Do you hear the drumbeats warning of an impending retirement crisis growing louder?
You can tell that a situation has reached a tipping point when traditional opponents agree that something must be done. A few months ago, two powerhouses from opposite ends of the political spectrum — AARP and the U.S. Chamber of Commerce — held a joint “solutions forum” called “Rethinking Retirement: Moving Ahead Without Leaving Anyone Behind” at the National Press Club.
The organizations have different missions, but each sees the need to strengthen retirement security.
“Today we're putting the spotlight on the dangerously low level of savings that many millions of middle-class Americans — as well as more-moderate earners — have accumulated for their retirement,” said Debra Whitman, AARP's executive vice president for policy, strategy and international affairs.
“Unless we do something about it, the lack of a sufficient nest egg will mean hardship and downward mobility in old age for much of the American public,” she warned the standing-room-only audience of public-policy wonks, financial services experts and journalists.
“With the unprecedented growth in the number of Americans who are at or near retirement age, it is clear that an emphasis on increasing retirement savings will not only contribute to individual retirement security but also to America's economic security,” said Randy Johnson, the Chamber of Commerce's senior vice president of labor, immigration and employee benefits.
Lesson from the past
After 30 years of covering politics in Washington, I can assure you that agreement on major policy issues among traditional foes is rare — and significant.
I was captivated by one of Ms. Whitman's comments.
“For many, the golden age of retirement won't even be bronze,” she said.
Although I know that Ms. Whitman meant it as a warning about the potential for a diminished standard of living in retirement, I think the analogy offers an opportunity.
To refresh your memory, the Bronze Age was the period of ancient history when the Egyptians, Greeks and other advanced civilizations discovered how to mold copper and tin into elaborate tools and works of art, forever leaving behind the more primitive tools and culture of the Stone Age.
Perhaps it is time to pack away our crude attempts at merely encouraging workers to save for retirement and to embrace more-aggressive tools to usher in a new age of retirement.
AARP and the Chamber of Commerce highlighted three broad strategies that they support and that can make a real difference in the standard of living for future retirees.
First, they agreed that we need to greatly expand access for all workers to tax-deferred retirement payroll deductions.
Right now, only about half of workers have the option of enrolling in a retirement savings plan at work. Yet study after study has shown that access to a retirement plan at work is the key to building retirement savings.
At a minimum, they agreed that employers should offer a payroll deduction individual retirement account.
Ideally, workers should be enrolled in retirement savings plans automatically and have the option to increase their contributions automatically each year, they said.
Although many plan sponsors offer retirement plans with automatic enrollment and escalation features, it is far from the norm.
The two sponsoring groups also agreed that tax incentives for people of all income levels need to be strengthened, preserving the tax-advantaged nature of retirement savings that has come under assault recently from critics of the 401(k) system. They also called for enhancing the additional saver's credit for low-income workers.
And finally, they agreed that the industry and plan sponsors need to do a better job of educating the public about the importance of saving and how much they are going to need to fund a very long retirement.
These powerful organizations set the stage for constructive debate and action on this critical problem, but it is a good time for financial advisers to figure out how and where they fit in this new age of retirement.
“We have to advise at a better, deeper level,” said Matt Rettick, a financial planner and author of the book “All the Rules Have Changed: What You Must Do to Succeed in the New Financial Reality” (Checks and Balances Publishing, 2013).
“Advisers have this division of philosophy based on how people are licensed,” Mr. Rettick said. “I believe a true financial adviser has both licenses because clients are going to need insurance products for safety and guarantees, and securities to grow their assets.”
Mr. Rettick, who also hosts the “Checks and Balances” television show and interactive website (checks andbalances.tv), said: “We have to use all the avenues of income — pensions, Social Security, home equity, insurance and investments — in an appropriate way to put together a retirement income puzzle for our clients.”
Mary Beth Franklin is a contributing editor at InvestmentNews.