Actress Meryl Streep and AARP The Magazine Editor Nancy Graham. (Image credit: Getty Images via... [+]
The movement to overhaul the faulty 401(k)-based retirement system is gaining some strange bedfellows.
When the retirement group AARP issues a joint statement with the pro-business group U.S. Chamber of Commerce, I suppose we shouldn't be alarmed. But we should pay real close attention to the message.
The two groups called on an somnambulist Congress to come up with new solutions to retirement security. Since the august body hasn't done much of anything over the past two years, that's quite a challenge. Washington can't come up with a consensus on how to pay its bills, much less help Americans save for the future. That cynical note aside, here's some cause for optimism in the joint proposal:
1. Allow all working Americans to have access to tax-deferred retirement savings programs. Only half of the nation's employees can even enroll in such plans today, and many people in that fortunate half don't even participate. The groups want employers who offer retirement plans to automatically enroll participants and to periodically increase their contributions.
2. Keep and strengthen tax incentives to encourage and support retirement savings. There are several proposals afloat to create a new type of retirement savings program for workers whose employers don't offer one. All of them depend on federal tax benefits to defer contributions from income taxes.
3. Expand and improve public education efforts. People need to know more about their future retirement needs for long-term care, out-of-pocket health care expenses and other costs. Social Security was never designed to cover all such expenses and averages less than $15,000 a year in payments to individuals.
The underlying myth is that 401(k) and Social Security are enough for most Americans to retire with dignity. We should be saving more. Social Security is a weak pension plan based on lifetime earnings. And 401(k)s were never designed to be mainstream pensions.
Lawrence Fink, the chairman of
"Every time you talk about entitlements, you talk about taking away, and it becomes a very emotional issue. And when I spend time in Washington, or when I have somebody coming up to see me—a senator or congressman or somebody from the administration—I tell them, “You guys—your narrative’s all wrong. The narrative is about retirement.”
Yes, Washington, here's how the simple math works: You need to save more to have a better retirement. Cutting back Social Security and Medicare is subtraction that will increase poverty for older people.
What's a better approach? Instead of harping on the evils of entitlements, give Americans more ways to save. Set up a universal savings account with tax-free withdrawals for any purpose. The government could add matching grants to get people started. You wouldn't be tied to an employer's inadequate 401(k). Even consider an automatic component that forces people to save, much like they did with their mortgage payments -- until the "underwater" era made that a poor economic proposal.
As for Social Security, either expand it to cover more pre-retirement income or create the universal accounts. Fink says now is the time to move:
"The question is, what do we do with Social Security? Right now we’re contributing 12.5 percent, between what your company’s contributing and what you’re contributing. Social Security is an insurance policy. It’s a terrible investment vehicle. Social Security has some great benefits. But it was never meant to be a savings plan. So we need to have a national debate. Should this 12.5 percent that we’re contributing all go into a Social Security pool, or should half go into a mandatory savings plan? I’m not here to debate it. I’m here to introduce these ideas as possibilities."
Yet we need more than possibilities. We need politicians to tell the truth on the chronic undersaving of Americans and do something about it. There's a reason why there are demonstrations against
