CONSUMER CHOICE
Is the Retirement Savings Picture
Brighter than It’s Painted to Be? By Sara Wildberger
T
his year, as many news articles warned that seniors were falling far short in retirement savings, econo-
mist Andrew Biggs was a rare contrarian voice. “The Phony Retirement Crisis,” read the headline on one of his pieces, for The Wall Street Journal. “More Americans are saving more than
ever before for retirement,” he wrote. Pov- erty among seniors is down, 6.7% in 2012, down from 9.7% in 1990, according to the IRS. Retirement savings in employer-spon- sored plans and individual retirement ac- counts are at record levels, rising six-fold since the mid-1970s. And Social Security Administration modeling shows the share of retirees who can’t maintain their standard of living remaining steady. “It doesn’t mean there’s nothing to worry
about,” he says. “It just means the trend’s going in the right direction.” Biggs served the George W. Bush admin-
istration in positions including principal deputy commissioner of the Social Security Administration in 2007 and associate direc- tor of the White House National Economic Council in 2005 and was appointed by Pres- ident Obama to a fi nancial control board. Here’s a look at how he came to his retire- ment savings assertion, and what it means.
The good old days maybe weren’t Changes in policy have spurred the rise in retirement savings, Biggs says. Not only are there more people participating in retire- ment plans than before, but they’re benefi t- ing from contributions made by employers in 401Ks, which are gradually replacing defi ned-benefi t pensions. “There’s this illusion that everyone had a gold-plated pension, and it was guaranteed for life,” he says. “The reality was that at
42 SENIOR LIVING EXECUTIVE JULY/AUGUST 2019
the peak of participation, in the early 1970s, only 39 percent of the workforce partici- pated in a retirement plan. Today, around 69 percent of private-sector workers are participating.”
The health care cost question Biggs points to the Bureau of Labor Sta- tistics’ Consumer Expenditure Survey, which tracks out-of-pocket expenses for health care. “Out-of-pocket expenses as a percentage of income hasn’t increased since the mid-1980s,” he says. “It’s not because health care costs haven’t risen fast—but retirement incomes rise just as fast.” “Health care is not a problem people can
save their way out of,” Biggs says, pointing to the familiar “spend-down” decision many seniors make. But health care costs call for a fi x from the health care arena, not a change in retirement savings policy.
Government programs underfunded So, shall we all meet at the casino? Not quite. But Biggs’ concern is that alarm over a “retirement crisis” will spur higher taxes, government moves to expand Social Secu- rity benefi ts, and more state-run retirement plans, which, he says progressives hope will replace 401ks. Government programs are all under-
funded, he points out. And as states begin to institute automatic IRA-type retirement savings programs—some of them man- datory—it becomes a sort of Catch-22. People will save more money, which they’ll likely later spend on health care, thus sav- ing the state in Medicaid costs. “It sounds like a great idea, but the states themselves acknowledge that they’ll be the big benefi - ciaries of this,” Biggs says. Other auto-IRA criticisms: Low rates, no
Thought Leader Profi le
Andrew Biggs Resident Scholar American Enterprise Institute
employer contributions, and the dubious wisdom of saving for retirement rather than paying off other, often high-interest, debts.
A tweak, not a teardown A better solution, he advocates, is to make some small adjustments to the 401k regu- lations, some of which are being worked on in current legislation. “The 401k system has improved more in 10 years than Social Security has in 30,” he says, but could still use improvements: • Develop methods for small employers to off er plans. One way: small businesses pool together and thus share and dilute costs.
• Make it easier for more employees to participate in 401k plans sooner. For instance, setting up automatic enroll- ment, or allowing employees to enroll on the fi rst day of the job, instead of waiting. Already, the trend is toward people in their 20s beginning to save for retirement.
• Ensure 401ks have safe harbor status; one reason employers adopted them so quickly was because of their low risks compared to pensions.
• Make it easier to get an annuity from a 401k, thus turning it into something more like a traditional pension.
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