In part 1, we introduced some of the obstacles that are causing the looming retirement crisis. It’s a very serious problem in this country and will only get worse as more Boomers retire – 10,000 will turn 65 years old every day for the next 19 years. We are approaching the era where the pogo stick permanently replaces the three-legged stool model of retirement.
Currently, saving for retirement rests squarely on the shoulders of individuals, but it doesn’t have to be that way. The government, the retirement industry and employers have the power to change and reverse the looming retirement crisis. First we need to have an honest conversation and recognize the obstacles holding Americans back from reaching the retirement we all deserve.
In addition to the two obstacles we covered last time – coverage and participation – here are two more roadblocks. Keep an eye out for the final part in this series, which will address the last two obstacles.
1. Saving Enough
In an earlier post, we discussed the new reality of retirement savings sources: Pensions are basically extinct, and Social Security is slated to be insolvent by 2033. That means you alone are responsible for saving enough to last you through retirement.
The problem is that most people’s nest eggs are underfunded. According to the Employee Benefit Research Institute, 57 percent of workers report that the total value of their family’s savings and investments is less than $25,000 (this figure does not include the equity in their home or a defined benefit plan). Of that group, 28 percent of people have less than $1,000 saved.
Our solution? Auto-increasing savings amounts. For workers enrolled in a defined contribution plan, it is difficult to remember to keep increasing their deferral rate; plus, many people second-guess the decision as they believe they need the money more now than they will later. By auto-escalating deferral rates, we can help people save more without putting the burden on them to elect to save more.
2. Investing Appropriately
Investment selection and portfolio allocation both seem to trip up savers very frequently – and with good reason. After all, most people don’t have expertise in the markets, and yet their future ultimately depends on these very complicated concepts and products.
It’s no surprise we are concerned that people are not investing appropriately for their age, risk tolerance or current market conditions. How can you know what is considered appropriate for you when you’re tasked with doing this on your own?
Our solution? Cost-effective professional advice. When there is a plumbing issue in your house, you call a professional plumber. It’s that same logic that should encourage the retirement industry and employers to offer professional resources to assist savers with their investment selection and ensure its suitability for their unique situation and goals.