Highlights From a Conference on Retirement Savings

At the 2022 Retirement Summit sponsored by the Employee Benefit Research Institute (EBRI), there were four main topics: improving individuals’ access to retirement savings plans, reducing plan leakage (i.e., when workers take a pre-retirement distribution), helping people spend down their assets in retirement, and improving investment outcomes for American workers within the retirement system. Below are my key take-aways:

Reluctance to Spend- Many people who saved regularly for decades in retirement savings plans such as IRAs and 401(k)s- as financial experts told them to do- are now hesitant to spend down their assets. Withdrawing money, instead of saving, feels “foreign” and uncomfortable.

 

Savings Fosters Success- Studies have shown that just being in the retirement system in some capacity (e.g., participating in an employer savings plan and/or IRA) increases the odds of having a successful retirement (i.e., not running out of money to live a comfortable lifestyle).

 

Workplace Savings Matters- The general consensus was that, if people are not covered by a workplace savings plan (e.g., 401(k) plans), they generally don’t save for retirement. Some states have started to require employers to offer a workplace savings plan. An example: CalSavers in California.

 

Auto-Enrollment is Effective- Research indicates that most workers who are auto-enrolled in retirement plans stay in them, even in the absence of an employer match. Speakers suggested three types of “nudges” (i.e., automatic features): auto-enrollment, auto-escalation (where workers’ savings deposits increase over time), and auto-re-enrollment (where workers who opt out of a retirement savings plan are auto-enrolled again at designated time intervals).

 

Streamlined Portability- There needs to be a more streamlined process for workers who are leaving jobs to rollover their retirement account balances to another tax-deferred plan, thereby preventing leakage. Currently, many workers “cash out” their accounts and say “just give me a check” because it is much easier than the “paperwork hassles” required to transfer funds.

 

Decumulation Assistance- Workers get help from their employers setting up and contributing to retirement savings accounts (accumulation) but very little “on the back end.” Without personal assistance or planning tools, it is hard for older adults to budget their money and decide how much they can withdraw from savings. Older adults need help with decumulation.

 

Technology Tools Exist- Many speakers stated that retirees don’t know how to draw down their savings, but technology already exists to help them. An example given was a default to move 3% of workers’ target date fund (TDF) balance to an annuity at age 55 and 3% more each year so about 25% of the account would be in an annuity and 75% in the TDF at age 65.

 

In summary, addressing retirement savings gaps with innovative solutions is a necessity, not an option. The alternative (i.e., doing nothing) is a cadre of destitute older people falling back on limited government resources. The most vulnerable people are minorities and low-wage and small business workers.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.