Retirement in America Can Improve With These Policy Changes

Robert Powell has practical suggestions to maximize your retirement plan, and to help improve retirement opportunities for all Americans.
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Researchers are fond of debating whether there’s a retirement crisis in this country, whether people have or will have enough money set aside to fund their desired standard of living in retirement.

Well, a new report published in December is bound to become ammunition for those who say there is a crisis, and that more is needed to improve retirement readiness.

The report, published by Transamerica Center for Retirement Studies, found that today’s workers have saved just $50,000 (estimated median) in all household retirement accounts, though savings do vary dramatically across demographic segments.

For instance, the report, A Compendium of Findings About U.S. Workers, found that workers with an annual household income of $100,000 or more have saved $222,000 (estimated median) in all household retirement accounts, compared with $47,000 among those earning $50,000 to $99,999.

And among those earning less than $50,000, total retirement savings is significantly less— just $3,000.

On average, college graduates have saved $160,000, compared with $23,000 among non-graduates. And men have saved $76,000, compared with $23,000 among women.

In all, the Compendium has more than 30 key indicators of retirement readiness among workers by employment status (full-time, part-time), generation, gender, household income, level of education, and ethnicity.

Here are some ways that policymakers can help improve the retirement security of Americans, many of whom are “continually at risk for not achieving a financially secure retirement,” according to a statement by Catherine Collinson, CEO and president of Transamerica Institute and the Transamerica Center for Retirement Studies (TCRS):

Expand Access to Workplace Retirement Plans

According to TCRS, only 65% of workers are offered a 401(k) or similar plan, including 71% of full-time workers and just 45% of part-time workers. According to TCRS, expanding coverage among both full-time and part-time workers can increase retirement savings rates and provide access to tax-advantaged savings, institutional investments, and the tools and resources that are included with employer-sponsored retirement plans.

What can you do if you don’t have an employer-sponsored retirement plan? Ask your employee benefits department to put in place a 401(k) or similar plan. Ask your fellow employees to join your effort by signing a letter or petition requesting that your employer establish a retirement plan.

Inform your employee benefits department about new efforts could make it easier, especially for small firms, to put in place a 401(k). For instance, one provision contained in the recently passed Setting Every Community Up for Retirement Enhancement (SECURE) Act (H.R. 1865), allows two or more unrelated employers to join a pooled employer plan.

Encourage Automatic Enrollment

We could encourage wider adoption of automatic enrollment by retirement plan sponsors to increase participation rates among workers.

Among those currently offered a 401(k) or similar plan by their employer, plan participation rates are lowest among part-time workers (58%) and workers with household income of less than $50,000 (59%), according to TCRS.

According to TCRS, automatic enrollment is a plan feature that can increase participation by eliminating the decision-making and action steps usually necessary for employees to enroll in and start contributing to the plan. Employees are automatically enrolled in the plan with the ability to opt-out and stop contributing.

What can you do to help yourself? If your plan doesn’t have automatic enrollment and you haven’t yet signed up to contribute to your 401(k), do so now. If your plan doesn’t have automatic enrollment and you are already participating in your 401(k), ask your employee benefits department to put in place that feature. You’ll be doing a world of good for future employees. And, if your plan has automatic enrollment but you opted out it might be worth reconsidering that decision and ask yourself whether you can afford not to save for retirement. And if you need a little inspiration, consider this Investopedia definition of consumption. “In economic terms, saving is a choice to forego some current consumption in favor of increased future consumption.”

Odds are high that you want money set aside, after you can no longer earn money from working, to fund your future consumption or, in non-economic terms, your future expenses.

Avoid Retirement Account Withdrawals

We need to discourage “leakage” from retirement accounts in the form of loans and withdrawals, which can severely inhibit the growth of an individual’s long-term savings.

Almost one in three workers (29%) has taken a loan and/or early withdrawal from retirement accounts. Generation X (32%), full-time workers (31%), and workers with household income of $50,000 to $99,999 (31%) are slightly more likely to have done so, according to TCRS.

From a policy perspective, there are steps to curtail leakage, according to the Center for Retirement Research at Boston College, including:

  1. Limiting hardship withdrawals to unpredictable events;
  2. Raise the age for penalty-free withdrawals to better align with when people actually retire;
  3. Close down cashouts by requiring the money to stay in the 401(k) system or be rolled over into an IRA

What can you do if you’re inclined to take a loan from your retirement account or withdraw money from your retirement account? Talk to a qualified and competent financial professional who can help you sort through the pros and cons of your decision, as well as the tax and financial consequences.

Resources to find such a professional include: Let’s Make A Plan, Planner Search, Financial Planning Resources at the American Institute of CPAs, and Find an Advisor at IRAHelp.com

The IRA Saver’s Credit

We should raise awareness of the IRS Saver’s Credit, a tax credit that is available for low- and moderate-income workers who save for retirement in a 401(k) or similar plan or IRA.

Paradoxically, awareness of the Saver’s Credit is lowest among those more likely to meet its income eligibility limits, according to TCRS. Only 29% of workers with household income of less than $50,000 and 29% of women workers are aware of the credit.

Learn more about the IRS Saver’s Credit.

Social Security Reform

We should implement reforms to Social Security to ensure that it is sustainable for future generations.

More than one in four workers (28%) expect to rely on Social Security as their primary source of income in retirement, including baby boomers (42%), those with household income of less than $50,000 (40%), non-college graduates (35%), and women (32%), according to TCRS.

A good place to get up to speed on all things Social Security reform is this page on the Center for Retirement Research at Boston College website. Also, check out the The Social Security Claiming Guide.

In addition, if you do care about making sure Social Security is sustainable for future generations (including your children), it might be a good time to write to your Congressional representatives and urge them to tackle Social Security (and Medicare).

And, it’s well worth it, if you haven’t filed for Social Security yet, learning how to maximize/optimize your household’s Social Security benefit. Several websites offer tools to do that including:

It’s never too late – or too early – to plan and invest for the retirement you deserve. Get more information and a free trial subscription to TheStreet's Retirement Daily to learn more about saving for and living in retirement. Got questions about money, retirement and/or investments? Email Robert.Powell@TheStreet.com.