Retirement Readiness Requires Change in Savings Plans and Beliefs

According to a recent survey, 58% are concerned about having enough saved for a comfortable retirement.

Those of us with first-hand experience in the retirement savings industry, however, are inclined to adopt a broader, solutions-oriented perspective that’s more optimistic.  Yes, threats to our nation’s retirement system are real, but they are not insoluble.

In fact, new technologies along with behavioral science are being applied to the retirement challenges that confront us—and measurable progress is being made.  By focusing on Social Security, we ignore two enormously promising aspects of this work: the powerful asset-building engine of redesigned workplace retirement plans and the game-changing effect of a personal commitment to savings—as opposed to unbridled consumerism. 

As long as we resist cynicism and resignation, there is nothing inevitable about the failure of the retirement dream in America.

Support Employer-Sponsored Plans and Continually Improve Them 

According to the Investment Company Institute, employer-sponsored defined contribution retirement plans grew to approximately $5.1 trillion in assets at the end of 2012 (mostly 401(k) and 403(b) plans).  These assets are roughly equivalent to all government retirement plan assets ($4.8 trillion) and total individual retirement accounts (IRA) assets ($5.4 trillion). 

Yes, stock market gains have helped swell account balances.  But we also have driven dramatic increases in plan effectiveness with just a few alterations in defined contribution plan design. For example, automatic enrollment and contribution escalation are taking advantage of behavioral finance findings, and employers are encouraging higher contribution rates with smarter matching formulas.

In addition, savings industry leaders have applied a consumer-friendly approach: simplified investment platforms to reduce confusion, and increased real-time feedback and encouragement for retirement savers, letting them know if they’re on track and what to do if they’re not.

When we reduce complexity, make action easy, create urgency and instill confidence, employees will behave responsibly and use their workplace retirement plan to maximize their savings.

Less Consumption, More Savings for a Sustainable Approach 

While we’re making systemic improvements to plans and policy, and leveraging behavioral science to “nudge” people into saving more, our deeply-entrenched consumer culture works against retirement security by discouraging savings at every turn.

We are bombarded daily by the notion that to succeed is to acquire. And what do we have to show for all this consumerism and acquisition? Half of all Americans, according to a report by Senator Tom Harkin, have saved less than $10,000, while credit card debt averages more than $14,500 per household.[1]  In fact, debt as a share of disposable income rose to 118.7% in 2011 as compared to just 22% in 1956,[2] and 68% of employees acknowledge they‘re not saving enough.[3] 

Retirement dreams are built on a foundation of savings.  This is not a puritanical, penny-pinching prescription for a spartan lifestyle devoid of expenditures. Nor is it a matter of right or wrong. It’s simply a question of sustaining your standard of living in retirement for 30 years—or more—in our age of increasing longevity.

One of the hallmarks of a civilized society is financial security in retirement.  Let’s begin by improving and promoting workplace savings plans while encouraging a belief in the efficacy of personal savings.

 _______________________________________________________________________

Stig Nybo is the author of Transform Tomorrow: Awakening the Super Saver In Pursuit of Retirement Readiness and the President of Pension Sales and Distribution at Transamerica Retirement Solutions.  He serves on the board of the Transamerica Center for Retirement Studies, a nonprofit corporation and private foundation that is dedicated to conducting research and educating the public on emerging trends related to retirement security in the United States.