The looming retirement crisis is a term that sounds ominous – and it is. Millions of Americans dream of a retirement that includes their hobbies and loved ones. Unfortunately, the harsh reality is that many of those dreamers will never actually get to retire because of a seriously inadequate nest egg that is supposed to sustain them through their twilight years.
America needs to wake up and realize we have a serious problem on our hands. It’s not an abstract one, but rather an issue that has specific origins. We have no chance at reversing the problem without figuring out how we got to this point and what we need to do to prevent the looming retirement crisis.
This post, the first in a three-part series, will outline the obstacles Americans face that prevent them from retiring comfortably and offer tangible solutions.
Study after study has shown the easiest and most effective way for people to save for retirement is through an employer-sponsored retirement plan, whether it’s a 401(k), IRA or another vehicle.
Over 40 million employees – especially those working at small businesses – don’t have access to a work-sponsored retirement savings plan. Check out the chart below that details coverage by employee size (source: GAO “Private Pensions” March 2012). As you’ll see, this is an incredibly important obstacle that needs to be overcome.
Our solution? Mandated retirement savings plans. The government is getting involved in this solution, but more needs to be done so that all workers have the opportunity to save at work.
2. Participation rates
Even among employees with the opportunity to save at work, there is an alarmingly low participation rate of only 52 percent, according to the Bureau of Labor Statistics. The retirement industry and government need to find a way to get people to utilize their plans and save money for their future. When employees have to opt in to a plan, many wrongfully assume they need the money more now than they will later.
Our solution? Auto enrollment. Research indicates that when people are auto enrolled in a retirement plan, they stick with it after seeing how easy it is to use and its benefits.
Stay tuned for another blog post on this topic where we will tackle two more obstacles that need a resolution so we can win the fight against the looming retirement crisis.