Americans don’t always heed reports that we’re not saving enough for retirement. It’s like our doctor advising that we need to exercise, reduce caffeine intake and avoid fatty foods. What else is new?

But two recent reports put stark numbers behind all the advice—like finally tipping the scales at 250. Or seeing our cholesterol number move into the danger zone.

First, Employee Benefit Adviser reported May 15, in an article by Marli Riggs, that a recent LIMRA survey found that half of all Americans say they aren’t contributing anything to a retirement plan. Half of us. Contributing nothing.

Second, the US Labor Department Assistant Secretary for Employee Benefits, Phyllis C. Borzi, in a retirement security newsletter entitled “Before It’s Too Late,” cited a recent report from the Employee Benefits Research Institute (EBRI) that 60% of U.S. workers say they have less than $25,000 in savings and investments. Ms. Borzi goes on to say that because of these low retirement savings only 14% of Americans are very confident they will have enough money to live comfortably in retirement. Read more.

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Needed for Retirement Security: Honesty

Mon May 21, 2012

Americans don’t always heed reports that we’re not saving enough for retirement. It’s like our doctor advising that we need to exercise, reduce caffeine intake and avoid fatty foods. What else is new?

But two recent reports put stark numbers behind all the advice—like finally tipping the scales at 250. Or seeing our cholesterol number move into the danger zone.

First, Employee Benefit Adviser reported May 15, in an article by Marli Riggs, that a recent LIMRA survey found that half of all Americans say they aren’t contributing anything to a retirement plan. Half of us. Contributing nothing.

Second, the US Labor Department Assistant Secretary for Employee Benefits, Phyllis C. Borzi, in a retirement security newsletter entitled “Before It’s Too Late,” cited a recent report from the Employee Benefits Research Institute (EBRI) that 60% of U.S. workers say they have less than $25,000 in savings and investments. Ms. Borzi goes on to say that because of these low retirement savings only 14% of Americans are very confident they will have enough money to live comfortably in retirement.

Of course these reports confirm what we’ve been hearing for years: a “Perfect Storm” of

(1) Disappearing defined benefit pension plans (see blog post for Feb 17, 2012);

(2) Endangered Social Security benefits (see blog post for May 9, 2012); and

(3) Inadequate personal savings for retirement

have exposed millions of Americans to a difficult dilemma as they approach retirement—retire as planned but with significant lifestyle downshifting or remain in the workforce for a few more years.

Working longer is definitely an option many of us are choosing—some happily so. Obviously there are financial and other benefits to staying in the workforce past normal retirement age.

The problem is that at age 35 or 40 or even 50 one cannot assume that option will be available 15, 25 or 30 years from now, either because employers can no longer guarantee jobs or because one may not be able to work past, say, age 65.

From a retirement risk management standpoint, therefore, it makes sense to keep the “work longer” option on the table but not assume that it will be available to you personally when you reach age 65.

That leaves personal savings, or more accurately, substantially increasing retirement savings, as the only realistic option for retirement income security for millions of Americans.

In this regard our elected officials, including the President and members of Congress, have an important role to play in encouraging more retirement saving in three ways:

  1. Tax incentives. Congress needs to look at present tax incentives for saving in 401(k) s, IRAs and other retirement plans to encourage lower and middle-income families to save for retirement. Present law tax deferral or salary reduction arrangements for 401(k)-type plans tend to favor higher-income employees because one’s tax deduction corresponds to one’s income tax rate. Plans to revamp the Internal Revenue Code through comprehensive tax reform may present an opportunity for improving tax incentives for retirement saving.
  2. Strengthen Social Security. Because so many Americans will come to rely heavily on Social Security benefits to finance their retirement, it’s important for the President and Congress to act quickly to shore up the Social Security Trust Fund. Given demographic trends, however, future Social Security benefits probably won’t be as generous as they were in the past.
  3. Honesty. Perhaps the most important thing elected officials can do is to honestly tell their constituents a simple truth: for retirement security you’re increasingly on your own.

The world of retirement benefits is changing like everything else. Neither Washington DC nor employers can guarantee anyone’s retirement income. The government’s retirement safety net is frayed. Employers are trying to compete in a tough global economy and can’t make long-term promises.  Americans need to rely more on themselves for retirement. It’s time for lawmakers to communicate these realities honestly and without political spin.

Let’s hope that when communicating about retirement income security Democrats and Republicans remember the lyrics of the Billy Joel classic: “Honesty is such a lonely word. Everyone is so untrue. Honesty is hardly ever heard. And mostly what I need from you.”