At long last the first day of Spring has arrived, on Wednesday, March 20 to be exact, with the vernal equinox at 7:02 AM Eastern Time. The first day of Spring calls forth images of sunny days, warm afternoons, March Madness, baseball, flowers and the promise of new beginnings. But this week’s Employee Benefit Research Institute (EBRI) report on its 2013 retirement confidence survey confirms that a “vernal equinox” may be needed for a new beginning to address America’s retirement savings crisis. Read more.

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Retirement Savings Crisis: A Vernal Equinox?

Fri Mar 22, 2013

At long last the first day of Spring has arrived, on Wednesday, March 20 to be exact, with the vernal equinox at 7:02 AM Eastern Time. The first day of Spring calls forth images of sunny days, warm afternoons, March Madness, baseball, flowers and the promise of new beginnings. But this week’s Employee Benefit Research Institute (EBRI) report on its 2013 retirement confidence survey confirms that a “vernal equinox” may be needed for a new beginning to address America’s retirement savings crisis.

A few highlights of the EBRI report:

  • Almost half of all U.S. workers are not confident they will have saved enough money for a comfortable retirement.
  • Retirement savings “may be taking a back seat to more immediate financial concerns”—only 2 percent of workers identify retirement savings as their most pressing financial issue.
  • Less than a quarter of workers, says EBRI, have obtained financial advice from a personal financial advisor.
  • Two-thirds of workers report that they have saved for retirement—down from 75 percent three years ago. In other words, fewer of us are saving anything for retirement.
  • Perhaps most ominous, EBRI reports that well over half of all workers say they and/or their spouse have less than $25,000 in total savings and investments—not counting their house and any defined benefit plans. Almost 30 percent of workers have saved less than $1,000 for retirement.
  • Many workers have simply decided that they will postpone retirement. EBRI reports that over one-third of workers expect to wait until after age 65 to retire, up from 11 percent twenty-odd years ago. Only 23 percent now say they will retire before age 65.

The Wall Street Journal dissected the EBRI report and concluded that, “Workers and employers are bracing for a retirement crisis…that powerful financial and demographic forces are combining to squeeze individuals and companies that are trying to save for the future and make their money last.”

One of the drivers of America’s retirement crisis, experts say, is a lack of knowledge about how important it is to save for retirement. EBRI reports that more than half the workers in its survey haven’t completed a retirement needs calculation—“a basic planning step” to determine how much they will need in retirement.

To be sure, a key factor is the changing availability of employer-sponsored retirement plans. Not only has there been a tectonic shift in recent decades from traditional defined benefit-type plans to defined contribution, 401(k)-type plans, but almost half of all workers aren’t offered any kind of workplace retirement savings plan.

No doubt another contributing factor to the under-saving crisis is the assumption by some workers that their future Social Security benefits will finance their retirement which, of course, flows from point one above about the lack of knowledge generally about retirement issues.

What can be done to boost retirement savings?

First and foremost, a “full court press,” to use a March Madness term, to educate workers in all occupations and in all regions, to take a serious look at their retirement savings strategies. Knowledge is power, the saying goes, and realistic information about retirement income needs can be a powerful motivator.

Employers can and do play an essential role, not only with ongoing employee communications but also with employer 401(k) matching arrangements, a big incentive for worker retirement savings.

On the public policy front, expect two initiatives from the Obama Administration to encourage worker savings for retirement: One, a push for legislation to require employers that presently do not offer any retirement plans to create “Auto-IRAs” for workers. These would be modest automatic deductions from workers’ pay for Individual Retirement Accounts, subject of course to worker opt-out. It’s not clear that Congress would approve Auto-IRA legislation.

Two, consideration of legislation to change the tax policy that applies to retirement savings, possibly in connection with tax reform. Some have argued that present law pre-tax treatment of contributions to retirement plans favors higher wage workers. One option on the table would create a new tax credit for retirement savings that would be the same amount regardless of pay.

But at the end of the day saving for retirement will remain an individual or family responsibility. Social Security and public policy can supplement but will never be able to substitute for personal retirement savings and financial security.

While “crisis” is an over-used word these days, particularly in Washington DC, the reality is that far too many Americans are unprepared for retirement. As we anticipate Spring and all the renewal that comes with it, let’s hope that families, employers, non-profits and governments at all levels will make a new national commitment to promote retirement savings.