Using Home Equity Controversial
More controversial is the potential of home equity to act as a retirement asset, or, at the very least, a backstop for those barely living within their savings.
According to Blanchett, only 12 percent of retirees end up using their home equity to help cover their expenses.
“I think home equity can be considered part of a retirement portfolio,” said Blanchett. “The way I view it, home equity is mostly an asset of last resort.”
While the panelists believed that mandatory, government-sponsored savings plans for workers should be considered by legislators, they didn’t think that they would be workable solutions to the problem surrounding saving and retirement.
Mandating employers to save on behalf of their employees is a more likely solution, said Wendel.
The panelists also supported raising the tax-deferred and tax-exempt savings levels in retirement plans, IRAs and Roth accounts, but Wendel warned about the unintended consequences of such a move.
“It will impoverish the U.S. government and end up having people make less from their Social Security,” said Wendel.
401(k) Changes
The panelists, Blanchett in particular, also approved of proposals to allow plan participants to convert part of their savings into an annuity in retirement. Doing so would not only provide a tax-advantaged way to convert savings into income, but it would also help solve a secondary problem in retirement – namely, that many retirees are hoarding their savings and living well below their means rather than spending down some of their savings.
“We think of retirement as a certain path of expenditure over time, but they’re not using the assets as we think,” said Blanchett. “We think we’re pushing people to save for retirement to follow some path or spending curve, but that’s not what the research is showing. People are holding onto the money.”
People hold onto their assets in part because they fear a major expense, like a health-care crisis, in their retirement years, said Blanchett.
While each of the panelists expressed some support for capping plan expenses, they also wondered whether it would be possible.
“In my mind, so many things go into plan expenses that it’s hard to quantify them,” said Bruns. “I think free enterprise is going to prevail – you should be shopping around if you want all of the options that would make the total cost of a plan under 180 basis points.”
Smaller plans would also be more likely to have difficulty meeting any proposed cap on plan expenses, said Wendel.
The panelists were not excited about the prospect of open-architecture 401(k) plans where participants could invest in whatever they wanted, like in an IRA.
“There should be guardrails because people are crazy,” said Blanchett. “I want it hard for them to make bad decisions.”