The task of fixing the sorry state of retirement preparedness in the U.S. seems daunting, but fixes are feasible, according to a leading expert.

About half of U.S. households will be at risk in retirement—a “pretty dismal outlook”—but a problem that can be solved without major revamps in existing programs, said Alicia Munnell, director of the Center for Retirement Research at Boston College.

Women are particularly at risk in retirement, with lower wages, lower Social Security benefits and longer life spans, Munnell said Wednesday at Financial Advisor magazine’s second annual Invest in Women conference in Dallas.

People can solve a retirement shortfall with three steps, she said: 1) working longer, 2) saving more and 3) using their home as a financial asset.

“Except for the very rich, the only way people save is through automatic savings mechanisms” like a retirement plan or building equity in their home, Munnell said.

“You can encourage people to save more, she told advisors, “but it’s just not going to happen.” 

Working longer “just changes the arithmetic” of retirement saving to the saver’s favor, Munnell said. Delaying retirement and Social Security benefits, from age 62 to age 70, changes the ratio of work years to retirement years from two-to-one to four-to-one.

“The whole thing then becomes more feasible,” she said, by boosting both Social Security benefits and retirement nest eggs.

If they postponed retirement to age 70, about 85 percent of households would be adequately prepared. 

On the saving side, the first order of business is to shore up Social Security, Munnell said.

A 2.6 percentage point increase in the payroll tax would fix the system for the next 75 years. Split between employee and employer, it should not be that big a deal, she said. A 4 percentage point increase is needed for the longer term. 

Raising revenues instead of cutting benefits is preferred given the shaky state of the rest of the retirement-income system, Munnell said.

Investing some of the Social Security trust fund in equities would provide additional help, and “is not a crazy idea. The Canadians do it, and they’re not crazy people.”

With 401(k) plans, auto-enrollment combined with an auto-escalation of the amount saved is a needed fix.

A typical contribution rate of 3 percent is not a good starting point because people will never increase it, she said. The automation fixes need to be done legislatively, since contribution levels haven’t grown with the availability of voluntary auto-enrollment programs.

Mandating retirement-plan coverage as some states are now beginning to do and as the Obama administration proposed with its Auto IRA idea, is another change Munnell favors.

“It’s unconscionable to not cover 50 percent of the population,” she said.

Fees are another issue. More than half of assets in 401(k) plans are in high-fee mutual funds with costs of 50 basis points or more, Munnell said. That’s a drag on long-term returns that she feels the DOL’s new fiduciary rule should help fix by encouraging lower-cost options.

The third step in dealing with retirement shortfalls, using home equity to finance retirement, may become increasingly important. Clients can move to a cheaper home with lower costs and taxes, or use a reverse mortgage to supplement their income, Munnell said.

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