UPDATE: This action plan can give all Americans a secure retirement
By Robert L. Reynolds
Steps and solutions for employees, employers, and lawmakers
Here's a surprise: U.S. workplace savings programs such as 401(k)s are a successful, innovative, inexpensive and constantly-evolving system that may prove to be the most successful retirement system that Americans have ever seen.
Yes, I know we're all worried about the boomers and their savings deficit. And we're preoccupied about the fiscal health and sustainability of Social Security and Medicare. Actually, we have quite a bit to be worried about (http://www.marketwatch.com/story/what-ive-learned-over-14-years-of-covering-the-depressing-but-crucial-topic-of-retirement-2017-09-29).
But consider this: more than one-half of Americans today are participating in workplace retirement savings programs or contribute to traditional defined benefit pension plans. In the main, they are pleased with their financial prospects for retirement. Many Americans with workplace savings programs are on track (https://www.ebri.org/pdf/surveys/rcs/2017/RCS_17.FS-1_Conf.Final.pdf)to replace nearly all of their working income and many may actually see a rise in income as they enter retirement and begin collecting Social Security and converting their private savings into guaranteed income.
But then there is the other half -- the more than 40% of American workers who have no access to workplace savings programs (http://www.marketwatch.com/story/the-big-threat-to-retirement-dreams-2017-09-28)or traditional private pensions and will depend in retirement almost entirely on Social Security. Getting these workers into workplace plans (http://www.marketwatch.com/story/these-are-the-best-and-worst-things-about-your-retirement-savings-plan-2017-10-02)may well be the most important challenge we face in retirement policy. The good news is that meeting this challenge is totally do-able.
Before we build our to-do list, we should recall that our workplace savings plans like the 401(k) are not static. These plans, which began 30 years ago, just as traditional pensions were beginning their great-wind-down, have evolved substantially over the decades. Today's 401(k) and similar plans -- when compared to the plans first offered in the 1980s -- are cheaper, offer superior asset allocation, are supported by behavioral finance mechanisms such as auto-enrollment and auto-escalation, and are continuing to improve in response to robust marketplace competition.
Workers who are auto-enrolled in workplace savings plans and investing around 10% of their incomes in target-date-funds (TDFs) or managed accounts (particularly those working with financial advisors) are heading for a secure retirement. Two key challenges we face are to ensure that workers with access to plans take full advantage of the opportunities they offer and that more workers -- specifically Americans at lower income levels and employed at small businesses -- enroll in well-designed workplace savings plans.