By 60Plus Association
Somehow, no matter the age, retirement feels like a far-off dream. Many Americans want to retire around age 60 and hope to live to 100. Yet most aren’t thinking about how they’re going to save for that 40-something-year retirement until they’re confronted with the topic. But the latest numbers show that while the retirement crisis might be looking up, fear still looms and solutions are needed.
According to the world’s largest asset manager’s annual Read on Retirement study, 68% of workplace savers believe they are on track with their retirement savings to retire with the lifestyle they want. One major optimistic finding is that savers want to secure retirement solutions and employers also recognize their need to act.
The first major step to avoiding a true retirement crisis is ensuring individuals, private companies and our elected officials are all working together and doing what they can to mitigate it.
Individuals
Individuals have options to take investing into their own hands, to some degree. But only about 10 percent of all workers save for retirement outside of their employer-sponsored plans. Even so, there are plenty of ways to save for retirement aside from relying on an employer.
One great option is individual retirement accounts (IRA) that allow for tax-free or tax-deferred savings and growth. Another alternative is target date exchange-traded funds (ETFs) that are relatively low-cost, professionally managed accounts designed to manage risk and grow retirement savings. They gradually shift allocation and become more conservative as the target date, or retirement date, approaches.
These individual saving options are especially important for the many workers, often known as independent savers, that do not have a pension or employer-sponsored saving option to turn for their retirement.
Of those independent savers, only 47% feel on-track to retire with the lifestyle they want – over 20% lower than those with access to workplace plans. But even more concerning is that more than half (56%) of these independent savers are holding some of their retirement savings in cash. This means they are missing out on the wealth-generating opportunities that come with 401(k) accounts or other investment options. The same percentage rely on family and friends’ consultation on investments decisions – once again missing out on wealth-generating opportunities that come from financial professionals.
Individual options like these are one type of retirement solutions for independent savers and those that want to pad other retirement accounts they may have.
Private companies
Private companies are an especially important part of solving the retirement crisis since most Americans rely on their employer-sponsored retirement plans to save for their golden years. Given that, they have a massive opportunity to bridge the gap on retirement confidence.
According to a study by the US Bureau of Labor Statistics, 41% of companies that offer a 401(k) provide an employer matching contribution option of up to 6% of employees’ salaries. Only about 10% of companies offer more than 6%, with the top employers offering up to 25%. This type of benefit is something companies should consider offering. Contribution matching, as well as offering retirement income planning tools, could be a huge part of talent recruitment and retention. These type of workplace benefits could be the difference between great talent staying or going elsewhere.
Another simple way private companies can ensure more retirement savings and confidence would be automatic retirement enrollment. People are busy and retirement options can be confusing, which is why even when employees have access to employer plans, 17% still don’t enroll. Thankfully, many large companies have already initiated some type of auto-enrollment program, but next year a new federal law, the SECURE Act 2.0, will require employers to set up 401(k) plans to auto-enroll new workers. This simple step will ensure employees are better prepared for their years after work.
Elected officials
Lastly, elected officials can have a huge impact on both pushing private companies to streamline retirement processes as well as incentivize individuals to prioritize retirement savings.
The SECURE Act 2.0, also known as the Retirement Savings Act, was a major step in the right direction but there is still room for improvement on the legislative front. Even today, the Department of Labor's Employee Benefits Security Administration is continuing to work to implement many of the SECURE 2.0 provisions. One major program underway is the “lost-and-found” database to help savers who may have lost track of their retirement money locate their plan administrators and savings.
Another obvious solution that Congress can help with is ensuring Social Security doesn’t run out in 2035, as is currently projected. Legislators must work together to come up with a bipartisan solution that takes care of the underlying issues with Social Security rather than punting the problem another decade, as we’ve seen done before.
In short, planning for retirement really is a team sport, so to speak. We need all those with a vested interest to step up and do their part to ensure there are options for all Americans. Regardless of if they have a pension, an employer sponsored 401(k) plan, or are an independent saver working to build their nest egg on their own, we all need simple solutions.
Now is the time for everyone to step up to ensure retirement confidence continues to rise.
Saul Anuzis is President of the 60 Plus Association