Solving America’s Retirement Savings Challenge
May 11, 2009
My topic this afternoon is solving America’s retirement savings challenge, and the operative word is “solving.” This is a real challenge that those of us here today can play a central role in meeting.
I am sure we all agree that the stakes at play in retirement finance in America are high and rising. Early in this decade, studies by the Employee Benefits Research Institute (EBRI) warned us that America could see a shortfall in retirees’ essential incomes of $400 billion in the decade of the 2020s. This was before the multitrillion-dollar wave of wealth destruction that struck our markets and economy in 2008. So it is very likely that this retirement finance risk has grown worse.
Ladies and gentlemen, this potential shortfall is not about folks having to give up timeshares in the Caribbean. It is about essentials. If we don’t act to boost retirement savings — and substantially — a generation from now, millions of people could be short on funds to pay for food, medicine, and housing. We could see the unwinding of many of our gains in reducing elderly poverty in America.
Little wonder that EBRI’s 2009 Retirement Survey has just registered the lowest confidence level yet recorded, with just 13% of respondents saying they are highly confident they have enough to retire comfortably.
So this is an urgent challenge. It compounds. Delay makes it worse. We need action now, and that suits me fine — because my point of view on retirement finance is not based on academic study or statistics, as valuable as they are.
It has been shaped — and I like to think sharpened — by long experience in the retirement savings arena, where the true focus is, or should be, on results: retirement security for real people. So if I do have a bias on retirement issues, it is a bias toward action.
I also know that retirement finance is much too big of a challenge to be solved by any single firm or sector of the financial industry. We will need to build new alliances among mutual fund companies, plan sponsors, insurers, advisors, and government itself to fill the gaps in our retirement savings system.
Yet my experience suggests to me that we can succeed if we break down retirement finance into manageable elements and solve them one at a time.
I’ll begin with a brief look at the macro-drivers of America’s retirement challenge, and then I’ll zone in on how our workplace savings system has evolved over time and how we can start acting — right now — to take it to a whole new level of resilience and reliability.
I know that I am preaching to the choir in this room when I say that whatever their flaws, America’s workplace savings plans represent one of the great success stories in investment history. And it is a story written mainly by American workers themselves.
More importantly, when we look forward, the defined contribution system is the most powerful lever we have to actually raise future generations’ retirement readiness.
By any measure — cost-efficiency, equity, or common sense — there’s no doubt that the workplace is the best place to tackle America’s retirement savings challenge. The Internal Revenue Service and the Social Security Administration have both long recognized the subtle power of salary deductions. Anybody serious about raising the retirement savings challenge in America needs to harness that same power one paycheck at a time.
Excerpted from a speech given by Robert L. Reynolds President and CEO Putnam Investments, at the 401KWire.Com Influencers’ Summit 2009: DC-IO Partnership Washington, DC May 6, 2009. The full speech is embedded below.
