Encouraging millions of workers to save for retirement isn’t just critical for them, it is also essential if America is to achieve vigorous growth rates.
That is the message of Robert Reynolds, Putnam Investments CEO and president, who earlier today discussed his new book at a panel in Manhattan. From Here to Security: How Workplace Savings Can Keep America’s Promise argues for new rules to encourage more retirement savings. He also believes that these saving friendly policies are a vital link to solving the retirement saving crisis.
Reynolds contended that IRA and deferred contribution plans are working but need “some tinkering.” His proposed changes would ensure that more employees are offered automatic deductions and automatic savings escalations. There is “a looming retirement savings risk for millions of Americans,” said William J. McDermott, a senior vice president with Empower America.
“The retirement savings crisis is real and dead serious,” added Reynolds.
Not only are some people not saving enough, but the shortfalls in Social Security funding could lead to a 23 percent cutback in about a decade, Reynolds asserted. The problems become more difficult, he added, because “some one-third of Americans have nothing saved for retirement. The emphasis is on nothing.”
What’s wrong?
The book notes that about 40 percent of Americans lack any payroll savings deductions at work. “Their retirement savings prospects are grim,” Reynolds warned. Yet he also emphasized that the Pension Protection Act of 2006 is working. Where automatic enrollment is in force, where automatic savings escalation provisions are in force and where investment advice is offered, contributions and savings levels are rising, Reynolds added.
“These are bringing tens of millions of Americans to full retirement readiness,” he said. However, he warned that “this progress must continue if we want to avoid a painful rise in financial stress and poverty among retirees,” according to Reynolds.
Reynolds called on lawmakers to make Social Security “solvent” for the long term so workers have a base of income that can be added to from private workplace savings. Social Security finances should be fixed through extending the retirement ages and tax changes. He also wants laws that would allow employers who don’t offer defined contribution plans to make automatic savings deductions for workers with IRAs or other tax-advantaged retirement savings plans.
Access to saving vehicles is critical for achieving a fully funded retirement. “It is one of the key differentials,” said Harry Conway, president and CEO of the Employee Benefit Research Institute.