Everywhere you turn, it seems there’s another article on the plight of those getting ready to retire who haven’t saved enough to maintain their lifestyle.
Statistics like 43.4% of all elderly, unmarried females receiving Social Security relied on it for 90% of their income leave us with a nagging worry about retirement.
Wasn’t retirement supposed to be something to look forward to?
So what could be done to improve the retirement picture for future retirees? Here are a few ideas that might change the trajectory for future generations:
1. Increase the amount of deductible contributions that can be made to retirement accounts.
The first IRA contributions back in 1974 were limited to $ 1,500 per year and only workers without any type of pension plans could contribute. Fast forward to 2017, where workers are now limited to a whopping $ 5,500 (plus $ 1,000 for catch-up contributions if over age 50).
The difference between the $ 1,500 original limit and $ 5,500 today doesn’t even keep up with inflation for that 40-plus year period. If we’re so concerned about people saving enough for retirement, why in the world are we keeping the limits on those contributions so low?
The same contribution restrictions apply to Roth IRAs. Here we’re talking about people who are willing to pay the taxes today in exchange for tax-free growth in the future (with some rules regarding when the funds can be withdrawn). The hurdle may be as simple as the IRS not being too happy about billions of tax-free dollars being saved, but the flip side is that those dollars will be available to spend and put back into the economy in retirement.
2. Make contributing to company-sponsored defined contribution plans “opt out” vs. “opt in.”
If you ask most people whether they know they should be saving for retirement, they’ll respond, “Yes.” Why not make it easier by simply automatically enrolling all employees at contribution levels that are enough to receive the company’s match?
While we’re at it, you could automatically increase the contribution level every time the employee received a raise and allocate their funds to a lifecycle fund. The employee still has the option to opt out of these selections, but it would likely increase participation rates in 401(k)-style plans significantly.
3. Provide education resources at an early age for a better understanding of realistic retirement expectations.
With increased longevity comes the risk that more and more people will simply run out of money before the end of their lifetimes. The idea that you’ll be able to retire at 62 or even 65 are based on antiquated assumptions when life expectancies were much shorter.
Education would provide guidance on setting realistic expectations. If people planned to retire at 70 instead of 60, there are dramatic improvements to savings, and the compounded benefit of not withdrawing from retirement savings until later. Waiting until age 70 to begin Social Security benefits can increase your benefit somewhere between 75% and 90%!
With the virtual elimination of defined benefit plans (pensions), it’s time to rethink how we save for and approach retirement planning.
Ann Vanderslice, president and CEO of Retirement Planning Strategies, helps federal employees understand their benefits, maximize the value of their benefits, and plan for retirement, as well as organize income planning and IRA distributions. Vanderslice holds the Registered Financial Consultant designation from the International Association of Registered Financial Consultants and the Chartered Retirement Planning Counselor designation from the College for Financial Planning. She is author of “Fedtelligence 2.0 – The Ultimate Guide to Mastering Your Federal Benefits.”
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