Despite $26 trillion in U.S. retirement savings, only half of American workers between ages 25 and 64 participate in employer-sponsored retirement plans and 53% of face a substantially reduced standard of living when they retire, according to the new book “From Here to Security: How Workplace Savings Can Keep America’s Promise.”
In addition, Social Security, which is not included in that $26 trillion figure, is facing a shortfall that could lead to a cut of more than 20% in benefits by early 2034. That’s equal to $4.13 trillion in present value, according to Harry J. Conaway, the CEO of the Employee Benefit Research Institute (EBRI), one of several panelists participating in a retirement policy forum Monday in New York.
“The retirement savings challenges are real … [but] the goal of achieving retirement security can be met,” said Robert L. Reynolds, author of “From Here to Security” and CEO of Putnam Investments and Great-West Financial, which owns Empower Retirement, the country’s second largest retirement services provider. “We know what works… There’s no need to reinvent the wheel.”
In his new book, which served as the kickoff for today’s forum, Reynolds stressed the need for all workers to have access to retirement plans (twenty-nine million households currently do not have access, though 46.5 million do, according to a 2016 Empower Retirement study) and laid out the components of what he calls Workplace Savings 4.0, retirement strategies that have proven to maximize savings:
- auto-enrollment for new employees and existing employees who haven’t contributed
- auto-escalation of contributions up to 10% or more
- income and age-appropriate investments such as life cycle (target date) funds and balanced funds
Adding auto-enrollment to a retirement savings plan boosts the median replacement of employees’ pre-retirement income from 79% to 92% of pre-retirement income, according to Empower Retirement’s Lifetime Income Study, cited in Reynolds’ book; including auto-escalation raises replacement percentage to 100% or more.
Currently, only about 58% of defined contribution plans currently offer auto-enrollment, and about half of them limit auto-enrollment to new hires, according to Reynolds’ book. Far fewer offer automatic escalation of contributions – just 22% of plans with 5,000 or more participants and 12% of smaller plans.