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By Christine Benz | 09-30-2015 09:00 AM

Confronting America's Retirement-Savings Crisis

Understanding investor behavior is key to reining in the problem, says investment expert Charley Ellis.

Christine Benz: Hi, I'm Christine Benz for Many Americans are hurdling toward retirement without enough savings. Joining me to discuss some prescriptions for the impending retirement crisis is Charley Ellis. He's an investment expert and an author. Charley, thank you so much for being here.

Charles Ellis: Thanks for the invitation.

Benz: Your latest book, Falling Short, is about the retirement crisis--not just the impending retirement crisis, but arguably the one that we're in right now. You offer some, I think, really great prescriptions for solving that crisis. Let's talk first, though, about why you think an incremental approach makes sense, rather than one that would be what you call a "big-bang approach," where we completely upend the system and start over.

Ellis: If you wouldn't mind, I'd like to change one word. When you said "solve" the problem--how about "manage" the problem? Bring it under control, because solving is a little bit too ambitious for me.

Benz: So, you have some ideas for bringing the problem under control, but let's talk about why you think we don't need to completely upend the system or why we shouldn't have that as a goal.

Ellis: Well, I start with just being realistic. You don't have to read the newspapers too carefully to realize there's a lot of, "We're not going to get action on this, and we're not going to get action on that in Congress." So, instead of, "Let's get action on a really complicated, politically difficult, very challenging [issue]," why don't we just say that we're going to accept things the way they are on the big, main structures, and we're going to make some modifications that would be easy to make, but would do an enormous amount of good in the long run?

Benz: So, you tackle the problem from a variety of different angles in the book. You look at Social Security, you look at the role of home equity for some retirees, but let's focus specifically on retirement plans, specifically 401(k)s, which are a real thrust for the book. Let's talk about some of the so-called nudge features and why you think they're so valuable, but also why you think we could push them even, perhaps, a little bit further.

Ellis: Well, I think all of us ought to vote for Richard Thaler getting the next Nobel Prize because he's done us all so much good by saying that people don't behave quite rationally, but predictably. If you pay attention, you can see how people do, again and again, certain kinds of things." So, let's respond to that. And in a very, very nice way, he said that you can set things up in a way that makes it easy for people to do the right thing. For example, instead of having cigarettes out and available for anybody at the checkout counter, put them somewhere you have to go out of your way to get. Or if you want to make it really easy for people to do something, set it up for them. The food that's good for you is easy access. The not-so-good-for-you food is a little bit harder access. He just encourages you to do the "right thing." The same applies--and he's done a wonderful job of making that clear--in 401(k) investing.

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