When it comes to retirement in the U.S., there's no shortage
of problems. People haven't saved enough money for their golden years. They're
going to outlive their assets. They won't be able to afford health care in
retirement. And the list goes on and on and on. But these problems are not
without solutions. Here's a look at what experts say are the biggest problems
facing those saving for and/or living in retirement, and how to solve those
problems.
Social Security needs
fixing. The first pillar of old-age support, namely our national
Social Security system, is running into the red, says Olivia Mitchell, a
professor at The Wharton School at the University of
Pennsylvania and executive director of the Pension Research Council.
Her solution: Reduce the growth rate of benefits by pegging
it to price inflation, not wages. When you're working, the Social Security
Administration calculates your future benefit based how fast wages rise. But
your actual benefit, when you claim it, is based on inflation (CPI). Wages tend
to grow faster than inflation, so switching from wages to inflation would reduce
the overall benefits to be paid out.
No one thinks
thoughtfully about when to claim Social Security. The biggest problem
is that (Americans) don't consider the importance of choosing the age at which
they retire, says Alicia Munnell, director of the Center for Retirement
Research at Boston College. If they can postpone retirement from 62 to 70,
their monthly Social Security benefit goes up by 76%, their 401(k) assets
nearly double, and they reduce by eight years the length of the period over
which they need to stretch their retirement nest egg.
Longevity risk is
real. Most Americans face the real possibility of longevity risk, the
risk of living longer than they can afford given their assets, says Mitchell.
Her solution: New insurance products are needed to help convert retirement
savings into lifetime income, ideally with deferred participating annuity
products, which pool longevity risk. And
to cope with such longevity, Laitner says individuals should think about
annuitizing at least part of their pension equity, which would provide
protection against outliving their resources.
Access to
employer-sponsored retirement plans. Experts say that only one-half of
American workers have retirement plans, such as a 401(k), at work. And that
lack of access is a problem, particularly for part-time workers and those at
small employers, says Jeffrey Brown, a professor at the University of
Illinois at Urbana-Champaign.
To address this problem, Brown wants the Labor Department to
1) make it simple and low-cost for small employers to offer plans, 2) make sure
that non-discrimination testing is not accidentally leading employers to leave
part-timers out of the plan, 3) promote multiple-employer plans, and 4)
establish auto-IRAs at the federal level.
Not enough annuity
options in 401(k) plans. Workers who have access to an employer-sponsored
retirement plan have plenty of investment options, but hardly any annuity
options, say Brown. Having annuity options could help workers convert some of
their retirement assets into guaranteed lifetime income.
To address this, Brown says the Labor Department must go much
further in providing fiduciary comfort to plan sponsors so that they feel
comfortable offering lifetime income products inside 401(k) plans.
Don't forget your
home equity. Home equity can help solve retirement problems as well. Equity
in one's residence tends to be protected against some government means-tested
assistance. And, the equity can provide cash in the event of a surviving
spouse's illness.
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