Disrupt the current retirement system or be disrupted

Disrupt the current retirement system or be disrupted
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Mega-trends are transforming the global economy, national agendas and daily life. Some of these trends bring unprecedented opportunities for improving lives while others are disrupting long-standing societal constructs — including our now wobbly “three-legged stool” for retirement.

Increases in life expectancies and lower birth rates have led to Social Security funding shortfalls. Employer-funded defined benefit plans have almost vanished from the retirement landscape amid the proliferation of employee-funded 401(k)s, 403(b)s and IRAs.

Individuals are now expected to take on increasing responsibility and risk in funding more of their retirement, despite the fact that many are inadequately equipped to be successful.

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At this critical juncture in our nation’s history, we face an important choice: Embrace the status quo of inaction due to intensely partisan politics, or set aside our differences to implement solutions that strengthen our retirement system.

 

If we work together, we can seize this opportunity to modernize our retirement system in a way that incorporates advancements and anticipates further disruption.

A new report based on a 2018 global survey of 16,000 workers and retirees spanning 15 countries in the Americas, Europe, Asia and Australia, illustrates the imperative for change in the U.S. and abroad:

  • Forty-six percent of U.S. workers and retirees believe that future generations of retirees will be worse off than those currently in retirement (49 percent globally).
  • Only nine percent of U.S. workers and retirees feel that the government should do nothing to address the cost of Social Security, which is becoming a greater concern as people live longer, believing it will remain perfectly affordable in the future (7 percent globally).
  • Fifty-seven percent of U.S. workers indicate their employer offers them a retirement plan that includes an employer contribution (43 percent globally).
  • Thirty-two percent of U.S. workers believe that they are on course to achieve their expected retirement income needs (25 percent globally).

In the U.S., the need for change is urgent: Trust fund reserves are projected to become depleted in 2034, with only 79 percent of benefits payable at that time.

The longer policymakers put off implementing reforms, the more abrupt the changes will be. Because reforms may entail an increase in the retirement age and/or changes in benefits, Americans need as much time as possible to plan accordingly.

What could our modernized retirement system look like?

Our retirement system must promote aging with dignity and financial security and include realistic expectations for how people fund their retirement. It should also ensure the necessary education, tools and resources are readily available.

As set forth in the survey report, these nine features are essential for a modern retirement system:

  • Sustainable Social Security benefits that serve as a meaningful source of guaranteed retirement income and help avoid risk of poverty among retirees;
  • Universal access to retirement savings arrangements for employed workers and alternative arrangements for the self-employed and those who are not employed due to parenting, caregiving or other responsibilities;
  • Automatic savings and other applications of behavioral economics that make it easier and more convenient for people to save and invest;
  • Guaranteed lifetime income solutions, in addition to Social Security benefits, that can help individuals strategically plan how to manage their savings to avoid running out of money in retirement;
  • Financial education and literacy so individuals understand basic concepts and retirement-related products and services;
  • Lifelong learning, longer working lives and flexible retirement to help people stay economically active longer and transition into retirement on their own terms — with adequate financial protections if they are no longer able to work;
  • Accessible and affordable healthcare to promote healthy aging; governments play a vital role in sponsoring and/or overseeing healthcare systems, and employers should provide healthy work environments and consider offering workplace wellness programs;
  • A positive view of aging that celebrates the value of older individuals and takes full advantage of the gift of longevity — and retires ageism once and for all; and 
  • An age-friendly world in which people can “age in place” in their own homes and live in vibrant communities designed for people of all ages to promote vitality and economic growth.

Policymakers must ultimately lead the modernization of our retirement system by setting forth priorities, allocating resources and establishing guidelines. Employers, employment/contractor agencies and unions/trade associations play a vital role in helping workers save and invest.

It’s time for individuals to step up and become more engaged in their planning and preparations. In addition, academics, think tanks, industry, charities and non-governmental organizations should be encouraged to share their knowledge and experience and participate in public-private collaborations.

A global idea-exchange could be convened for sharing best practices and lessons learned among countries that are addressing similar challenges.

Mega-trends will continue to disrupt how we, as a society, live, work and retire. A strong, flexible and adaptable retirement system is essential for the well-being of our nation.

Achieving such a system depends on all stakeholders acknowledging their responsibilities and making a commitment to collaboration, communication and trust.

Catherine Collinson is CEO and president of nonprofit Transamerica Institute and its Transamerica Center for Retirement Studies and executive director of Aegon Center for Longevity and Retirement.