Waking Up to the Retirement Recession

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Even as the unemployment rate remains high and housing prices continue to fall, the National Bureau of Economic Research’s Business Cycle Dating Committee this month declared that the U.S. recession officially ended in June 2009.  If this recovery follows past recovery patterns, then the economic expansion will last substantially longer than the recession did. The economy will enter a period of robust growth, unemployment will dissipate, and the American middle class will grow stronger following the longest downturn since the Great Depression.

But even should we see strong economic growth, there still remains a serious “retirement recession” in America.  Fewer and fewer Americans have access to traditional pension plans, and defined contribution account balances remain woefully inadequate for most workers. At the same time, Social Security is undergoing scheduled benefit cuts, even as policymakers consider raising the retirement age again.

There is hope that retirement thought leaders are not lulled into a false sense of security, and are fully cognizant of the retirement recession. This month, two events were convened within a single week here in Washington, each of which strongly showcased just how seriously the retirement insecurity issue has become for too many Americans.

On September 15, the Retirement USA coalition commenced their “Wake Up Washington!” month with an event at the National Press Club. The goal of the initiative is to encourage policymakers to pay attention to our nation’s badly broken retirement infrastructure.  The severity of the crisis was revealed at the launch event, where new data was released on the retirement income deficit—the gap in the amount of money that Americans aged 32-64 have for retirement today and what they should have today in order to maintain their standard of living in retirement.  Using very conservative estimates, NIRS Academic Advisory Board Member Alicia Munnell and her team at the Center for Retirement Research at Boston College calculated this deficit to be an astounding $6.6 trillion nationwide, or about $90,000 for every American household.  

The Retirement USA coalition described this gap as unacceptable, and called for broader policy solutions so that more Americans can achieve a financially secure retirement after a lifetime of work.  The launch event also featured ordinary Americans telling their personal struggles to save for retirement—people who “did everything right”—worked hard and saved as much as they could—and yet still face huge financial challenges as they near their retirement years.

Federal policymakers seem to be looking for solutions as well. On September 14 and 15, the Labor and Treasury Departments convened a public hearing on lifetime income streams. Earlier this year at the NIRS Policy Conference, Assistant Secretary of Labor Phyllis Borzi announced that the departments would be issuing a Request for Information on lifetime income streams. Robert Doyle, DOL Director of Regulations and Interpretations, noted at the hearing that the RFI was extremely successful, with the departments having received an overwhelming 800 responses to the request. The RFI was the “first step” in the departments’ efforts at looking into lifetime income options, Borzi explained, and this hearing was the second step in that process.

Over the course of a full two days, testimony was given by a broad range of policymakers, academics, trade associations, unions, financial service providers, and other retirement experts. Several NIRS members testified, including the AFL-CIO (represented by Karen Feldman), Alliance Bernstein (Mark Fortier), Milliman (Tamara Burden), and Prudential Retirement (Christina Marcks). Many interesting ideas were presented, including adding disclosures of monthly income options on 401(k) statements, offering a wider range of annuity products, and providing more financial education to participants—all of which could enhance Americans’ ability to achieve a secure retirement.

From a retirement security perspective, it is encouraging that two powerful Federal agencies clearly see the importance in American retirees having a steady source of income for life. Although millions of Americans are fortunate enough to have a traditional pension that offers guaranteed monthly income in retirement, most retirement experts believe that lifetime income options should be more broadly encouraged, especially for those with only a 401(k)-type plan. (Indeed, this same sentiment was widely agreed upon at the NIRS Policy Conference last February.)

If the goal is a better path to retirement security for most Americans, it is clear that American families and policymakers still have a long way to go. Yet the economic recovery is finally underway, and policymakers and retirement experts alike are seemingly attuned to the scope of the problem and looking for broader solutions. It is encouraging that, even as the economy begins to grow, Washington is not sitting idly by on retirement issues—retirement thought leaders are “waking up” and starting to take action to bring the retirement recession to an end as well.

This blog entry was written by Ilana Boivie of the National Institute on Retirement Security and is cross-posted from their website, www.nirsonline.org.


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