The US retirement system need to evolve, says TIAA Institute

A new report from the TIAA Institute is calling for significant reforms to the US retirement system, emphasizing the need for a modernized approach to address the evolving challenges faced by today’s retirees.

The report, titled The Future of Retirement Security, examines the retirement systems of seven countries, highlighting how they have transitioned from defined benefit to defined contribution plans. 

As life expectancy increases and fewer employees have access to traditional pension plans, many nations are grappling with the challenge of funding longer retirements. According to the report, the average retiree now spends about two decades in retirement—roughly double the time expected 50 years ago. With four in 10 Americans at risk of outliving their savings and 57 million workers lacking a retirement plan, it highlighted the urgency of developing an evolved system that considers how times have changed.

"Life expectancy has risen by 17 years in the United States since the Social Security program debuted nearly 90 years ago," said Surya Kolluri, head of the TIAA Institute, in a statement. "This comes with tremendous opportunities, but it also comes with headwinds."

The report suggests that the most effective retirement system, one that's both sustainable and secure, should be a "hybrid" that blends the best of both DB and DC plans.

Such a plan should bring together several key attributes, the report said, including universal access to retirement plans, higher contribution rates, risk sharing between stakeholders, strong fiduciary oversight, and flexibility to accommodate changing work patterns.

Additionally, it emphasizes the importance of diversified income streams, such as annuities, to provide guaranteed income in retirement.

"In our vision for the future, all US workers are automatically enrolled into a robust, cost-effective retirement plan," said Bret Hester, executive vice president of TIAA. He added that defaulting workers into investment solutions that can convert into guaranteed income streams would be a crucial step.

The study analyzed retirement systems in the US, the UK, Canada, Australia, the Netherlands, Singapore, and Sweden, noting that each country balances adequacy, sustainability, and equity differently.