Fixing America’s Retirement System

As we eventually emerge from the Covid19 pandemic crisis, dozens of formerly valid ideas are going to be questioned. My area of expertise is retirement planning and it’s ripe with things to be questioned, looked at and discussed.

Two things come to mind before I identify 3 possible ideas to become focused on.

The first is an appreciation of how long people typically live after they stop working for a living. Based on established norms that put a retirement date during someone’s sixth decade of life, it means having the resources to keep paying your bills for another 25 – 35 years. Right now the odds are 31%, almost one in three, that one member of a 65-year-old couple will live to 95.

The second comes from a study I recently read from the Aspen Institute published in 2019. It asserts the retirement system in this country is seriously underperforming. America’s poverty rate among seniors, defined as a percentage of seniors with incomes less than half the median household income, is 21%. That’s roughly 1 of every five people.

I’ve never had a client in his or her 90’s that didn’t have bills to pay or was ready to just hang it up. For millions of Americans today, an overwhelming outlay is for healthcare to stay alive and functioning. That’s going to continue unless we arbitrarily decide you should disappear at age X.

Here are three areas that, in my opinion, need to be talked about. At some point, they need to become prioritized by society.

Idea 1 – Find a way to make Social Security sustainable for the next 50 years. The last major changes happened in 1983. We’re now looking at perhaps another 15 years before a crisis similar to what triggered the changes in 1983. Some two-thirds of Americans today worry it won’t be there when they need it. Many people in 1983 said the changes made would bankrupt the country. The same arguments will be made this time. But how many of you out there today see it as a travesty?

Idea 2 – Find a way to help millions of Americans participate in a workplace retirement savings plan. Roughly half of all US workers, usually at small businesses, are not eligible to participate. How about ideas to incentivize those employers to pool administrative resources and gain economies of scale by doing so? Think of possible multi-employer plans sponsored by state governments through payroll deductions.

Idea 3 – Tweak the existing employer-sponsored retirement plans (401(k), 403(b), HSAs) to encourage lifetime retirement income options. Many today don’t offer conversion options due to fear of being sued by participants.

One of these ideas has already seen the light of day. Some 401(k) plans now include the ability to purchase lifetime annuities in their plan. That’s a good start. There will come a time soon where we fundamentally re-prioritize our attempts to make life better for ourselves.

These are just ideas of mine. I express them here as much for my benefit as any of you bothering to read my posts. All of them need substantive discussion. I’m simply trying to suggest that as we come out of this current chaos, too many people will be in financial pain.

What can we do as a society, if not directly, to try and relieve some of that pain. Do we as members of society have an obligation to put in place measures to reduce financial pain? There’s an age group out there today within a few years of retirement who have a bleak future. If you’re now 60 and lost your job, are you able, much less willing, to keep working for another 15 years? How will you and your spouse pay your bills if you make it to 80?

I have absolutely no clue how long it’ll be before we can declare the current health and economic mess is over. It will come to an end, and with it will come uncomfortable questions. Similar questions surfaced during the Great Depression and going forward, the US became a very different country than it was before it happened.

by Tony Kendzior \ 17 APR 2020

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