The BiPartisan Policy Center (BPC) recently sent President Joseph Biden a letter that urged him to create a retirement security task force. The aim of the group would be to examine solutions to common retirement risks, such as savings shortfalls, low interest rates, and soaring costs for health care and long-term care. The letter was signed by 31 “household names” in the financial security industry.
The BPC letter cites an estimate from the Employee Benefit Research Institute (EBRI) that the aggregate retirement deficit for all U.S. households aged 35 to 65 is $3.83 trillion. Much of this deficit is attributable to workers with low incomes, people of color, and women, groups that the Biden administration has promised to address. The BPC letter states that addressing these retirement security issues should be part of the “Building Back Better” plan that’s part of President Biden’s national economic recovery efforts.
The task force would consist of leaders from the executive office of the president, Department of Labor, Consumer Financial Protection Bureau, Social Security Administration, Department of the Treasury, Securities and Exchange Commission, White House Gender Policy Council, and other relevant parts of the federal government.
Potential solutions would need to tackle tough issues
There are only a handful of ways to significantly reduce the aggregate retirement deficit and improve Americans’ retirement security:
- Save more. This is a potential hardship for people and businesses that haven’t benefited from any economic recovery.
- Work longer. The EBRI estimate was calculated assuming that workers would retire at age 65. If most people could only work a few years beyond that age, the aggregate retirement deficit would decrease significantly. However, many workers don’t want to work that long and many employers don’t want to hire or retain older workers.
- Reduce spending on health care. This is a big challenge given our soaring health care costs and the fact that a large portion of the retired population are currently managing chronic health conditions.
- Reduce spending on housing, which is the largest expense for most retirees. Downsizing would be one way for retirees to make their limited income last longer. Finding efficient ways to tap home equity could also help.
- Make informed choices regarding Social Security. The EBRI retirement deficit estimate assumed that workers would claim Social Security at age 65, which is below the optimal age for most workers.
There are no magic bullets to help with any of these goals. Potential solutions will involve making some tough decisions:
- Collectively, the federal government, employers, and workers will need to devote more money to increasing workers’ retirement resources and sustaining critical programs such as Social Security and Medicare.
- The “haves” may need to do their part to help the “have nots” by paying higher taxes to help support Social Security and Medicare.
- The federal government, financial institutions, and employers will need to enhance the savings infrastructure to cover the roughly half of the workforce that currently isn’t eligible to participate in a savings plan at work.
- Workers will need to be more involved with their retirement planning and make more effective retirement decisions. To meet this goal, they’ll need help from the federal government, financial institutions, and their employers.
To develop solutions to address these difficult but necessary goals, the task force will have their work cut out for them!