One Thing a Divided Washington Can Agree On: Improving Retirement Security
By Jana Greer
Our country is recovering from the longest government shutdown on record and grappling with the reality of a divided Congress. But not all issues have to end in a stalemate. The House Ways and Means Committee, led by Congressman Richard Neal (D-Mass.), has wasted no time in finding an area where the federal government can help all Americans and where lawmakers from both sides of the aisle can come together to score an early, important win. In one of its first hearings of the new year, the Ways and Means Committee addressed retirement policy, and rightly so.
We are facing a retirement crisis in America. An aging population combined with longer lifespans, a decline in pensions and the uncertainty of Social Security all mean that running out of money is a real possibility for current and future retirees. In a 2018 AIG survey, 61 percent of respondents named outliving their savings as their greatest fear in retirement.
As a country, we are underpreparing the American people to successfully address these challenges and plan for secure
retirements. We must make changes to improve retirement security for America’s workers.
Our elected officials have undoubtedly heard from their constituents how difficult retirement can be — the financial demands can be staggering; unexpected health care bills can derail what seemed like a solid plan; and preparing for retirement too often must take a back seat to finding enough income to comfortably handle regular monthly expenses, their own aging parents, college debt and more.
According to 2018 research by the Employee Benefit Research Institute, only one-third of current retirees feel very confident that they will have enough money to carry them through a comfortable retirement. A survey by the Certified Financial Planner Board of Standards reveals that two-thirds of households have less than $100,000 saved for retirement. And, according to the 2018 Protected Lifetime Income Index study by the Alliance for Lifetime Income, only 38 percent of Americans currently have some form of protected lifetime income apart from Social Security.
It’s clear that a secure retirement is out of reach for many. We’ve made progress as a country supplementing the decline of pensions and the lifetime income they provide with defined contribution plans, such as 401(k)s. But now we need to find new ways to incentivize and enable Americans to increase their retirement savings. Equally as important, Americans of all ages also need access to a secure income component in their retirement plan that pensions were designed to provide.
Americans — and Congress — need to be looking beyond savings plans to the next step. A balanced retirement plan is one that combines savings with solutions providing lifetime income.
Protected income is essential to a secure retirement. However, given that the average monthly Social Security payment was only $1,404 in 2018, we need to implement retirement reforms that allow Americans to contribute over time to forms of lifetime income like annuities.
Apart from Social Security or a pension, annuities are the only way to guarantee protected income throughout a person’s lifetime. They also offer protections and guarantees not generally found in other financial products. Certain types of annuities can provide a guaranteed rate of return, protect nest eggs from drops in the market and secure death benefits for loved ones.
The last Congress made notable progress on bipartisan retirement legislation that would make it easier for Americans to access lifetime income solutions. Now is the time to get retirement legislation across the finish line.
The Retirement Enhancement and Savings Act, reintroduced in Congress by Reps. Ron Kind (D-Wis.) and Mike Kelly (R-Pa.), contains a number of provisions aimed at increasing voluntary retirement savings, including repealing the maximum age for traditional IRA contributions, allowing for open multiple-employer plans and incentivizing small businesses to start new plans for employees. Importantly, RESA also includes provisions that would make it easier for employers to include lifetime income solutions in workplace retirement plans.
As it stands now, most Americans cannot use their 401(k) plan to contribute to an annuity over time. This means that unless someone has amassed savings large enough to purchase a protected lifetime income solution, he or she does not have a way to guarantee an income stream that will last through a potential 30- to 40-year retirement.
An additional provision in RESA would require employer-sponsored retirement plans to provide participants with an annual statement showing how their lump-sum savings translate into a guaranteed lifetime stream of monthly income. These lifetime income illustrations can help employees gain a better understanding of how much savings is needed to prepare for a more secure retirement.
Steady and consistent contributions, paycheck by paycheck, have always been key for those building their retirement savings, and this same disciplined approach must also be readily available for retirement income solutions.
Our leaders in Washington should engage on this issue now and empower the American people to better prepare for retirement.
Passing legislation in an election year in 2020 will be more difficult than it is now. Congress needs to prioritize the passage of common-sense, bipartisan retirement legislation this year.
Even in a divided Washington, the American people expect results on what’s important; encouraging a secure retirement is a unique issue where visible progress can be made.
This Congress has an opportunity to help more Americans plan for retirement — and ensure that living to 100 is something to be celebrated, not feared.
Jana Greer is president and CEO of AIG’s retirement business.