A new report from the Milken Institute, Shifting the Retirement Paradigm: Moving Toward Lifetime Financial Security,” takes an intricate look at ongoing shortcomings in the retirement savings of Americans and how they can be improved.
The report asserts that American employers can play a crucial role in improving the ability of their workers to save and achieve improved financial security over their lifetimes and highlights that the retirement saving picture in the U.S. needs clear improvement, noting that just 24% of workers feel very confident that they will be able to retire comfortably.
“Much can be done by employers to address barriers, including providing access to retirement accounts for lower-income workers and preparing for longer working lives and an aging workforce,” according to the report.
Within the report, the Milken Institute authors highlighted several key themes where improvements could have the greatest benefits for workers, often with the aid of employers. Here are some of those points of emphasis.
Addressing worker inequities in retirement planning Among the main areas of focus of the report was inequities in retirement investing. According to the report, at least 25% of Americans lack any retirement savings, and half have no access to employer-sponsored retirement plans.
“Comfort with saving is related to education and income levels: More-educated Americans are more comfortable saving and save more over time,” the report said. “Also, non-white Americans tend to have less education on balance due to systemic inequity.”
The report says that employers need to broaden access to investing information and shore up investor confidence for those who fall behind in retirement savings. The institute also says employers must make it easier for those workers in groups that tend to fall behind on retirement saving to access and use tax-deferred retirement investment vehicles. As part of that process, employers should review their policies on salary and compensation to eliminate inequities and allow paid time off for caregiving and childcare programs for all employees – a matter of particular importance for those in lower-paying jobs.
Student loan 401(k) matching The report highlighted the powerful impact of climbing college costs and accompanying student loans, pointing out that the total federal student loan debt balance grew 766.3% between 1995 and 2022.
“Student loan debt adversely impacts the ability of some younger American workers to build long-term savings or contribute adequately to retirement savings accounts,” according to the report.
The report pointed to provisions in the SECURE 2.0 Act passed by Congress in December 2022 as a reason to hope for improvements – with employers’ help. The new provisions allow employers to match employee student loan payments with matching payments into a qualified retirement account, helping workers save for retirement while keeping up with their loan obligations. That help accompanied by educating young workers of the importance of starting to invest for retirement early are among the report’s recommendations for employers.
SECURE 2.0 and small businesses The Milken Institute was a supporter of SECURE 2.0, and the report notes that changes through SECURE 2.0 can “encourage those not saving for retirement to begin to save, encourage savers to increase their retirement savings, make retirement savings easier and enhance employer retirement savings offerings.”
In particular, the Milken Institute underlines the potential impact of the provisions that make it easier for more small businesses to create retirement plans, “allowing for greater retirement savings across the population.” The provision of SECURE 2.0 that allows eligible businesses with up to 100 employees to obtain a tax credit based on employer matching or profit-sharing contributions could improve those numbers and particularly help low-income and middle-income workers with employer buy-in, according to the report.
“The twofold issue of empowering or nudging workers to save small amounts for their financial futures and ensuring they have access to a tax-advantaged retirement savings account is complex,” the report said. “Nonetheless, addressing these interrelated issues will be impactful.”
State-facilitated retirement plans Of interest, the report said, is that 46 states have taken some action to implement a state-facilitated retirement savings program, to study program options or to consider legislation to establish one – including 19 states that have established state-facilitated plans in the past seven years. Through these plans, states are enacting or exploring ways to help provide a retirement savings option for private-sector workers, often through their employers.
The report highlights research from the Georgetown Center for Retirement Initiatives that state-facilitated programs could expand retirement savings coverage by between 28 and 40 million workers by 2040.
“State-facilitated retirement savings plans are an important development in the movement to ensure that all American workers can save for a secure future,” the report said.
FinTech services FinTech, which refers to new technology that makes the use of financial services easier for workers and others, is creating new opportunities to connect with investors, according to the report. These innovative solutions are changing the investing landscape, and rapid evolutions and advancements likely lie ahead. The tech-based services not only can support workers but improve efficiencies for employers and advisors.
Among the FinTech solutions at varying stages of development that the report highlights as beneficial for workers and employers are robo-advising services, micro-investing services, mixed-product online investing, AI-assisted visualization of retirement, integrated financial wellness platforms and investing software.
“These developments make obtaining advice and planning for long-term savings much easier and more accessible,” according to the report.
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“The twofold issue of empowering or nudging workers to save small amounts for their financial futures and ensuring they have access to a tax-advantaged retirement savings account is complex. Nonetheless, addressing these interrelated issues will be impactful.”
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