss from your viewpoint where we've gone wrong and what steps we can take to get things back on track?

Jack Bogle: In the book I call that with typical understatement, "a train wreck" or "a coming train wreck." Let me take it in two sections, one is the defined-benefit area, the pension area, which as we all know is shrinking, but still these pensions, state and local as well as corporate, are assuming almost universally 8% returns in the future. In a standard portfolio that we talked about earlier, stocks give you 7% and bonds give you 2.5%. Their returns on the market side of a balanced portfolio, a very important point, are going to be, let me say 4%. And then you're going to pay for that, and you're probably going to pay 1.5%.

Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.