Insuring the Nest Egg

Challenges Facing Retirement Income Security and Specific Solutions

Retirement income experts at CAP event stress universal coverage and defined benefits plan as key to security.

 (Center for American Progress)
(Center for American Progress)

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“Millions of ordinary Americans are questioning whether they’re able to retire and still live a middle-class life,” said Beth Almeida, executive director of the National Institute on Retirement Security. Almeida moderated a Center for American Progress panel on Friday that featured Tom Mackell Jr., chairman of the board of the Federal Reserve Bank of Richmond; Pamela Perun, policy director of the Initiative on Financial Security of the Aspen Institute; and CAP Senior Fellow Christian Weller. The panel discussion focused on retirement income challenges and specific policy solutions.

Mackell, author of When the Good Pensions Go Away: Why America Needs a New Deal for Pension and Healthcare Reform, talked about the evolution of his personal interest in retirement income issues. He expressed concern about financial ignorance in the United States, emphasizing the three-legged stool of retirement—defined benefit plan, social security, and personal saving—of which few young people have heard.

“The average American doesn’t know the difference between a stock and a bond,” Mackell said. “Financial illiteracy is off the charts.”

Mackell also stressed the superiority of the defined benefit plan over defined contributions, which he said is seen as little more than “forced savings” by the general public. In defined contribution plans, employees can choose to make tax-deductible contributions to a personal retirement fund and can choose how they wish to invest the money; in defined benefit plans, employees and employers make regular contributions to a large fund, which chooses how to invest the money. Employees are guaranteed a certain retirement income as a result of their participation in a defined benefit plan while their amount of retirement income is more uncertain in a defined contribution plan.

Weller agreed with the majority of Mackell’s points, adding on pooling of assets and universal retirement coverage as essential goals with any retirement plan. He said that 35 to 40 percent of people are inadequately prepared for retirement; portability of money and access to savings must increase.

“There is a lot of ‘oomph’ behind it,” Weller said about the substantial bipartisan and think tank support behind new retirement income plans. “The idea has legs.”

Perun outlined the Aspen Institute’s specific restructuring of lifetime savings for the panel. A plan must combine universal availability, simplicity, proper incentives, private sector involvement, and the opportunity to save for education and home ownership, she said.

Her proposal started with a “Child Account,” funded by $500 and monthly parental contributions matched by the government. This idea had already been in effect in the United Kingdom for three years, Perun said, and it would encourage savings on the parents’ part as well.

After the child turns 18, the account would transition to a “Home Account” to be used when buying a first home, then to an “America’s IRA” account to save for retirement. Her proposal ended with a “Securities ‘Plus’ Annuities” plan which would jumpstart a market for life annuities and allow retirees to buy an additional guaranteed lifetime stream of retirement income. “[The plan] will help bridge the divide between the haves and have-nots,” Perun said.

Although the speakers differed slightly in their specific proposals, all pressed for a comprehensive cultural change that must be encouraged and facilitated by a new administration.

“We live in a culture of debt,” Weller said. “People aren’t used to savings.”

For more on this event, please visit the events page.

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