Transform tomorrow: Retire with confidence
In today’s uncertain economy, there are so many concerns – from unemployment to housing foreclosures to credit card debt – that it’s easy to overlook the single most important long-term financial issue facing American workers: the lack of retirement planning. How big is the issue? A 2012 U.S. Senate report pegged our nation’s shortfall in retirement savings at $6.6 trillion. Fortunately, we have the tools to switch from a nation of spenders to a nation of savers.
Stig Nybo, the President of Pension Sales and Distribution at Transamerica Retirement Solutions, is the author of a new book called Transform Tomorrow: Awakening the Super Saver in Pursuit of Retirement Readiness. He notes that, “The hallmark of a civilized society is the ability, after decades of working, for an individual to retire with financial dignity.” The good news is that there are several concrete steps that American workers can take so they can retire with confidence.
All too often, we talk to people who could easily be saving more than they do now. When researching his book, Stig found “Super Savers” and “Future Early Retirees” who model how easy it is to plan for a comfortable retirement. Surprisingly, being in either of these categories is well within reach for most of today’s working population. Many people are overwhelmed so they throw up their hands before they begin, but research shows that just over half of “Future Early Retirees” earn less than $100,000 per year and are mostly in their thirties and forties.
There is a direct path to becoming a nation of “Super Savers.” Starting with the cornerstone of everyone saving 10 percent of their income, we can become a population that enters retirement with dignity instead of fear about whether or not our savings will last long enough. Because workplace plans have become a primary retirement savings vehicle, employers play a significant role in how Americans save for retirement.
Employers can help change the landscape of how this country prepares for retirement with a few simple tweaks to their retirement programs. By far the biggest game changer would be auto-enrolling employees into a retirement plan while still providing them the opportunity to opt out should they wish to. Studies show that by making it more work to not enroll in a retirement plan, the rates of participation drastically increase. According to the Plan Sponsor Council of America, opt-out rates for those who are defaulted into their workplace retirement plans are less than five percent. If more employers make this one simple policy shift, we will be more than halfway to winning the battle.
As it stands now, the default savings rate for most plans is only three percent of the employee’s salary which will not prepare the majority of the population for a stable retirement. We believe the base level of retirement savings needs to start at six percent to have any meaningful impact on a future nest egg, and once that is absorbed into a person’s spending habits the percentage should gradually increase to reach at least 10 percent annual savings for retirement.
Employers can build in periodic automatic increases (while still allowing employees to opt-out if they want) so they can reach this target. Slowly increasing an employee’s contribution usually translates into few negative repercussions in the short term, but huge positive consequences in the long run.
Employers and retirement consultants can also use a number of tools to paint the picture of what someone’s savings contributions need to be today in order to reach their retirement savings goal.
Historically, we have been hamstrung by simple calculators or projections based on vague assumptions, but newer tools can help people determine more accurate estimates of what they need to save now to be financially secure once they leave the workforce. Use of target-date solutions, for example, is one of the best ways for participants to keep their savings on track over the long term to retirement.
In the same way that public service announcements have encouraged us to reduce littering and wear seatbelts, we hope that building a national movement around the subject of retirement readiness can lead to a positive change in our national retirement outlook. We are a nation that can change our behaviors and our beliefs on a large scale.
It’s time to to engage as a nation in thoughtful conversations about retirement readiness. Complacency has set in over the past few decades with how we save for the long term, but we can reverse the course and shift the country’s attitudes about the importance of saving for retirement. The necessary steps employers and employees need to take to become a nation of “Super Savers” are relatively small, but the ripple effect could be huge.